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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: It's David here, and before we get into today's show,

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Speaker 2: I want to give you a heads up. The story

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Speaker 2: is graphic. It involves violence and war, so take care

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Speaker 2: while listening. It's a summer morning in August of twenty

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Speaker 2: twenty three, and Ola Kleinska and her six year old

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Speaker 2: daughter Sofia are on a train bound for the city

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Speaker 2: of Cherniev in northern Ukraine. Almost eighteen months have passed

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Speaker 2: since Russia launched its full scale invasion of Ukraine. The

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Speaker 2: war in the East continues to rage, but Cherniev has

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Speaker 2: not seen much fighting For more than a year. The

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Speaker 2: city and its three hundred thousand residents have been living

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Speaker 2: in relative peace. So Olha had planned to take a

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Speaker 2: trip there to visit her friend Yulia and Julia's three

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Speaker 2: year old twin girls. Their train arrives just after eleven

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Speaker 2: in the morning, and Olha and Sofia pile into their

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Speaker 2: friend's car.

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Speaker 1: To the center of town, a beautiful, beautiful Ukrainian town

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Speaker 1: with golden domed churches and beautiful parks.

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Speaker 2: Bloomberg Investigated reporter Stephanie Baker has spent months reporting on

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Speaker 2: what happened.

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Speaker 1: Next, they park on the side of the main square

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Speaker 1: and they run out into the main park surrounding that square,

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Speaker 1: and the girls jump on a wooden stage which is

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Speaker 1: used for children's performances, and begin play acting. And they're

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Speaker 1: playing with their little beaded bracelets that keep falling off

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Speaker 1: their risks.

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Speaker 2: The city of Cherniev is about sixty miles from the

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Speaker 2: Russian border. An air raid alert goes off at eleven

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Speaker 2: nineteen that morning, signaling incoming drones or missiles, but many

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Speaker 2: locals either don't hear it or they assume it's because

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Speaker 2: of Russia attacking border towns miles away. They carry on

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Speaker 2: as normal, that is until eleven twenty eight.

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Speaker 1: Suddenly, Olha here's a rumble and looks up and sees

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Speaker 1: a missile flying through the air above the tree tops.

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Speaker 2: The missile is heading for a building next to the

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Speaker 2: park where a convention for military drone makers is being held.

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Speaker 1: The missile explodes above a theater on the edge of

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Speaker 1: the main square. The missile does not hit the theater.

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Speaker 1: It explodes above the theater and hurls shrapnel across a

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Speaker 1: roughly half mile radius.

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Speaker 2: Even from five hundred feet away. The blast is strong

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Speaker 2: enough to lift up the stage in the park where

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Speaker 2: the children are playing, and it lands on Allha's foot.

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Speaker 2: She's trapped, but close enough to see that her daughter,

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Speaker 2: Sophia has been struck in the chest by a piece

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Speaker 2: of shrapnel and she's bleeding on the stage.

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Speaker 1: She screams for help, saying there's a little girl here.

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Speaker 1: Two men come up lift the stage off of her foot.

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Speaker 1: She rushes to her daughter, looks around and realizes that

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Speaker 1: the square is just a bloody battlefield, and she realizes

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Speaker 1: that there was no time to waste. Instead of waiting

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Speaker 1: for an ambulance, she decides to flag down a car,

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Speaker 1: climbs into the back with her daughter in her arms,

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Speaker 1: and the car races against oncoming traffic to a hospital,

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Speaker 1: and she feels quite confident that her daughter will survive

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Speaker 1: and whispers to her, you know, don't leave me, don't

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Speaker 1: leave me.

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Speaker 2: When they get to the hospital, Sofia is taken into surgery,

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Speaker 2: Olha hopes she's made it there in time.

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Speaker 1: They try to save her, but after about two hours

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Speaker 1: her daughter is pronounced dead.

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Speaker 2: Missiles killing civilians people just going about their daily lives

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Speaker 2: is an unfortunate reality in Ukraine. Right now. But the

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Speaker 2: missile that killed Sophia was able to target Triurney of

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Speaker 2: Center so precisely because of Western components parts inside its

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Speaker 2: navigation system, parts that shouldn't have been there, because the

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Speaker 2: sale of those components to Russia's defense industry has been

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Speaker 2: banned for over two years. After Russia's invasion of Ukraine,

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Speaker 2: the US and almost forty allies put in place export

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Speaker 2: controls designed to keep certain components like Western made semiconductor chips,

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Speaker 2: out of the hands of the Russian military. In theory,

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Speaker 2: that should have stopped the flow of Western components to Russia,

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Speaker 2: but Stephanie says Russian import records tell a different story.

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Speaker 1: I have spent months going through Russian customs data trying

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Speaker 1: to quantify how much Russia has been able to get

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Speaker 1: its hands on, and it's shocking. Actually, millions of components

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Speaker 1: have been sent to Russia in violation of export controls

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Speaker 1: since the war. Full scale war began in twenty twenty two.

