OPINION:
A U.S. manufacturer of computer chips for civilian appliances receives a large order for components for washing machines. Both firms are aware that these components can also be used to guide missiles. The contractor is an old client, or perhaps a subsidiary of a known multinational, and cuts corners performing due diligence.
As a result, Kh-101 and Kh-555 missiles hit an apartment block in Kryvyi Rih, Ukraine, killing 12 people and injuring 38 others.
In the last 18 months, U.S. chipmakers have awakened to the liability avalanche facing them. U.S. regulators have started to crack down on American companies complicit in sanctions avoidance.
These companies have reached a critical point where the potential penalties to shareholders are thousands of times as large as any potential profit from this illicit trade.
While the oversight of regulators alone should be scary enough, these companies will likely face the added threat of litigation from victims and their families, suing manufacturers in U.S. court for facilitating the weapons that destroyed their lives.
Will American chipmakers be found guilty of negligence in selling critical components to the Russian military? That depends on the courts believing these companies were sufficiently diligent in screening bad actors downstream.
While major players are strictly complying with export restrictions originating from their own warehouses, they are failing at policing downstream contractors playing fast and loose with current regulatory rules. It’s easy for chipmakers to refuse to sell chips directly to Russia’s defense ministry.
It’s much harder to prevent, for example, dual-purpose chips being gutted out of legitimate civilian goods and reexported illegally without active monitoring of all clients for legitimacy.
I find that excuse somewhat confusing.
We already have proven technology working to track a Coca-Cola bottle or a pack of cigarettes from the factory to the end consumer, presumably under the guise of preventing counterfeiting and taxation avoidance, so tracking a chip’s path from a U.S. factory to a Russian missile hitting a Ukrainian apartment block should be just as trivial.
Is taxing cigarettes a higher priority than preventing genocide? Ignorance is not an excuse if the company willingly closes its eyes to malfeasance.
While mechanisms are in place for drawing U.S. companies’ attention to downstream sanctions avoidance, more needs to be done internally to prevent regulatory attention in the first place. The wheels of justice grind finely but turn exceedingly slowly in situations where speed is paramount.
Ukrainian citizens cannot afford to find Western chips destroying their homes after the fact. All parties involved bear responsibility for ensuring they are not facilitating genocide, from the initial manufacturer to the final distributor.
As it stands, U.S. manufacturers are able to export to presumably vetted contractors, which then sell the goods to unrelated, fly-by-night, third-party operations friendly to the Russian state apparatus through a network of “neutral” jurisdictions.
This convoluted chain of custody allows companies to feign ignorance of how sanctioned illegal regimes managed to acquire their products. But as much as these companies would like to ignore this reality, export restriction enforcement is the responsibility of the original manufacturer.
Just as end-user certificates for arms are aggressively enforced by U.S. firms so as not to lose their preferential status, so too should dual-use technologies be monitored and proactively safeguarded from bad actors by the companies that make them.
As you read this column, rockets guided by Western chips are being loaded onto long-range bombers to strike civilian targets in Ukraine. Investigators are working to establish the facts of the case, but I can only hope these components were not manufactured in 2023. The veneer of ignorance will be much harder to uphold for components clearly exported after sanctions were announced.
Stronger penalties for insufficient due diligence can prevent the most egregious sanctions avoidance cases, but the industry should be more proactive in monitoring their products post-sale. Commercial track-and-trace systems are already in place in various industries to monitor compliance throughout the supply chain, so there can be no excuse for manufacturers of sensitive export-restricted technologies not to implement similar systems.
How a Maldivian company, registered shortly after the start of the invasion, with no office or legitimate business presence, managed to procure and reexport controlled components to Russia should be keeping U.S.-based executives up at night.
Government enforcement can only do so much. The industry must come together and strengthen internal compliance practices and implement commercially available technologies to ensure the authorized use of their products.
Aside from the obvious and substantial legal ramifications of enabling genocide, the moral weight of participating in the abhorrent destruction of Ukraine and its people should be at the forefront of any decision-making at U.S. chipmakers.
• David Zaikin is the founder of Ukraine Momentum, a London-based advisory group launched in response to the ongoing war in Ukraine.
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