Joint Strike Force Deals a Blow: DOJ Takes Action After U.S.-Origin Components Discovered Inside Russian Weapons Systems and Intelligence Platforms Seized in Ukraine
Shocking discoveries on the battlefield in Ukraine are sparking national security officials to crack down on illicit international supply chains. Last week, the Department of Justice (DOJ) and its law enforcement partners arrested and charged multiple individuals with unlawfully acquiring, concealing, and shipping export-controlled, dual-use technologies to the Russian military in support of its aggressions in Ukraine. The alleged schemes include more than US$7 million dollars’ worth of semiconductors, integrated circuits, and other controlled technologies illegally exported to support the Russian military in Ukraine.
On October 31, 2023, a criminal complaint in the Eastern District of New York (United States v. Nikolay Goltsev et al., No. 23-M-956) was unsealed charging three individuals — one U.S. national and two Canadian nationals — for engaging in a global procurement scheme involving Brooklyn-registered corporate entities that purchased millions of dollars’ worth of dual-use electronics on behalf of Russian end-users. These controlled technologies were shipped via points in Turkey, Hong Kong, India, China, and the United Arab Emirates and some match the make, model, and part number of components found in seized weapons utilized by Russia in its war effort. According to the DOJ, far too often items like ballistic missiles, air-guided missiles, and drones recovered from the frontlines contain key parts that originate from the United States or a European ally.
In this case, the complaint alleges that one of the charged individuals received orders from Russian end-users in the defense sector seeking a specific item or part from the U.S., then communicated directly with domestic manufacturers and distributors to procure the items using aliases and acting under the guise of a Brooklyn-incorporated entity. Then, acting with the assistance of foreign intermediaries, the individual allegedly transferred the items and ultimately rerouted them to Russia.
Perhaps most concerning, many of these discovered items and parts are classified as “dual-use” goods, meaning that they can be sold legally in the U.S. and exported to certain foreign countries for consumer and commercial use. However, through illicit practice referred to as “transshipment,” these goods can be resold on a secondary market to a different country for a banned military use. For example, experts suspect a recent spike in Russian imports of washing machines may belie a more sinister motive: while Russia is in need of military-grade computer chips to support its campaign in Ukraine, many washing machines contain chips that can be used for certain military purposes.
Transshipment, particularly of dual-use items like computer chips, has exposed a significant area of enforcement vulnerability. This gap necessarily forces us to question — who is to blame? Some lawmakers have argued responsibility lies with the Department of Commerce, whose regulations allow for sending such dual-use goods abroad, albeit to friendly countries and for limited use. Assistant Attorney General of DOJ’s National Security Division, Matthew Olsen, argues that it is an international responsibility to keep a closer eye on who is buying these items and where they are going. Others point the finger at a “weak” supply chain that encourages manufacturers to turn a blind eye to the threat of such illegal transfers.
What is certain is that the DOJ and its interagency enforcement partners are taking action, reflecting the government’s view that technologies, including lesser-controlled dual-use electronics found in everyday products like washing machines, pose a threat to the national and global security. To avoid increased government scrutiny, industry should step up due diligence on its customers and business partners and immediately address red flags.
We will be following these cases, along with other sanctions enforcement actions, here on Enforcement Edge. If you have questions, reach out to any of the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations practice group.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.