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Exposing the Menace of Counterfeiting

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Author: Amr Hassan
Posted to the web: 7/26/2011 4:33:16 AM


Sophisticated criminal organizations, not street vendors, drive global counterfeiting activity; their ruthless pursuit of profits poses a significant threat to legitimate business

 

 

For many casual observers, the stereotypical counterfeiter is the common street pedlar trying to earn a few ‘harmless’ Euros by hawking pirated DVDs or knockoff sunglasses. What they don’t know is that this is merely the tip of the iceberg; itâ's often the case that behind these neighborhood sellers are unscrupulous criminal syndicates that undermine legitimate businesses and may use the proceeds from counterfeits to fund illegal activities such as narcotics trafficking, arms smuggling and even terrorism.

 

Here are some myths about counterfeiting:

 

Myth 1: Counterfeiters are the sympathetic, lone street pedlars selling wristwatches, handbags, sunglasses and other goods

o   Fact: Counterfeiters are often organized criminals flooding global markets with goods whose social and economic impact, currently estimated at $775 billion, is expected to double to $1.7 trillion by 2015

Myth 2: Counterfeiters limit their ‘business’ to harmless knockoffs of consumer goods such as wristwatches, sunglasses and printing supplies

o   Fact: Counterfeiters often use proceeds from fake merchandise to fund more dangerous crimes including narcotics, arms trafficking and terrorism

Myth 3: Counterfeiters don’t harm anybody

o   Fact: Counterfeiters siphon legitimate jobs and tax revenues out of the local economy, they impede the growth of legal local businesses; their low-grade merchandise can be harmful; they use violence to protect their illicit enterprise

Myth 4: Counterfeiters provide job opportunities

o   Fact: Counterfeiters don’t adhere to laws and regulations that protect consumers, employees and the environment; they exploit all of these to the detriment of the everyone

Myth 5: Counterfeiters manufacture products of identical quality to the brand-name equivalent

Fact: Counterfeiters often use inferior, unregulated ingredients and raw materials and processes that don’t follow quality control and produce substandard and potentially harmful products

 

High Reward/Low Risk

 

As with any other class of criminals, counterfeiters are motivated exclusively by potential profits. Their indifference to how their illicit actions affect society - the labor they exploit and the consumers and businesses they defraud - represents a growing threat whose economic cost is expected to double to €1.7 trillion by 2015.

 

Theirs is a simple calculation of risk versus reward. Counterfeit organizations are attracted by profit margins as high as 500 percent for certain categories of fake goods.  Start-up costs are negligible; thereâ's no research and development, and all marketing is taken care of by the victimized brand.  Cheap labor without meaningful rights or benefits churn out high volumes of small and profitable fakes such as DVDs, telephones and printing supplies that are packed tightly into shipping containers en route to global markets.

 

At the same time, black marketeers know that their activities could be considered a lower priority by law enforcement authorities who are investing limited resources to this cause as they focus on combating what are seen as more dangerous criminal activities. Although in Asian countries, like China, there exist IP laws prohibiting counterfeit and officials here are increasingly stepping up their efforts to fight against such activities.

 

Anonymous and protected criminal masterminds don’t anguish over street corner raids and arrests that temporarily sweep shopping districts and bazaars clean of pedlars and illegal merchandise. Within hours, either the same sellers are back in business or have been replaced by one of hundreds of other ‘employees’ who soon become part of the cycle.

 

Asian Connection

 

The clear majority of counterfeit goods flooding markets today originate in Asia, and in this regard China is a significant challenge. In fact, in 2009 about two-thirds of merchandise detained in Europe for violations of intellectual property laws came from this country, the worldâ's largest manufacturer. In the same year, the U.S. Trade Representative issued a report in which it stated that ‘overall piracy and counterfeiting levels in China remained unacceptably high and that many counterfeit products from China posed a health and safety threat to U.S. and global consumers.’

 

According to one published report, ‘Chinese organized crime has come to dominate the international market in the production and trade of counterfeit goods. Chinese criminals have perfected the production, transport and sale of all kinds of counterfeited goods.

 

Increasingly itâ's believed that counterfeiters are integrating vertically along the supply chain and now control not only the manufacture of fake goods but also the local wholesale distribution.

 

For these counterfeiters, closer proximity to the end customer enables them to exercise greater control over how product - type and volumes - is circulated locally. It also eliminates intermediaries and therefore costs. However, at the retail level, counterfeiting adheres to the time-honored rules that have historically governed both legitimate and illegal trade: customers for the most part prefer to deal with local, trusted merchants whom they know. (At the retail level, customers may or may not know they are purchasing counterfeit goods.)

 

 

 

 

 

Fighting Back

 

In the meantime, worldwide consortiums such as Business Action to Stop Counterfeiting and Piracy (BASCAP) marshal the collective experience and efforts of leading global brands to educate businesses and society at large on the dangers and folly of using counterfeits. The organisation also actively cooperates with international and local law enforcement authorities to identify, dismantle and arrest fraudulent producers.

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