October 3, 2024 • 18 mins
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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Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:08):
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
(00:29):
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
(00:51):
year old twin girls. Their train arrives just after eleven
in the morning, and Olha and Sofia pile into their
friend's car.
Speaker 1 (01:00):
To the center of town, a beautiful, beautiful Ukrainian town
with golden domed churches and beautiful parks.
Speaker 2 (01:08):
Bloomberg Investigated reporter Stephanie Baker has spent months reporting on
what happened.
Speaker 1 (01:13):
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.
Speaker 2 (01:33):
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.
Speaker 1 (01:55):
Suddenly, Olha here's a rumble and looks up and sees
a missile flying through the air above the tree tops.
Speaker 2 (02:05):
The missile is heading for a building next to the
park where a convention for military drone makers is being held.
Speaker 1 (02:12):
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.
Speaker 2 (02:29):
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.
Speaker 1 (02:48):
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,
(03:10):
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.
Speaker 2 (03:23):
When they get to the hospital, Sofia is taken into surgery,
Olha hopes she's made it there in time.
Speaker 1 (03:29):
They try to save her, but after about two hours
her daughter is pronounced dead.
Speaker 2 (03:35):
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
(03:58):
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.
Speaker 1 (04:22):
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.
Speaker 2 (04:45):
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
(05:07):
six year old Sofia and TERNIAV came from the US
is because of Ukrainian investigators.
Speaker 1 (05:13):
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.
Speaker 2 (05:25):
Some of those pieces end up at the Kiev Scientific
Research Institute of Forensic Expertise, and Stephanie recently traveled there.
Speaker 1 (05:33):
You go in behind an iron gate into a kind
of ramshackle yard filled with Russian down drones and pieces
of Russian missiles.
Speaker 2 (05:47):
She went with Bloomberg's Kiev bureau chief Darina Krasnalutska to
meet with one of the people who investigated the Chernya.
Speaker 1 (05:53):
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.
Speaker 2 (06:12):
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.
Speaker 1 (06:22):
When did you first see those Western components from the
SN ninety nine? Was it in a box when you
first saw it here?
Speaker 2 (06:32):
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.
Speaker 1 (06:49):
By the way, I see, I see the date, he says,
really like forensic. I know why they're called the forensic Institute.
Speaker 2 (06:56):
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,
(07:19):
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,
(07:41):
and the company whose components appear most often is Analog Devices.
Speaker 1 (07:45):
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
(08:09):
electronic devices. It's owned by big major institutional investors like
black Rock.
Speaker 2 (08:16):
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.
(08:39):
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?
Speaker 1 (08:56):
Right? So, these Analog stress is that they do not
do business with Russia. They regarded it as an illicit
diversion of their products.
Speaker 2 (09:02):
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
(09:24):
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
(09:44):
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.
Speaker 1 (09:55):
When you look through Russian customs data, you see a
c of Hong Kong companies that we're selling analog device
components to Russia.
Speaker 2 (10:07):
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
(10:28):
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.
Speaker 1 (10:51):
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
(11:14):
their defense industry.
Speaker 2 (11:15):
So what do these companies look like on the ground.
One of our colleagues in Hong Kong went to have
a look.
Speaker 1 (11:21):
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
(11:42):
Hong Kong, reopening under another slightly different name.
Speaker 2 (11:45):
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
(12:07):
of the manufacturer to keep track of where a product
I'm making is going.
Speaker 1 (12:11):
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.
Speaker 2 (12:32):
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
(12:53):
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.
Speaker 1 (13:06):
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.
Speaker 2 (13:23):
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.
Speaker 1 (13:46):
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.
Speaker 2 (14:02):
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.
Speaker 1 (14:11):
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
(14:33):
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.
Speaker 2 (14:48):
I asked Stephanie, how resources on the ground back in Ukraine,
some five thousand miles away from Washington, see what the
US is doing.
Speaker 1 (14:55):
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
(15:16):
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
(15:37):
by Western technology powering Russian missiles to attack Ukraine.
Speaker 2 (15:42):
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.
Speaker 1 (16:03):
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.
Speaker 2 (16:17):
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.
Speaker 1 (16:32):
Sofia was doing it, but she didn't all her finished it.
She wrote this to no this is what does it say.
Speaker 2 (16:47):
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.
Speaker 1 (16:59):
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.
