The U.S. Department of Defense (DOD) spends billions of dollars each year on parts. Aircraft parts, electronics for ship navigation systems, even parts for firearms. When Uncle Sam writes a check for these parts it wants assurances that the parts are genuine.
Unfortunately, counterfeit parts are a big problem. Even though the public may not be aware of the growing counterfeit goods problem, it cost taxpayers tens of millions per year. Electronic parts are particularly prone to counterfeiting as are airplane parts. Often the latter are recycled parts that are simply cleaned and polished so that they look new.
A 2012 Department of Commerce study said, “No type of company or organization has been untouched by counterfeit electronic parts. Even the most reliable of parts sources have discovered counterfeit parts within their inventories.”
Obviously it is both fraud and theft if you sell someone an imitation product. Unfortunately, when it comes to DOD purchases, counterfeit goods endanger our servicemen and women.
Would you want to be flying an airplane faster than the speed of sound knowing that some of the turbine parts in the jet’s engine were 15 years old and had outlived their useful life? What about the crew of a Navy destroyer relying on cheap knockoff electronics in their anti-missile defense system?
In 2011, the Defense Department issued tough new rules to punish contractors and vendors that supply imitation or falsely labeled used parts. Those rules were recently amended to allow contractors a safe harbor if purchasing parts from a “trusted supplier.” The new rules are part of the National Defense Authorization Act (NDAA). The new safe harbor rules now only apply to counterfeit electronic parts however.
Whistleblowers Who Report Counterfeit Parts Eligible for Awards
Under current rules, anyone in the supply chain who provides counterfeit, imitation or used parts marked as new can be prosecuted under the federal False Claims Act. It doesn’t matter whether the imitation goods are electronic are not or whether they violate the new NDAA rules.
Vendors and contractors who become aware of counterfeit goods must also notify the government even if they were not the original supplier. That means a subcontractor who supplies used airplane parts can be prosecuted as well as the prime contractor if the prime contractor learned of the problem but did alert the government.
We have seen several scams involving both jet engine parts and electronics. Just like designer clothing and accessories are frequently counterfeited, we believe the problem in the defense industry is also widespread.
Under the False Claims Act, an insider who files a claim under the Act is eligible to receive an award of between 15% and 30% of whatever the government collects from the wrongdoer. The government can seek triple damages and penalize wrongdoers up to $20,000 per violation too. That means the penalties add up quickly as do the rewards.
Anyone with information about counterfeit parts being sold to the military is urged to contact us immediately. Awards are generally paid only to the first to file. Not quite ready to take action? View our government contract fraud page for more information.