US Sends Mixed Signals on Counterfeit Fight

What is wrong with the US government? OK, that's a loaded question, so let me be more specific. How is it that I know better than to buy my daughter a pair of “designer boots” from some unknown Website offering them for half the typical retail price, but the US government doesn't suspect that a Cisco router that retails for nearly $1,400 but is being offered for $234 is probably not authentic?

Come on! This scam could not have been more obvious if the seller's name was Faux Parts R Us. Yet, the government sourced $3.5 million worth of counterfeit Cisco routers and switches and installed them in US government computer networks. Forget the waste of taxpayer money. The potential national security risk this posed is unimaginable. Theoretically, it was determined that these devices did not have any “back doors,” which would allow access to these systems by unauthorized sources. Then again, do you really think they would admit that not only were they duped, but they handed potential enemies the keys to the kingdom?

While in this case it was determined that a small portion of the equipment was sold through authorized Cisco resellers, the majority were purchased through non-GSA-approved sources, according to an unclassified FBI report. This is just one of what appears to be a long string of bogus parts that have been introduced into the US defense and industrial supply chains as a result of sourcing from unauthorized suppliers.

A 2010 report from the US Commerce Department outlined the results of a study to determine the extent of the infiltration of counterfeit electronics into the federal and military supply chains. The survey found that unauthorized distributors accounted for 576 of 613 counterfeit part incidents occurring at distributors in 2008. That's roughly 93 percent.

In light of the Commerce Dept. report and high-profile incidents such as the Cisco debacle, the government is purportedly “serious” about enforcing IP laws and anti-counterfeit measures. For example, in January, President Obama urged Chinese President Hu Jintao to crack down on IP theft in China. In June, the Combating Military Counterfeits Act of 2011 was proposed to prohibit trafficking in counterfeit military goods or services by “increasing penalties and creating a heightened criminal offense for trafficking in counterfeit military products.”

Why not just threaten to send them to their room without dessert! These measures are not going to deter today's counterfeiters. We are not talking about some janitor that dusted off discarded parts from a chip factory and put them on eBay to make a few extra bucks. These are sophisticated, organized crime networks. There are layers upon layers of lackeys doing the bidding of the head honchos. Just like the drug cartels in Mexico — you can arrest the runners, but that is not going to stop or even slow down the illicit business.

Clearly the counterfeit problem is not going to be solved any time soon. But, I do believe that the government can significantly minimize the infiltration of fake or substandard product into the supply chain by imposing more common-sense procurement standards.

First is the need to create a government-wide definition and standard for “counterfeit.” According to the Government Accountability Office's March 2010 Defense Supplier Base report, the Department of Defense is “limited in its ability to determine the extent to which counterfeit parts exist in its supply chain because it does not have a department wide definition of the term counterfeit.” So, they want to pass bills with harsher penalties for counterfeiting, but can't even define it.

Second, there should be a mandate that all products be bought either direct from the manufacturer or from authorized resellers. Counterfeiting is pervasive. While authorized channels may not be 100 percent pure, their processes, regulations, and guidelines make them a heck of a lot less vulnerable to corruption. The lack of traceability of parts from third-party sources poses too great a risk, as does the relative ease with which a fake company can set up shop online, peddle its bogus wares, and then fade into the woodwork before the deception is uncovered.

I don't care if Faux Parts R Us or CounterFeet Supplies has cheaper prices. The cost of counterfeit parts entering the supply chain goes far beyond replacement of the counterfeit part. I know it, you know it — how could the government not know it?

It is clear that the government has a woefully inadequate infrastructure for dealing with the realities and hazards of today's global electronic components market. Without greater diligence in government procurement, we will someday be faced with a catastrophic system failure or intelligence leak that could endanger untold numbers of lives.

19 comments on “US Sends Mixed Signals on Counterfeit Fight

  1. AnalyzeThis
    September 14, 2011

    After years of reading all those stories about the government spending hundreds or thousands of dollars for things like an individual toilet seat, my first thought when I read about the bogus Cisco routers was, “wow, I'm surprised they went with a cheaper, more affordable option for once!”

    But despite the fact that the routers were fairly well-done counterfeits, it's still very distressing that even the federal government fell victim to bogus product. You're right; this could have very well been an even bigger disaster than it currently is, had the seller had more nefarious motives than simply profit.

    It's very unsettling to hear about the inconsistency in the government's procurement process. One would think they'd be more on top of things than your typical private enterprise, but as it turns out, that doesn't appear to be true.

    Furthermore, anyone who thinks that the government can step in and instantly fix most of the counterfeit problem due to policy changes or whatever must be living in a fantasy world… the government first has to figure out how to stop being victims of counterfeits themselves!

    You're right; there isn't even a standard government-wide definition of the word. And as you say, the problem will not be solved any time soon, but I totally agree with you that a healthy application of simple, common sense standards would help steer things in the right direction.

  2. Jay_Bond
    September 15, 2011

    This was an excellent article that brought up many good points. For starters, how are we supposed to have faith in our government when they make what appear to be common sense mistakes? And they are making these mistakes with millions of taxpayers’ dollars and possibly putting the citizen’s lively hood in jeopardy by using these parts in very sensitive areas.

