Particular Report: U.S. agency equipped networking tech to maker of Russian missiles

  • Excessive Networks says Reuters discovery leads it to consider its merchandise had been shipped to “dangerous actors” in Russia
  • Excessive Networks says it’s informing U.S. authorities of export-control violation
  • Excessive Networks says distributor performed position in “scheme”
  • Excessive Networks equipped tools utilized in MMZ Avangard’s workplace IT techniques
  • MMZ Avangard is maker of missile utilized in latest Ukraine assault

WASHINGTON, Oct 12 (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 subtle weapons, the S-400 air-defense system.

In a measure of Western concern in regards to the S-400, america 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 america was taking actions to blunt MMZ Avangard’s enterprise, a publicly traded American expertise firm, Excessive Networks (EXTR.O), was offering MMZ Avangard with laptop networking tools for its workplace IT techniques, based on emails and different enterprise information seen by Reuters, in addition to interviews with individuals acquainted with the matter.

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In an announcement to Reuters, Excessive stated that primarily based on data supplied by the information company it believed tools “could have” been offered to MMZ Avangard utilizing a surrogate purchaser. Excessive stated the tools was offered with out its information. It added, with out offering proof, that an middleman in Russia was “complicit” in supplying its merchandise by way of a entrance firm to “dangerous actors.” Excessive stated 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 towards floor targets since Russia launched what it phrases its “particular operation” on Feb. 24. Ukrainian authorities stated MMZ Avangard missiles killed at the very least thirty civilians in a grotesque assault towards 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 mum or dad, Almaz-Antey, additionally did not remark.

Between 2017 and 2021, MMZ Avangard obtained over half one million {dollars}’ value of Excessive tools for its IT techniques, based on the enterprise information reviewed by Reuters and the individuals acquainted with the matter. The merchandise included high-speed switches, a vital constructing block of company IT networks, and software program.

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

{That a} Russian army 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 capacity to choke the Russian economic system with export bans and commerce sanctions. It additionally highlights how dependent Russia’s army machine is on U.S. high-tech tools.

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

Excessive stated in its assertion that the allegations had been introduced by a disgruntled worker. An investigation by the agency had discovered nothing to corroborate any of the claims till Reuters introduced “new information” to the corporate’s consideration this month. The corporate stated it ceased operations in Russia in March, including that it subsequently launched a course of to dismiss the disgruntled worker for poor efficiency. It stated it has no information 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 america and is an official accomplice of the Nationwide Soccer League. The NFL declined to remark for this text.

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

This account of how Excessive equipped MMZ Avangard and at the very least two different Russian army firms is predicated on interviews with three individuals acquainted with the shipments in addition to a evaluate by Reuters of paperwork spanning 5 years to 2021. The paperwork embody gross sales information and e-mail exchanges between Excessive staff, 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 army sector, have just about no selection however to purchase international tools to construct the pc networks needed 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 12 months, it posted income of $1.1 billion, in contrast with $50 billion for Cisco Techniques.

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

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

However based on paperwork seen by Reuters, different patrons of Excessive tools included not simply MMZ Avangard however a significant Russian army 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 apparatus. Reuters could not decide Excessive’s whole gross sales to sanctioned or army corporations as a result of it wasn’t clear if transactions apart from these involving MMZ Avangard had been recorded underneath cowl names.

In its assertion to Reuters, Excessive stated it does not report nation particular income.

In Russia, Excessive maintained contacts with its clients as a way to assist design advanced networks that broaden over time, based on two of the individuals acquainted with the matter. Every buyer or potential purchaser had its personal account supervisor on the firm and was listed on inner gross sales information. Precise gross sales, although, had been carried out by means of licensed intermediaries.

Excessive, in its assertion to Reuters, stated it hardly ever supplied direct set up providers. It stated it had no such contracts with DEMZ or MMZ Avangard.

In its assertion, Excessive stated it has a “agency coverage” to not work with sanctioned entities, however added it is not all the time notified of the top buyer, particularly when its merchandise are offered by means of so-called “stocking” distributors that maintain a listing.

