Counterfeit Avoidance and Detection
Counterfeit Avoidance and Detection A Continuing Journey Bob Bodemuller Principle Supplier Quality Engineer LaTasha Starr Systems Engineer, Business Development
Can You Tell the Difference?
Commodity by Manufacturer’s Suggested Retail Price
2014 Commodity Watches/Jewelry Handbags/Wallets Consumer Electronics/Parts Wearing Apparel/Accessories Pharmaceuticals/Personal Care Footwear Computers/Accessories Optical Media Labels/Tags Toys All Other Commodities
MSRP $ 375,397,333 $ 342,031,595 $ 162,209,441 $ 113,686,295 $ 72,939,399 $ 49,522,859 $ 26,652,422 $ 18,780,989 $ 17,675,452 $ 8,178,351 $ 39,273,404
Percent of Total* 31% 28% 13% 9% 6% 4% 2% 2% 1% Less than 1% 3%
Total FY 2014 MSRP Number of Seizures
$ 1,226,347,540 23,140
Total FY 2013 MSRP Number of Seizures
Data from: Intellectual Property Rights Seizure Statistics Fiscal Year 2014
$ 1,743,515,581 24,361
Source by Manufacturer’s Suggested Retail Price
FY 2014 Trading Partner • China • Hong Kong • Canada • India • United Arab Emirates • Taiwan • Singapore • Korea • Vietnam • Kenya
MSRP $ 772,629,008 $ 310,437,365 $ 12,460,242 $ 20,683,669 $ 3,791,268 $ 3,081,838 $ 2,538,079 $ 2,514,596 $ 2,422,050 $ 2,292,982
Percent of Total 63% 25% 1% 1% Less than 1% Less than 1% Less than 1% Less than 1% Less than 1% Less than 1%
•
All Others
$ 108,639,461
9%
• •
Total FY 2014 MSRP $ 1,226,347,540 Number of Seizures 23,140
Total FY 2013 MSRP Number of Seizures
China and Hong Kong made up 88% of 2014 seizures
Data from: Intellectual Property Rights Seizure Statistics Fiscal Year 2014
$ 1,743,515,581 24,361
Sources of Electronic Counterfeit Parts This flow illustrates how counterfeit parts can be sourced and eventually sold.
*Stacks of Scrapped Circuit Boards
*Market Place for Components
**Components Being Removed From Boards
*Components Being Washed in River
*Components Being Sorted
* Bags of Various Components
* China photos courtesy of Tom Sharpe & SMT Corporation
** Photo courtesy of Basal Action Network
Anything that can be counterfeited … will be…
Why is this issue so difficult? •
Aging systems resulting in obsolescence – Diminishing Sources for parts / Continuing production of old product lines requires careful tradeoff of risk of counterfeit vs. cost to mitigate
•
Economic – Cost – Schedule pressures
•
International sources – Authentic parts manufactured in Asia (Fabless model) – Profitable and growing capability to counterfeit – Organized crime
•
Counterfeits more difficult to detect – May not affect fit, form or function – Tests, visuals and failure analysis may not detect counterfeits
Counterfeiters are good & getting better … They are fast and agile …
Electronics Supply Chain
Electronics Market Mall Shenzhen China
Electronic Supply Chain • Original Manufacturers – OCM – OEM – Aftermarket Manufacturers
• What about distribution? – – – – –
Authorized distributors Broker Distributors Stocking Distributors Third-Party Logistics (3PL) Providers Others
Electronic Supply Chain IP Holder Designer OCM
Grey Market
Authorized Distribution Independent Distribution (Trusted Supplier) Obsolescence Cost Schedule
OEM
Customer
Typical Counterfeit Entry Points Entry points indicated by red lines
Clones Mimics
IP Holder Designer
Grey Market
Authorized Distribution
OCM
Independent Distribution (Trusted Supplier) Excess production
RMA
OEM
Customer Counterfeiters
KNOW YOUR SOURCE
Obsolescence Cost Schedule
LEGISLATIVE CLIMATE
Senate Armed Services Committee
• 2011 Levin McCain Hearings – Sen. Carl Levin, D-Mich, Committee’s Chairman – Ranking Member Sen. John McCain, R-Ariz
• Found a total number of suspect electronic counterfeit parts in 1,800 cases exceeded 1 million parts – U.S. Air Force said that a single electronic parts supplier, Hong Dark Electronic Trade of Shenzhen, China, supplied approximately 84,000 suspect counterfeit electronic parts into the DOD supply chain
Per the Semiconductor Industry Association counterfeits cost U.S. semiconductor companies more than $7.5 billion annually in lost revenue, and the loss of nearly 11,000 American jobs
Senate Armed Services Committee Conclusions 1.
