The dust has settled from the US government’s prosecution of VisionTech for selling counterfeit electronics, but the ramifications of the crime will continue to reverberate through the supply chain for quite a while.
In 2010 the government charged Shannon Wren, VisionTech's owner, and Stephanie McCloskey, an employee, with selling more than $15 million worth of counterfeits over five years. McCloskey pleaded guilty and was sentenced to 38 months in prison. Wren died before he could be sentenced.
Although the company has been shut down, many of the components it sold are still out there somewhere. The McCloskey sentencing memo notes that VisionTech sold parts to 1,101 separate buyers. “Sales by VisionTech were to virtually every industry sector and to numerous chip distributors,” according to the memo.
Included with the memo are two lists of VisionTech customers -- one of US buyers and one of international buyers. Among the more familiar names on the US buyer list are GE Healthcare, Hughes Electronics, Jabil Global Services, L3 Communications, and Micron Corp. Even if you did not buy from VisionTech, your supplier or the supplier of your supplier may have.
“A downstream buyer would not likely know that parts it acquired or systems it acquired from an intermediary source contained counterfeit devices that were imported and sold by VisionTech,” said the memo.
“The chance that you had somebody on your approved supplier list that did buy from VisionTech is probably 100 percent,” according to Fred Schipp, an electrical engineer within the Missile Defense Agency (MDA) Quality and Safety Organization’s Part and Materials Advisory Group, who spoke on a panel at a conference on counterfeit electronics this summer. (The MDA was one of the government agencies found by the Senate Armed Service investigation to have included counterfeit components in a missile system. In this case, it was counterfeit memory chips in computers for Terminal High Altitude Area Defense missiles.)
The list of domestic VisionTech customers includes 84 percent of members of the Independent Distributors of Electronics Association (IDEA) and 44 percent of the members of ERAI, says Schipp. MDA has issued an advisory to determine potential usage of VisionTech parts either directly or indirectly by its suppliers. Small suppliers, in particular, still don’t believe they could possibly get a counterfeit or that if they do it would be easily detected and replaced. Some 42 percent of MDA contractors are Tier 4 or lower suppliers, notes Schipp.
In the memo, the government admits that “there is no way to know where those [VisionTech parts] have ended up.” It goes on to describe a disturbing photo found during the investigation of a young boy, believed to be Wren’s son, seated at a work table equipped with tools for “refurbishing,” including a toothbrush, an eraser, and Armor All (presumably to make the parts look clean and shiny).
“One must wonder which defense contractor, medical device manufacturer or other manufacturing sector received from VisionTech counterfeit integrated circuits ‘refurbed’ by a child,” the memo cautions.
From some customers that I have spoke with and also new customers I talk to they say that if I'm not part of the ERAI/IDEA then they stand a chance to get counterfeit parts from me.
On more than one occasion I have heard this......
Just because I choose not to spend thousands of dollars a year for a paid membership to either of these sites doesn't mean at ALL that I ship bad parts. I've been in this industry for 19 years and stand behind my product!
I bet that my warranty is a lot better than MOST of the paid members on either of those sites. If companies want to spend a lot of money to be on those sites that's up to them BUT there are good companies that ship good product that are NOT on those paid sites too!
Never bought parts from any of those suppliers that Ellen mentioned either. By the way, it's great to see your posts on here as well Ellen!!
How the notifications of counterfeit parts could realistically be passed along the supply chain so that everyone knows.
Easy, honest ethical companies make an immediate notification.
Dishonest companies cover up.
If you get a risk notification 5 weeks before the Vision Tech 2 year anniversary, I have a hard time believing your supplier just found out about Vision Tech.
If you get a Risk Notification from a supplier about a vendor who has not been arrested or just recently arrested understand that your supplier is being responsible and that is what product liability insurance is for.
Companies who are buying form Non-Vat Chinese or Chinese List Brokers located globally and covering up the risk. They are trafficking in counterfeits and there should be no place in the industry for them.
Innocent Vision Tech victims notified their customers. Profession Victims stayed silent and their silence is an admission of guilt.
Vendors who say, no need to notify because they tested the material are dishonest companies. Notify your customer. Allows them to take a second look. If the parts check out, great. If not the problem gets under control quickly. Either way there is no justifiable reason to not notify.
Not notifying puts customers at risk and is knowingly trafficking
Everyone in the Independent Distribution business Brokers, Liquidators, ID, Search platforms, Escrow companies have all known Non-Vat Chinese and the global Chinese List Brokers have been flipping e-waste for at least a decade. These companies have made millions in membership fees, escrow fees, testing fees and the sale of e-waste.
Silence is what allows it to continue, Risk Notification is the only way to stop it from being profitable. Because it's expensive to notify is no reason not to notify.
Really great discussion, here! As I read through the comments, it's hard to understand how the notifications of counterfeit parts could realistically be passed along the supply chain so that everyone knows. Even if the buyers on the VisionTech list notified all their customers, then those customers woudl have to notify their customers and so on. And it seems to me that second tier buyers/sellers would be very reluctant to notify customers. Nobody (except the first-tier VisionTech customer) knows who those second tier buyers are - their names aren't on the government's public list. Why would they tell their customers and damage their ownr reputations? Then there is the third level, fourth level, etc. buyers. It's like trying to track parts through the gray market - virtually impossible.