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

For Russian army firms, Excessive tools had a robust promoting level, the three individuals acquainted with the shipments stated: In contrast to bigger rivals, Excessive does not require service subscriptions and frequent software program updates. “It’s completely autonomous,” one of many individuals stated of the tools. “It really works with out a license and you do not even have to be linked to the web.” This implies, one other individual stated, 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 stated that the “autonomous mannequin” is just not distinctive to the corporate, however acknowledged it has turn into comparatively uncommon.

It was no secret in Russia that MMZ Avangard used Excessive tools. In late 2019, the missile producer issued a young by means of Russia’s on-line public procurement platform, saying it wanted spare elements for the Excessive laptop networks it possessed. Excessive did not dispute this however stated it would not essentially pay attention to 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 client, MMZ Avangard,” an worker of the middleman wrote in a June 28, 2019, e-mail to an Excessive system engineer. “I used to be advised that I might search your assist.”

As quickly as its tools arrived in Moscow, Excessive dispatched a employees engineer to MMZ Avangard’s places of work to assist guarantee a easy set up, one of many individuals acquainted with the shipments stated.

In its assertion to Reuters, Excessive stated it had no information 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 an alternative, Excessive’s Moscow staff recorded the orders as having been positioned by an organization referred to as OOO DEMZ, based on emails and gross sales information, in addition to three individuals acquainted with the matter.

“It was needed to make use of a canopy as a result of the Russian firm is blacklisted within the U.S.,” one of many individuals acquainted with the shipments stated. 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 mum or dad 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 information from that date, based on emails and different paperwork seen by Reuters. The latest transaction utilizing the DEMZ cowl that Reuters recognized was in September 2021. In whole, the information present that Excessive shipped items value about $645,000 on this means throughout that interval.

Excessive, in its assertion, stated it now believes that its tools could have been acquired by means of 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 information listing Vladimir Markov as its common director. Reached by telephone, Markov stated that DEMZ, which made instruments for railcar upkeep, ceased all operations in 2016. The chief stated 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 information seen by Reuters, had been truly staff 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 among these individuals declined to remark. The opposite could not be reached. A number of the paperwork additionally listed mmza.ru – MMZ Avangard’s area identify – as DEMZ’s purported net handle.

On the final day of 2019, as a “DEMZ” order was winding by means of 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 client’s” area. The worker did not elaborate. A subsequent message signifies that the sale went by means of.

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

Practically a 12 months 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 stated in a Nov. 11, 2020, e-mail, “goes on to https://mmzavangard.ru/ which is a protection contractor seemingly [sic] to focus on floor to air missile techniques, we have to additional evaluate earlier than we are able to decide.”

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

“GOOD NEWS”

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

Lower than per 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 means banned by U.S. regulation. Bearing an illegible signature and a blue “DEMZ” stamp, the doc was despatched to Excessive’s compliance desk, based on one of many individuals acquainted with the matter.

DEMZ’s enterprise, based on the purported self-declaration, had nothing to do with subtle missiles. Quite 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, based on 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 Jap Europe wrote.

U.S. export management specialists advised Reuters self-declarations may be helpful in figuring out whether or not a shopper is reputable. Nonetheless, upon coming throughout a crimson flag, “you cease or placed on maintain the transaction,” stated James Fuller, a former particular agent with the U.S. Division of Commerce. “You do not provide an avenue to supply extra false data, or counsel some type 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 verify for crimson flags.”

SHIPBUILDING

In Russia, Excessive equipped IT tools to different army firms, based on the enterprise paperwork seen by Reuters and the individuals acquainted with the matter.

One among them was United Shipbuilding Corp. The corporate has headquarters in St. Petersburg and operates a bunch of Russian shipyards, making all the pieces 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 army electronics techniques. In response to the paperwork, together with a July 2020 public tender, and one of many individuals acquainted with the matter, Agat was counting on tools from Excessive for a few of its techniques, which had been then fitted on United Shipbuilding warships.

Excessive advised Reuters it had no information 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 knowledge heart.

A Russia-based engineer from Excessive responded the subsequent day, pointing to some gadgets that could possibly be faraway from the proposed design.

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

(extra reporting by Maurice Tamman in New York)

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

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