Malaysia’s chip industry falls in crosshairs of US sanctions on Russia

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

Malaysian semiconductor maker Jatronics SDN BHD is among nearly 300 entities that Washington slapped with US sanctions last month over their alleged links to Russia’s military suppliers.

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

Russian customs data shows that one of the Russian companies Jatronics has supplied since Moscow’s full-scale invasion in February 2022 was already sanctioned by Western governments for its alleged ties to Russia’s defence industry.

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

US officials have not said that they know for certain that components shipped by Jatronics have actually been used in military equipment.

“Jatronics supplied these components to companies based in Russia that are supplying Russia’s military-industrial complex,” a spokesperson for the US State Department told Al Jazeera.

Some of the materials Jatronics shipped to Russia included Tier 1 items on the US Department of Commerce’s List of Common High-Priority Items, established in the wake of the invasion to stem Russia’s access to technologies needed for the war, the spokesperson said.

The Commerce Department describes Tier 1 items as those “of the highest concern 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.

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

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

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

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

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

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

They include OOO Planar, which the US sanctioned in March 2022.

At the time, the State Department said that Planar “specialises in procuring foreign technology for Russia’s military programs, including Russia’s military space programs”.

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

The plant’s website says its projects have included navigation systems for UAVs and lists Russia’s Ministry of Internal Affairs, which oversees the country’s police force, among its “partners”.

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

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

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

“Jatronics had the opportunity to recognise these companies’ connections to the Russian defence sector. Other exporters should learn to detect the numerous warning signs exhibited by several of Jatronics’ consignees,” he said.

While chip makers themselves might not be familiar with those signs, Maggard added, they can hire companies that specialise in such “due diligence” checks when doing business with Russia.

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

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

In a keynote address at the SEMICON Southeast Asia 2024 tech 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 tech war and said his government would aim to attract $100bn in new investment.

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

“They are setting them up to be sanctioned. Malaysia is clearly under watch from the United States right now,” Abuza told Al Jazeera.

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

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

Commenting on the visit, the Malaysian government said it put more stock in sanctions imposed by the United Nations than those applied by individual countries.

But as the war in Ukraine grinds on, Abuza said, the US is likely to get even tougher on countries seen to be aiding its enemies.

“The Americans really believe that they can help the Ukrainians achieve their strategic ends if we can really stop the Russian global supply chains that are 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 are going to lose access to the US or European markets”, Abuza added.

“And so those sanctions are really a way to change behaviour, not just punish. We’re trying to send signals that selling to the Russians is just very short-sighted in business terms.”

The Malaysian government’s lead spokesman, Fahmi Fadzil, did not reply to Al Jazeera’s requests for comment on the new sanctions.