China is the dominant source country for counterfeit electronic parts that are infiltrating the defense supply chain.
2.
The Chinese government has failed to take steps to stop counterfeiting operations that are carried out openly in that country.
3.
The Department of Defense lacks knowledge of the scope and impact of counterfeit parts on critical defense systems.
4.
The use of counterfeit electronic parts in defense systems can compromise performance and reliability, risk national security, and endanger the safety of military personnel. Permitting contractors to recover costs incurred as a result of their own failure to detect counterfeit electronic parts does not encourage the adoption of aggressive counterfeit avoidance and detection programs.
5.
6.
The defense industry’s reliance on unvetted independent distributors to supply electronic parts for critical military applications results in unacceptable risks to national security and the safety of U.S. military personnel.
7.
Weaknesses in the testing regime for electronic parts create vulnerabilities that are exploited by counterfeiters. The defense industry routinely failed to report cases of suspect counterfeit parts, putting the integrity of the defense supply chain at risk.
8.
Legislative Actions • Section 818 of the 2012 NDAA • DFARS 252.246-7007
- Released May 2014
• FAR 2012-032 – Higher Level Quality Contract Requirements –
Released November 2014
• FAR 2013-002 – Expanded Reporting of Nonconforming Items – On hold per DARC director to complete study regarding feasibility of changing GIDEP since 3/17/15
Pending Regulations •
DFARS 2014-D005 – Further Implementation – Defines Trusted and Trustworthy suppliers
•
DFARS 2015-D020 – Trusted Suppliers for Electronic Parts – … establishes qualification requirements to identify trusted suppliers
•
DFARS 2016-D010 – Cost of Remedy for Use or Inclusion of Counterfeit Electronic Parts – Defines the allowability of costs … that may be required to remedy the use or inclusion of counterfeit parts.
•
DFARS 2016-D013 – Amendments Related to Trusted Suppliers – Makes contractor and subcontractor identification and use of contractor-approved distributors subject to review, audit and approval by DoD…
DFAR 252.246.7007 Criteria System Criteria 1. Training 2. Inspection and test 3. Processes to abolish 4. Traceability 5. Procurement controls 6. Reporting and quarantining 7. Identification and evaluation of suspect counterfeit 8. Systems to detect and avoid (e.g. AS5553) 9. Flow-down 10.Process to keep informed 11.Process for screening GIDEP report 12.Control of obsolete electronic parts DFAR is 19 pages long in the Federal Register – 2/3 pages of requirements – 16/17 pages of interpretation
INDUSTRY STANDARDS
Technical Standards History • SAE formed the AS5553 writing committee, now known as G-19CI, to address counterfeit electronics – Industry and Gov. approached SAE to develop an industry consensus standard for electronics – Published in early 2009 – Intention was to provide information and guidance, not necessarily requirements
• AS5553 targets Primes, system integrators, etc.
G-19 Expansion • Industry recognized the electronics supply chain is extremely complex – – – – – – –
OCM Authorized Distribution Independent Distribution Aftermarket manufacturer Stocking Distributor Broker ????
