My Threatcon Column: Semiconductors: A Key Battleground Between The East And The West

My Threatcon column was published on Counterterrorism magazine’s website. 

You can read the column below: 

Semiconductors: A Key Battleground Between the East and the West

By Paul Davis

It has been said that American companies and the U.S. Government spend millions of dollars on technological research and development. And the Chinese and the Russians spend thousands of dollars stealing our R&D through espionage.

Appearing on CBS’s 60 Minutes on April 21st, U.S. Commerce Secretary Gina Raimondo (seen in the below photo) stated that semiconductors have become a key battleground between the U.S. and our adversaries, notably Russia and China.

Noting that semiconductors are imperative for nearly every type of technology, and although American technological companies design the world's most advanced chips, none are manufactured in the U.S. Nearly all are manufactured in Taiwan, which possess a national security threat.

"We allowed manufacturing in this country to wither on the vine in search of cheaper labor in Asia, cheaper capital in Asia, and here we are," Raimonda told 60 Minutes correspondent Leslie Stahl. "We just pursued profit over national security."

Raimondo stated in a 2022 congressional hearing that Russia had begun using semiconductors from dishwashers and refrigerators for its military equipment used in the invasion of Ukraine. Raimondo stated that the Russians are still working their way around the semiconductor issue.

"It's absolutely the case that our export controls have hurt their ability to conduct the war, made it harder," Raimondo said. "And we are enforcing this every minute of every day, doing everything we can.”

The U.S. issued export controls to prevent American technology from being used in China in October of 2022. The restrictions concerned advanced semiconductors and chip-manufacturing equipment.

"We want to trade with China on the vast majority of goods and services. But on those technologies that affect our national security, no," Raimondo said.

While high-end microchips are used in some consumer products, they're also used in nuclear weapons and surveillance systems.

"We know they want these chips and our sophisticated technology to advance their military," Raimondo said. "We have the most sophisticated semiconductors in the world. China doesn't," she said. "We've out-innovated China."

As 90 percent of the semiconductors are manufactured in Taiwan, the Chinese threat to invade Taiwan would mean the U.S. would no longer have access to the chips manufactured there.

"That's a problem," Raimondo said. "It's a risk. It makes us vulnerable. China wakes up every day figuring out how to get around our regulations. We've got to wake up every day that much more relentless and aggressive."

Four days after Raimonda’s appearance on 60 Minutes, a federal indictment was unsealed charging two Chinese nationals, Han Li, also known as Anson Li, 44, and Lin Chen, 64, with crimes related to a conspiracy to illegally export U.S. technology. The technology includes a machine manufactured by a California-based company that is used to process silicon wafer microchips in violation of the International Emergency Economic Powers Act (IEEPA) and Export Administration Regulations (EAR).

“As alleged, the defendants sought to evade export controls to obtain U.S. semiconductor manufacturing technology for a prohibited Chinese company,” said Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division. “The Justice Department is committed to enforcing export controls and holding accountable those who seek to illicitly procure U.S.-developed technologies that put our national security at risk.”

Larissa L. Knapp, the Executive Assistant Director of the FBI’s National Security Branch, added, “This indictment puts an end to Ms. Chen’s alleged involvement in a scheme to illegally export U.S. technology to China. “The U.S. does not tolerate illegally exporting our advanced technology, and any attempt to circumvent U.S. laws and regulations will have consequences. The FBI and its partners will continue to seek justice in this matter.”

According to the indictment, between at least May 2015 and August 2018, Li and Chen conspired to evade the export restrictions imposed by the Department of Commerce on CGTC through the use of intermediaries to conceal CGTC’s involvement with the transactions. 

Specifically, the defendants sought to illegally obtain a DTX-150 Automatic Diamond Scriber Breaker machine from Dynatex International, a Santa Rosa, California, company. The machine is used to cut thin semiconductors used in electronics, also known as silicon wafers, and under Department of Commerce regulations, requires a license and authorization to export to CGTC. 

The defendants sought to acquire the machine for CGTC through an intermediary company called Jiangsu Hantang International (JHI), a proxy they fraudulently represented as the purchaser and end user. To avoid detection, Li and Chen instructed Dynatex International to ensure that the export information associated with the sale did not list CGTC as the ultimate consignee of the shipment.

According to the Justice Department, Li and Chen are both charged with the following offenses, and if convicted, face maximum penalties as indicated: Conspiracy to violate IEEPA, up to 20 years in prison and a $1 million fine; false electronic export information activities, up to five years in prison and a $250,000 fine; smuggling, up to 10 years in prison and a $250,000 fine; and IEEPA violations, up to 20 years in prison and a $1 million fine. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Chen was arrested in Chicago. Li is believed to be in China.

And this past January, a businessman was arrested for scheming to illegally export semiconductors and other controlled technology to Russia.

According to the U.S. Justice Department, the defendant allegedly used a network of businesses in China and other Countries to Illegally transfer hundreds of thousands of semiconductors to sanctioned business with ties to Russian military and Russian intelligence agencies.

Ilya Kahn, 66, a citizen of the United States, Israel and Russia, and resident of Brooklyn, New York, and Los Angeles, California, was arrested in Los Angeles for his alleged involvement in a long-term scheme to secure and unlawfully export sensitive technology from the United States for the benefit of a Russian business that was sanctioned by the U.S. government following Russia’s unprovoked invasion of Ukraine in February 2022. The business’ clients include elements of the Russian military and the Federal Security Service (FSB), the main successor agency to the Soviet Union’s KGB.

According to court documents, Kahn is charged by criminal complaint with conspiracy to violate the Export Control Reform Act (ECRA).

“Mr. Kahn stands accused of repeatedly exporting sensitive technology to Russia before, during, and after Russia launched its unprovoked invasion of Ukraine,” said Assistant Attorney General Olsen. “Violations of U.S. sanctions and export control laws that aid Russia and other hostile powers endanger our nation’s security and will be met with the full force of the Justice Department.”

Assistant Secretary for Export Enforcement Matthew S. Axelrod of the Commerce Department’s Bureau of Industry and Security (BIS) also weighed in, “This arrest reflects our continued aggressive enforcement of export control violations involving the Russian military and the Federal Security Service. stopping the flow of semiconductors and sensitive technologies to those aiding Russia’s unjust war in Ukraine is a critical priority for BIS and our Disruptive Technology Strike Force partners.”

If convicted, Kahn faces a maximum penalty of 20 years in prison for conspiracy to violate the ECRA.

The FBI and Department of Commerce’s BIS New York Field Office are investigating the case. The U.S. Attorney’s Office for the Central District of California provided significant assistance.

Paul Davis’ Threatcon column covers crime, espionage and terrorism.