Chinese-backed buyer of UK microchip plant made components found in Russian missiles




  • In Business
  • 2022-08-13 15:00:00Z
  • By The Telegraph
Newport Wafer Fab was sold in July last year to Nexperia, a Dutch company owned by state-backed Chinese business Wingtech - Matthew Horwood/Getty Images
Newport Wafer Fab was sold in July last year to Nexperia, a Dutch company owned by state-backed Chinese business Wingtech - Matthew Horwood/Getty Images  

Components manufactured by the Chinese-owned buyer of Britain's biggest microchip plant have been discovered inside nuclear-capable Russian missiles launched at Ukraine.

A Kh-101 cruise missile recovered from a Ukrainian battlefield contained parts made by Nexperia, a tech business attempting to buy the Newport Wafer Fab factory in South Wales.

The discovery, by researchers at the Royal United Services Institute (Rusi), sparked immediate calls for the sale to be blocked on national security grounds.

Tom Tugendhat, chairman of Parliament's Foreign Affairs Committee, said the disclosure "reminds us of the importance of protecting our industry from exploitation by our enemies".

He added: "Today, with Nexperia's plan to buy Newport Wafer Fab, it also shows why we need to defend our key strategic assets from those who could use them against us."

Newport Wafer Fab was sold in July last year to Nexperia, a Dutch company owned by state-backed Chinese business Wingtech, despite concerns the deal was handing control of vital electronics supplies to a foreign power.

The Business Secretary Kwasi Kwarteng halted the £63m acquisition in May pending the result of an official investigation under the National Security and Investment Act. A government spokesman declined to comment.

After the February invasion of Ukraine, Britain led the Western world in tightening trade sanctions to choke off Russia's supply of advanced technology. So-called "dual use" goods have been banned from export to Russia since the illegal occupation of Crimea in 2014, while this year's crackdown was targeted at militarily useful electronics.

Yet Rusi indicated that Russia's defence industry has built up secret stockpiles of vital components to try and beat the sanctions.

Joe Byrne, a research fellow, said that missile engineers have been combing the world in search of "specific microelectronics for specific systems" vital for Russian weapon systems. The most advanced British, US and Japanese components are of special interest because of their high precision, he said.

One of the components uncovered by Rusi researchers was a Nexperia-made bus transceiver, which is a type of digital signal processing chip. The transceiver was embedded inside a BR-33 processor, used as part of the Kh-101 cruise missile's guidance system.

Daniel Salisbury, a King's College London research fellow who reviewed the RUSI report, said that Russia and the Soviet Union before it have long exploited industries in more advanced economies to supply military programmes.

Explaining how Russian spy agencies have set up secret networks of front companies to evade Western sanctions, Dr Salisbury said: "The products they are seeking often have both civil and military uses.

"This can create some ambiguity for those trying to stop illicit procurement, as well as presenting an opportunity for procurement agents who can list a bogus end use on any [export] paperwork."

Nexperia said neither of the items found in RUSI's research were made in the UK. The company also has a microchip fabrication plant in Manchester.

A spokesman said: "Nexperia utterly condemns Russia's illegal invasion of Ukraine and we have abided by all UK and international sanctions, which we fully support. We therefore do not have any Russian customers and do not sell into Russia."

Adding that none of the 100m chips it produces every year are made for military use, the spokesman said: "If we found that any of our customers had broken these sanctions, we would immediately cease all further supplies and never work with that organisation again."

Rusi established similar chips made by other British companies were within some of the 27 captured Russian weapons it examined.

Chris Gurry, chief executive of Essex's CML Microcircuits, said his company's products are mainly useful for processing radio signals. A CML chip was found in a Russian signals intelligence collection vehicle used for spying on Ukrainian radio signals.

CML ceased exports to Russia in March. Similarly, Somerset-based Golledge Electronics told the Telegraph it halted all its exports to Russia on the day of the invasion. A Golledge HC49 crystal oscillator was found in a Russian Torn-MDM signals intelligence vehicle.

How Putin's spies are stealing Western microchips to fuel the Kremlin war effort

Russian President Vladimir Putin - Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP
Russian President Vladimir Putin - Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP  

Across the West, dozens of low-profile businesses are buying microchips. Companies with innocuous names, apparently working for agricultural machine suppliers or in the factory chain of the car industry, are hoovering up the basic transistors and circuits that run the stuff of modern life.

But trace back the ownership and customers of these operators, following a web of subsidiaries through the likes of the US and Britain, into Eastern Europe or Asia, and you will ultimately find that they exist for a far more sinister purpose.

As sanctions bite in Russia, experts believe the Kremlin has reactivated a mysterious spying unit known as Line X to seize technology vital for weapon systems and spirit it into the country.

"Analysis indicates that third-country transshipment hubs and clandestine networks operated by Russia's special services are now working to build new routes to secure access to Western microelectronics," said the Royal United Services Institute think tank (Rusi) in a new report, Silicon Lifeline: Western Electronics at the Heart of Russia's War Machine.

Russia already draws heavily on Western kit for the weapons it is using against Ukraine. Rusi researchers cracked open equipment recovered from the battlefield and found it was full of European and American components with no obvious military purpose.

Items such as digital signal generators and crystal oscillators were found in Tor anti-aircraft systems and even cruise missiles such as the nuclear-capable Kh-101.