Prime
Customer
• Identified need for standards to cover various parts of the supply chain
Technical Writing Committees Formed • G-19 – – – – – –
G-19A G-19AD G-19C G-19CI G-19D G-19T
• G-21
Testing Authorized Distribution Compliance OCM, System Integrators, etc. Independent Distribution Definitions
AS6171 AS6496 Various AS5553 AS6081 TBD
Materials
AS6174
Standards look in review view mirror. Potentially give counterfeiters the blueprint for detection
CLONING – NEXT STEP IN COUNTERFEITING AND AN INTRODUCTION TO THE CYBER SECURITY CONNECTION
What is a Clone? • A group of anything that are descended from and identical to that of a parent something • Used legitimately to manufacture obsolete electronics using the original designers IP • Used illegitimately to copy a design for profit – – – –
Reversed engineered Parts are newly manufactured Probably do not have the reliability of the original design Indistinguishable from the original • Visual • Electronically – at least at ambient
• Can contain malicious circuits!
How Can Clones Affect Us? Sources
Malware Malicious Intent
Target
Effect
Energy
Power Grid Outages
Military
Limited Operational Availability
Internet of Things
Compromised Response Times (Fire, Police, Communication)
Understanding The Risks •
Electronic devices performing critical functions – – – – – –
•
Internet shopping – personal or business –
•
Hardware has to be properly analyzed during acquisition and qualification phases of the supply chain.
Can you validate electronic components they contain. –
•
Telecommunications Transportation Defense Energy Health Others
Any device could be equipped with a software or hardware backdoor
Decline in the use of authorized dealers – –
Cost Schedule.
Potential Dangers • Loss of mission from poor reliability • Backdoor into systems
Cloned iron or tea pot?
Malicious Intent • Breaking services, obtaining them with piracy • Imitating user authentication for system access –
• Information leakage – Business – Personal
• Unlocking devices, to gain access to an internal shell or to increase control of a system • Unlocking hidden features
Backdoor Into Systems • Manufacturing backdoors; – – – – –
malware software and hardware embedded radio-frequency identification (RFID) chips and memory Company IP theft Identity theft
• Eavesdropping by gaining access to protected memory
• Inducing faults causing interruption of normal behavior • Hardware modification tampering with invasive operations • Gain malicious access to systems
Attack Method
Prevention
• Prevent the insertion of hardware backdoors – Know your sources
• Implement prevention methods in different phases of production: – Design - Create trusted circuits – Fabrication – Use of trusted foundries
Prevention Is Key
Detection
Early Detection
Trusted Foundry Program • Initiated in 2004 • Ensure mission-critical systems have access to integrated circuits from secure, domestic sources Should you use the Trusted Foundry Program? •
Is your program mission critical or essential to national security or national defense?
•
Do you worry about the alarming number of counterfeit microelectronics?
•
Do you want to protect your system against backdoor access or other deliberate mischief?
WHY DO WE CARE?
Why Do We Care? • •
ICC estimates counterfeit goods were worth $650 billion in 2008 By 2015, ICC expects the value of counterfeit goods globally to exceed $1.7 trillion. – 2% of the world's total current economic output
•
•
“Phony medicines” – Can result in the deaths of people using them – medicines with insufficient doses can lead dangerous pathogens to become resistant to legitimate drugs. Examples of counterfeit or mislabeled products having fatal consequences – Toxic cough syrup in Panama – Tainted baby formula in China – Fake teething powder in Nigeria
"When the toy that you thought was from Disney contains lead paint, then you care."
Why Do We Care? •
$5 Million worth of fake degrees and diplomas for fake schools – None of the colleges had any faculty or courses – Associate Degree was $475, a Bachelor’s Degree was $495, Masters Degree was $525, and a Doctoral Degree was offered for $550
•
Cigarette smuggling causes $50 Billion in lost tax revenue to governments around the world
•
Counterfeit vodka operation that was managed by the Irish Republican Army (IRA) – Fake alcohol from Eastern Europe and filled empty bottles with counterfeit alcohol
•
A 10 day crackdown against counterfeit drugs coordinated by Interpol in May 2014 lead to 8.4 million doses of fake drugs. – 10,603 websites that were selling counterfeit medicines were shut down.
Summary
Traditionally industry systems and methods were not designed to detect deliberate and deceptive product alterations
Threat is Real & Growing …Prevention Methods must Out Pace the Threat
Continue to Evolve, Educate, Communicate & Enforce Prevention Measures
Engaging with Customers & Industry to Develop the Most Effective, State of the Art Prevention Measures Possible
Hardware qualification is crucial as Microcircuits and firmware are present in every device around us, from our cars to sophisticated defense systems.
