International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, September 15, 2015

Russian Agent Pleads Guilty to Leading Scheme to Illegally Export Controlled Technology to Russian Military

Alexander Fishenko, 49, of Houston, and a dual citizen of the United States and Russia, pleaded guilty today to acting as an agent of the Russian government within the United States without prior notification to the Attorney General, conspiring to export and illegally exporting controlled microelectronics to Russia, conspiring to launder money and obstruction of justice.

“Alexander Fishenko illegally acted as an agent of the Russian government in the United States and FBISealevaded export laws by sending microelectronics and other technology with military applications to Russia,” said Assistant Attorney General Carlin.  “By purposefully circumventing U.S. law, including the International Emergency Economic Powers Act and the Arms Export Control Act, the defendant jeopardized our national security.  I would like to thank the many members of law enforcement whose tireless efforts led to this guilty plea.”

“Fishenko lined his pockets at the expense of our national security,” said Acting U.S. Attorney Currie.  “This prosecution highlights the importance of vigorously enforcing United States export control laws.” 

The Scheme

As alleged in the indictment, between approximately October 2008 and the present, Fishenko and the other defendants engaged in a surreptitious and systematic conspiracy to obtain advanced, technologically cutting-edge microelectronics from manufacturers and suppliers located within the United States and to export those high-tech goods to Russia, while carefully evading the government licensing system set up to control such exports. The microelectronics shipped to Russia included analog-to-digital converters, static random access memory chips, microcontrollers, and microprocessors. These commodities have applications and are frequently used in a wide range of military systems, including radar and surveillance systems, missile guidance systems, and detonation triggers. Russia does not produce many of these sophisticated goods domestically.

According to the indictment and a detention motion filed by the government, defendant Alexander Fishenko was born in what was, at the time, the Soviet Republic of Kazakhstan, and graduated from the Leningrad Electro-Technical Institute in St. Petersburg, Russia. He immigrated to the United States in 1994 and became a naturalized citizen of the United States in 2003. In 1998, he founded defendant Arc Electronics Inc. in Houston. Between 2002 and the present, Arc has shipped approximately $50,000,000 worth of microelectronics and other technologies to Russia. Fishenko and his wife are the sole owners of Arc, and Fishenko serves as the company’s president and chief executive officer. Fishenko is also a part owner and executive of defendant Apex System LLC, a Moscow, Russia-based procurement firm. Apex, working through subsidiaries, served as a certified supplier of military equipment for the Russian government. Between 1996 and the present, Fishenko has regularly traveled back and forth between the United States and Russia. Defendant Alexander Posobilov entered the United States from Russia in 2001 and became a naturalized citizen in 2008. He joined Arc in 2004 and serves as its director of procurement. Posobilov was arrested at George Bush Intercontinental Airport in Houston on his way to Singapore and Moscow.

The defendants allegedly exported many of these high-tech goods, frequently through intermediary procurement firms, to Russian end users, including Russian military and intelligence agencies. To induce manufacturers and suppliers to sell them these high-tech goods and to evade applicable export controls, the defendants often provided false end-user information in connection with the purchase of the goods, concealed the fact that they were exporters, and falsely classified the goods they exported on export records submitted to the Department of Commerce. For example, in order to obtain microelectronics containing controlled, sensitive technologies, Arc claimed to American suppliers that, rather than exporting goods to Russia, it merely manufactured benign products such as traffic lights. Arc also falsely claimed to be a traffic light manufacturer on its website. In fact, Arc manufactured no goods and operated exclusively as an exporter.

According to the court documents, the defendants went to great lengths to conceal their procurement activities for the Russian military. For example, on one occasion, defendants Posobilov and Yuri Savin, the director of marketing at another Russian procurement firm, discussed how best to conceal the fact that certain goods Savin had purchased from Arc were intended for the Russian military. Savin asked Posobilov, “What can we do if a client is military all over?” Posobilov replied, “We can’t be the ones making things up. You should be the ones.” Similarly, on another occasion, defendant Fishenko directed a Russian procurement company that, when the company provided false end-user information, to “make it up pretty, correctly, and make sure it looks good.” On yet another occasion, Posobilov instructed a Russian procurement company to “make sure that” the end-use certificate indicated “fishing boats and not fishing/anti-submarine ones....Then we’ll be able to start working.”

Despite this subterfuge, according to the documents, the investigation revealed that the defendants were supplying Russian government agencies with sophisticated microelectronics. For example, the investigation uncovered a Russian Ministry of Defense document designating an Apex subsidiary as a company “certified” to procure and deliver military equipment and electronics. The FBI recovered a letter sent by a specialized electronics laboratory of Russia’s Federal Security Service (FSB), Russia’s primary domestic intelligence agency, to an Apex affiliate regarding certain microchips obtained for the FSB by Arc. The letter stated that the microchips were faulty and demanded that the defendants supply replacement parts.

