Particular Report-How a US agency equipped networking know-how to maker of feared Russian missiles

(publishes to further subscribers)

By Aram Roston and David Gauthier-Villars

WASHINGTON (Reuters) – Since Russia annexed Crimea in 2014, American firms have been prohibited from coping with MMZ Avangard, a state-owned agency that makes missiles for one in every of Russia’s most refined weapons, the S-400 air-defense system.

In a measure of Western concern in regards to the S-400, the USA ejected Turkey, a NATO member, from a joint fighter jet program in 2019 after Ankara took supply of the Russian system.

However at the same time as the USA was taking actions to blunt MMZ Avangard’s enterprise, a publicly traded American know-how firm, Excessive Networks, was offering MMZ Avangard with laptop networking tools for its workplace IT techniques, in accordance with emails and different enterprise data seen by Reuters, in addition to interviews with individuals conversant in the matter.

In a press release to Reuters, Excessive mentioned that primarily based on data supplied by the information company it believed tools “could have” been bought to MMZ Avangard utilizing a surrogate purchaser. Excessive mentioned the tools was bought with out its data. It added, with out offering proof, that an middleman in Russia was “complicit” in supplying its merchandise through a entrance firm to “unhealthy actors.” Excessive mentioned it’s reporting its findings of those potential gross sales to U.S. authorities.

Ukraine has accused Russia of deploying missiles made by MMZ Avangard in opposition to floor targets since Russia launched what it phrases its “particular operation” on Feb. 24. Ukrainian authorities mentioned MMZ Avangard missiles killed not less than thirty civilians in a grotesque assault in opposition to a convoy on the sting of the southern metropolis of Zaporizhzhia final month. Neither Kremlin officers nor MMZ Avangard responded to questions for this text. MMZ Avangard’s mother or father, Almaz-Antey, additionally did not remark.

Between 2017 and 2021, MMZ Avangard obtained over half 1,000,000 {dollars}’ value of Excessive tools for its IT techniques, in accordance with the enterprise data reviewed by Reuters and the individuals conversant in the matter. The merchandise included high-speed switches, a vital constructing block of company IT networks, and software program.

The data additionally present that the offers went via a seemingly innocuous company close to Moscow, and regardless of two Excessive officers elevating issues, the gross sales went ahead.

{That a} Russian navy firm, recognized as a risk by Washington, continued to amass U.S. laptop {hardware} is a case research in how Western nations could have overestimated their capability to choke the Russian financial system with export bans and commerce sanctions. It additionally highlights how dependent Russia’s navy machine is on U.S. high-tech tools.

In April, six weeks after Russia’s invasion of Ukraine, an Excessive worker filed an inner criticism, seen by Reuters, alleging that the corporate was promoting to varied navy producers in Russia. “Excessive tools is used on Russian warships,” the criticism mentioned, “in communications techniques.”

Excessive mentioned in its assertion that the allegations have been introduced by a disgruntled worker. An investigation by the agency had discovered nothing to corroborate any of the claims till Reuters introduced “new info” to the corporate’s consideration this month. The corporate mentioned it ceased operations in Russia in March, including that it subsequently launched a course of to dismiss the disgruntled worker for poor efficiency. It mentioned it has no data of gross sales involving Russian warships.

Excessive, which trades on the NASDAQ change and is headquartered in Morrisville, North Carolina, has earned a strong status in the USA and is an official companion of the Nationwide Soccer League. The NFL declined to remark for this text.

A Reuters investigation in August discovered that whereas the USA and allies banned high-tech exports to Russia to attempt to cripple its protection trade, and lots of tech firms introduced that they’d halted exports to Russia, the circulation of Western brand-name laptop components to Russian purchasers hasn’t stopped.

This account of how Excessive equipped MMZ Avangard and not less than two different Russian navy firms relies on interviews with three individuals conversant in the shipments in addition to a evaluate by Reuters of paperwork spanning 5 years to 2021. The paperwork embrace gross sales data and e-mail exchanges between Excessive workers, clients and distributors. The shipments are reported right here for the primary time.

The U.S. Division of Commerce, which administers export restrictions, declined to remark for this story.

“IT WAS NECESSARY TO USE COVER”

Russian firms, together with these within the navy sector, have just about no alternative however to purchase international tools to construct the pc networks obligatory for modern-day enterprise. Russia has very restricted home manufacturing of networking tools.

Based in 1996, Excessive is a junior participant within the laptop networking trade. Final yr, it posted income of $1.1 billion, in contrast with $50 billion for Cisco Techniques.

Nonetheless, the smaller firm is a “significant competitor,” in accordance with Alex Henderson, a community and safety analyst at Needham and Firm in New York. The U.S. navy in addition to NASA use Excessive {hardware} and assist, in accordance with contracting data, and the corporate has constructed up a considerable advertising and marketing profile.

