Counterfeits plague electronics industry

Article By : Jonas Klar

Are governments and industry fighting a losing battle against counterfeiters?

Last week, there were a number of reports about scammers selling fake AMD parts, including a report by PC Gamer that described how two Amazon customers ordered a Ryzen 7 1700 processor each and received falsely marked Intel processors.¹

EE Times' Dylan McGrath contacted Amazon and EE Times Asia requested AMD and Intel for comment. While Amazon and AMD did not respond, an Intel spokesperson gave us a somewhat stock statement: "We occasionally discover counterfeit or intentionally mislabelled Intel products. When that happens we work with the appropriate authorities to address the situation."

Talking to industry executives at various locations around the world we found that the problem is widespread with little in sight towards mitigation. By widespread we mean that it affects all countries and all industries.

For instance, last week in India, the Central Bureau of Investigation (CBI) booked an Indian middleman colluding with a Chinese supplier over fake parts—roller bearings—for their artillery guns. And The Verge reported on July 26 that a search for solar filter glasses on Amazon pulls both legitimate and suspect products.² While the product is relatively simpler to make than a microprocessor or a gun's roller bearings it has the potential to damage the eyesight of an unsuspecting eclipse gazer.

Amazon did not respond to The Verge's request for comment either. The online marketplace has a policy to prohibit sales of counterfeits reports McGrath. So does China's Alibaba/Taobao (here). The question is how much does it help? None other than a Chinese publication Caixin reported several inexpensive Rolex watches listed on Taobao in March despite the parent company Alibaba claiming that they had removed more than 380 million product listings and closed about 180000 small shops on the Taobao platform in the 12 months ending last August.³

Lisa Maestas head of the SIA's anti-counterfeit task force told McGrath that for parts like microprocessors it's best to buy them from the manufacturer or authorised distribution channels.⁴ That logical advice applies to pretty much any big-ticket item: you wouldn't buy a Rolex on Taobao would you?

EE Times Asia contacted Jason Teo, Global Head Corporate Security at Infineon Technologies Asia Pacific, to understand the scale and impact of this problem. "First of all, when the term “counterfeit” semiconductor chips is used, it is important to understand what it really means for us the original component manufacturers [OCMs]" he said. "There are basically two general categories we see in the current market namely,

• Component level

  • Complete fakes: These are units that did not originate from OCMs but have OCM laser markings on them that [the counterfeiter] tries to pass off to unwary customers as originals.
  • Partial fakes: These units originate from OCMs but have been remarked to either represent higher functionalities or different functions from what they are were design for. [In Amazon's Ryzen case it was another company's much higher-end chip].

• Packaging Level:
  Instead of remarking the component counterfeiters use fake paper labels on shipping boxes and try to pass off the fake chips as originals. These are easily detected when the buyer opens up the box to check the components inside.

Based on INTERPOL figures there were $169 billion worth of counterfeited electronic[s] and semiconductor [components] sold annually in the global market. Unlike counterfeit luxury goods such as hang bags and shoes counterfeit or fake electronic components can have severe negative effects on the health of the ultimate consumer or on our infrastructure – and that’s on top of negative impact for semiconductor companies on their corporate image and financial losses from revenues."

Jason Teo: Think of a household equipment that catches fire due to a fake chip and burns down the apartment or a nuclear reactor that fails to detect a safety breach and activate its emergency systems… the consequences are dire for the entire society.

Counterfeiting's disastrous results

The result of using a counterfeit chip can vary from inconvenient in a game PC to life threatening. "If a USB stick no longer works properly then the worst-case scenario is loss of the data on the stick. If however an IC fails to switch in a brake control system in an automotive airbag control system or in a medical device such as an automatic defibrillator the consequences can be life-threatening," said Teo.

"Unlike fake pharma drugs where the only the user is affected, the safety risk of using counterfeit chips affects those around them. Think of a household equipment that catches fire due to a fake chip and burns down the apartment or a nuclear reactor that fails to detect a safety breach and activate its emergency systems… the consequences are dire for the entire society."

Industry fights back

Teo told us that the World Semiconductor Council comprising major semiconductor companies has a special working group called Anti-Counterfeit Task Force (ACTF). The ACTF works with the authorities to help identify criminal syndicates strengthen legal systems and conduct raids. The ACTF also shares best practices that include proper scrapping methods to cut the supply of rejected units from OCM factories registering trademarks with the relevant authorities and lobbying for closer public-private collaboration. For instance, according to Teo, some of this work results in successful raids like the one in which OLAF, the European Anti-Fraud Office, targeted counterfeit semiconductors imported into the EU from China and Hong Kong by post/express courier.⁵

Teo conceded, however, that despite those efforts, counterfeit chips are widely sold due to a high demand and lack of awareness from unwary buyers. "The Internet has also made the sales of fake chips very much easier and increased the difficulties of stopping the flow of counterfeit chips across the globe.

"Since the recycling of ICs from used PCBs is not an offence in many countries, criminal syndicates around the world are able to retrieve a steady supply of used chips which they can easily re-mark and pass off as originals. At this stage, the legislation for the disposal of e-waste is not strictly enforced around the world and many syndicates exploit the cheap labour in many countries to satisfy their demands."

Global problem, local source?

Back in May 2012, it was widely reported that the U.S. government uncovered more than 1 million fake parts in the Pentagon supply chain. More than 70 percent of over 100 "incidents" were traced back to China.

Since then governments and industry are supposed have been collaborating, as in OLAF crackdown above. Yet Greg Wood Director Electronics Parts at IHS Markit revealed earlier this year that while counterfeit electronic components come from countries in Asia Africa and the Middle East, over 53% of the substandard or counterfeit electronic components continue to come from China.

References:

1. Beware of fake Ryzen processors selling on Amazon by Paul Lilly PC Gamer.
2. here Don't blindly trust companies selling solar eclipse glasses on Amazon by Loren Grush The Verge
3. Alibaba Sweeps Out Taobao Pirates But Fakes Remain in the Cracks by April Ma Caixin
4. Fake Chips on Amazon Are Nothing New by Dylan Mcgrath EE Times.
5. Press release by OLAF: OLAF helps partners seize over one million counterfeit semiconductors in major Joint Customs Operation