US Tech Is Helping Guide Russian Missiles Into Ukraine

Published Oct 3, 2024, 5:00 PM

After a Russian missile hit the Ukrainian city of Chernihiv, Ukrainian investigators found the navigation system had components made by four Western companies, including two in the US. 

Today on the Big Take, Bloomberg reporter Stephanie Baker talks to host David Gura about how these components are making their way to the battlefield and what steps the US government is taking to try to prevent that from happening. 

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It's David here, and before we get into today's show, I want to give you a heads up. The story is graphic. It involves violence and war, so take care while listening. It's a summer morning in August of twenty twenty three, and Ola Kleinska and her six year old daughter Sofia are on a train bound for the city of Cherniev in northern Ukraine. Almost eighteen months have passed since Russia launched its full scale invasion of Ukraine. The war in the East continues to rage, but Cherniev has not seen much fighting For more than a year. The city and its three hundred thousand residents have been living in relative peace. So Olha had planned to take a trip there to visit her friend Yulia and Julia's three year old twin girls. Their train arrives just after eleven in the morning, and Olha and Sofia pile into their friend's car.

To the center of town, a beautiful, beautiful Ukrainian town with golden domed churches and beautiful parks.

Bloomberg Investigated reporter Stephanie Baker has spent months reporting on what happened.

Next, they park on the side of the main square and they run out into the main park surrounding that square, and the girls jump on a wooden stage which is used for children's performances, and begin play acting. And they're playing with their little beaded bracelets that keep falling off their risks.

The city of Cherniev is about sixty miles from the Russian border. An air raid alert goes off at eleven nineteen that morning, signaling incoming drones or missiles, but many locals either don't hear it or they assume it's because of Russia attacking border towns miles away. They carry on as normal, that is until eleven twenty eight.

Suddenly, Olha here's a rumble and looks up and sees a missile flying through the air above the tree tops.

The missile is heading for a building next to the park where a convention for military drone makers is being held.

The missile explodes above a theater on the edge of the main square. The missile does not hit the theater. It explodes above the theater and hurls shrapnel across a roughly half mile radius.

Even from five hundred feet away. The blast is strong enough to lift up the stage in the park where the children are playing, and it lands on Allha's foot. She's trapped, but close enough to see that her daughter, Sophia has been struck in the chest by a piece of shrapnel and she's bleeding on the stage.

She screams for help, saying there's a little girl here. Two men come up lift the stage off of her foot. She rushes to her daughter, looks around and realizes that the square is just a bloody battlefield, and she realizes that there was no time to waste. Instead of waiting for an ambulance, she decides to flag down a car, climbs into the back with her daughter in her arms, and the car races against oncoming traffic to a hospital, and she feels quite confident that her daughter will survive and whispers to her, you know, don't leave me, don't leave me.

When they get to the hospital, Sofia is taken into surgery, Olha hopes she's made it there in time.

They try to save her, but after about two hours her daughter is pronounced dead.

Missiles killing civilians people just going about their daily lives is an unfortunate reality in Ukraine. Right now. But the missile that killed Sophia was able to target Triurney of Center so precisely because of Western components parts inside its navigation system, parts that shouldn't have been there, because the sale of those components to Russia's defense industry has been banned for over two years. After Russia's invasion of Ukraine, the US and almost forty allies put in place export controls designed to keep certain components like Western made semiconductor chips, out of the hands of the Russian military. In theory, that should have stopped the flow of Western components to Russia, but Stephanie says Russian import records tell a different story.

I have spent months going through Russian customs data trying to quantify how much Russia has been able to get its hands on, and it's shocking. Actually, millions of components have been sent to Russia in violation of export controls since the war. Full scale war began in twenty twenty two.

Today, on the show, how American tech is ending up in the missiles Russia is firing into Ukraine and what can be done to stop it? I'm David Gura, and this is the big take from Bloomberg News. Bloomberg Stephanie Baker has been reporting on Russia for decades. She says, the reason we know parts of the missile that killed six year old Sofia and TERNIAV came from the US is because of Ukrainian investigators.

So every time a missile strikes targets in Ukraine, Ukrainian investigators go to the scene and try to pick up the pieces to try to determine what kind of a missile it was.

Some of those pieces end up at the Kiev Scientific Research Institute of Forensic Expertise, and Stephanie recently traveled there.