In Russia, as nicely, Excessive lists prestigious clients, such because the Ministry of Well being, the federal pension fund and Lomonosov Moscow State College.

However in accordance with paperwork seen by Reuters, different consumers of Excessive tools included not simply MMZ Avangard however a serious Russian navy shipbuilding firm and a high-tech protection electronics producer.

One of many paperwork reveals that within the 4 years ending 2020, Russian clients bought $41.5 million value of kit. Reuters could not decide Excessive’s whole gross sales to sanctioned or navy companies as a result of it wasn’t clear if transactions aside from these involving MMZ Avangard had been recorded underneath cowl names.

In its assertion to Reuters, Excessive mentioned it would not report nation particular income.

In Russia, Excessive maintained contacts with its clients as a way to assist design complicated networks that broaden over time, in accordance with two of the individuals conversant in the matter. Every buyer or potential purchaser had its personal account supervisor on the firm and was listed on inner gross sales data. Precise gross sales, although, have been completed via licensed intermediaries.

Excessive, in its assertion to Reuters, mentioned it not often supplied direct set up companies. It mentioned it had no such contracts with DEMZ or MMZ Avangard.

In its assertion, Excessive mentioned it has a “agency coverage” to not work with sanctioned entities, however added it is not all the time notified of the tip buyer, particularly when its merchandise are bought via so-called “stocking” distributors that maintain a list.

Excessive named a kind of distributors as RRC and mentioned it believed RRC was “complicit” within the scheme to produce MMZ Avangard. RRC and its Cyprus mother or father, BD Enterprise Networking did not reply to messages from Reuters in search of remark.

For Russian navy firms, Excessive tools had a robust promoting level, the three individuals conversant in the shipments mentioned: In contrast to bigger rivals, Excessive would not require service subscriptions and frequent software program updates. “It’s completely autonomous,” one of many individuals mentioned of the tools. “It really works with no license and you do not even must be linked to the web.” This implies, one other individual mentioned, that “you needn’t worry that your system will go darkish as a result of somebody within the U.S. determined to disconnect you.”

Excessive mentioned that the “autonomous mannequin” just isn’t distinctive to the corporate, however acknowledged it has grow to be comparatively uncommon.

It was no secret in Russia that MMZ Avangard used Excessive tools. In late 2019, the missile producer issued a young via Russia’s on-line public procurement platform, saying it wanted spare components for the Excessive laptop networks it possessed. Excessive did not dispute this however mentioned it would not essentially concentrate on such a young.

A number of months earlier than, in the summertime of 2019, an middleman had contacted Excessive’s consultant workplace in Russia, asking for recommendation on a community improve for the missile firm, the paperwork present. “We’re engaged on an answer for the shopper, MMZ Avangard,” an worker of the middleman wrote in a June 28, 2019, e-mail to an Excessive system engineer. “I used to be informed that I might search your assist.”

As quickly as its tools arrived in Moscow, Excessive dispatched a workers engineer to MMZ Avangard’s workplaces to assist guarantee a easy set up, one of many individuals conversant in the shipments mentioned.

In its assertion to Reuters, Excessive mentioned it had no data of an Excessive worker putting in tools at MMZ Avangard.

When it got here to processing MMZ Avangard’s buying orders, the missile maker’s identify did not seem on Excessive’s books. As a substitute, Excessive’s Moscow workers recorded the orders as having been positioned by an organization known as OOO DEMZ, in accordance with emails and gross sales data, in addition to three individuals conversant in the matter.

“It was obligatory to make use of a canopy as a result of the Russian firm is blacklisted within the U.S.,” one of many individuals conversant in the shipments mentioned. It has been unlawful for U.S. firms to do enterprise with MMZ Avangard since July 2014, when the U.S. Treasury Division listed its mother or father firm, Almaz-Antey, as a “blocked” entity. The Treasury declined to remark for this story.

MMZ Avangard started shopping for merchandise from Excessive in December 2017 and was disguised underneath the DEMZ cowl in Excessive enterprise data from that date, in accordance with emails and different paperwork seen by Reuters. The latest transaction utilizing the DEMZ cowl that Reuters recognized was in September 2021. In whole, the data present that Excessive shipped items value about $645,000 on this method throughout that interval.

Excessive, in its assertion, mentioned it now believes that its tools could have been acquired via a “entrance firm.” Excessive confirmed that the DEMZ account listed product purchases for roughly $645,000.

DEMZ is a small firm primarily based in Dmitrov, a metropolis 50 miles north of Moscow. Russian company data checklist Vladimir Markov as its common director. Reached by cellphone, Markov mentioned that DEMZ, which made instruments for railcar upkeep, ceased all operations in 2016. The chief mentioned he had by no means heard of Excessive or of DEMZ shopping for Excessive tools for itself or on behalf of others.

