Green Tech Gone Fake

Reused electronics may be good for the environment, but they are feeding the counterfeit tech industry and poisoning some foreign workers

By Rachael King

Recycling used tech gear—a practice generally considered good for the environment—has a far less desirable, unintended consequence. It is contributing to a rise in fake computer chips and other products that make their way into everything from satellites to weapons systems, medical devices, and routers that connect corporate networks. "Electronic waste has turned into an abundance of electronic components and microcircuits for counterfeit parts," according to a January 2010 report from the U.S. Commerce Dept.

A foremost destination for e-waste and source of resulting counterfeit parts is China, according to reports by the U.S. government and the United Nations. By 2020, electronic waste in China will have reached a level 200% to 400% over that of 2005, according to a UN Environment Programme report released on Feb. 22. That document cites the "alarming and increasing reports on the e-waste situation" in China and other nations.

Much of the waste comes from inside the country: China produces about 2.3 million tons of its own e-waste each year and has banned imports of it. Still, some electronic waste finds its way into China from developed countries via unscrupulous recyclers, according to environmental groups that include Greenpeace and the Basel Action Network.

Some developed countries, including the U.S., do not bar exports of electronic waste. An estimated 50% to 80% of the e-waste collected for recycling in the U.S. is exported to developing countries, according to Greenpeace.

Once at their destination, used electronics are mined for reusable parts and some are repurposed by counterfeiters. "The world is sending their e-waste to unregulated regions where e-waste is converted to counterfeits," says Debra Eggeman, general manager of Independent Distributors of Electronics Assn., a trade organization of distributors striving to meet high quality standards.

AT HOME, FAMILIES DISMANTLE E-WASTE

Tom Sharpe, vice-president at SMT, an independent distributor of electronic chips and other parts, watched the creation of counterfeit tech first hand as he traveled to Shantou, China, in July 2008. "Everything was being taken apart for chips and they were being sanded down and counterfeited while we were in Shantou," Sharpe says of an area that lies near Guiyu, a town often called the electronic waste capital of the world. He watched scraps of computers growing into huge piles in the front and back yards of homes and saw women washing components in a river after they were sanded. "E-waste generates the feedstock for counterfeiters and as the e-waste problem grows, so does the counterfeiting problem," he says.

The environmental and health risks of improper handling of e-waste have been well-documented. Workers—often parents and their children—dismantle these parts by hand, releasing toxic chemicals that contaminate the air, soil, rivers, and groundwater of Guiyu. In response, some corporations have banned the export of electronic waste. On Feb. 11, Hewlett-Packard (HPQ) said it would no longer permit its e-waste to be exported from developed countries to nondeveloped countries, either directly or through intermediaries. In May, Dell (DELL) became the first major computer manufacturer to ban the export of e-waste to developing countries.

It's too early to tell how the moves by HP and Dell might ultimately affect counterfeiting activity. Meanwhile, distributors and companies are taking further steps to fight fakery by helping create standards and sharing knowledge about the detection of counterfeit parts. SMT is investing in sophisticated equipment to test and verify their authenticity of components, Sharpe says.

The tide of fake chips and other components bound for the U.S. is nevertheless rising, he says, driven in part by extreme poverty in developing nations. "There are areas of China or India where there's poverty and nothing else," he says. For some, producing fake tech is "a way of life and a means to feed a family," he says. Still, Sharpe is confident that SMT and other distributors are better equipped to fight the tide. Says Sharpe: "The problem is worse, but more counterfeiters are being caught and identified."

King is a writer for BusinessWeek.com in San Francisco.