In addition, in anticipation of an inquiry by the Department of Commerce regarding the export of certain controlled microelectronics, defendants Fishenko, Posobilov, and Arc salesperson Viktoria Klebanova allegedly directed Apex executives Sergey Klinov and Dmitriy Shegurov, as well as other Apex employees, to alter Apex’s website and forge documents regarding certain transactions to hide Apex’s connections to the Russian military. In connection with the cover-up, Apex removed images of Russian military aircraft and missiles and other links to the Russian Ministry of Defense from its website.

The Arc Defendants

In addition to Fishenko, Posobilov, and Klebanova, the indictment charged Arc salespersons Lyudmila Bagdikian, Anastasia Diatlova, Sevinj Taghiyeva, and Svetalina Zagon, as well as Arc shipping manager Shavkat Abdullaev, with one count of conspiring to violate and 21 counts of violating the International Emergency Economic Powers Act (IEEPA) and the Arms Export Control Act (AECA) and with conspiring to commit wire fraud. According to the indictment, these defendants obtained controlled microelectronics by lying and submitting false information regarding the true nature, users, and intended uses of the high-tech goods, then exporting the goods, without the required licenses, to procurement firms in Russia. The defendants’ principal port of export for these goods was John F. Kennedy International Airport in the Eastern District of New York.

The Foreign Defendants

According to the indictment, in addition to owning and controlling Arc, Fishenko is also a controlling principal of the Russian procurement firm Apex, the defendant Sergey Klinov is the chief executive officer of Apex, and the defendant Dmitriy Shegurov is an employee of Apex. Apex and its affiliates supplied microelectronics to Russian government agencies, including Russian military and intelligence agencies. The defendant Yuri Savin was the director of marketing at Atrilor Ltd., another Russian procurement firm. Klinov, Shegurov, and Savin conspired with Fishenko and the Arc defendants to obtain controlled U.S.-origin microelectronics and to export those technologically sensitive goods to Russia without the required export licenses by falsifying information to hide the true nature, users, and intended uses of the goods. In addition, Fishenko, Posobilov, Klebanova, Klinov, and Shegurov were charged with obstruction of justice, and Fishenko and Arc were charged with conspiring to commit money laundering.

The individual defendants face maximum terms of incarceration of five years for the conspiracy charge, 20 years for each of the substantive IEEPA and AECA charges, and 20 years for the obstruction of justice charge. In addition, Fishenko faces a maximum term of incarceration of 20 years for conspiring to commit money laundering and 10 years for acting as an unregistered agent of the Russian government. The corporate defendants face fines of up to $500,000 for the conspiracy count and $1 million for each of the substantive IEEPA and AECA counts.

“The receipt of U.S.-made, cutting-edge microelectronics has advanced Russia’s military technological capabilities. NCIS and the Department of the Navy have worked closely with the FBI, the Department of Justice, and the Department of Commerce in this investigation due to the potential for significant enhancement of Russian naval weapons systems that would result from the illegal acquisition of these export-controlled technologies,” said Special Agent in Charge Timothy W. Reeves, NCIS Central Field Office.

As a result of this case, there may be victims and witnesses who need to contact the agencies involved in the investigation. If your business has been approached by one of the defendants or by someone trying to obtain export-protected, sensitive technology who appeared not to be legitimate, please report that information to businessoutreach@leo.gov. The information will remain confidential and will be handled by the appropriate authorities.

The charges contained in the indictment are merely allegations, and the defendants have not yet been convicted of these offenses.

The Defendants:

Arc Electronics Inc.
Principal Place of Business: Houston, Texas

Apex System LLC
Principal Place of Business: Moscow, Russia

Alexander Fishenko, age 46 (now 49)

Shavkat Abdullaev, age 34

Lyudmila Bagdikian, age 58

Anastasia Diatlova, age 38

Viktoria Klebanova, age 37

Sergey Klinov, age 44

Alexander Posobilov, age 58

Yuri Savin, age 36

Dmitriy Shegurov, age unknown

Sevinj Taghiyeva, age 32

Svetalina Zagon, age 31

The Alexander Fishenko guilty plea took place before U.S. District Judge Sterling Johnson Jr. of the Eastern District of New York.  At sentencing, Fishenko faces up to 20 years in prison for each violation of the International Emergency Economic Powers Act and the Arms Export Control Act, up to 20 years in prison for money laundering conspiracy and obstruction of justice and up to 10 years in prison for acting as a Russian agent.  The defendant will also face potential criminal forfeiture and fines.

Four members of the conspiracy have pleaded guilty and three are scheduled to commence trial on Sept. 21, 2015.

https://lawprofessors.typepad.com/intfinlaw/2015/09/russian-agent-pleads-guilty-to-leading-scheme-to-illegally-export-controlled-technology-to-russian-military.html

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