Around 450 chips of Western origin were discovered in a total of 27 spent missiles, discarded radio sets and crashed drones.
Some of those components were subjected to sanctions straight after the invasion of Ukraine, while export controls have applied to others for several years.

"In many cases, the Russian military has procured up to a decade's worth of components for critical systems in advance precisely to safeguard production against sanctions," says the Rusi report.

Gary Somerville, one of the study's authors, says that the research team mainly encountered items that were "just not subject" to export embargoes.

One example is a British-made component found in a Russian Torn-MDM signals intelligence vehicle, used for hoovering up and analysing voice and data radio broadcasts. Soldered to a circuit board inside the vehicle's electronics was a half-inch long Golledge Electronics HC49 crystal oscillator.

It contains a piece of quartz that generates a rhythmic electrical pulse. Such items are useful for digital clocks - and also in radios, such as the ones used in the Torn-MDM to intercept Ukrainian military transmissions.

Similarly, Essex-based CML Microcircuits' unwitting contribution to Vladimir Putin's war was a phase-locked loop chip - used, among other things, for helping to decode FM radio signals or to speed up the operating frequency of existing electronics.

These types of low-level components don't feature in export control lists because they're simply too basic, Somerville says.

The law firm Norton Rose Fulbright said in a June analysis that transfers of American electronics to Russia would be viewed by US authorities ("with certain limited exceptions") through "a policy of denial" that aims to prevent stockpiles being built.

Similarly, in March, the European Union blocked exports to Russia of equipment used for manufacturing and testing microchips.

But while governments in Britain, the US and on the Continent have imposed economic sanctions and export controls to prevent certain chip types from reaching Russia, Rusi revealed an ugly truth.

Despite sanctions, Western chips are still finding their way into Russian weapon systems.

Neither Golledge nor CML makes chips for the military or even so-called "dual use" purposes. CML managing director Chris Gurry says he stopped shipping to Russian customers in February, adding that CML's products were "building blocks" for more complicated electronic items: "We're really handling voice processing products. So converting analog signals to digital and back again."

Similarly, a spokesman for Golledge says: "We have not quoted for Russian business, or shipped to Russia since February 24 2022. We are deeply concerned about these findings and do not support any use of our components to violate human rights."

The question, then, is how these innocuous little devices found their way into Russian war machinery.

An inside look at the circuitry of the Zarya Guidance computer used on a 9M727 cruise missile, containing US-made parts
An inside look at the circuitry of the Zarya Guidance computer used on a 9M727 cruise missile, containing US-made parts  

After the Cold War, the "peace dividend" saw Western nations winding down their counter-espionage networks, confident that the dissolution of the Soviet Union had removed their age-old enemies once and for all.

Joe Byrne, a Rusi research fellow who worked on this week's report, says Russia has set up a complicated international sanctions-busting network.

He highlights one Russian agent who controls "a myriad of companies in the UK, in Spain, in Malta" and elsewhere, with all these front businesses secretly importing microelectronics into Russia.

The roots of this industrial-scale technology theft and sanctions evasion operation lie in a Soviet-era spy operation called Line X.

Reporting to the KGB's First Chief Directorate - the Soviet Union's answer to MI6 - Line X agents were tasked with identifying and stealing advanced technology that could be turned against its creators.

The organisation was a roaring success in its 50 years of operation, with Air Force Magazine, a US publication, reporting in 1997: "KGB defectors say Line X officials repeatedly boasted that Line X not only covered its own costs; the value of what it brought in sometimes exceeded the annual budget of the entire KGB."

Line X's work brought vital military and industrial research to Soviet institutions, letting scientists and engineers take the lazy path to innovation.

Rather than carrying out expensive and time-consuming research as done in the West, the Soviets simply reverse-engineered whatever they could get their hands on, or applied the results of that resource-hungry research directly to their own weaponry.

Today that mindset persists. As a response to international sanctions, Russia's foreign ministry waived legal liability for "importers bypassing official distribution channels" to bring Western goods into Russia. Spare parts - including electronics - were covered by that waiver, opening up another small but vital lifeline for the Russian defence industry.

Governmental responses to this evasion are muted for now. Although embargoes on electronics have been steadily ratcheted up before and after the invasion of Ukraine, Rusi's revelations this week have merely fed into a growing picture rather than prompting an immediate response.

Whitehall is confident that current sanctions are working well, something reflected in the fact that the only British components found in Russian weapons so far have been very basic items.

While the Foreign, Commonwealth and Development Office declined to comment, a Department for International Trade spokesman says: "We have already introduced the largest and most severe economic sanctions Russia has ever faced, and have significantly expanded the scope of sanctions since the invasion, meaning many items of equipment and components previously available can no longer be sold to Russia. We will continue to work with international partners to make the procurement of these items more difficult."

Josep Borrell, the EU's foreign affairs chief, said in July that the bloc's sanctions on semiconductors "limit Russia's capacity to produce precision missiles," pointing to what he said was the relatively small number of these weapons being used by the Russians "not out of moderation, but out of necessity, as it does not have enough of them".

British officials are mapping out how Russia gets its hands on UK-origin components used in military equipment, with the aim of using future sanctions to shut down those procurement routes.

Spies running networks of front companies such as those highlighted by Rusi could find their days of stealing Western electronics are numbered, if officials get it right.

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