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Speaker 2: Today, on the show, how American tech is ending up

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Speaker 2: in the missiles Russia is firing into Ukraine and what

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Speaker 2: can be done to stop it? I'm David Gura, and

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Speaker 2: this is the big take from Bloomberg News. Bloomberg Stephanie

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Speaker 2: Baker has been reporting on Russia for decades. She says,

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Speaker 2: the reason we know parts of the missile that killed

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Speaker 2: six year old Sofia and TERNIAV came from the US

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Speaker 2: is because of Ukrainian investigators.

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Speaker 1: So every time a missile strikes targets in Ukraine, Ukrainian

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Speaker 1: investigators go to the scene and try to pick up

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Speaker 1: the pieces to try to determine what kind of a

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Speaker 1: missile it was.

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Speaker 2: Some of those pieces end up at the Kiev Scientific

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Speaker 2: Research Institute of Forensic Expertise, and Stephanie recently traveled there.

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Speaker 1: You go in behind an iron gate into a kind

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Speaker 1: of ramshackle yard filled with Russian down drones and pieces

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Speaker 1: of Russian missiles.

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Speaker 2: She went with Bloomberg's Kiev bureau chief Darina Krasnalutska to

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Speaker 2: meet with one of the people who investigated the Chernya.

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Speaker 1: Of attack, Alexander Visikan. He's this white haired, bearded Ukrainian

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Speaker 1: who used to work in the Ukrainian military, and he's

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Speaker 1: one of the main investigators examining these computer chips and

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Speaker 1: fragments and trying to document them.

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Speaker 2: What do you mean, ssicon walked them through how he

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Speaker 2: figured out Western components were in the s N ninety

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Speaker 2: nine navigation system the missile from Triniev.

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Speaker 1: When did you first see those Western components from the

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Speaker 1: SN ninety nine? Was it in a box when you

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Speaker 1: first saw it here?

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Speaker 2: When boxes were transferred here. They looked through some of

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Speaker 2: the wreckage from the missile, and Visicon pulled out a

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Speaker 2: magnifying glass to show them how he and his colleagues

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Speaker 2: examined parts to determine who made them and when.

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Speaker 1: By the way, I see, I see the date, he says,

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Speaker 1: really like forensic. I know why they're called the forensic Institute.

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Speaker 2: Now. After examining the navigaateation system of the missile that

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Speaker 2: killed Sophia, Visicon and his team found components from four

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Speaker 2: Western companies in Fineon Technologies, which is headquartered in Germany,

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Speaker 2: Integrated Silicon Solution, a US based company with Chinese ownership,

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Speaker 2: Silicon Laboratories, an Austin based company, and finally Analog Devices,

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Speaker 2: which is an American semiconductor manufacturer. That last company, Analog Devices,

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Speaker 2: was a familiar one to Visicon and his colleagues. They've

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Speaker 2: cataloged components they've recovered from Russian missile strikes since the

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Speaker 2: start of the full scale invasion. In total, investigators have

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Speaker 2: identified more than thirty eight hundred of them from Russian

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Speaker 2: missiles fired on Ukraine that were made by foreign companies,

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Speaker 2: and the company whose components appear most often is Analog Devices.

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Speaker 1: It's based in Massachusetts. It's one of the oldest semiconductor manufacturers,

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Speaker 1: started by two MIT graduates. It's not one of the biggest,

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Speaker 1: It's not like an Nvidia, but it occupies an important

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Speaker 1: niche conductor industry by producing sort of low end semiconductor

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Speaker 1: chips that power things like mobile phone networks and everyday

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Speaker 1: electronic devices. It's owned by big major institutional investors like

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Speaker 1: black Rock.

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Speaker 2: And Vanguard, and according to import records, its components are

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Speaker 2: very much in demand in Russia. More than three hundred

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Speaker 2: million dollars worth of the company's semiconductors were imported into

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Speaker 2: the country in twenty twenty three alone, so hundreds of

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Speaker 2: millions of dollars of American semiconductors from companies like Analog

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Speaker 2: Devices have made it into the hands of Russia's defense industry.

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Speaker 2: Even though the US and almost forty of its allies

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Speaker 2: have agreed to make it illegal to send them there.

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Speaker 2: I asked Stephanie, how is it possible that so many

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Speaker 2: of Analog's components are ending up there? I take it

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Speaker 2: they weren't doing business directly with Russia. So maybe, just

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Speaker 2: in the case of this company, how were those component

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Speaker 2: parts making their way to Russia?

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Speaker 1: Right? So, these Analog stress is that they do not

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Speaker 1: do business with Russia. They regarded it as an illicit

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Speaker 1: diversion of their products.

