Houston business raided, accused of selling military hardware to Russia

The Federal Bureau of Investigation on Wednesday raided a southwest Houston company accused of illegally exporting high-tech equipment to Russian military and intelligence officials.

A total of eight people were taken into custody at Arc Electronics, Inc. in the 9500-block of Townpark Drive. Officers with the Houston Police Department assisted FBI agents at the scene.

The U.S. Department of Justice unsealed an indictment charging 11 members of a “Russian military procurement network.” The group operated in both the U.S. and Russia, according to the DOJ. All 11 will go before a federal judge later in the day.

Alexander Fishenko, the owner of Arc Electronics, was charged with operating as an unregistered agent of the Russian government. Officials said Fishenko obtained microelectronics on behalf of the Russians and allegedly exported the tech despite strict government controls.

The DOJ said the equipment has potential use in a “wide range of military systems, including radar and surveillance systems, weapons guidance systems, and detonation triggers.”

Wednesday’s raid was part of a search warrant issued for a total of seven residences and business locations associated with the suspects. The DOJ also issued seizure warrants on five bank accounts held by Fishenko and his company.

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The scheme unfolds as the Russian military is undergoing a large-scale modernization effort, and many of the sophisticated electronics needed for weapons systems can only be purchased from the United States, prosecutors told U.S. Magistrate Judge George C. Hanks Jr., who will preside over hearings for the eight arrested in Houston.

The key was sneaking around U.S. laws and avoiding the attention of authorities by lying about where the equipment was headed, according to the indictment.

Fishenko, who was born in the Soviet Republic of Kazakhstan, became a U.S. citizen in 2003.

Authorities contend that when Fishenko applied to live in the United States he said he had no prior military service, but that he's since been known to say he served in a Soviet military intelligence unit in Berlin in the 1980s.

In 1998, he founded Arc Electronics.

Over a 10-year period, Arc Electronics shipped about $50 million worth of microelectronics and other technology to Russia. He co-owns the company with his wife, who is not charged.

If convicted, prosecutors intend to pursue proceeds of the conspiracy that were pushed through Wells Fargo, Frost National Bank and Compass Savings Bank, according to the indictment. No one at the banks has been accused of wrongdoing.

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According to court papers, Fishenko was born in the former Soviet Republic of Kazakhstan and graduated from a technical institute in St. Petersburg before coming to America in 1994. He holds U.S. and Russian passports and has frequently traveled overseas to do business, making tens of millions of dollars on exports, authorities said.

An analysis of Arc's accounting records showed a "striking similarity between fluctuations in Arc's gross revenues and the Russian Federation's defense spending over the last several years," the court papers say. Investigators also recovered a letter to Arc from a Russian domestic intelligence agency lab complaining that microchips supplied by the company were defective, the papers add.

Phone calls and emails intercepted by U.S. investigators also "constitute devastating evidence of Fishenko's illegal procurement for the Russian government," the court papers say.

Prosecutors said the evidence revealed repeated attempts by Fishenko to cover his tracks. In one instance in March, he "directed an employee of a Russian procurement firm to 'make sure that our guys don't discuss extra information, such as this is for our military client,'" the papers say.

In an earlier conversation, Fishenko favorably referred to a business associate using "a Russian colloquialism for 'spy' or 'secret agent,'" the papers add.

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