US Government Fails Counterfeit Detection 101

Defense contractors, distributors, semiconductor companies, and independent brokers have taken a lot of heat over the last year on the issue of counterfeit electronics. That heat grew particularly intense last November when the US Senate Armed Services Committee, chaired by Senator Carl Levin (D-MI), held hearings and released information from its investigation into the Department of Defense (DoD) supply chain.

The final report, published in May, should be required reading for every single person working in the supply chain, from top executives on down. The report documents a shocking lack of attention to possible counterfeits in the supply chain.

What's most shocking is the fact that the DoD itself paid so little attention to counterfeits, even after they were discovered.

The Defense Logistics Agency (DLA) supplies more than 80 percent of the military's spare parts. When it suspects a part to be counterfeit, the agency of course investigates. In early 2011, the Senate committee asked the DLA for a list of counterfeit electronic parts the agency had identified in 2009 and 2010. The answer: There was no such list. To respond to the committee's request, the agency had to go back through 1,300 files to identify such parts. The committee also discovered that different DLA supply centers used different definitions of counterfeit, "with at least one DLA supply center defining parts as counterfeit only when they 'misrepresented the part's trademark.' "

Since DLA had no standard definition, it used the committee's definition to identify 202 cases involving 93 separate companies of counterfeit or suspected counterfeit parts. Of the 93 companies, 37 had provided suspect parts on more than one occasion. More than half of those 37 provided suspect parts on three or more occasions, 10 provided suspect parts on five or more occasions, and two provided suspect parts on more than 10 occasions.

The DLA is supposed to enter information on contractors that provide suspected counterfeits in a database, called the Defense Contractors Review List (DCRL). As of February 2012, only 19 of those 37 repeat offenders appeared on the DCRL. "As of March 2012, DLA was developing a revised policy and training for agency personnel on the use of the DCRL," the committee reports. Let's hope it's been developed and implemented by now.

The Government-Industry Data Exchange Program (GIDEP) is designed to allow government and industry to share technical information to improve the quality and reliability of systems and components, and they are supposed to file a report when they discover a counterfeit or suspected counterfeit. However, DLA rarely filed such reports. According to the committee, of the 202 cases, only 15 were reported to GIDEP. And only four of those reports were filed by the DLA; the rest came from "private companies or another DoD element." DLA has since changed its practices and says that it is now filing such reports.

Finally, the DLA maintains a Qualified Suppliers List of Distributors (QSLD), approved sources of parts when they cannot be obtained from a qualified manufacturer. Yet as of February 2012 there were only 26 companies on the QSLD "and DLA often purchases semiconductor devices and microcircuits from distributors who are not on the QSLD," said the report.

The 2012 National Defense Authorization Act addressed many of these shortcomings. The defense secretary is expected to issue regulations that require both contractors and government agencies to report counterfeits to GIDEP, for example. (Contractors weren't very good at reporting either -- of the 1,800 cases of suspected counterfeits identified during the Senate investigation only 271 GIDEP reports were filed.) But that law is still in the process of being implemented. Let's hope Levin and his committee continue to watch both industry and government to make sure they clean up their sloppy practices.