Cisco Counterfeiting On the Rise?

When the U.S. Department of Justice Operation revealed a sweeping and formerly clandestine international investigation known as Operation Network Raider in May, it sounded like something out of a high-tech spy novel or a cyber punk book from William Gibson.

But Network Raider was neither. In reality, the operation was much less glamorous and involved no criminal masterminds or international intrigue. Instead, Network Raider concerned a staggeringly large amount of counterfeited Cisco network gear -- 700-plus products, totaling more than $143 million -- manufactured in China and procured via the Internet from sites such as eBay.

While the Justice Department’s announcement lauded the fact that Network Raider resulted in 30 felony convictions since the investigation was launched in 2005, the news came with a shocking and embarrassing side note: some of the fake Cisco gear -- 200 Cisco Gigabit Interface Converters, or GBICs, to be exact -- was procured by a GSA (General Services Administration) authorized reseller for a major contract to deliver the networking equipment to a Marine Corps base in Iraq near the hot zone of Fallujah.

While the counterfeit Cisco gear was intercepted by federal authorities before it was installed in Iraq, the case highlights the growing concern over phony hardware and shows just how easy it is to find such cheap counterfeit products on the open market, especially during a time when Cisco and other major vendors are grappling with painful supply chain shortages for valuable components.

Ehab Ali Ashoor, 49, was one of the figures singled out by the Justice Department in the counterfeiting bust. Ashoor, a Saudi citizen living in Sugar Land, Texas, ran a small reseller outfit called CDS Federal Inc., also known as Corporate Data Systems. According to the Justice Department’s statement on Operation Network Raider, Ashoor was awarded a contract to supply 200 Cisco GBICs to the Marine Corps for a computer network at a Marine base in Iraq.

Sometime prior Ashoor’s arrest last June, CDS Federal purchased 200 counterfeit Cisco GBICs from an online vendor in Hong Kong via eBay; while specific GBICs models can cost hundreds of dollars, Ashoor purchased the counterfeit product from the Chinese vendor for approximately $25 a unit, despite the fact that the Marine Corps contract agreed to pay CDS Federal $595 per unit.

That amounted to a whopping $113,000 profit and a 2,000 percent margin for Ashoor and CDS Federal. According to the Justice Department’s announcement, Ashoor was well aware that the equipment was not authentic Cisco product; he was warned by another online vendor that the GBICs sold by the Hong Kong e-tailer were counterfeit. In addition, the Justice Department stated that e-mails recovered by Immigration and Customs Enforcement (ICE) agents showed that Ashoor requested that the GBICs be in Cisco packaging so as to disguise the products illegitimacy.

Unfortunately for Ashoor, Customs and Border Protection (CBP) agents in Chicago intercepted the counterfeit GBICs after discovering irregularities with the shipment and prevented the phony Cisco gear from getting to Iraq. Had the counterfeit GBICs ended up at the Marine base, the DOJ said, the hardware would have been installed in computer networks as well as military vehicles to transmit vital information such as troop movements and locations and other kinds of sensitive intelligence.

After the shipment was intercepted by the CBP, federal agents arrested Ashoor last June at his home. Ashoor faced a maximum sentence of 10 years in prison and a fine of $2 million. In January he was found guilty after a short, three-day trial in U.S. District Court, which according to the DOJ, had the distinction of being ’the first [trial] in the nation involving counterfeit Cisco network hardware.’ Ashoor sentenced in May to 51 months in prison and order to pay nearly $200,000 in restitution to Cisco.

’Ashoor’s attempt to fulfill his contractual obligations to the U.S. Marine Corps through the use of counterfeit Cisco computer parts could have placed our men and women in uniform at risk had he been able to successfully deliver those counterfeit goods,’ said U.S. Attorney Jose Angel Moreno in a press statement. ’Thanks to the efforts of Customs and Border Protection (CBP) officers in Illinois, Ashoor did not succeed.’

Next: Counterfeiting Rings Busted

In addition, documents show that CDS Federal, Ashoor and several other individuals associated with the company were added to the GSA’s Excluded Parties List on May 12, nearly a week after Ashoor was sentenced. The Excluded Parties List prohibits formerly authorized GSA contractors from receiving new contracts, sub-contracts and financial assistance from the GSA.

But the story did not end there. Documents discovered by CRN showed that CDS Federal continued to receive government contracts during the course of the Operation Network Raider investigation and subsequent trial for Ashoor. According to USAspending.gov, a government site that tracks federal spending, CDS Federal signed 12 contracts after Ashoor was arrested, including several deals with the Department of Defense that was awarded just days after Ashoor was taken into custody.

While some of the contracts were for non-IT products, including everything from kitchen appliances firefighting equipment, some of the contracts were for IT hardware, software and services, according to USAspending.gov. All told, CDS Federal was award more than $2.3 million worth of government contracts -- many of them for the Department of Defense -- between fiscal year 2008 and 2010. According to various sources, Ashoor worked at another Houston-area government solution provider for several years before leaving to start his own business in CDS Federal.

For Cisco, this has become a familiar pattern of events. Last September, two brothers pled guilty to selling counterfeit Cisco products to U.S. Federal Bureau of Prisons. Michael and Robert Edman of Richmond, Texas, ran a reseller operation called Syren Technology and procured thousands of dollars worth of fake Cisco gear from a source in China named ’Tony,’ according to the Justice Department.

And in 2008, federal authorities revealed yet another major, multinational effort dubbed ’Operation Cisco Raider’ to curb counterfeit Cisco sales that netted more than 400 product seizures worth $76 million. The common themes once again were the products in question were Cisco networking gear and were manufactured in China. One company nabbed by Operation Cisco Raider was New York-based reseller Coletronic Computer and former owner Charles Lacy-Thompson, who was sentenced to 30 months in prison for trafficking and selling counterfeit Cisco product.

Last month Cisco issue a short internal interview with Dave Walters, director of Global Business Operations at Cisco’s Worldwide Brand Protection, who addressed Operation Network Raider and said the Brand Protection team is continuing to work hard to ’educate both partners and customers on the risks associated with purchasing networking equipment on the secondary market.’ Walters also said Cisco’s intellectual property experts continue to work with law enforcement and government agencies to curb the sale and distribution of counterfeit Cisco product.

According to the Justice Department, Cisco provided ’exceptional assistance’ throughout Operation Network Raider. The company e-mailed CRN a statement following the announcement of wide-ranging investigation.

"Counterfeiting is a very serious issue that impacts the entire high-tech industry on a global level, and Cisco and other leading IT companies have been actively addressing this issue for several years now. We are pleased with the government's renewed efforts to tackle this challenge, and we plan to continue to' support authorities around the world to curb this ongoing problem. Our top priority is to deliver the highest-quality authentic Cisco products and services to customers worldwide."

While Operation Network Raider was deemed a huge success by the government, it’s clear the sale of unauthorized gray market and counterfeit goods is still a major problem for the IT industry as well as the American economy. Amazingly, at press time Cisco GBICs were still available on eBay for as little as $5 from ’top-rated’ sellers according to the popular auction site’s feedback rating system. Time will tell if component shortages and supply chain constraints will lead to even more shady activity in the channel.