The chip industry’s open secret: Adversaries’ military tech relies on U.S. components

The U.S. and Iran have a history of trade restrictions that date back decades.

The current economic sanctions restricting imports and exports between the two countries were first imposed in 2012. They’ve been updated several times over the years, banning nearly every type of exchange of goods and services except those meant for humanitarian aid and informational services. Even those exempted categories still require a specialized license from the Commerce Department’s Bureau of Industry and Security.

While many of the harshest sanctions imposed on Russia didn’t start until after the invasion of Ukraine in February 2022, many exports to the country had been restricted since at least 2014 when Russia first violated Ukrainian sovereignty by annexing the country’s eastern peninsula, Crimea.

In the near-decade since, American semiconductor components have still found their way into Russian weapons.

“For the Russian systems, we see that a lot of these components were manufactured between 2014 and 2021. And for Iranian systems, we found a lot of components made in 2021, 2020 and then we’ve got some components from 2022, as well,” said CAR’s Spleeters.

The more recently dated parts demonstrate how Iran and Russia may have circumvented U.S. restrictions, according to the analyses done by CAR and RUSI.

Even more troublesome, according to that research: Some of the discovered components are classified as dual-use goods, with what are called Export Control Classification Numbers on the Commerce Control List. This means that a chip could be sold legally to a country for consumer or commercial use, only to then be resold to a company in a different country on the secondary market for military use. This type of re-routing of goods is known as transshipment and causes three problems, according to industry experts.

First, it’s more difficult for manufacturers and governments to trace end users, and second, it raises questions about the effectiveness of existing export controls given that many of these products were made recently and would have fallen under stricter regulations. What’s more, it underscores that an outright ban is likely unachievable, given the dual use of certain chips that are needed for commercial products.

All seven of the U.S. chipmakers CNBC contacted for comment condemned the unauthorized diversion of their products to countries like Russia and Iran.

A spokesperson for AMD said the company would take “immediate measures per our contract terms” if any of its products were found to be sold to these countries or regions.

Onsemi called export-control violations a “material breach” and said they “may lead to the termination of our contractual relationship with business partners.”

Texas Instruments said it does not “support or condone” the use of its products “in applications for which they weren’t designed.”

A spokesperson for Intel said, “We do not always know nor can we control what products our customers create or the applications end-users may develop,” but stressed the chipmaker “does not support or tolerate our products being used to violate human rights.”

Analog Devices said it takes the unintended misuse of its products “very seriously” and is strengthening efforts to counter these issues by “implementing enhanced monitoring and audit processes and taking enforcement action where appropriate.”

Microchip Technology said it uses “various methods including screening customers against restricted party lists” to help prevent the illegal use of its products.

And Infineon said it has directed global distribution partners to “prevent deliveries and to implement measures that will prevent any diversion of Infineon products or services contrary to the sanctions,” adding that it has reiterated this position “several times.”

Although the semiconductor companies and government officials CNBC spoke to acknowledge the unauthorized use of American chips is a serious issue, experts can’t agree on who is to blame.

“I don’t think the bulk of the bad behavior is with the manufacturer … It’s the ultimate buyers where I think you’ve got the real problem,” said Rep. Jim Himes, D-Conn., the ranking member of the House Permanent Select Committee on Intelligence.

“I think our supply chains are really so fundamentally weak,” said Nazak Nikakhtar, a partner at the law firm Wiley Rein and the former assistant secretary for industry and analysis at the International Trade Administration. “What I see all too often is for companies just to say, ‘This is not my problem. I have a good compliance mechanism. This is somebody else’s fault.'”

Others, however, blame what they say is a lack of government oversight.

“The Department of Commerce has been lax about export controls for too long, sending critical supplies like chips to third parties which it knows will turn around and sell those materials to adversary militaries. This must end,” said Sen. Tom Cotton, R-Ark, who serves on the Senate Select Committee on Intelligence. “We should deny export licenses to companies if we even suspect that they are helping our enemies evade U.S. sanctions.”

A spokesperson for the Commerce Department said its officials are aware of the transshipment issue with microelectronics and other goods. In response to the war in Ukraine, the department formed what it’s calling a “Global Export Control Coalition,” consisting of 38 international partners, many of which were key trading partners of Russia prior to the invasion of Ukraine.

The group’s purpose is to siphon off Russia’s access to many goods by implementing the same level of trade restrictions across the entire group.

“We’re constantly in communication with our allies and our interagency partners. We’re constantly tracking as much as we can, using every source of information that we have access to, to try and stay one step ahead and close off as many illicit networks as we can,” the department spokesperson said.

Stronger cooperation from U.S. allies could help lessen the degree to which these components end up in the hands of bad actors, according to Nikakhtar.

“Ally engagement in doing press releases and stating intent to do something is one thing, but really, the rubber has to meet the road. Allies need to revamp their system to ensure that the technologies aren’t being exported,” she said. “And the United States needs to lead.”

Correction: Conflict Armament Research is an independent research group. An earlier version of this story mischaracterized the organization.