The obvious ruse was a shallow one. Purported executives for DEMZ, listed within the Excessive buyer data seen by Reuters, have been really workers of the missile maker who had supplied their MMZ Avangard e-mail addresses. They even included the Avangard e-mail addresses after they utilized for entry to an Excessive customer support portal. One in all these individuals declined to remark. The opposite could not be reached. A few of the paperwork additionally listed mmza.ru – MMZ Avangard’s area identify – as DEMZ’s purported net deal with.

On the final day of 2019, as a “DEMZ” order was winding via Excessive’s approval system, an Excessive gross sales supervisor working in North Carolina emailed RRC, the Russian distributor, with a query in regards to the area identify: “Are you able to inform me what the connection is between DEMZ and mmza.ru?” An worker of the distributor responded that mmza.ru was “the shopper’s” area. The worker did not elaborate. A subsequent message signifies that the sale went via.

Excessive, in its assertion, didn’t deal with questions on MMZ Avangard workers registering for entry to on-line assist, and an Excessive gross sales supervisor elevating questions in regards to the net area.

Almost a yr later, coping with one other set of “DEMZ” orders, an worker from Excessive’s in-house compliance desk in Eire noticed the mmza.ru area within the gross sales paperwork and researched it. “This hyperlink,” the compliance workforce worker mentioned in a Nov. 11, 2020, e-mail, “goes on to https://mmzavangard.ru/ which is a protection contractor seemingly [sic] to specialise in floor to air missile techniques, we have to additional evaluate earlier than we are able to decide.”

Excessive, in its assertion, additionally didn’t deal with questions on this e-mail.

“GOOD NEWS”

The Excessive compliance worker instructed the Russia workplace to have “DEMZ,” the purported buyer, fill out a kind to certify there was no navy end-user, that the tools wouldn’t be resold for any navy goal, and that it could not be transferred to any sanctioned firm.

Lower than every week after the message from the Excessive compliance worker, a two-page letter seen by Reuters attested that the end-user was not sanctioned, and wouldn’t use Excessive’s tools in a method banned by U.S. regulation. Bearing an illegible signature and a blue “DEMZ” stamp, the doc was despatched to Excessive’s compliance desk, in accordance with one of many individuals conversant in the matter.

DEMZ’s enterprise, in accordance with the purported self-declaration, had nothing to do with refined missiles. Relatively it was “parts for the Metalworking of nation homes.” DEMZ by no means made such parts and was out of enterprise on the time of the letter, in accordance with former director common Markov.

“Simply heard again from our provide workforce for the DEMZ orders,” emailed the North Carolina supervisor on Nov. 25 “with some excellent news.”

The gross sales might undergo.

“Thanks,” Excessive’s Vienna-based regional director for Northern and Japanese Europe wrote.

U.S. export management specialists informed Reuters self-declarations might be helpful in figuring out whether or not a shopper is professional. Nevertheless, upon coming throughout a crimson flag, “you cease or placed on maintain the transaction,” mentioned James Fuller, a former particular agent with the U.S. Division of Commerce. “You do not supply an avenue to offer extra false data, or recommend some sort of workaround.”

Excessive in its assertion to Reuters confirmed that its inner compliance officer had requested and obtained the self-declaration. The corporate added that it has “different screening processes to examine for crimson flags.”

SHIPBUILDING

In Russia, Excessive equipped IT tools to different navy firms, in accordance with the enterprise paperwork seen by Reuters and the individuals conversant in the matter.

One in all them was United Shipbuilding Corp. The corporate has headquarters in St. Petersburg and operates a bunch of Russian shipyards, making all the things from frigates to submarines to mine sweepers. Like MMZ Avangard, United Shipbuilding has been listed as a “blocked” entity by the U.S. Treasury since July 2014.

One other one was Concern Morinformsystem-Agat, a producer of radar and different navy electronics techniques. In response to the paperwork, together with a July 2020 public tender, and one of many individuals conversant in the matter, Agat was counting on tools from Excessive for a few of its techniques, which have been then fitted on United Shipbuilding warships.

Excessive informed Reuters it had no data of promoting merchandise to United Shipbuilding or Agat. The Russian firms didn’t reply to requests for remark.

United Shipbuilding is clearly described as an Excessive buyer in e-mail correspondence. In April 2020, an middleman contacted Excessive’s workplace in Moscow to submit the plan the middleman had sketched out to modernize United Shipbuilding’s information middle.

A Russia-based engineer from Excessive responded the following day, pointing to a couple objects that might be faraway from the proposed design.

“Other than that, it is all appropriate,” the Excessive engineer wrote within the e-mail.

(further reporting by Maurice Tamman in New York)

((Reporting by Aram Roston in Washington and David Gauthier-Villars in Istanbul; edited by Janet McBride))

Previous post Singapore-based advertising company Adtomica opens workplace in India
Next post Tech: Profession discovery sequence aimed toward rising consciousness of alternatives | Enterprise