Speaker 2 (17:23):
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
(17:44):
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.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:08):
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
(00:29):
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
(00:51):
year old twin girls. Their train arrives just after eleven
in the morning, and Olha and Sofia pile into their
friend's car.
Speaker 1 (01:00):
To the center of town, a beautiful, beautiful Ukrainian town
with golden domed churches and beautiful parks.
Speaker 2 (01:08):
Bloomberg Investigated reporter Stephanie Baker has spent months reporting on
what happened.
Speaker 1 (01:13):
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.
Speaker 2 (01:33):
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.
Speaker 1 (01:55):
Suddenly, Olha here's a rumble and looks up and sees
a missile flying through the air above the tree tops.
Speaker 2 (02:05):
The missile is heading for a building next to the
park where a convention for military drone makers is being held.
Speaker 1 (02:12):
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.
Speaker 2 (02:29):
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.
Speaker 1 (02:48):
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,
(03:10):
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.
Speaker 2 (03:23):
When they get to the hospital, Sofia is taken into surgery,
Olha hopes she's made it there in time.
Speaker 1 (03:29):
They try to save her, but after about two hours
her daughter is pronounced dead.
Speaker 2 (03:35):
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
(03:58):
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.
Speaker 1 (04:22):
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.
Speaker 2 (04:45):
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
(05:07):
six year old Sofia and TERNIAV came from the US
is because of Ukrainian investigators.
Speaker 1 (05:13):
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.
Speaker 2 (05:25):
Some of those pieces end up at the Kiev Scientific
Research Institute of Forensic Expertise, and Stephanie recently traveled there.
Speaker 1 (05:33):
You go in behind an iron gate into a kind
of ramshackle yard filled with Russian down drones and pieces
of Russian missiles.
Speaker 2 (05:47):
She went with Bloomberg's Kiev bureau chief Darina Krasnalutska to
meet with one of the people who investigated the Chernya.
Speaker 1 (05:53):
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.
Speaker 2 (06:12):
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.
Speaker 1 (06:22):
When did you first see those Western components from the
SN ninety nine? Was it in a box when you
first saw it here?
Speaker 2 (06:32):
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.
Speaker 1 (06:49):
By the way, I see, I see the date, he says,
really like forensic. I know why they're called the forensic Institute.
Speaker 2 (06:56):
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,
(07:19):
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,
(07:41):
and the company whose components appear most often is Analog Devices.
Speaker 1 (07:45):
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
(08:09):
electronic devices. It's owned by big major institutional investors like
black Rock.
Speaker 2 (08:16):
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.
(08:39):
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?
Speaker 1 (08:56):
Right? So, these Analog stress is that they do not
do business with Russia. They regarded it as an illicit
diversion of their products.
Speaker 2 (09:02):
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
(09:24):
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
(09:44):
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.
Speaker 1 (09:55):
When you look through Russian customs data, you see a
c of Hong Kong companies that we're selling analog device
components to Russia.
Speaker 2 (10:07):
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
(10:28):
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.
Speaker 1 (10:51):
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
(11:14):
their defense industry.
Speaker 2 (11:15):
So what do these companies look like on the ground.
One of our colleagues in Hong Kong went to have
a look.
Speaker 1 (11:21):
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
(11:42):
Hong Kong, reopening under another slightly different name.
Speaker 2 (11:45):
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
(12:07):
of the manufacturer to keep track of where a product
I'm making is going.
Speaker 1 (12:11):
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.
Speaker 2 (12:32):
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
(12:53):
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.
Speaker 1 (13:06):
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.
Speaker 2 (13:23):
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.
Speaker 1 (13:46):
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.
Speaker 2 (14:02):
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.
Speaker 1 (14:11):
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
(14:33):
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.
Speaker 2 (14:48):
I asked Stephanie, how resources on the ground back in Ukraine,
some five thousand miles away from Washington, see what the
US is doing.
Speaker 1 (14:55):
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
(15:16):
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
(15:37):
by Western technology powering Russian missiles to attack Ukraine.
Speaker 2 (15:42):
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.
Speaker 1 (16:03):
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.
Speaker 2 (16:17):
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.
Speaker 1 (16:32):
Sofia was doing it, but she didn't all her finished it.
She wrote this to no this is what does it say.
Speaker 2 (16:47):
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.
Speaker 1 (16:59):
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.
Speaker 2 (17:23):
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
(17:44):
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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