The Most Wonderful Time of the Year... for Counterfeiters!

The holidays are just around the corner and, with it, the busiest shopping season of the year. Millions will flock to malls, local corner stores and online to find great deals and the newest gadgets from the brands they love. But this shopping frenzy and the hunt for bargains brings with it a well-known problem – counterfeits.

Article originally published in Reconnaissance's Authentication News™.

Some estimates put the global business of illegal counterfeits in excess of $250 billion a year. The trade in counterfeit goods is a multibillion-dollar crime enterprise, which attracts organised criminal groups from across the globe, including the Mafia, the Triads and Yakuza. The illegal profits they reap from counterfeit goods also finances many other forms of crime, including money laundering, corruption, as well as drug, gun and human trafficking.

Counterfeit goods not only provide a threat to the economy, jobs and legitimate business, but also provide many dangers for consumers. Research has shown counterfeit goods to not only be low quality, but to also be often made of hazardous and sometimes even toxic components. The phenomenon of counterfeit goods is a global issue. For example, last month on ‘Singles Day’ in China, Alibaba reported selling almost $15 billion worth of merchandise in just a single day. Even more concerning, industry sources estimate that up to 80% of all sales on Alibaba are counterfeit.

New York provides vivid example

In the United States, New York provides another vivid example of the illicit trade in counterfeit goods. New York is home to two of the largest seaports, two of the largest international airports and the largest international mail facility (IMF or mailport) in the nation. And with all these import entry points comes an increased risk for counterfeit goods.

According to government sources, only about 4% of all sea cargo is inspected. The situation at international mailports is even worse. Over 500,000 small parcel shipments arrive at JFK’s IMF every single day, 365 days a year. Assuming even only 1% of all parcels contain counterfeit, the numbers become very concerning, very fast. This never-ending barrage of counterfeit goods shows its effect during law enforcement actions, especially around the holiday season.

For example, during a single raid in December 2014, the New York Police Department and US Homeland Security raided a storage unit in Queens containing about $22 million worth of counterfeit goods. And one only needs to take a leisurely stroll along Canal Street (a major street in Lower Manhattan) to see the counterfeit issue first hand. New York is so notorious for counterfeits, websites even provide shopping guides to ‘buying fake handbags in New York’.

What needs to be done? So, in a market as complicated, diverse and engrained as New York, what needs to be done? Can counterfeit goods ever be stopped? Can the war against counterfeit goods ever truly be won? Can the world be freed from counterfeit goods? The sobering answer is: probably not. While some might decry that notion and claim that their tool, programme, solution or feature will end counterfeit goods, let’s look at the numbers.

A 2013 study revealed that while counterfeit consumer electronics are a significant concern to US consumers, 12% of the consumers surveyed knowingly bought fake consumer electronics. And, even more concerning, Millennials were five times more likely than Baby Boomers to purchase fake goods. And if one would survey the purchasers of fake goods on Canal Street, that number would probably grow close to 100%. Those are certainly scary numbers and they indicate that counterfeit goods will unfortunately always have a market. But there is also good news. First, the above survey also showed that 82% of consumers did not know if they had purchased counterfeits – and most likely did not want to purchase them. And 97% wanted more information so they could identify counterfeits.

Authentication features therefore need to focus on two key aspects: Simplify and ensure authentication of goods during law enforcement actions; Provide a simple authentication feature for consumers. To assist these two sets of stakeholders, authentication tools should combine various overt and covert features and enable remote look-up of authentication information.

Why is that important? Covert features will provide an easy way for consumers to authenticate on the spot. However, consumers are most likely not trained in all the intricacies of overt features and might be fooled by copied or imitated overt authentication features. This provides the additional need for a remote look-up of authentication information for concerned consumers via a QR code, SMS or the internet. This look-up needs to be simple, easy and fool-proof, if wide acceptance is supposed to be achieved.

In addition, law enforcement can use the covert features to provide secure and certain authentication, as well as access track and trace information on genuine goods should they have been diverted. So law enforcement agencies across the world can utilise the features, and open-source or open-platform tools accessed via a smartphone will ensure the broadest acceptance of these features.

Some covert features can even be extremely low-tech. Microprint, engraving, reverse embossing, hidden symbols and layering of materials have all shown to provide additional low-cost authentication tools for law enforcement. But authentication tools alone will only provide limited relief. Authentication tools do not enforce themselves and they alone do not put counterfeiters out of business or behind bars. For authentication tools to be truly effective they need to be supported by strong laws, penalties and a robust enforcement regime.

Today’s laws in many countries and jurisdictions have made the production, distribution and sale of counterfeits an attractive source of illegal profits for organised crime due to low associated penalties. In many instances, counterfeiting has become more profitable than other illegal activities, such as the trafficking and sale of narcotic drugs, people and weapons.

The authentication industry has an opportunity to support stronger laws with increased penalties, increased inspection, seizure, forfeiture and destruction rights, as well as increased dedicated law enforcement funding and increased political will for enforcement, to unlock the true potential of their authentication tools.

Sven Bergmann is a Managing Partner at Venture Global Consulting and advises brand owners, technology providers and governments on anti-counterfeit strategies, programmes and technologies.

Send your comments to SBergmann@VentureGlobalCo.com.


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