Questions
Can You Tell the Difference?
Commodity by Manufacturer’s Suggested Retail Price
2014 Commodity Watches/Jewelry Handbags/Wallets Consumer Electronics/Parts Wearing Apparel/Accessories Pharmaceuticals/Personal Care Footwear Computers/Accessories Optical Media Labels/Tags Toys All Other Commodities
MSRP $ 375,397,333 $ 342,031,595 $ 162,209,441 $ 113,686,295 $ 72,939,399 $ 49,522,859 $ 26,652,422 $ 18,780,989 $ 17,675,452 $ 8,178,351 $ 39,273,404
Percent of Total* 31% 28% 13% 9% 6% 4% 2% 2% 1% Less than 1% 3%
Total FY 2014 MSRP Number of Seizures
$ 1,226,347,540 23,140
Total FY 2013 MSRP Number of Seizures
Data from: Intellectual Property Rights Seizure Statistics Fiscal Year 2014
$ 1,743,515,581 24,361
Source by Manufacturer’s Suggested Retail Price
FY 2014 Trading Partner • China • Hong Kong • Canada • India • United Arab Emirates • Taiwan • Singapore • Korea • Vietnam • Kenya
MSRP $ 772,629,008 $ 310,437,365 $ 12,460,242 $ 20,683,669 $ 3,791,268 $ 3,081,838 $ 2,538,079 $ 2,514,596 $ 2,422,050 $ 2,292,982
Percent of Total 63% 25% 1% 1% Less than 1% Less than 1% Less than 1% Less than 1% Less than 1% Less than 1%
•
All Others
$ 108,639,461
9%
• •
Total FY 2014 MSRP $ 1,226,347,540 Number of Seizures 23,140
Total FY 2013 MSRP Number of Seizures
China and Hong Kong made up 88% of 2014 seizures
Data from: Intellectual Property Rights Seizure Statistics Fiscal Year 2014
$ 1,743,515,581 24,361
Sources of Electronic Counterfeit Parts This flow illustrates how counterfeit parts can be sourced and eventually sold.
*Stacks of Scrapped Circuit Boards
*Market Place for Components
**Components Being Removed From Boards
*Components Being Washed in River
*Components Being Sorted
* Bags of Various Components
* China photos courtesy of Tom Sharpe & SMT Corporation
** Photo courtesy of Basal Action Network
Anything that can be counterfeited … will be…
Why is this issue so difficult? •
Aging systems resulting in obsolescence – Diminishing Sources for parts / Continuing production of old product lines requires careful tradeoff of risk of counterfeit vs. cost to mitigate
•
Economic – Cost – Schedule pressures
•
International sources – Authentic parts manufactured in Asia (Fabless model) – Profitable and growing capability to counterfeit – Organized crime
•
Counterfeits more difficult to detect – May not affect fit, form or function – Tests, visuals and failure analysis may not detect counterfeits
Counterfeiters are good & getting better … They are fast and agile …
Electronics Supply Chain
Electronics Market Mall Shenzhen China
Electronic Supply Chain • Original Manufacturers – OCM – OEM – Aftermarket Manufacturers
• What about distribution? – – – – –
Authorized distributors Broker Distributors Stocking Distributors Third-Party Logistics (3PL) Providers Others
Electronic Supply Chain IP Holder Designer OCM
Grey Market
Authorized Distribution Independent Distribution (Trusted Supplier) Obsolescence Cost Schedule
OEM
Customer
Typical Counterfeit Entry Points Entry points indicated by red lines
Clones Mimics
IP Holder Designer
Grey Market
Authorized Distribution
OCM
Independent Distribution (Trusted Supplier) Excess production
RMA
OEM
Customer Counterfeiters
KNOW YOUR SOURCE
Obsolescence Cost Schedule
LEGISLATIVE CLIMATE
Senate Armed Services Committee
• 2011 Levin McCain Hearings – Sen. Carl Levin, D-Mich, Committee’s Chairman – Ranking Member Sen. John McCain, R-Ariz
• Found a total number of suspect electronic counterfeit parts in 1,800 cases exceeded 1 million parts – U.S. Air Force said that a single electronic parts supplier, Hong Dark Electronic Trade of Shenzhen, China, supplied approximately 84,000 suspect counterfeit electronic parts into the DOD supply chain
Per the Semiconductor Industry Association counterfeits cost U.S. semiconductor companies more than $7.5 billion annually in lost revenue, and the loss of nearly 11,000 American jobs
Senate Armed Services Committee Conclusions 1.
