Sanctions hit the bull’s eye: FBI traps and arrests Russian businessman supplying displays to the military

RU

A display worth its weight in gold

LED microdisplays are devices that offer exceptionally high resolution on a small screen – for instance, 1280 by 1024 pixels on a 0.8-inch display – placing the pixel size at about 10 microns. The pixel of a conventional liquid crystal display is about 10 times as big. Microdisplays are a classic example of dual-use products; they are used in night vision devices, scopes, and tactical goggles.

Russian official media have repeatedly claimed that Russia has streamlined domestic production of OLED microdisplays. The now-sanctioned Cyclone, part of Rostec, allegedly figured out how to produce them. The Insider has been unable to find independent evidence that Cyclone indeed manufactures these products from scratch.

A major global microdisplay developer and manufacturer – and the only such company in the U.S. – is eMagin Corporation. Among other things, it supplies displays for virtual or augmented reality devices to the U.S. Army.

According to Import Genius, no less than $11.8 million worth of eMagin displays have been imported into Russia since 2011 – and that's only the shipments with an indicated brand name. Prior to Russia's full-scale invasion of Ukraine, U.S. microdisplay imports were direct. According to the indictment against Maxim Marchenko, Russian limited liability company OOO Radiofid Systemy received more than 5,000 microdisplays from eMagin between 2017 and 2021.

They were declared as intended for a civilian end-user, EMERCOM’s Agency for Support and Coordination of Russian Participation in International Humanitarian Operations. However, the e-mail address indicated in the end-use declaration belonged to an IT guy from the sanctioned Granat Research and Development Center. According to government procurement data, Granat's main partner is none other than the R&D center Cyclone, which allegedly produces microdisplays itself. Since 2013, Cyclone has purchased over $5 million worth of goods from Granat.

In February 2022, eMagin decided to curb its supplies to Russia. In May 2022, eMagin notified OOO Radiofid Systemy about the termination of their arrangement. The Insider sent an inquiry to eMagin but did not receive a response.

From sprats to microchips

The war did not affect Maxim Marchenko's entrepreneurial enthusiasm. Between March 2022 and July 2023 alone, his firm, Neway Technologies Ltd., imported more than $16 million worth of goods into Russia: mostly air, fuel, and oil filters for car engines and kitchen appliances like deep fryers, meat grinders, and juicers.

Marchenko also owns the domain https://foodshop.hk/, a Hong Kong-based online store that sells products exotic to Southeast Asia, such as sushki bread rings, canned sprats from the Baltics, vodka, and ryazhenka dairy drink.

But deep fryers and bread rings only get you so far. Marchenko's other Hong Kong-based firm, RG Solutions Ltd., focused on importing electronics into Russia and hauled in $22 million worth of goods during the same period, including $4.4 million worth of microdisplays and $5.8 million worth of microchips.

In the spring of 2022, just after the war started, eMagin landed a new client: Alice Components Co., Ltd. As American law enforcers found out, this company was also controlled by Maxim Marchenko. Ami Chan, the purchasing manager of Alice Components, turned out to be a Russian national in disguise – an employee of the limited liability company OOO Infotekhnika. In the end-use declaration, Alice Components’ manager indicated that the microdisplays were being purchased for use in “electron microscopes for medical research in China, Hong Kong, Malaysia, and Europe.”

In June 2022, Alice Components undertook to supply 500 microdisplays to Hong Kong for $183,000. Marchenko's RG Solutions made the wire transfer to the U.S. on its behalf. Shortly before that, RG Solutions received $292,000 from the Russian research and development center Topaz. The payment reference included a contract number matching (except for one digit) the number of the contract between RG Solutions and the limited liability company OOO MEK, which turned out to be the recipient of microdisplays in Russia, purchasing $2.8 million worth of them from Hong Kong in 2022 alone, according to customs data.

The FBI playing dress-up

In 2022, Russia’s appetite for microdisplays grew quickly: as early as July, fake “Chan” requested a quote for 2,000 units from eMagin. When the contract was almost signed, the American side made “Chan” promise that the components were not intended for Russia or Ukraine. In November, well after the money had been transferred to the U.S., Alice Components received a message from eMagin. The company notified the buyer that the deal could not proceed directly and offered a refund. But there was an alternative: to make the delivery in the name of another company that would pose as eMagin's distributor.

The “distributor” was a shell firm set up by the FBI as part of an operational game with the “Russian Hong Kongers.”

In November 2022, Marchenko's firm ordered 2,500 microdisplays – ostensibly for electron microscopes – from the FBI shell firm. The indicated end-user was the National Health Commission of the PRC. First, Marchenko's people paid $33,600 for 50 microdisplays through Namfleg Ltd. The FBI sent the displays to the required address, supplying a tracking number for the shipment.

Amazingly, the actual buyers of the microdisplays in Russia were careless enough to punch in the tracking number from their work computers without even a rudimentary VPN. As a result, the FBI received information that someone was tracking the shipment from the IP addresses belonging to Granat, the supplier of Rostec's Cyclone.

In December 2022, the FBI, still posing as eMagin distributors, sent Marchenko's entities an invoice for the remaining 2,450 microdisplays. Marchenko's various Hong Kong-based firms wired more than $1.3 million to the United States in payment of this invoice. In February 2023, FBI agents disguised as distributors said the goods had been shipped and provided another tracking number. Again, someone at Granat followed the link, thus confirming that the end users of the goods were not Chinese at all.

The arrest

In March 2023, the fake distributor informed the fake “Chan” that the shipment of microdisplays had been seized by the U.S. Department of Commerce. Marchenko called the distributor's “manager” (an FBI agent) and lied to him on the record: in particular, that they paid through multiple firms because of ostensible banking issues (and not to conceal the Russian origin of the money).

In July 2023, the U.S. Department of Commerce allegedly “lifted the seizure” on the shipment and returned it to the sender, who asked Marchenko what he should do with the goods Marchenko had paid for. Marchenko suggested dropping the shipment's customs value below $2,500 to dodge export controls – although the real value of the goods exceeded $1 million. Astounded, his American “partners” suggested an alternative option: to meet in a third country and transfer the microdisplays in person.

Posted on September 14, Maxim Marchenko's last photo on Facebook is a departure board showing a flight from Hong Kong to Fiji. Marchenko checked the customs regulations in the destination country and concluded that “no one would bat an eye.” On September 17, Marchenko met with the pseudo-salesman. In a conversation with him, Marchenko assured that the microdisplays would be used for hunting rifles (and not for medical research, as previously stated) and that his firm was ready to purchase another 7,500 units.

When the FBI agent, still posing as a businessman, expressed concern that the displays might resurface on the battlefields of Ukraine and their serial numbers could be traced back to the seller, Marchenko said the serial numbers could be altered with the help of lasers. Following this exchange, Marchenko was arrested and brought to the United States the same day.