    You are completely right that unless they attack this problem with vigilance, they are going to do nothing more than slightly disrupt the flow.


  3. Barbara Jorgensen
    September 15, 2011

    I love this blog. Well done Diane! It amazes me that with so many safeguards in place stuff like this happens all the time. I recently had a discussion wiht a security experts and I asked about social networking. It isn't as much a technology questions as it is policy and procedure. In other words, you can have a system that is supposed to ferret out counterfiets but if you have someone that is going to buy from and unautorized site all the technology int he world isnt going to help.

    All I can say si DUH

  4. Ariella
    September 15, 2011

    @DennisQ I had the exact same thought! The government is notorious for overpaying for what it purchases, so it is very surprising that it opted for cheaper, counterfeit goods.  Perhaps the person in charge there was allowed to use the surplus left in the budget for purchasing for something s/he wanted and so sought a way to keep costs down.

  5. itguyphil
    September 15, 2011

    Really, I am used to hearing that the government is OVERpaying for services. They just don't pay the bill on time.

  6. SunitaT
    September 19, 2011

    the government sourced $3.5 million worth of counterfeit Cisco routers and switches and installed them in US government computer networks

    @ Diane, thanks for the post. Its really scary to know that government is sourcing counterfeit equipments.  Do you think its high time for US government to stop importing chinese electronic equipments  most of which are counterfiet.

  7. SunitaT
    September 19, 2011

    The government is notorious for overpaying for what it purchases, so it is very surprising that it opted for cheaper, counterfeit goods.

    @Ariella, I feel may be the recession has forced these agencies to cut the spending ? Or may be they  neglected the quality aspects of these cheaper counterfeit goods.

  8. Ariella
    September 19, 2011

    @tirlapur I suppose tht is possible. You mean even the government is now looking for ways to save and may cut corners in the wrong places.

  9. Mr. Roques
    September 19, 2011

    That's what makes battling counterfeit so hard, “what if” this product is just as the original and only half the price! … “what if” those routers do the same but for a fraction of the cost. 

  10. Diane Trommer
    September 20, 2011

    I guess I understand the temptation, but for me this is one of those times when there really is no grey area (no pun intended). The risk of sourcing from these non-franchised suppliers is just too high to peg on “what ifs.” IMHO. 

  11. Diane Trommer
    September 20, 2011

    Yeah, the interesting thing is that despite what we hear about $100 hammers, in my research, it appears that most government procurement is actually pressured to take the lowest bid. Only recently have there been changes that allow for consideration of the quality of the source and the likelihood of receiving the goods as as quote and on time. They call this “Lowest  price technically acceptable”  source selection.

  12. Ariella
    September 20, 2011

    That's interesting, Diane. How do they establish what is the lowest “technically acceptable” price? I'm also wondering if there ever is the possibility of “generics” in electronics. Generics are used all the time for prescriptions, and generic or store brand good are sometimes the same or even better quality than national brand ones. Is it possible for generic componenets to be made to function as well as brand name ones?

  13. Kunmi
    September 20, 2011

    It puzzles me when we compare the counterfeit electronic components to generic drugs. It does not apply because the generic Pharmaceutical and Consumer health companies will follow all applicable quality standards that governs the original. They can not compromise the expected data and the desired result. You have asked a very good Question. Why is is that we spend more money to buy certain electronic equipment and at times finding something that mimiks it? Counterfiet will always be what it is but generic will always be the exact, precise or more effective than the orignal

  14. Kunmi
    September 20, 2011

    It is natural that people tend to jump at cheap materials to save the cost but in most cases, we end up spending double. This is also common to institutions where budget constraints are the issues. When an electronic components are messing up and quality and integrity are compromised, we tend to start looking for the upgrade or replacement. This is where counterfeit rocks and robs us of our resources. It is really mixed signals on counterfeit fight. 

  15. Diane Trommer
    September 20, 2011

    You know, Ariella, I am not sure what the standards are for making that judgement call. My guess is there is a very lengthy and convoluted explanation somewhere in the FAR (federal acqusition regulation) that is also vaque enough to allow buyers to essentially make their own calls. Which leads to another interesting question – I wonder what kind of qualifications a person must have to get a job buying critical components for highly-sensitive defense and security equipment…hmmm.

  16. Mr. Roques
    October 28, 2011

    Unless you're that lucky customer whose equipment has never failed. But you are right, with things as important as this one, the risks are too high.

  17. Kunmi
    October 30, 2011

    Recession has caused a lot damages to decision makings in our societies. I do not blame the Gov for buying the cheap stuff. Nationally speaking, people are forced to look for the cheap products.

  18. DesertHack
    December 23, 2011

    I think you missed the point Kunmi,  It is illegal to buy couneterfeit products.  The government could be sued by Cisco.  Another point is that the products can be a security risk.

    If they want to save money then they should buy a lesser costing router from another vendor.

  19. errricwillson
    September 25, 2013

    Its very difficult for government to set the things. Because Registered companies inporting products from china and A plus product to C class product every thing is available through china. Mnay online stores are operating by the hackers so never buy product without being athentication of website. Because now a day identity stealing is a big business. 

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