China is the dominant source country for counterfeit electronic parts that are infiltrating the defense supply chain.
2.
The Chinese government has failed to take steps to stop counterfeiting operations that are carried out openly in that country.
3.
The Department of Defense lacks knowledge of the scope and impact of counterfeit parts on critical defense systems.
4.
The use of counterfeit electronic parts in defense systems can compromise performance and reliability, risk national security, and endanger the safety of military personnel. Permitting contractors to recover costs incurred as a result of their own failure to detect counterfeit electronic parts does not encourage the adoption of aggressive counterfeit avoidance and detection programs.
5.
6.
The defense industry’s reliance on unvetted independent distributors to supply electronic parts for critical military applications results in unacceptable risks to national security and the safety of U.S. military personnel.
7.
Weaknesses in the testing regime for electronic parts create vulnerabilities that are exploited by counterfeiters. The defense industry routinely failed to report cases of suspect counterfeit parts, putting the integrity of the defense supply chain at risk.
8.
Legislative Actions • Section 818 of the 2012 NDAA • DFARS 252.246-7007
- Released May 2014
• FAR 2012-032 – Higher Level Quality Contract Requirements –
Released November 2014
• FAR 2013-002 – Expanded Reporting of Nonconforming Items – On hold per DARC director to complete study regarding feasibility of changing GIDEP since 3/17/15
Pending Regulations •
DFARS 2014-D005 – Further Implementation – Defines Trusted and Trustworthy suppliers
•
DFARS 2015-D020 – Trusted Suppliers for Electronic Parts – … establishes qualification requirements to identify trusted suppliers
•
DFARS 2016-D010 – Cost of Remedy for Use or Inclusion of Counterfeit Electronic Parts – Defines the allowability of costs … that may be required to remedy the use or inclusion of counterfeit parts.
•
DFARS 2016-D013 – Amendments Related to Trusted Suppliers – Makes contractor and subcontractor identification and use of contractor-approved distributors subject to review, audit and approval by DoD…
DFAR 252.246.7007 Criteria System Criteria 1. Training 2. Inspection and test 3. Processes to abolish 4. Traceability 5. Procurement controls 6. Reporting and quarantining 7. Identification and evaluation of suspect counterfeit 8. Systems to detect and avoid (e.g. AS5553) 9. Flow-down 10.Process to keep informed 11.Process for screening GIDEP report 12.Control of obsolete electronic parts DFAR is 19 pages long in the Federal Register – 2/3 pages of requirements – 16/17 pages of interpretation
INDUSTRY STANDARDS
Technical Standards History • SAE formed the AS5553 writing committee, now known as G-19CI, to address counterfeit electronics – Industry and Gov. approached SAE to develop an industry consensus standard for electronics – Published in early 2009 – Intention was to provide information and guidance, not necessarily requirements
• AS5553 targets Primes, system integrators, etc.
G-19 Expansion • Industry recognized the electronics supply chain is extremely complex – – – – – – –
OCM Authorized Distribution Independent Distribution Aftermarket manufacturer Stocking Distributor Broker ????
Prime
Customer
• Identified need for standards to cover various parts of the supply chain
Technical Writing Committees Formed • G-19 – – – – – –
G-19A G-19AD G-19C G-19CI G-19D G-19T
• G-21
Testing Authorized Distribution Compliance OCM, System Integrators, etc. Independent Distribution Definitions
AS6171 AS6496 Various AS5553 AS6081 TBD
Materials
AS6174
Standards look in review view mirror. Potentially give counterfeiters the blueprint for detection
CLONING – NEXT STEP IN COUNTERFEITING AND AN INTRODUCTION TO THE CYBER SECURITY CONNECTION
What is a Clone? • A group of anything that are descended from and identical to that of a parent something • Used legitimately to manufacture obsolete electronics using the original designers IP • Used illegitimately to copy a design for profit – – – –
Reversed engineered Parts are newly manufactured Probably do not have the reliability of the original design Indistinguishable from the original • Visual • Electronically – at least at ambient
• Can contain malicious circuits!