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Speaker 2: Analog Devices says it doesn't condone the Russian military using

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Speaker 2: its products and it follows the latest government guidelines on

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Speaker 2: how to sell them. The Austin based Silicon Laboratories says

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Speaker 2: it has a robust export tracking program and complies with

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Speaker 2: US and European restrictions, but the quote, once products are

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Speaker 2: sold into the civil technology global mass market, bad actors

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Speaker 2: can unlawfully divert products. A spokesperson for the German company

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Speaker 2: Infineon said in an email that the company quote instructed

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Speaker 2: all distribution partners globally to implement robust measures that will

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Speaker 2: prevent any diversion of its products or services. Contrary to

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Speaker 2: the sanctions. Integrated Silicon Solution, the US based company with

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Speaker 2: Chinese ownership didn't respond to requests for comment, but Stephanie

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Speaker 2: says Bloomberg does have an idea about how components from

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Speaker 2: companies like Analog Devices have made it to Russia.

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Speaker 1: When you look through Russian customs data, you see a

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Speaker 1: c of Hong Kong companies that we're selling analog device

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Speaker 1: components to Russia.

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Speaker 2: So who are the middlemen who buy these parts from

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Speaker 2: Western manufacturers and sell them on And is there anything

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Speaker 2: that can be done to keep US tech from getting

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Speaker 2: to Russia. That's after the break Bloomberg. Stephanie Baker has

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Speaker 2: been reporting on the supply chain that moves US tech

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Speaker 2: around the world and around the restrictions that are supposed

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Speaker 2: to keep missile components out of the hands of the

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Speaker 2: Russian military. Her reporting shows that many of these missile

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Speaker 2: components are sold to Russia through companies in Hong Kong

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Speaker 2: and China that buy the components from third party distributors

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Speaker 2: and sell them on. And Analog Devices isn't the only

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Speaker 2: Western company whose parts are flowing through these channels.

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Speaker 1: So some semiconductor producers in the US will use an

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Speaker 1: authorized distributor who will then sell it on to someone else,

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Speaker 1: who will sell it on to someone else emerged is

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Speaker 1: a very elaborate network of middlemen, mostly in China, mostly

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Speaker 1: in Hong Kong actually, who are selling Russia and the

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Speaker 1: Russian military supplies of computer chips that they need for

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Speaker 1: their defense industry.

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Speaker 2: So what do these companies look like on the ground.

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Speaker 2: One of our colleagues in Hong Kong went to have

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Speaker 2: a look.

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Speaker 1: In many cases, their addresses are just fake offices. One

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Speaker 1: had turned into a beauty parlor, another was just a

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Speaker 1: storage room. So it shows the incredible challenge of trying

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Speaker 1: to shut this business down. They're just these shell companies

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Speaker 1: that are opening up at addresses and shutting down in

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Speaker 1: Hong Kong, reopening under another slightly different name.

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Speaker 2: But what about those manufacturers who are actually making these components?

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Speaker 2: What responsibility do they have for where their products end

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Speaker 2: up when they pass through these middlemen. If I'm at

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Speaker 2: analog devices, how much do I have to do to

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Speaker 2: understand or very where say a mother board in circuitry

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Speaker 2: is headed, and like where it might go after that?

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Speaker 2: In other words, how much of this is the responsibility

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Speaker 2: of the manufacturer to keep track of where a product

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Speaker 2: I'm making is going.

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Speaker 1: You're getting at the nub of the issue. They claim

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Speaker 1: that once they've sold it on, it's not their responsibility.

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Speaker 1: There are requirements for so called end user certificates. In

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Speaker 1: other words, the end user of the component needs to

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Speaker 1: comply with US export controls, but it's very hard to

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Speaker 1: police that as it goes on.

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Speaker 2: Analog says it's taken steps to strengthen compliance. That includes

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Speaker 2: implementing more robust customer screening protocols, collaborating with government agencies,

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Speaker 2: and establishing an audit process to examine distributors for illicted shipments.

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Speaker 2: On the government side, the department ultimately charged with policing

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Speaker 2: where these components go is the US Commerce Department. Bloomberg

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Speaker 2: asked them why they haven't done more to clamp down

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Speaker 2: on companies whose components are ending up in Russian missiles.

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Speaker 2: One official said that department was understaffed. But there's also

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Speaker 2: the problem of having to prove that any violations were intentional.

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Speaker 1: The response is, well, we need proof that they have

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Speaker 1: knowingly and willfully violated these export controls, and because they

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Speaker 1: sell products onto other distributors, they can claim that they

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Speaker 1: didn't know what was going on, and I think that's

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Speaker 1: the principal challenge.

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Speaker 2: Meanwhile, Congress has probed the continued flow of technology to

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Speaker 2: Russia in violation of export restrictions. Last month, the US

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Speaker 2: Senate Permanent Subcommittee on Investigations held a hearing on this issue.

