How Russia Uses American Businesses to Steal U.S. Military Technology

Microelectronics used in missiles and radar are tightly regulated so they don’t slip into the wrong hands. The Kremlin’s reach is long though.

How Russia Uses American Businesses to Steal U.S. Military Technology

Photo Illustration by Elizabeth Brockway/The Daily Beast

Russia doesn’t only use spies to steal secrets. Sometimes those doing its dirty work are ordinary American businessmen.

The sentencing of two women in Brooklyn federal court last week brought an end to a long criminal drama in which they helped their boss Alexander Fishenko smuggle military-grade technology to Russia. Prosecutors had even noted a “striking similarity between fluctuations in [his company’s] gross revenues and the Russian Federation’s defense spending over the last several years,” according to court documents.

Fishenko owned Arc Electronics, a Houston, Texas, company that falsely claimed to manufacture traffic lights while it really exported high-tech products like microelectronics, according to a criminal complaint. Fishenko also co-owned a Moscow-based business focused on getting microelectronics for Russian military and intelligence agencies. Fishenko used these companies to act as an unregistered Russian agent, feds alleged. Fishenko also violated regulations on exporting controlled microelectronics to foreign countries who might use them to advance their own military capabilities.

The types of technology Arc sent to Russia could have been used for military radar and surveillance systems, and even for missile guidance systems, prosecutors said. Over 10 years, the company shipped more than $50 million worth of these sensitive technologies straight to suppliers for Russian intelligence.

“Russia does not domestically produce many of these sophisticated goods,” prosecutors noted after Fishenko’s sentencing.

Though the company was based in Texas, the case was tried in a Brooklyn court because the company used New York’s John F. Kennedy International Airport to carry out the scheme.

“Communications intercepted during the investigation revealed that a large portion of the technology exported by defendants was destined for Russian military agencies,” prosecutors wrote in court filings. “Specific correspondence recovered during the course of the investigation revealed that the Federal Security Service, Russia’s domestic intelligence agency, as well as Russian military entities, were the end users of some of the microelectronics exported by Arc.”

The technologies exported by Arc were regulated under the International Emergency Economic Powers Act, which concerns items that could be used by foreign powers to build their own military capabilities to the detriment of the U.S.

Arc employees received orders for sophisticated, sensitive technologies from Russian companies who were suppliers for Russian military and intelligence agencies. Then the Arc employees purchased the technologies from U.S. manufacturers under false pretenses. When they ran into roadblocks, prosecutors said in court filings, Arc employees would try to get the technologies from other sources who asked fewer questions.

Arc also appeared to take part in money laundering, according to prosecutors, and “regularly received incoming international wire transfers from shell corporations that had no apparent connection to the microelectronics industry.”

To be sure, U.S. and Russia have a long history of stealing technical secrets. Soviet engineer Adolf Tolkachev smuggled the CIA detailed notes on Soviet technical advances for over five years, until he was caught and executed.

The Fishenko case began in between the revelation of a network of 11 Russian spies—the “Illegals Program”—and the arrest of a spy working for a Russian bank in New York. At a time when Russian government-linked troll farms pay ordinary Americans to organize rallies and sow discord, this case is an example of how Moscow’s reach can also target more sensitive and secretive materials.

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Eleven individuals and two corporations were charged in the Fishenko case. Five of the defendants pleaded guilty. Dmitry Shegurov, Sergey Klinov, and Yury Savin are believed to be in Russia. Three others, Alexander Posobilov, Shavkat Abdullaev, and Anastasia Diatlova, were convicted at a 2015 trial for their roles in the scheme, with former colleagues testifying against them. (Diatlova, a low-level sales clerk, appealed her conviction and was granted a new trial.)

Victoria Klebanova, another of the salespeople at Arc, testified that she knew their overseas customers were affiliated with the Russian military. Klebanova said the Houston-based company would portray itself as a “contract manufacturer” to producers of sensitive technology to get around questions of what a re-sales company would do with the sensitive products. Then Arc would turn around and sell them overseas, she said.

Fishenko admitted his guilt days before trial, was sentenced to 10 years in prison, and ordered to return $500,000 in illicit proceeds. But in a pre-sentencing appeal to the judge, he maintained that he was a patriot and not a Russian spy.

“I fear that you have this image of me as some kind of secret agent,” Fishenko said. “I read some press reports saying that I pleaded guilty to being a Russian spy, I which of course I did not, and of course I am not.”

Fishenko said he was pursuing the American dream and just happened to pick up Russian customers because of his background. He said his actions were more “sloppy” than malicious.

“I broke the law but not with the motive of hurting my family, my friends, or my country—the United State of America,” Fishenko pleaded.

But Judge Sterling Johnson was not swayed.

In court last week, Fishenko’s saleswomen met a more lenient sentence in Judge Sterling’s empty courtroom. After recounting their cooperation, health, and family issues to Judge Sterling, he sentenced them both to supervised release.