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Thursday, July 1, 2004

System Design: Fraudulent and Forged Parts

Walter Shawlee

When high-profile crimes clamor for our attention on the nightly news, it’s sometimes easy to forget that the electronics world has its own misdeeds, which can have serious implications for the avionics community. I have been collecting information on two especially unattractive exploits for several years. Some of them have gone past the threshold of bizarre and into the realm of outright dangerous, so this is a good time to discuss them.

The first issue is forged parts. Though marked and packaged like top-name parts, they are, in fact, not those parts. Now starting to appear in regular distribution channels—not just in the gray (or unofficial) market—these parts could pose a major threat to equipment reliability. The fakes often have no actual chip inside or include a grossly substandard part. They include virtually any component in short supply or of high dollar value.

This activity started years ago as a low-level fraud involving the remarking of central processing units (CPUs) and memory parts to indicate that they were faster than they really were. But the forgery has exploded onto a wider front. Most people are aware of the massive piracy of Microsoft software, especially in Asia. But there is also a spin-off industry of forged CPUs, generally offered as uprated in speed.

Advanced Micro Devices’ (AMD’s) “Athlon in a box” microprocessor has been a favorite target in Asia. Only the high quality of the original parts has prevented a serious problem, as most of them can survive the overclocking.

Unfortunately, any semiconductor part that has high street value is now a target. The quality of the forgery is so good—right down to holographic trademarks and packaging—that few purchasers will be able to detect them on initial inspection.

There also have been some bizarre twists. A friend at a major electronics manufacturer recently told me that his quality-conscious firm has started using offshore assembly to reduce costs but has gotten some unexpected surprises. They have begun to see forged tantalum capacitors on boards sent to China for contract assembly.

The parts are actually tantalum chip rejects, sent to China by capacitor manufacturers for tantalum metal reclamation. Instead of being reclaimed, however, they are cosmetically altered to appear to be from top makers. The capacitors then are sold and installed on contract-manufactured assembly boards. Production-quality boards using these tantalum components have failed catastrophically within an hour of operation, creating a dangerous situation.

The tantalum debacle comes on the heels of a widely reported capacitor scandal out of China several years ago. An employee of a Japanese capacitor maker stole what he thought was the formula for a low-ESR (equivalent-series resistance) electrolyte. It was then sold to a Chinese capacitor maker, which began making parts using the incomplete formula. These intrinsically flawed capacitors then were used by PC motherboard companies in onboard CPU switching power supplies, resulting in tens of thousands of leaking and damaged capacitors, many of which caused significant damage to the motherboards. The link to the original IEEE Spectrum article is www.spectrum.ieee.org/WEBONLY/resource/feb03/ncap.html.

The episode sent shock waves through the Taiwanese and Chinese manufacturing sector, as everyone tried to distance himself from the defective parts. It also highlighted the differences between quality-conscious Japanese and cost-conscious Taiwanese/Chinese manufacturers.

Substandard parts and assemblies are making their way all over the world. So far the items known to be affected include, but are probably not limited to, the following categories: tantalum capacitors, electrolytic capacitors, batteries, power transistors, software and high-value integrated circuits.

Many North American manufacturers subcontracting production or assembly work in China make assumptions regarding industry standards and best practices. Any standard or procedure not explicitly spelled out is interpreted to be open for substitution to save cost (and increase profits). If a practice has not been requested, the subcontracted manufacturers are free to do as they wish. They see the quality issue as an illogical and unwarranted complaint from the buyer: functionality or suitability is not a given unless specified in detail.

But the forged parts issue in China is fairly tame compared with the fraudulent part market in Indonesia. Possibly inspired by the Nigerian e-mail bank scams, where you are offered millions to help move stolen money through your bank account, these frauds are quite sophisticated and credible sounding. The concept is simple: an e-mailed or faxed offer to buy equipment arrives at a firm that sells any high-value technology. The buyer has a FedEx account and a valid credit card—Visa or Amex—and often provides references or other data to enhance his credibility. However, the credit card and data are either stolen or fraudulent. The payment to the seller suddenly collapses and the seller gets nothing. He often is even burned for the FedEx charges.

The next stage of this fraud is that notices from the buyers of the equipment in Indonesia, Malaysia or Singapore then show up on the Web auction site, eBay, offering new, high-end test gear at astonishingly cheap prices. Pictures accompanying these offers show the item is real, but the seller accepts only bank drafts or some other irrevocable payment. Amazingly, the fraudster even offers free FedEx shipment anywhere in the world (no trivial offer, if you check the charges from the Far East for, say, 35 pounds [19 kg]). They also contact others who are bidding on more legitimate eBay auctions and offer to sell them the same thing at a discount.

What happens? Regardless of the route, nothing is ever shipped to the buyer. The offer reappears shortly under a new e-mail address and eBay ID, with new pictures. People wind up buying the stolen gear, only to discover—the first time it gets calibrated at a service center—that they are holding stolen (i.e., unpaid for) property.

Fraudsters especially favor test equipment, as it has a high street value and is easily liquidated anywhere in the world. I expect it already has occurred in avionics distribution and retailing.

Initial offers by fraudsters to buy parts involved small quantities but now have soared to larger quantities, for example, 50 digital multimeters or 20 spectrum analyzers—purchases that seem like excellent sales opportunities. This practice has become so prevalent that most test equipment providers refuse to sell to buyers in Indonesia under any circumstances. Now buyers have shifted to neighboring Singapore and Malaysia. The damage to the credibility and reputations of legitimate businesses in Southeast Asia is substantial and will have long-lasting consequences.

In the final analysis “Made in America” has considerable street value but not when the insides come from elsewhere, with no regard for quality or legality. This is the darker side of “outsourcing.”

Walter Shawlee 2 may be reached by e-mail at walter2@sphere.bc.ca.

Forgery Web Links

Curious readers may consult the following sources for additional information.
www.designchainassociates.com/counterfeit.html
www.thehindubusinessline.com/ew/2004/02/11/stories/2004021100140300.htm
www.reed-electronics.com/electronicnews/article/CA241771?pubdate=9%2F2%2F2002
www.findarticles.com/cf_dls/m0EKF/36_48/91204363/p1/article.jhtml
www.reed-electronics.com/ebmag/article/CA371012?stt=000&pubdate=1%2F1%2F2004
www.empf.org/empfasis/archive/1203conterfeit.htm
www.my-esm.com/story/OEG200 10216S0069
www.electrospec.com/news/news_article.asp?ID=1099
http://sound.westhost.com/counterfeit.htm
www.manufacturing.net/pur/article/CA259097?stt=001&pubdate=11%2F21%2F02

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