Three Defendants Convicted of Conspiring to Illegally Export Controlled Technology to the Russian Military

Earlier today, after a month-long trial, Alexander Posobilov, Shavkat Abdullaev and Anastasia Diatlova were convicted of all counts, including conspiring to export, and illegally exporting, controlled microelectronics to Russia.  Posobilov was also convicted of money laundering conspiracy.  These defendants, all of whom worked at Arc Electronics Inc. (Arc), a Houston-based corporation, and eight other individuals were originally charged in October 2012.  Five members of the conspiracy, including Arc owner Alexander Fishenko, previously pleaded guilty to related charges.

The convictions were announced by Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Robert L. Capers of the Eastern District of New York, Assistant Director Randall C. Coleman of the FBI’s Counterintelligence Division and Director Douglas Hassebrock of the Department of Commerce’s Office of Export Enforcement.

“Alexander Posobilov, Shavkat Abdullaev and Anastasia Diatlova evaded U.S. export laws to illegally send sophisticated microelectronics 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 defendants jeopardized our national security.”

“These defendants were key players in a sprawling scheme to illegally export sophisticated technology to Russia,” said U.S. Attorney Capers.  “Through lies and deceit, the defendants and their co-conspirators sold over $30 million of microchips, much of which was destined for Russian military and intelligence agencies.”

“By putting a halt to this conspiracy, and stopping the flow of these dual-use components to the Russian military and intelligence services, this verdict represents a clear victory for our national security,” said Assistant Director Coleman.

“Today’s convictions send a strong message to those who willfully evade export control laws and jeopardize the national security of the United States,” said Director Hassebrock.  “This case is the result of outstanding collaborative investigative work by the Justice Department, the Commerce Department and the FBI to break up a network whose aim was to illegally ship sophisticated U.S.-origin technology to Russia.”

The evidence at trial established that between approximately October 2008 and October 2012, these defendants and their co-conspirators obtained advanced, technologically cutting-edge microelectronics from manufacturers and suppliers located within the United States and exported 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.

Posobilov was the Procurement Director of Arc, Abduallev was the Shipping Manager and Diatlova was a salesperson.  To induce manufacturers and suppliers to sell them these high-tech goods, and to evade applicable export controls, the defendants and their co-conspirators often provided false end user information in connection with the purchase of the goods, concealed the fact that they were resellers and falsely classified the goods they exported on export records submitted to the Department of Commerce.  For example, Arc falsely claimed to be a traffic light manufacturer on its website.  In fact, Arc manufactured no goods and operated exclusively as an exporter.

Despite this subterfuge, the evidence established that the defendants were supplying Russian government agencies with sophisticated microelectronics.  For example, the investigation uncovered a letter sent by a specialized electronics laboratory of Russia’s Federal Security Service (FSB), Russia’s primary domestic intelligence agency, to an Arc customer 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.

Shortly before trial, Arc President Alexander Fishenko pleaded guilty to all charges against him, including acting as an agent of the Russian government without prior notification to the Attorney General, as well as conspiring to export, and illegally exporting, microelectronics to Russia, money laundering conspiracy and obstruction of justice.  Fishenko is currently awaiting sentencing.

When sentenced by U.S. District Judge Sterling Johnson Jr. of the Eastern District of New York, defendants Posobilov, Abdullaev and Diatlova face up to five years in prison for the conspiracy conviction, and up to 20 years in prison for each violation of the International Emergency Economic Powers Act (IEEPA) and the Arms Export Control Act (AECA).  Posobilov also faces up to 20 years in prison for money laundering conspiracy.

The case is being prosecuted by Assistant U.S. Attorneys Daniel Silver, Una Dean, Richard Tucker and Claire Kedeshian of the Eastern District of New York, as well as Trial Attorney David Recker of the National Security Division’s Counterintelligence and Export Control Section.

Joint Statement by the Department of Justice and the Office of the Director of National Intelligence on the Declassification of the Renewal of Collection Under Section 215 of the USA Patriot Act as Amended by the USA Freedom Act

On Aug. 27, 2015, the Foreign Intelligence Surveillance Court (FISC) issued a primary order approving the government’s application to renew the Section 215 bulk telephony program.  The USA FREEDOM Act of 2015 banned bulk collection under Section 215 of the USA PATRIOT Act, but provided a new mechanism to allow the government to obtain data held by the providers.  To ensure an orderly transition to this new mechanism, the USA FREEDOM Act provided for a 180-day transition period during which the existing National Security Agency (NSA) bulk telephony metadata program may continue.  After considering an application filed shortly after the passage of the USA FREEDOM Act, on June 29, 2015, the court held that the continuation of the NSA’s bulk telephony metadata program during the transition period remains consistent with both the statute and the Fourth Amendment.  The authority under the court’s June 29 order was set to expire today, Aug. 28, 2015.

The government recently filed an application to renew the authority to collect bulk telephony metadata.  On Aug. 27, 2015, the court authorized the continued collection of telephony metadata through Nov. 28, 2015, the end of the 180-day transition period contemplated by the USA FREEDOM Act.  As of Nov. 29, 2015, both the 180-day transition period and the court’s authorization will have expired and the bulk collection of telephony metadata pursuant to Section 215 will cease.

As previously stated in a July 27, 2015, Joint Statement, the NSA has determined that analytic access to the historical metadata collected under Section 215 (any data collected before Nov. 29, 2015) will also cease on Nov. 29, 2015.  However, solely for data integrity purposes to verify the records produced under the new targeted production mechanism authorized by the USA FREEDOM Act, the NSA, subject to court approval, plans to allow technical personnel to continue to have access to the historical metadata for an additional three months.  Separately, the NSA remains under a continuing legal obligation to preserve its bulk 215 telephony metadata collection until civil litigation regarding the program is resolved, or the relevant courts relieve NSA of such obligations.  The telephony metadata preserved solely because of preservation obligations in pending civil litigation will not be used or accessed for any other purpose, and, as soon as possible, the NSA will destroy the Section 215 bulk telephony metadata upon expiration of its litigation preservation obligations.

As background, in January 2014, early last year in a speech at the Department of Justice, President Obama announced that the intelligence community would end the Section 215 bulk telephony metadata program as it previously existed.  The President directed the intelligence community and the Attorney General to develop options for a new approach to match the capabilities and fill gaps that the Section 215 program was designed to address without the government holding this metadata.  After carefully considering the available options, the President announced in March 2014 that the government should not hold this data in bulk, and that the data should remain at the telephone companies with a legal mechanism in place that would allow the government to obtain data pursuant to individual orders from the FISC approving the use of specific numbers for such queries.

The President also noted, however, that legislation would be required to implement this new approach and the administration worked closely with Congress to enact the President’s proposal.  On June 2, 2015, Congress passed and President Obama signed the USA FREEDOM Act of 2015, which reauthorized several important national security authorities; banned bulk collection under Section 215 of the USA PATRIOT Act, under the pen register and trap and trace provisions found in Title IV of FISA, and pursuant to National Security Letters; and adopted the new legal mechanism proposed by the President.

As in past primary orders in effect since February 2014, and consistent with the President’s direction, the court’s new primary order requires that during the transition period, absent a true emergency, telephony metadata can only be queried after a judicial finding that there is a reasonable, articulable suspicion that the selection term is associated with an approved international terrorist organization.  In addition, the query results must be limited to metadata within two hops of the selection term instead of three.

The Office of the Director of National Intelligence will post the new primary order to its website and icontherecord.tumblr.com after it has undergone a classification review.