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Speaker 2: Executives from semiconductor manufacturers, including Analog Devices and Texas Instruments,

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Speaker 2: were asked to come answer questions before the committee, and

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Speaker 2: some of the committee members were disappointed by what they heard.

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Speaker 1: The Democrats on that committee issued a scathing report saying

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Speaker 1: that efforts by these companies to check their supply chains

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Speaker 1: was woefully inadequate, that they'd failed to look under the hood,

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Speaker 1: so to speak, and urge them to take greater action.

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Speaker 2: So what could Congress do? What could they require that

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Speaker 2: would actually lock down these parts? Some lawmakers are turning

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Speaker 2: to banking regulations for inspiration.

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Speaker 1: I know that there are some Senate staffers that are

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Speaker 1: looking at new legislation that would enhance the so called

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Speaker 1: know your customer rules for semiconductor companies, not unlike the

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Speaker 1: know your customer rules that are imposed on banks. There

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Speaker 1: was a time many years ago when banks said, oh, well,

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Speaker 1: we can't trace where the money flows. Financial networks have

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Speaker 1: been used for years through shell companies and layered transactions

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Speaker 1: to try to hide money. So I think that's the

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Speaker 1: real question is will there be increased requirements imposed on

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Speaker 1: some of these companies to trace their supply chains.

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Speaker 2: I asked Stephanie, how resources on the ground back in Ukraine,

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Speaker 2: some five thousand miles away from Washington, see what the

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Speaker 2: US is doing.

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Speaker 1: I think the Ukrainians think that everyone's turning a blind

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Speaker 1: eye to what's happening, and that the lack of enforcement

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Speaker 1: is just because these companies are too important to Western

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Speaker 1: economies and are making so much money that they're able

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Speaker 1: to influence the political process. I think they're incredibly frustrated

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Speaker 1: because I think they think it is possible to shut

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Speaker 1: this down with some really tough enforcement action. And it's

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Speaker 1: just the absurdity of the situation is that we are

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Speaker 1: sending hundreds of billions of dollars to Ukraine in terms

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Speaker 1: of military and financial aid, only for the Ukrainian military

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Speaker 1: to be faced and the Ukrainian civilians to be faced

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Speaker 1: by Western technology powering Russian missiles to attack Ukraine.

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Speaker 2: It's utterly absurd. Well, Stephanie was reporting in Ukraine. She

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Speaker 2: and Bloomberg's Kiev bureau chief, Darina Krasnoalutska went to visit

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Speaker 2: the mother of that six year old girl who was

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Speaker 2: killed in the missile strike in Terniev. They returned to

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Speaker 2: the park and watched as she carried out what's become

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Speaker 2: kind of ritual in the years since that attack.

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Speaker 1: She buys a little cup of foamed milk with marshmallows

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Speaker 1: at this cafe on the edge of the square, walks

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Speaker 1: across the square, puts it on the stage next to

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Speaker 1: flowers and stuffed animals where her daughter died.

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Speaker 2: Beside it are fresh flowers from all has parents. Artwork

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Speaker 2: Sofia was working on in the days before her death,

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Speaker 2: and some writing that Alha has left for her daughter.

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Speaker 1: Sofia was doing it, but she didn't all her finished it.

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Speaker 1: She wrote this to no this is what does it say.

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Speaker 2: I'll translate it to you. So you are my love,

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Speaker 2: all my life, my soul, and until my heart is beating,

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Speaker 2: you will live forever.

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Speaker 1: She working on this in the train. It was incredibly emotional.

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Speaker 1: We were all crying, and I think she's still in

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Speaker 1: a state of disbelief that her daughter is gone, and

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Speaker 1: she doesn't understand in a weird way, how it could

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Speaker 1: happen that a missile five hundred feet away could strike

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Speaker 1: her daughter alone on that stage.

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Speaker 2: The answer, in part is because a component made by

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Speaker 2: an American company guided it there. This is the Big

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Speaker 2: Take from Bloomberg News. I'm David Gera. This episode was

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Speaker 2: produced by David Fox, Audriana Tapia, Alex Secura, and Julia Press.

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Speaker 2: It was edited by Caitlin Kenny and Robert Friedman. It

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Speaker 2: was mixed by Alex Secura and fact checked by Thomas

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Speaker 2: lu Our senior producer is Naomi Shaven. Our senior editor

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Speaker 2: is Elizabeth Ponso. Our executive producer is Nicole Beemster bore

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Speaker 2: Sage Bowman is Bloomberg's head of Podcasts. If you liked

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Speaker 2: this episode, make sure to subscribe and review The Big

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Speaker 2: Take wherever you listen to podcasts that helps people find

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Speaker 2: the show. Thanks for listening. We'll be back tomorrow.