The sale of counterfeit goods not only harms the brands being imitated, from both a financial and reputational perspective, it also provides a healthy source of funds for terrorist groups and criminal gangs around the world. Globally, an estimated $461 billion1 is generated by the sale of counterfeit goods each year, a significant proportion of which is facilitating these dangerous groups and their activities.
According to the 2016 Unifab Counterfeiting and Terrorism Report2, numerous terrorist organizations – such as Hezbollah, Hamas, and Al-Qaida – are reported to be involved with or to encourage counterfeiting. There have been multiple examples of counterfeit operations which have financed terrorist operations, including the 1993 World Trade Center attacks and the 2004 Madrid bombings.
From clothing, accessories, and cosmetics to pharmaceuticals and electronic components, these goods are often sold via seemingly reputable online and offline channels to consumers and businesses, many of whom believe they are buying genuine items.
So how can the counterfeiters be stopped?
Using a combination of online and on-the-ground investigative techniques, investigators are helping brands understand how the hordes of counterfeit groups around the world operate, how they are connected, and who is at the top of the chain. The smaller counterfeit groups have often been likened to a mythical hydra, with many heads growing back when one has been cut off. By focusing on the top of the chain, large networks can be stopped and legal action taken to prevent them from re-establishing their illicit operations.
Earlier this year, Kroll exposed a significant international counterfeit goods supply chain on behalf of a coalition of global luxury brands. In this case, a significant criminal network in Europe was manufacturing and distributing counterfeit goods on an industrial scale.
Using various investigative methods and analysis of intelligence, we identified the individuals and companies involved in the network. By working closely with multiple courts in Turkey, we were able to act quickly to organize raids which recovered a staggering 2.1 million items of fake goods.
The investigation began in 2014 when a luxury brand instructed Kroll to gather intelligence in order to identify a network of traders and manufacturers thought to be selling counterfeit goods in Europe, Hong Kong, and the U.S.
This investigation identified two organizations operating in Turkey that were core to a huge “shadow” international supply chain set up to distribute and sell fake luxury goods across the world. Unusually, Kroll’s investigation found manufacturing facilities in Europe rather than in East Asia.
We also found counterfeit packaging and labels showing that finished goods were being assembled for sale in Europe. It was important to look beyond a small group selling counterfeit goods on eBay – it takes time to shut them down and they usually re-establish themselves somewhere else. Instead, we focused further up the supply chain, looking for perpetrators who were likely to be associated with criminal gangs and terrorism.
Our investigators noticed during their raids on factories and warehouses that counterfeit goods purporting to be from other luxury brands were also present in high quantities. We alerted the companies to the fact we could help shut down supply chains distributing fake versions of their goods and they agreed to collaborate with our client. This meant that additional resources could be allocated to the case, ultimately resulting in criminal prosecution of the key players.
Normally if this kind of investigation yields 1,000 items, it’s a good result. To recover 2.1 million is significant and shows what can be achieved when multiple brands collaborate to bring down the counterfeiters.
1. OECD/EUIPO, (2016). Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, OECD Publishing, Paris.
2. 2016 Unifab Counterfeiting and Terrorism Report