TI signboard at its facility in Dallas. (Texas Instruments/Wikimedia Commons)
(Bloomberg) -- US semiconductors have continued to flow to Russian military-linked companies this year in spite of export restrictions aimed at cutting them off - with Texas Instruments Inc. and Analog Devices Inc. emerging as the biggest makers of those chips.
Shipments of the semiconductors surged in the first half of the year, many of them traveling through Hong Kong on their way to the sanctioned country, according to Russian customs data provided by the Washington-based investigative nonprofit C4ADS. That’s undermined efforts to keep technology away from Vladimir Putin’s military following the invasion of Ukraine.
Representatives for TI and Analog Devices said they didn’t sell the chips directly to the Hong Kong entities and both stopped doing business with Russia in 2022. Still, the companies’ semiconductors have continued to stream into the country, showing the challenges of keeping US technology out of Russian hands.
More than 200 businesses in Russia - two now sanctioned by the US - received 17,000 TI chips from January through May of this year, according to a Bloomberg News analysis of the data. The shipments had a total value of $25 million. Chips sent to the now-sanctioned Russian entities were handled by two Hong Kong companies that were sanctioned in October for supplying Russian military-linked companies, the data show.
The top Russian recipient of TI’s chips, receiving $3 million worth in the period, was vehicle electronics maker NPP Itelma, which was added to the US Treasury’s sanctions list targeting Russian military-linked companies in September. The second-largest, VMK, received $2.3 million worth of TI chips. It also was sanctioned in September, for being a supplier of electronic warfare systems to the Russian military.
In the case of TI, the ubiquity of its chips is a factor: It has the widest selection of products in the industry, offering components that go into everything from washing machines to rockets. The company’s semiconductors also don’t go obsolete as quickly as other electronics, letting them stay in circulation longer.
TI said it had no knowledge that its chips were sold onward to military-linked entities in the country.
“TI strongly opposes our chips’ use in Russian military equipment and the illicit diversion of our products to Russia,” the company said in an emailed statement. “Any shipments of TI products into Russia are illicit and unauthorized.” Also, because the company produces a high volume of chips that can last decades and be used for multiple types of electronics, it’s possible they could have been in inventory before sanctions against Russia were enacted, TI said.
Still, US companies could go further to stem the flow of products to Russia, said Jack Freed, an analyst at C4ADS. Abnormal volumes of trade - plus links to Russia at broker firms - should give chipmakers reason to be suspicious about how their products are being handled, he said. There’s a “need for companies to do more to understand their products’ end use,” Freed said.
The value of the TI chips sent to Russia was just a tiny fraction of its roughly $18 billion in annual sales. But the semiconductors are part of a flood coming into the country from Hong Kong, according to C4ADS, which shared the information with Bloomberg News and assisted in its analysis. The firm based the research on publicly available information including customs data.
Almost 61,000 shipments of US and European chips traveled that way to more than 500 Russian companies in the first half of this year, the C4ADS research found. They were valued at $528 million in total. By just the middle of 2023, the shipments had already surpassed the 2022 total of $400 million by 32%.
Over the past year, Hong Kong has become the largest trade transit country for chips going to Russia, exceeding China, C4ADS found. Other countries sent far less.
Analog Devices, based in Wilmington, Massachusetts, also showed the same pattern of having its chips sent to the two now-sanctioned Russian companies via the two Hong Kong trading firms. The number exceed 13,000 in the period examined.
“Any post-sanctions shipment into these regions is a direct violation of our policy and the result of an unauthorized resale or diversion of ADI products,” the company said in a statement.
Intel Corp. was the largest manufacturer of chips that went to the wider array of Russian companies, but only one shipment of its semiconductors - sent in January and valued at less than $330 - went to a now-sanctioned Russian entity, VMK.
In a statement, Intel said that it “promptly suspended all shipments to customers in both Russia and Belarus following the outbreak of war.”
The company, based in Santa Clara, California, said it complies with sanctions and regulations in countries where it operates and requires customers and distributors to do the same. “Intel actively and diligently works to track and mitigate potential distributor issues and has zero tolerance for circumvention of its requirements,” it said.
The two Hong Kong companies that sent TI and ADI chips to Itelma and VMK - Win Key Ltd. and Tordan Industry Ltd. - sent a total of $62 million worth of chips to Russia during the period. Tordan, in its incorporation form and annual reports, lists as a corporate secretary a consulting firm that had a Russian national as its director, according to C4ADS. It also lists a Russian address and Russian and Chinese telephone numbers as its contacts, and uses the same postal address in an industrial tower in western Hong Kong Island as five other now-sanctioned Hong Kong trading companies, C4ADS said.
The company’s website advertises: “With the combination of a Hong Kong company and a Russian bank account, you can conduct business with any country in the world.”
Win Key couldn’t be reached through its website and has no listed number. There was no response to an email sent to Tordan via its corporate secretary and no answer at listed mobile numbers in China and Hong Kong.
It’s unclear how TI’s chips reached the Hong Kong businesses since the chipmakers say the products weren’t sold to them directly. Still, C4ADS researchers say that companies like TI should be more closely scrutinizing the flow of their products. Publicly available data on these intermediary firms present clear red flags, C4ADS’s Freed said.
TI said it spends significant time and money screening its customers. But it’s dealing with a complex network of brokers and resellers.
“TI has a dedicated team that oversees our longstanding, robust global trade compliance program across all of our operations,” the company said.
Companies have been held legally liable for violating the sanctions when it could be proved that they knew where their products would end up. “The question is whether they can say they don’t have knowledge,” said Diana Friling, a New York-based sanctions and export controls lawyer.
That means there’s legal incentive not to know the end user of a product, said Matthew Schmidt, associate professor of national security and political science at the University of New Haven. Even when companies are fined for violating trade rules, it’s a small penalty compared with how much they’d have to spend to do more extensive due diligence.
Still, US corporations should take on this work, in part to protect their own reputations, Schmidt said. “Companies have a moral obligation to know who their customer is,” he said.
Political changes in Hong Kong have also made it harder to enforce US trade rules, Schmidt said. Previously, the government was more friendly toward Western interests and worked with the US on trade enforcement, but with China tightening its control since 2019 that’s no longer the case, he said.
“We would have seen much more enforcement under the old Hong Kong,” Schmidt said.
With assistance from Ian King.
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