You go in behind an iron gate into a kind of ramshackle yard filled with Russian down drones and pieces of Russian missiles.

She went with Bloomberg's Kiev bureau chief Darina Krasnalutska to meet with one of the people who investigated the Chernya.

Of attack, Alexander Visikan. He's this white haired, bearded Ukrainian who used to work in the Ukrainian military, and he's one of the main investigators examining these computer chips and fragments and trying to document them.

What do you mean, ssicon walked them through how he figured out Western components were in the s N ninety nine navigation system the missile from Triniev.

When did you first see those Western components from the SN ninety nine? Was it in a box when you first saw it here?

When boxes were transferred here. They looked through some of the wreckage from the missile, and Visicon pulled out a magnifying glass to show them how he and his colleagues examined parts to determine who made them and when.

By the way, I see, I see the date, he says, really like forensic. I know why they're called the forensic Institute.

Now. After examining the navigaateation system of the missile that killed Sophia, Visicon and his team found components from four Western companies in Fineon Technologies, which is headquartered in Germany, Integrated Silicon Solution, a US based company with Chinese ownership, Silicon Laboratories, an Austin based company, and finally Analog Devices, which is an American semiconductor manufacturer. That last company, Analog Devices, was a familiar one to Visicon and his colleagues. They've cataloged components they've recovered from Russian missile strikes since the start of the full scale invasion. In total, investigators have identified more than thirty eight hundred of them from Russian missiles fired on Ukraine that were made by foreign companies, and the company whose components appear most often is Analog Devices.

It's based in Massachusetts. It's one of the oldest semiconductor manufacturers, started by two MIT graduates. It's not one of the biggest, It's not like an Nvidia, but it occupies an important niche conductor industry by producing sort of low end semiconductor chips that power things like mobile phone networks and everyday electronic devices. It's owned by big major institutional investors like black Rock.

And Vanguard, and according to import records, its components are very much in demand in Russia. More than three hundred million dollars worth of the company's semiconductors were imported into the country in twenty twenty three alone, so hundreds of millions of dollars of American semiconductors from companies like Analog Devices have made it into the hands of Russia's defense industry. Even though the US and almost forty of its allies have agreed to make it illegal to send them there. I asked Stephanie, how is it possible that so many of Analog's components are ending up there? I take it they weren't doing business directly with Russia. So maybe, just in the case of this company, how were those component parts making their way to Russia?

Right? So, these Analog stress is that they do not do business with Russia. They regarded it as an illicit diversion of their products.

Analog Devices says it doesn't condone the Russian military using its products and it follows the latest government guidelines on how to sell them. The Austin based Silicon Laboratories says it has a robust export tracking program and complies with US and European restrictions, but the quote, once products are sold into the civil technology global mass market, bad actors can unlawfully divert products. A spokesperson for the German company Infineon said in an email that the company quote instructed all distribution partners globally to implement robust measures that will prevent any diversion of its products or services. Contrary to the sanctions. Integrated Silicon Solution, the US based company with Chinese ownership didn't respond to requests for comment, but Stephanie says Bloomberg does have an idea about how components from companies like Analog Devices have made it to Russia.

When you look through Russian customs data, you see a c of Hong Kong companies that we're selling analog device components to Russia.

So who are the middlemen who buy these parts from Western manufacturers and sell them on And is there anything that can be done to keep US tech from getting to Russia. That's after the break Bloomberg. Stephanie Baker has been reporting on the supply chain that moves US tech around the world and around the restrictions that are supposed to keep missile components out of the hands of the Russian military. Her reporting shows that many of these missile components are sold to Russia through companies in Hong Kong and China that buy the components from third party distributors and sell them on. And Analog Devices isn't the only Western company whose parts are flowing through these channels.

So some semiconductor producers in the US will use an authorized distributor who will then sell it on to someone else, who will sell it on to someone else emerged is a very elaborate network of middlemen, mostly in China, mostly in Hong Kong actually, who are selling Russia and the Russian military supplies of computer chips that they need for their defense industry.

So what do these companies look like on the ground. One of our colleagues in Hong Kong went to have a look.

In many cases, their addresses are just fake offices. One had turned into a beauty parlor, another was just a storage room. So it shows the incredible challenge of trying to shut this business down. They're just these shell companies that are opening up at addresses and shutting down in Hong Kong, reopening under another slightly different name.

