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The Malaysian chip industry is in the crosshairs of US sanctions against Russia | Technology

Bangkok, Thailand – The United States’ efforts to cripple Russia’s war machine in Ukraine have ensnared an unlikely target far from Moscow: Malaysia’s billion-dollar semiconductor industry.

Malaysian semiconductor manufacturer Jatronics SDN BHD is among nearly 300 entities that Washington hit with U.S. sanctions last month over their alleged ties to Russian military suppliers.

Kuala Lumpur-based Jatronics is accused of shipping electronic parts and components to Russia that Moscow needs to sustain the conflict.

Russian customs records show that one of the Russian companies that Jatronics has supplied since the large-scale invasion of Moscow in February 2022 has already been sanctioned by Western governments for its alleged ties to Russia’s defense industry.

The latest sanctions, announced on May 1, freeze all US assets held by the targeted entities and ban anyone under US jurisdiction from dealing with them, effectively shutting them out of the US financial system.

U.S. officials have not said they know for sure that parts supplied by Jatronics were actually used in military equipment.

“Jatronics supplied these components to Russia-based companies that supply the Russian military-industrial complex,” a US State Department spokesperson told Al Jazeera.

Some of the materials Jatronics shipped to Russia included Tier 1 items on the U.S. Commerce Department’s High Priority Common Items List, established in the wake of the invasion to limit Russia’s access to technologies necessary for the to prevent war, the spokesperson said.

The Commerce Department describes Tier 1 items as items that are “of paramount importance due to their critical role in the production of advanced Russian precision-guided weapons systems, Russia’s lack of domestic production, and limited global manufacturers.”

Jatronics declined to comment.

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The US Treasury Department has sanctioned hundreds of individuals and companies over their alleged ties to the war in Ukraine (Patrick Semansky/AP)

Russian customs data analyzed by the Center for Advanced Defense Studies (C4ADS), a Washington-based think tank, confirms the US government’s claims.

It reveals dozens of shipments since the invasion to companies in Russia, some with their own customers in Russia’s vast defense industry.

According to the data, which was shared with Al Jazeera, Jatronics made more than 50 deliveries to companies in Russia worth more than $3 million between April 2022 and September 2023.

The materials include microchips, semiconductors and silicon wafers, the raw material for making semiconductors.

“Microchips, which make up most of the items shipped by Jatronics, are especially notable for their dual-use capabilities. For example, US-designed microchips have often been found in Russian cruise missiles, fighter jets and drones that have been intercepted or shot down,” C4ADS analyst Allen Maggard told Al Jazeera.

Jatronics supplied eight different companies in Russia, according to the data.

This includes OOO Planar, which was approved by the US in March 2022.

The State Department said at the time that Planar “specializes in acquiring foreign technology for Russia’s military programs, including Russia’s military space programs.”

It added that Planar’s main customer was the Izhevsk Radio Plant, “which develops items and technologies for the Russian military.”

The factory’s website says the projects include navigation systems for UAVs and lists the Russian Ministry of Internal Affairs, which oversees the country’s police force, as one of its “partners.”

The data also shows that Jatronics was shipped to a Russian company called Design Center Kristal.

Design Center Kristal’s website notes that its partners include Kamaz, Russia’s largest truck manufacturer, which was also under sanctions at the time of the deliveries by the US and other Western governments for supplying the Russian military.

Maggard said Jatronics could have made itself aware of its customers’ military ties.

“Jatronics had the opportunity to recognize these companies’ connections to the Russian defense sector. Other exporters should learn to recognize the numerous warning signs displayed by various Jatronics consignees,” he said.

While chip makers themselves may not be familiar with these signals, Maggard added, they can hire companies that specialize in such “due diligence” checks when doing business with Russia.

The latest US sanctions come as Malaysia seeks to become a key hub in the global semiconductor supply chain by touting its geopolitical “neutrality”.

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Malaysian Prime Minister Anwar Ibrahim has presented his country as the ideal “neutral and non-aligned” host for semiconductor makers (Ebrahim Noroozi/AP)

In April 2022, just weeks after Russia’s full-scale invasion, Malaysia’s ambassador to Russia sparked controversy when he told Russian media that the country would consider “any request” for semiconductors.

In a keynote speech at the SEMICON Southeast Asia 2024 technology conference last week, Malaysian Prime Minister Anwar Ibrahim pitched his country as the ideal “neutral and non-aligned” host for semiconductor makers amid the US-China technology war, saying his government would aim to attract $100 billion in new investments.

While the policy may serve Anwar’s government economically and politically, by luring foreign investors and pushing back on Western pressure to take a side, it also leaves domestic companies doing business abroad vulnerable to the kind of sanctions that has just been imposed on Jatronics, said Zachary Abuza, a professor at the National War College in Washington.

“They are ready to be sanctioned. Malaysia is clearly being watched by the United States at the moment,” Abuza told Al Jazeera.

In December, the US sanctioned four Malaysia-based companies for allegedly helping route drone parts to Iran, which Washington accuses of selling drones to Russia for use in Ukraine.

Earlier this month, a senior US Treasury official visited Malaysia to pressure the government over the sanctions risk it faced by allegedly allowing Iranian oil and funds for “terrorist groups” to flow through the country.

Commenting on the visit, the Malaysian government said it attaches more importance to the sanctions imposed by the United Nations than to those imposed by individual countries.

But as the war in Ukraine continues, Abuza said, the U.S. is likely to take even tougher action against countries perceived to be aiding its enemies.

“The Americans really believe that they can help the Ukrainians achieve their strategic goals if we can really stop Russia’s global supply chains trying to evade sanctions, and Malaysia has proven to be an important cog in the Russian machine,” he said.

Sanctions send the message that “yes, you can sell to the Russians, but you will lose access to the American or European markets,” Abuza added.

“And so those sanctions are really a way to change behavior, not just to punish. We are trying to send signals that selling to the Russians is very short-sighted from a business perspective.”

The Malaysian government’s chief spokesperson, Fahmi Fadzil, did not respond to Al Jazeera’s requests for comment on the new sanctions.

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