$50M Semiconductor Fraudster Pleads Guilty To Russian Chip-exporting Scheme

The US is moving forward with its prosecution of a man who is accused of illegally shipping semiconductors to sanctioned businesses in Russia after he pleaded guilty to the multi-million-dollar scheme.

Ilya Khan, who has citizenship in the US, Israel, and Russia, used his two US-registered companies to evade US export controls since 2012, court documents claimed, and continued to do so after the sweeping sanctions were introduced in 2022 following Russia's invasion of Ukraine.

The 66-year-old, primarily a resident of Israel who traveled to the US occasionally, was exporting dual-use semiconductors and "other sensitive technology" to Russian chipmaker Joint Stock Company Research and Development Center ELVEES (Elvees) without the proper national security and anti-terrorism licenses long before the sanctions came into force. Elvees was sanctioned for its role in supplying tech to the Russian military and intelligence services, among others.

Khan's companies, California-based Senesys Incorporated and Brooklyn-based Sensor Design Association, which filings say were secure software development and silicon wafer testing companies respectively, were used as fronts for the scheme.

Investigations into the case found that the two companies exported 290,000 microelectronics and other items between 2017 and 2023 alone.

According to the criminal complaint [PDF], Khan is the president and sole owner of both companies, and one of his family members said to officials in a voluntary phone interview that despite being separate entities on paper, the two companies were effectively the same.

In addition to trafficking US tech to Russia, the man also admitted to helping Elvees continue manufacturing its semiconductors in Taiwan after the company it used to do so refused to ship tech to Russia post-invasion, say prosecutors.

The scheme involved Khan arranging the Taiwan-manufactured equipment to be sent to the US and from there, he re-exported it to Russia via Hong Kong and China. The activity amounted to "substantial fraudulent conduct" to evade US export regulations, the complaint suggests.

Elvees' chips were used to power various Russian defense equipment, including communications systems, GPS receivers, and drones.

"Semiconductors and other advanced electronics are the lifeblood of Russia's war machine, and Kahn's circumvention of US export controls was critical to Russia's chip design and manufacturing capacity," said Breon Peace, US attorney for the Eastern District of New York. 

"Today's plea marks a significant step in protecting the national security of the US and our allies and partners abroad. We will continue to use all our law enforcement and national security tools to hold individuals and corporations accountable for flouting the law to aid sanctioned entities in Russia and elsewhere."

On the financial side of things, Khan also pleaded guilty to attempted tax evasion on the income made from the decade-long scheme, which was substantial.

Officials said Khan netted more than $50 million for his troubles between 2012 and 2022, $5 million of which he earmarked for personal use and did not pay income tax. 

"Kahn's multi-million-dollar business threatened the national and financial security of our country," said Guy Ficco, chief of IRS Criminal Investigation (IRS-CI). "In addition to illegally exporting sensitive technology to entities in Russia, he circumvented our tax laws by not reporting his income or paying taxes on his ill-gotten gains. 

"Uncovering financial crimes, especially those that look to weaken the stability of our country will continue to be a priority for our agency."

Khan will pay back $4,923,548.94 of the money he earned, plus an additional $1,892,816 in restitution to the IRS. 

He faces a maximum prison sentence of 20 years on top of that.

Alleged traitor detained

On the same day as Khan's guilty plea, German officials confirmed a US national was arrested in Frankfurt on suspicion of handing military intelligence to China.

Identified only as "Martin D" due to German privacy law, an arrest warrant for the man was issued on October 30. The Bundesanwalt stated he is "strongly suspected of having declared his willingness to act as an intelligence agent for a foreign secret service."

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Martin D was a member of the US military until "recently" – that's as specific as the Bundesanwalt was willing to be – and is alleged to have passed the information he gathered during his time in the armed forces to China. 

The nature of the information was not disclosed other than the fact it was sensitive and was gathered from inside the US military.

The developments are the latest in a long line of similar cases involving US nationals being persuaded by Beijing and Russia to illegally share intelligence that could benefit an enemy state.

Many cases seem to involve former US servicepeople or intelligence officers. US Naval sailor Wenheng Zhao and Army soilder and intelligence analyst Korbein Schultz are just two former military individuals of many being found guilty of passing secrets on to China, while Vadim Yermolenko of New Jersey just days ago pleaded guilty to crimes similar to Khan's. ®