Applied DNA Sciences Inc. (OTCBB: APDN; Twitter: $APDN) sells patented DNA security solutions to protect products, brands and intellectual property from counterfeiting and diversion. SigNature DNA is a botanical mark used to authenticate products in a unique manner that essentially cannot be copied, and provide a forensic chain of evidence that can be used to prosecute perpetrators. Applied DNA Sciences (APDN) is the only company in the world that is making use of the complex codes embedded in botanical DNA as the ultimate solution to counterfeiting.
Between the National Defense Authorization Act for 2012, Amendment 2012 requiring the Pentagon to enact more aggressive procedures and strategies for counterfeit detection, and Applied DNA Sciences' research partnership with University at Albany's College of Nanoscale Science and Engineering (CNSE), counterfeiting has been a hot topic in the news recently. One company recently suspended as a defense contractor after a years-long investigation into its selling of counterfeit parts, Hong Dark Electronic Trade Company, provides a vivid glimpse into the counterfeiting industry as well as the specific risks the Department of Defense faces with the influx of fake parts.
A memorandum from the Department of the Air Force revealed the vast impact that this single company had on the Department of Defense:
"Approximately 84,000 suspect counterfeit electronic parts purchased from Hong Dark entered the DoD supply chain, and many of these parts have been installed on DoD aircraft, including C-17, C-130J, C-27J, P-8A Poseidon, AH-64, SH-60B, and CH-46."
Additionally, a background memo submitted to a November, 2011 hearing before the Senate Armed Services Committee contained the following description of the counterfeiting process:
"Much of the raw material of counterfeit electronic parts is salvaged electronic waste (e-waste) shipped from the U.S. and the rest of the world to Hong Kong. From Hong Kong, waste is trucked to cities in mainland China, such as the counterfeiting district of Shantou in Guangdong Province, where electronic parts may be burned off of old circuit boards, washed in the river, and dried on city sidewalks. Once washed and sorted, parts may be sanded down to remove the existing part number, date code (which tells you when a part was made), and other identifying marks. In a process known as “black topping,” the tops of the parts may be recoated to hide those sanding marks. State of the art printing equipment may then be used to put false markings on the parts. When the process is complete the parts can look brand new."
Legitimate microchip manufacturers operate highly controlled environments, investing billions of dollars "in state-of-the-art facilities and take extreme precautions to prevent particles of dust, moisture, or other elements from damaging their products." Comparing this process to the one "used by counterfeiters, where chips may be burned off boards, washed in dirty rivers, dried on the ground, and remarked with newer or different part numbers," it is easy to see the risk that these parts pose.
Unfortunately, the defense industry is particularly vulnerable to the flood of counterfeit parts. The director of the DOD’s Microelectronics Activity Unit explained, "The defense community is critically reliant on a technology that obsoletes itself every 18 months, is made in unsecure locations and over which we have absolutely no market share influence." The nature of the risk combined with the defense industry's particular vulnerability to counterfeit parts helps explain the push for increased accountability at all steps in the defense industry supply chain.