How Can Clones Affect Us? Sources
Malware Malicious Intent
Target
Effect
Energy
Power Grid Outages
Military
Limited Operational Availability
Internet of Things
Compromised Response Times (Fire, Police, Communication)
Understanding The Risks •
Electronic devices performing critical functions – – – – – –
•
Internet shopping – personal or business –
•
Hardware has to be properly analyzed during acquisition and qualification phases of the supply chain.
Can you validate electronic components they contain. –
•
Telecommunications Transportation Defense Energy Health Others
Any device could be equipped with a software or hardware backdoor
Decline in the use of authorized dealers – –
Cost Schedule.
Potential Dangers • Loss of mission from poor reliability • Backdoor into systems
Cloned iron or tea pot?
Malicious Intent • Breaking services, obtaining them with piracy • Imitating user authentication for system access –
• Information leakage – Business – Personal
• Unlocking devices, to gain access to an internal shell or to increase control of a system • Unlocking hidden features
Backdoor Into Systems • Manufacturing backdoors; – – – – –
malware software and hardware embedded radio-frequency identification (RFID) chips and memory Company IP theft Identity theft
• Eavesdropping by gaining access to protected memory
• Inducing faults causing interruption of normal behavior • Hardware modification tampering with invasive operations • Gain malicious access to systems
Attack Method
Prevention
• Prevent the insertion of hardware backdoors – Know your sources
• Implement prevention methods in different phases of production: – Design - Create trusted circuits – Fabrication – Use of trusted foundries
Prevention Is Key
Detection
Early Detection
Trusted Foundry Program • Initiated in 2004 • Ensure mission-critical systems have access to integrated circuits from secure, domestic sources Should you use the Trusted Foundry Program? •
Is your program mission critical or essential to national security or national defense?
•
Do you worry about the alarming number of counterfeit microelectronics?
•
Do you want to protect your system against backdoor access or other deliberate mischief?
WHY DO WE CARE?
Why Do We Care? • •
ICC estimates counterfeit goods were worth $650 billion in 2008 By 2015, ICC expects the value of counterfeit goods globally to exceed $1.7 trillion. – 2% of the world's total current economic output
•
•
“Phony medicines” – Can result in the deaths of people using them – medicines with insufficient doses can lead dangerous pathogens to become resistant to legitimate drugs. Examples of counterfeit or mislabeled products having fatal consequences – Toxic cough syrup in Panama – Tainted baby formula in China – Fake teething powder in Nigeria
"When the toy that you thought was from Disney contains lead paint, then you care."
Why Do We Care? •
$5 Million worth of fake degrees and diplomas for fake schools – None of the colleges had any faculty or courses – Associate Degree was $475, a Bachelor’s Degree was $495, Masters Degree was $525, and a Doctoral Degree was offered for $550
•
Cigarette smuggling causes $50 Billion in lost tax revenue to governments around the world
•
Counterfeit vodka operation that was managed by the Irish Republican Army (IRA) – Fake alcohol from Eastern Europe and filled empty bottles with counterfeit alcohol
•
A 10 day crackdown against counterfeit drugs coordinated by Interpol in May 2014 lead to 8.4 million doses of fake drugs. – 10,603 websites that were selling counterfeit medicines were shut down.
Summary
Traditionally industry systems and methods were not designed to detect deliberate and deceptive product alterations
Threat is Real & Growing …Prevention Methods must Out Pace the Threat
Continue to Evolve, Educate, Communicate & Enforce Prevention Measures
Engaging with Customers & Industry to Develop the Most Effective, State of the Art Prevention Measures Possible
Hardware qualification is crucial as Microcircuits and firmware are present in every device around us, from our cars to sophisticated defense systems.
Questions
