Exclusive-Top manager at U.S. firm privately sold high-tech in Russia

By David Gauthier-Villars and Aram Roston

(Reuters) – U.S. technology company Extreme Networks (NASDAQ:) Inc said last year it had suspended all business activities in Russia to show solidarity with the people of Ukraine “living under attack.”

But Reuters has found that, as the publicly-traded U.S. firm was unwinding its Russia operations, its most senior manager in the region did not stop doing business there.

Sergey Gusakov, while still working as Extreme’s manager for former Soviet republics, created his own company in April 2022 to supply Russian clients with IT equipment made by a competitor of his employer, according to interviews with two people familiar with the matter, as well as Russian corporate and customs records.

The IT equipment sold in Russia by Gusakov’s company Vektor-T is assembled in China and contains U.S. microprocessors, according to the people familiar with the matter and photographs seen by Reuters.

The upshot: microprocessors produced by U.S. chip companies that have banned sales of their products to Russia – as Extreme did – have made their way to the country embedded in Chinese equipment, illustrating the limitation of U.S. trade restrictions.

A Reuters investigation late last year showed how voluntary export bans by tech companies and broader Western sanctions adopted after Moscow launched a full-scale invasion of Ukraine in February 2022 haven’t stopped billions of dollars of computer and other electronic components from flowing into Russia through networks of third-party suppliers.

Contacted by Reuters about his private business, Gusakov said: “This is fiction. Goodbye.”

Gusakov has been running his parallel venture for more than a year despite a co-worker alerting Extreme’s top management in summer 2022 that his involvement in sales of technology on the side to Russia could violate company rules.

“These violations will lead to a heavy strike to the reputation of the Extreme company against the background of the war in Ukraine,” the complaint said.

Asked about Gusakov’s side activities, Extreme spokespeople told Reuters that the matter was subject to an investigation by the company’s legal department and outside counsel.

They declined to comment on Vektor-T’s operations, saying it was outside Extreme’s control, and did not respond to questions about Gusakov’s current status with the company.

The spokespeople said Extreme “takes very seriously its obligations to comply with U.S. export controls” and does no business in Russia.

Last year, Reuters revealed how Extreme, before the invasion of Ukraine, provided IT equipment to a U.S.-sanctioned military company that makes missiles for the S-400 air defense system, one of Russia’s most sophisticated weapons.

In October, Extreme confirmed Reuters’ findings, saying its products had gone to “bad actors,” and told U.S. regulators it would investigate current and former employees for possible involvement and implement “best in class” export controls.

MANY RESELLERS

In April last year, Extreme reorganized its regional office by relocating Gusakov and a few members of its Moscow staff to Kazakhstan, according to the two people familiar with the matter. Gusakov, who joined Extreme in 2010, according to a profile published on the company’s website, retained his title as regional manager for the CIS, a group of former Soviet republics.

But on April 13, 2022, Gusakov co-founded OOO Vektor-T in the Russian city of Oryol, Russian corporate records show. He did not inform Extreme, according to the people familiar with the matter.

On Vektor-T’s website, which was registered three weeks earlier, the company says it develops and produces a range of computer networking equipment for the Russian market. The business posted revenue of about $1 million last year, according to a legal filing.

Products sold by Vektor-T are manufactured in China by Yunke China Information Technology Ltd, which is better known under its DCN brand name, according to the two people familiar with the matter. Photographs obtained by Reuters of the insides of switches sold under the DCN and Vektor-T brands show that they are identical.

Gusakov and Vektor-T did not respond to questions on the use of DCN technology. DCN confirmed exporting products to Russia but declined to comment on its business relationship with Vektor-T.

In the 12 months to March 31, DCN exported at least $11 million worth of equipment to Russia, including shipments destined to Vektor-T, Russian customs records show.

DCN products contain U.S. microprocessors made by Marvell (NASDAQ:) Technology Inc, based in Wilmington, DE, and Lattice (OTC:) Semiconductor Corp, of Hillsboro, OR, according to the two people familiar with the matter. The photographs obtained by Reuters of the insides of switches sold by DCN and Vektor-T clearly show one of each.

A senior DCN executive told Reuters that the company relies on semiconductors from Marvell for some of its products, saying the U.S. company “has many resellers in China.” Regarding Lattice, the executive first said DCN uses their computer chips, but later retracted, saying the company doesn’t use them. “The U.S. technology proportion of DCN products is very small,” he said.

The DCN executive declined to comment on whether the Chinese company has authorizations from Marvell and Lattice to export their products to Russia.

Marvell emailed Reuters that it does not sell to Russia and that all its distributors and their customers in China must certify that products will not be resold to Russia. A company spokesperson said Marvell had not shipped directly to DCN for 10 years but added it could not always track where its products were ending up.

“It is possible that some of the distributor’s customers may further resell the products to companies to whom Marvell or its distributors have no knowledge, visibility or control,” the spokesperson said.

Lattice told Reuters it stopped all sales to Russia when Ukraine was invaded and is in full compliance with U.S. export regulations. The company didn’t address Reuters’ questions on whether DCN was a customer.

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