A military contractor sold hundreds of thousands of dollars worth of Chinese ballistic vests, helmets, and riot gear to the US government while falsely claiming they were made in America. That’s according to a newly-unsealed criminal complaint obtained by Quartz.
On Tuesday, federal agents arrested Arthur Morgan, the founder and CEO of Virginia-based Surveillance Equipment Group (SEG Inc.), on charges of wire fraud. Investigators say the company’s president, Samuel Jian Chen, also appeared to be involved in the alleged fraud.
SEG has been supplying the federal government with law enforcement and security equipment since 2003. On at least 10 occasions, prosecutors say, Morgan submitted sworn declarations that the products he sold the US government were made in the United States or another authorized country, which would specifically exclude China.
The case comes just six weeks after the federal government accused a New York tech firm of fraudulently providing Chinese-made night vision devices and body cameras to the US military that it similarly claimed were manufactured in the United States. And in September, an 82-year-old arms dealer was arrested for selling “blatantly defective replacement parts for US military weapon systems” to the Pentagon over the course of two decades. A number of those components were reportedly sourced from China as well.
The danger in sourcing equipment from China and elsewhere is that unauthorized, cut-rate items sold to the US government may not meet established quality standards, thus putting US and allied personnel at unnecessary risk. This sort of case is “a far more common phenomenon than we generally acknowledge,” Cedric Leighton, a former US Air Force colonel who now works as a private sector risk consultant, told Quartz.
“We’ve seen these kinds of cases for many years,” added Neil Gordon, who investigates federal contractor misconduct for the nonprofit Project on Government Oversight. “The government doesn’t always exercise adequate oversight on these contracts, partially because there’s just not enough staff or resources, or they’re in a rush to get the goods or services.”
The feds began their investigation into SEG last year, according to the complaint. In May 2018, a special agent with the US Army noticed that a photograph of a ballistic helmet listed for sale by SEG on an internal government website appeared to have been altered. The agent performed a reverse image search and discovered the SEG photo had been lifted from Alibaba.com, the Chinese e-commerce site.
“[T]hat listing indicated that the helmet offered for sale was manufactured by…China Xinxing Import and Export Corporation (“CXXC”),” the complaint says. CXXC was established in 1987 by the Ministry of General Logistics of the People’s Liberation Army of China, and is now owned by the Chinese central government.
When agents removed the inside rubber liner of one of the helmets, they found Mandarin handwriting on the ballistic layer.
Another reverse image search, this one on a ballistic vest offered by SEG, revealed it too was made by CXXC.
Investigators reviewed US Customs and Border Protection (CBP) shipping records, which showed 14 shipments of vests and helmets to SEG from CXXC in Beijing. The delivery dates corresponded with orders for vests and helmets placed with SEG by the US Navy and the State Department. The shipping records during that time frame “do not indicate that SEG received shipments of vests or helmets from any country other than China,” the complaint says.
In emails to contracting officers at the Naval Surface Warfare Center, however, Morgan claimed SEG was making the helmets at “our factory…in southern Virginia.” Investigators say they’ve failed to find any such factory.
According to a federal contracting database, investigators learned that SEG sold equipment to five federal agencies, three of which are not identified in the court filings, for a total of $640,000.
“This case shows how low the barriers of entry are into this market,” Leighton said. “Basically, all you need is an internet connection, a bank account, and a few willing partners in a country like China and you too can have your own equipment re-selling business.”
Morgan is in custody and could not be reached for comment. He does not have a lawyer listed in court records. The Naval Surface Warfare Center did not immediately respond to a request for comment.