The U.S. Department of Defense, the Secret Service and the Department of Homeland Security unsuspectingly bought about $2 million worth of software from a developer in Russia that also contracted with Russian security services, according to the Justice Department.

Two executives from Oxygen Forensics, a digital forensics software company based in Virginia, are accused of conspiring to commit wire fraud and concealing the true origins of the business and its products, federal prosecutors said in a statement Wednesday.

The complaint does not accuse them of selling software that contained malicious code or that was used to gain unauthorized access to government systems, the Justice Department said. Still, the case has raised alarms among some experts in illicit finance, who say it highlights the lack of transparency around the ownership of private companies in the United States and the national security risks of that opacity.

Trump Administration Cuts Reporting Requirements

The revelations come as the Trump administration has eliminated some reporting requirements for private companies in the United States intended to help law enforcement authorities stop shady operators from using shell companies to launder money, evade sanctions and more.

The Treasury Department last month said it was permanently halting data collection on ownership of private U.S. companies. Treasury Secretary Scott Bessent said in a statement that the move would cut red tape, “eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising our national security.”

The White House declined to comment, referring to the Department of Justice statement, and the Treasury Department did not immediately respond to a request for comment.

Lee Reiber, 55, CEO of Oxygen Forensics in the United States, and Oleg Sergeyevich Davydov, 52, a Russian co-founder of the related company launched in Russia in 2000 and also the developer of its digital forensics software, were both arrested this week, the Justice Department said.

Reiber was detained in Idaho and appeared in federal court there Tuesday, where he was released on bond; prosecutors said he was expected to be arraigned soon in Los Angeles. Davydov was arrested in London as he was about to board a flight to Turkey, and the United States expects to seek his extradition, they said. Neither man could be reached for comment. It was not immediately clear if they had retained lawyers.

Feds Accuse Men of Using a Virginia Company as a Front

A special agent investigating the case for the Department of Commerce said in an affidavit filed with the criminal complaint that since 2022, the two executives and several other unnamed Russian shareholders conspired to obtain contracts from federal agencies through Oxygen Forensics in Virginia by obscuring its true ownership.

The company made false representations that government procurement agents relied on, and employees and shareholders took steps to hide the fact that the software development team was in Russia, the agent said.

After the U.S. imposed sanctions on Russian companies in response to the invasion of Ukraine in 2022, Davydov’s name was removed from the American business’s corporate filings, and the Russian company changed its name from Oxygen Software to MKO-Systems, the agent said. Reiber was then named CEO and the company’s charter was amended “so that, in the words of one shareholder, ‘fateful decisions’ would continue to be made” by them in Russia without losing U.S. business opportunities, the agent wrote.

The Department of Homeland Security, the Secret Service and Department of Defense all acquired software from Oxygen on the basis of representations from Reiber that it was American-owned and developed, but the U.S. affiliate was owned and controlled by the Russian shareholders through a shell company in Cyprus, and Russian developers worked on the software, according to the agent.

The Russian company’s customers included Russian security services and government ministries, the affidavit stated.

Prosecutors Seize Bank Accounts, Internet Domains

Prosecutors also said they had seized corporate bank accounts, dozens of domains, and digital infrastructure associated with the alleged conspiracy to dupe the U.S. government.

The case highlights the wider problem of a lack of transparency about who benefits from, owns and controls private companies in the United States, said Alex Zerden, the founder of the risk advisory firm Capitol Peak Strategies and a former official in the Treasury Department’s Office of Terrorism and Financial Intelligence. That opaqueness enables sanctioned groups, like criminal cartels and terrorism financiers, to exploit shell companies and pose national security risks, prompting growing concern from officials.

“Much more attention is needed on this issue,” Zerden said.

The halted data collection on ownership of private U.S. companies by the Treasury Department had been required as part of the bipartisan 2021 Corporate Transparency Act. It was intended to prevent the illicit use of shell companies by giving law enforcement agencies access to information about the corporate structure of private businesses.

This article originally appeared in The New York Times.

By Ephrat Livni/Kenny Holston

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