Extreme Networks says Reuters discovery leads it to believe its products were shipped to "bad actors" in Russia
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Extreme Networks says it is informing U.S.
authorities of export-control violation
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Extreme Networks says distributor played role in "scheme"
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Extreme Networks supplied equipment used in MMZ Avangard's office IT systems
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MMZ Avangard is maker of missile used in recent Ukraine attack
By Aram Roston and David Gauthier-Villars
WASHINGTON, rwanda Oct 12 (Reuters) - Since Russia annexed Crimea in 2014, American companies have been prohibited from dealing with MMZ Avangard, a state-owned firm that makes missiles for one of Russia's most sophisticated weapons, the S-400 air-defense system.
In a measure of Western concern about the S-400, the United States ejected Turkey, a NATO member, from a joint fighter jet program in 2019 after Ankara took delivery of the Russian system.
But even as the United States was taking actions to blunt MMZ Avangard's business, a publicly traded American technology company, Extreme Networks, was providing MMZ Avangard with computer networking equipment for its office IT systems, according to emails and other business records seen by Reuters, as well as interviews with people familiar with the matter.
In a statement to Reuters, Extreme said that based on information provided by the news agency it believed equipment "may have" been sold to MMZ Avangard using a surrogate buyer.
Extreme said the equipment was sold without its knowledge. It added, without providing evidence, that an intermediary in Russia was "complicit" in supplying its products via a front company to "bad actors." Extreme said it is reporting its findings of these potential sales to U.S.
authorities.
Ukraine has accused Russia of deploying missiles made by MMZ Avangard against ground targets since Russia launched what it terms its "special operation" on Feb. 24. Ukrainian authorities said MMZ Avangard missiles killed at least thirty civilians in a gruesome attack against a convoy on the edge of the southern city of Zaporizhzhia last month.
Neither Kremlin officials nor MMZ Avangard responded to questions for this article. MMZ Avangard's parent, Almaz-Antey, also didn't comment.
Between 2017 and 2021, MMZ Avangard obtained over half a million dollars' worth of Extreme equipment for its IT systems, according to the business records reviewed by Reuters and the people familiar with the matter.
The products included high-speed switches, an essential building block of corporate IT networks, and software.
The records also show that the deals went through a seemingly innocuous corporation near Moscow, and despite two Extreme officials raising concerns, the sales went forward.
That a Russian military company, identified as a threat by Washington, continued to acquire U.S.
computer hardware is a case study in how Western countries may have overestimated their ability to choke the Russian economy with export bans and trade sanctions. It also highlights how dependent Russia's military machine is on U.S. high-tech equipment.
In April, six weeks after Russia's invasion of Ukraine, an Extreme employee filed an internal complaint, seen by Reuters, alleging that the company was selling to various military manufacturers in Russia.
"Extreme equipment is used on Russian warships," the complaint said, "in communications systems."
Extreme said in its statement that the allegations were brought by a disgruntled employee. An investigation by the firm had found nothing to corroborate any of the claims until Reuters brought "new facts" to the company's attention this month.
The company said it ceased operations in Russia in March, adding that it subsequently launched a process to dismiss the disgruntled employee for poor performance. It said it has no records of sales involving Russian warships.
Extreme, which trades on the NASDAQ exchange and is headquartered in Morrisville, North Carolina, has earned a solid reputation in the United States and is an official partner of the National Football League.
The NFL declined to comment for this article.
A Reuters investigation in August found that while the United States and allies banned high-tech exports to Russia to try to cripple its defense industry, and many tech companies announced that they had halted exports to Russia, the flow of Western brand-name computer parts to Russian clients hasn't stopped.
This account of how Extreme supplied MMZ Avangard and at least two other Russian military companies is based on interviews with three people familiar with the shipments as well as a review by Reuters of documents spanning five years to 2021.
The documents include sales records and email exchanges between Extreme employees, customers and distributors. The shipments are reported here for the first time.
The U.S. Department of Commerce, which administers export restrictions, declined to comment for this story.
"IT WAS NECESSARY TO USE COVER"
Russian companies, including those in the military sector, have virtually no choice but to buy foreign equipment to build the computer networks necessary for modern-day business.
Russia has very limited domestic production of networking equipment.
Founded in 1996, Extreme is a junior player in the computer networking industry. Last year, it posted revenue of $1.1 billion, compared with $50 billion for Cisco Systems.
Still, the smaller company is a "meaningful competitor," according to Alex Henderson, a network and security analyst at Needham and Company in New York.
The U.S. military as well as NASA use Extreme hardware and support, according to contracting records, and the company has built up a substantial marketing profile.
In Russia, as well, Extreme lists prestigious customers, such as the Ministry of Health, the federal pension fund and Lomonosov Moscow State University.
But according to documents seen by Reuters, other buyers of Extreme equipment included not just MMZ Avangard but a major Russian military shipbuilding company and a high-tech defense electronics manufacturer.
One of the documents shows that in the four years ending 2020, Russian customers purchased $41.5 million worth of equipment.
Reuters couldn't determine Extreme's total sales to sanctioned or military firms because it wasn't clear if transactions other than those involving MMZ Avangard had been recorded under cover names.
In its statement to Reuters, Extreme said it doesn't report country specific revenue.
In Russia, Extreme maintained contacts with its customers in order to help design complex networks that expand over time, according to two of the people familiar with the matter.