Analysis – Hezbollah hack exposes dark corners of Asian supply chains

Authors: Tim Kelly, Casey Hall and Ben Blanchard

TOKYO/SHANGHAI/TAIPEI (Reuters) – Deadly attacks on Hezbollah pagers and walkie-talkies made in Asia have sparked an intense search for a route for the devices, exposing a murky market for older technologies where buyers can have little certainty about what they are buying.

While supply chains and distribution channels for higher-margin and newer products are tightly controlled, that is not the case for older electronics from Asia, where counterfeiting, excess inventory and complex contract manufacturing arrangements can sometimes make it impossible to trace a product’s source, analysts and consultants say.

The response by companies at the centre of the booby-trapped bombings that killed 37 people and injured some 3,000 in Lebanon this week has highlighted the difficulties of establishing how and when they were used as weapons.

Taiwanese company Gold Apollo blamed the European licensee of its pager, prompting investigations in Hungary, Bulgaria, Norway and Romania into the origin of the deadly device. Japanese company Icom said it was unable to determine whether walkie-talkies bearing its name were real in a market flooded with counterfeits.

“If the supply chain was breached to place explosives in it… that’s incredible engineering to do that. But actually breaching the supply chain is not that difficult. Probably the easiest part was breaching the supply chain,” said David Fincher, a technologist and consultant from China.

He added that counterfeits are common, especially in large manufacturing centers like China, where counterfeits can be easily produced. He added that there is not much difference between counterfeits and supply chain violations.

“As the technologist that I am, I can tell you that making something explosive on the radio is not that hard.”

Hezbollah acquired the devices about five months ago, a security source said, adding that the armed group believed it was buying the pagers from Gold Apollo.

The portable radios, which were purchased around the same time as the pagers, had labels bearing the name of Osaka-based Icom and the words “Made in Japan,” the source said, as seen in photos of one of the exploding devices.

Both companies have ruled out the possibility that any of the deadly components were manufactured in factories at either of their headquarters.

Taiwanese Economic Minister Kuo Jyh-huei also said that the components used in the pagers detonated in Lebanon were not made in Taiwan.

According to a letter from the Lebanese mission to the UN, an initial investigation by Lebanese authorities showed that the explosives were planted before they arrived in the country.

COUNTERFEITS

But that’s all that’s certain for now. It’s unclear how or when the pagers and walkie-talkies were armed so they could be remotely detonated.

Joe Simone, a partner at Chinese intellectual property firm East IP, said part of the problem is that smaller brands invest less in counterfeit control, largely because of the costs that can affect their profitability.

“The authorities are keen to crack down on low-tech counterfeits, but IP owners need to monitor, investigate and file complaints, and that doesn’t always happen as often as with high-tech and larger technology brands,” he said.

One problem, Icom says, is that it stopped producing the disputed IC-V82 model a decade ago, around the same time it began introducing holographic stickers as anti-counterfeit protection.

The company has long been warning against counterfeits, especially of its older models.

More than 7% of companies in Japan reported business losses due to counterfeiting in 2020, with about a third of cases occurring in China, according to a recent report by the Japan Patent Office.

Icom urges customers to only use its network of official distributors to ensure they are purchasing genuine products.

According to Reuters, there are dozens of stores in China selling Icom brand walkie-talkies on e-commerce platforms such as Alibaba.com, Taobao, JD.com and Pinduoduo, in some cases including the IC-V82 model.

Of the three Chinese sellers of Icom products on Alibaba.com, none of which were listed as official suppliers on Icom’s website, Guangzhou Minxing Communications Equipment Co. and Chengdu Bingxin Technology Co. Ltd. both said they sell genuine products, while Quanzhou Yitian Trading Co. admitted that it sells “Chinese imitations” in addition to genuine products.

Icom said it makes all of its products at its factories in Japan. It did not immediately respond to a request for comment on Icom-branded products sold on Chinese websites.

The discontinued IC-V82 model is also being sold in Vietnam via the Shopee e-commerce platform, according to a Reuters check, indicating the wide availability of such products.

In the case of Gold Apollo, which licensed its brand to Budapest-based BAC, the supply chain has turned into a mysterious production route that authorities in various countries are now trying to recreate.

“The wide availability of cheap, used manufacturing equipment has allowed counterfeiters to increasingly expand beyond single-component manufacturing to full-fledged products,” said Diganta Das of the University of Maryland’s Center for Advanced Life Cycle Engineering, who studies electronics counterfeiting.

“I wouldn’t call it counterfeiting anymore, it’s like illegal manufacturing,” Das said.

(Reporting by Tim Kelly, David Dolan and John Geddie in Tokyo, Casey Hall in Shanghai, Ben Blanchard in Taipei, Francesco Guarascio in Hanoi; Writing by John Geddie; Editing by Miyoung Kim and Edmund Klamann)