ARMING OUR ADVERSARIES: THE INADEQUACY OF US CHIP CONTROLS
A 2430 Group Project Powered by ChainSentry
INTRODUCTION:
US and allied export controls are failing to prevent the transfer of critical microelectronics to sanctioned adversaries. Currently, Russian and Iranian military drones consistently rely on US-sourced microelectronics. Without these components, these weapons systems would not fly and could not hit their targets.
Despite this reliance on US components, efforts to disrupt the flow of chips to America’s adversaries are hindered by systemic weaknesses in the semiconductor supply chain. Chip manufacturers maintain contradictory positions by claiming that self-regulation is effective, while simultaneously disclaiming responsibility for solving diversion challenges—even as they sell high-tech chips to insufficiently vetted buyers.
Compounding this problem is an absence of industry leadership and inconsistent regulatory oversight, which has resulted in a patchwork of due diligence approaches. Chipmakers and their authorized distributors evaluate buyers using disparate and disconnected processes with varying degrees of rigor. These processes remain largely manual, making them slow and prone to human error. Most significantly, due diligence effectiveness is undermined when outdated or incomplete data is used to verify the identity and intentions of buyers. The most sophisticated deception comes from committed adversaries. Current vetting systems are fundamentally structured to fall victim to their deceit.
The consequences are severe. Russia, Iran, and China routinely acquire and employ US chips for weapons’ production. Moreover, demand from sanctioned entities combined with inadequate supply chain controls (e.g. due diligence) has helped create a lucrative global gray-market network engaged in unauthorized distribution of US-origin, export-controlled, and dual-use components. This activity undermines US national security and has been directly linked to the loss of American lives.
ChainSentry, a leading provider of semiconductor gray-market intelligence that supplied data for this report, found that chips often enter gray markets through sales of excess inventory accumulated by legitimate customers, either inadvertently or intentionally to abuse volume discounts. In many cases, reselling chips violates end-use agreements since buyers attest to specific applications for the chips they are acquiring. However, while contractual remedies for these violations may be available to chipmakers, enforcement has been insufficient to address the scale of the problem and more must be done to hold accountable those who contribute to gray-market proliferation.
This paper analyzes the widespread availability of US components used in Russian unmanned aerial vehicles (UAVs), and specifically:
documents the methodology used to track critical components and their distribution channels;
presents four detailed findings that reveal significant vulnerabilities in the semiconductor supply chain and distribution networks; and
offers five practical recommendations for government and industry to help disrupt the flow of US technology to adversary states.
Download the full report HERE.