Kristal, excellent post in helping readers understand ERAI and what they do. The April 16, 2007 ERAI special report A TIME FOR CHANGE The Not So Hidden Truth behind the Chinese Open Market is an excellent example of your efforts to keep the community informed.
I want to be clear in my opinion ERAI is NOT an Anti-Competition Club. It is what Kristal explained it to be: A reporting agency
No parts from China started showing up on order in 2001. That statement was on the majority of orders by 2004. E-waste in China was not an unknown problem in the industry.
Kristal took action and created a very informative report in 2007. As it states in the report the problem was noticeable in 2001 and escalated every year thereafter.
Companies doing business as Independent Distributors can not say they didn't know. They knowingly went to Chinese List Brokers to do the importing for them.
Just as counterfeits have evolved the tactics to created plausible deniability continue to evolve. Finding new ways to say you don't know any better doesn't mean you don't know any better. If anything It proved you do.
I also agree that anyone who purchased a part from JFBK, JJ Electronics, MVP et al and Vision Tech should have notified their customers. If a company made a timely notification within 30 days of arrest, I can see how they were dupped by one of these companies. The government took the time to send everyone on the victims list a letter. All of these companies should have passed the risk notification along. Not doing so is knowingly trafficking in counterfeit. They knew there was a risk and they stayed silent.
However I do not believe this to be the case. I believe the vast majority of these transactions were never revealed to the end user. I've even asked several Anti-Competition Club members and the response has always been the same. They see no need to because they "tested" the parts. When I explain testing e-waste only means you have shipped tested e-waste it doesn't make the parts new or authentic. They just get angry and say, no one is complaining and until they do it's a non-issue.
I would like to clarify a point on behalf of ERAI. ERAI does not push any organization to procure from ERAI Members. ERAI is a reporting agency comprised of Independent and Franchise Distributors, OEMs, CMs, Government Agencies, Enforcement and other trade groups. One of our primary objectives is to gather and verify market intelligence such as data on high risk suppliers and suspect counterfeit parts. While we do screen organizations before we allow them to access our data, this in no way should imply the Independent Distributors making use of our services should be classified as "trusted sources". Approved suppliers should be screened using a comprehensive auditing tool such as ARP6178 which includes both a desk-top audit and on-site inspection. ARP6178 is available via SAE Aerospace (www.sae.org).
Regarding Tam's question: "Where Are the VisionTech Parts?" - Organizations that procured from VisionTech, MVP Micro, etc. should identify all parts that were sourced from these suppliers and should subsequently notify all customers that received parts from these sources to ensure risk is mitigated.
Getting back to a relationship driven business model is what ERAI encourages.
The data is not old. It's just manipulated, by companies who belong to these clubs.
Some companies use multiple names. They have the same employees and ownership. You might not see a club member on the list because they do their shady buying under one of their other company names. In my opinion if there is an overlap in ownership and employees it's the same company. Sometimes they are in the same building just different office suite. These Anti-Competition Clubs use lots of tricks to disguise what they are doing.
Everyone in the business of Independent Distribution knew exactly what JFBK, JJ Electronics, MVP et al and Vision Tech was doing. They are the tip of the iceberg.
There is hundreds of what we call Chinese List Brokers. They are the go to Brokers when you know you can't go to China you get someone else to do it for you.
The Anti-Competition Club members know that US Chinese List Brokers are being watched and showing up on multiple victims list is getting embarrassing so they have moved on to Canadian and European Chinese List Brokers.
Responsible companies either never purchased from China or stopped back it 2001. By 2004 it was a full blown epidemic. April 16, 2007 ERAI special report A TIME FOR CHANGE The Not So Hidden Truth behind the Chinese Open Market.
Everyone has known since 2001 China was very dangerous. By 2004 anyone not willing to sell refurbished and counterfeits stopped buying in China it just became way to dangerous. That's why Chinese List Brokers became so profitable in 2005+ now it's moved to the Canadian and European Chinese List Brokers. These companies are easily identifiable the same way JFBK, JJ Electronics, MVP et al and Vision Tech were.
The 500+ companies in business 7+ years and not on any of these professional victims list had no trouble spotting and avoiding them. Why couldn't the Anti-Completion Club members know? They made the decision to not to know. They willfully closed their eyes to what was obvious.
I found those numbers shocking as well. Does GraniteIC mean that data is old? It seems to me VisionTech only happened a couple of years ago...
Either way, you would expect both those numbers to be lower -- like zero -- if everyone adhered to best practices. True, many of those practices are outlined by trade associations and not everyone belongs to a trade association. I guess the government is taking a stab at it through its recent anti-counterfeit measures, but I think holes can be poked in that strategy as well. There's gotta be a better way...
Military and Commercial customers must look at their suppliers past. If you are buying from a supplier that show up on every professional victims list you are knowingly doing business with companies that engage in high risk activity. You are knowingly participating in the trafficking of counterfeits.
Companies have to stop approving suppliers based on membership in Anti-Competition Clubs. There are over 500 North American and European ID who have been in business for 7+ years with a proven track record of not buying in China or from international Non-Vat companies. Who do not show up on JFBK, JJ Electronics? MVP et all and Vision Tech victims list.
If your approved suppliers are engaging in high risk sourcing you are engaging in high risk sourcing. You are knowingly participating in the trafficking of counterfeits.
Qualcomm has launched a big push to spread its cellular technology, and thus increase its royalty income, not to mention chip sales, beyond mobile phones.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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