* US government also adds 164 names to export control list
* Moscow lab complained some chips were faulty
* U.S. company said it made traffic lights
By Mark Hosenball
WASHINGTON Oct 3 (Reuters) - The U.S. Justice Department said on Wednesday it had broken up an elaborate network aimed at illegally acquiring U.S.-made microelectronic components for Russian military and spy agencies.
Federal prosecutors in Brooklyn, New York unsealed an indictment charging 11 alleged participants in the network, as well as companies based in Houston, Texas, and Moscow, with illegally exporting high-tech components from the United States to Russian security agencies. U.S. officials did not identify the American companies from whom the components were bought.
Prosecutors also charged Alexander Fishenko, an owner and executive of the Texas and Moscow companies, with operating in the United States as an unregistered agent of the Russian government by purchasing high-tech goods subject to strict U.S. export controls due to their potential use in military systems.
Two law enforcement officials said that Fishenko and seven alleged associates were being held in custody by U.S. authorities in Houston. One of the defendants was scheduled to appear in court on Wednesday in Houston, and the others on Thursday.
It was not known if they had yet entered any pleas, one of the officials said late on Wednesday. He said that prosecutors expected to ask for those arrested to be transferred to the custody of federal authorities in Brooklyn.
Three other individuals charged in the indictment are currently in Russia, the official said.
As an adjunct to the indictment, the U.S. Commerce Department's Bureau of Industry and Security also issued an 82-page document adding 164 individuals and companies to a U.S. export control database known as the "entity list."
This list requires that export licenses be obtained from U.S. authorities before certain U.S.-made commodities are shipped to the named individuals.
The department alleged that these companies and individuals received, transshipped or otherwise facilitated the export of controlled technology to Fishenko and the other defendants facing indictment in the case.
A court document made public by prosecutors outlined further details of the government's case against those charged.
It alleged that Fishenko used a Houston company called Arc Electronics to acquire U.S.-made technology for Russian government agencies, including the Russian armed forces and Russia's principal domestic intelligence agency, the Federal Security Service or FSB, a successor to the Soviet-era KGB.
According to the document, among electronic components that the procurement network sought were microcontrollers, microprocessors, static random access memory chips and analog-to-digital converters. Prosecutors claim that such items can be used for a wide variety of sensitive military and intelligence purposes, including radar and surveillance systems, missile guidance systems and detonation triggers.
During the U.S. investigation of the alleged procurement network, which began in July 2010, the U.S. government had engaged in extensive court-approved surveillance of the email and telephone communications of those arrested, the document says.
Prosecutors say that among items collected during the investigation were a letter in which an electronics production laboratory operated by the FSB allegedly complained that certain microchips - purchased from Arc in Houston through an affiliate of Fishenko's Moscow company - were defective and needed to be replaced.
Prosecutors say that when the Russia-based affiliate received the letter from the Russian intelligence agency, it forwarded it to Arc in Houston seeking replacements for the microchips.
At one point, in an effort to show their activities were innocent, Arc told Americans it had approached that it manufactured traffic lights, a U.S. official said.
(Editing by Warren Strobel and Cynthia Osterman)
Keywords: USA RUSSIA/ESPIONAGE