But what about those manufacturers who are actually making these components? What responsibility do they have for where their products end up when they pass through these middlemen. If I'm at analog devices, how much do I have to do to understand or very where say a mother board in circuitry is headed, and like where it might go after that? In other words, how much of this is the responsibility of the manufacturer to keep track of where a product I'm making is going.

You're getting at the nub of the issue. They claim that once they've sold it on, it's not their responsibility. There are requirements for so called end user certificates. In other words, the end user of the component needs to comply with US export controls, but it's very hard to police that as it goes on.

Analog says it's taken steps to strengthen compliance. That includes implementing more robust customer screening protocols, collaborating with government agencies, and establishing an audit process to examine distributors for illicted shipments. On the government side, the department ultimately charged with policing where these components go is the US Commerce Department. Bloomberg asked them why they haven't done more to clamp down on companies whose components are ending up in Russian missiles. One official said that department was understaffed. But there's also the problem of having to prove that any violations were intentional.

The response is, well, we need proof that they have knowingly and willfully violated these export controls, and because they sell products onto other distributors, they can claim that they didn't know what was going on, and I think that's the principal challenge.

Meanwhile, Congress has probed the continued flow of technology to Russia in violation of export restrictions. Last month, the US Senate Permanent Subcommittee on Investigations held a hearing on this issue. Executives from semiconductor manufacturers, including Analog Devices and Texas Instruments, were asked to come answer questions before the committee, and some of the committee members were disappointed by what they heard.

The Democrats on that committee issued a scathing report saying that efforts by these companies to check their supply chains was woefully inadequate, that they'd failed to look under the hood, so to speak, and urge them to take greater action.

So what could Congress do? What could they require that would actually lock down these parts? Some lawmakers are turning to banking regulations for inspiration.

I know that there are some Senate staffers that are looking at new legislation that would enhance the so called know your customer rules for semiconductor companies, not unlike the know your customer rules that are imposed on banks. There was a time many years ago when banks said, oh, well, we can't trace where the money flows. Financial networks have been used for years through shell companies and layered transactions to try to hide money. So I think that's the real question is will there be increased requirements imposed on some of these companies to trace their supply chains.

I asked Stephanie, how resources on the ground back in Ukraine, some five thousand miles away from Washington, see what the US is doing.

I think the Ukrainians think that everyone's turning a blind eye to what's happening, and that the lack of enforcement is just because these companies are too important to Western economies and are making so much money that they're able to influence the political process. I think they're incredibly frustrated because I think they think it is possible to shut this down with some really tough enforcement action. And it's just the absurdity of the situation is that we are sending hundreds of billions of dollars to Ukraine in terms of military and financial aid, only for the Ukrainian military to be faced and the Ukrainian civilians to be faced by Western technology powering Russian missiles to attack Ukraine.

It's utterly absurd. Well, Stephanie was reporting in Ukraine. She and Bloomberg's Kiev bureau chief, Darina Krasnoalutska went to visit the mother of that six year old girl who was killed in the missile strike in Terniev. They returned to the park and watched as she carried out what's become kind of ritual in the years since that attack.

She buys a little cup of foamed milk with marshmallows at this cafe on the edge of the square, walks across the square, puts it on the stage next to flowers and stuffed animals where her daughter died.

Beside it are fresh flowers from all has parents. Artwork Sofia was working on in the days before her death, and some writing that Alha has left for her daughter.

Sofia was doing it, but she didn't all her finished it. She wrote this to no this is what does it say.

I'll translate it to you. So you are my love, all my life, my soul, and until my heart is beating, you will live forever.

She working on this in the train. It was incredibly emotional. We were all crying, and I think she's still in a state of disbelief that her daughter is gone, and she doesn't understand in a weird way, how it could happen that a missile five hundred feet away could strike her daughter alone on that stage.

The answer, in part is because a component made by an American company guided it there. This is the Big Take from Bloomberg News. I'm David Gera. This episode was produced by David Fox, Audriana Tapia, Alex Secura, and Julia Press. It was edited by Caitlin Kenny and Robert Friedman. It was mixed by Alex Secura and fact checked by Thomas lu Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beemster bore Sage Bowman is Bloomberg's head of Podcasts. If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts that helps people find the show. Thanks for listening. We'll be back tomorrow.

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