Forensic Focus
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A new day for illicit trade
By Elisabeth Danon, Senior Consultant, Risk Consulting
It’s an era of global connectivity and game-changing
technologies. And while companies in Canada and across
the world, are benefiting greatly from advancements
in manufacturing and distribution, so too are modern
counterfeiters and pirates.
2013
Footwear (64)
Clothing, knitted or
crocheted (61)
Articles of leather (42)
Electrical machinery and
equipment (85)
Watches (91)
Surely, these are historic times for illicit trade. According
to the Organisation for Economic Co-operation and
Development’s (OECD) 2016 report, Trade in Counterfeit and
Pirated Goods: Mapping the Economic Impact, imports of
counterfeit and pirated goods are today worth close to half a
trillion dollars annually – 2.5 percent of the total global exports.
Considering these figures are much larger than they were in
2008 (USD $200 billion and 1.9 percent of world imports), it’s
understandable that companies increasingly view illicit trade
as a significant threat to their business.
Instruments, optical,
medical etc. (90)
Clothing, non knitted or
crocheted (62)
Perfumery and
cosmetics (33)
More concerning still is the fact that the market for counterfeit
goods has expanded well beyond its traditional scope. Where
luxury products and expensive medications were once the
focus of illicit trade – that is, items with high-end margins and
brand recognition – today’s counterfeiters have embedded
themselves in a wide range of industries and corporate sizes.
Number of Seizures
Toys (95)
Pharmaceuticals (30)
Jewellery (71)
0
5
10
15
20
(in thousands)
25
30
Source: Trade in Counterfeit and Pirated Goods: Mapping the Economic
Impact, OCED
From fake auto parts to knockoff toys, counterfeit software
to fake condiments, pharmaceuticals, beauty products and
beyond. The OECD rightly states that “Any product for which
IP adds economic value to rights holders and that creates price
differentials becomes a target for counterfeiters.”
The profiles of today’s illicit traders are just as diverse. Gone
are the faceless criminals in dimly lit warehouses, and in
their place are individuals and groups selling fake consumer
products and biker gangs moving counterfeit medicines in
broad daylight.
On a larger scale, illicit trade seizure data tells us China is the
largest producing economy for illicit trade, followed by Hong
Kong, Turkey, and Singapore. Even still, the reality is that
counterfeit and pirated goods are made and sold in markets
across the world.
© 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Drivers of illicit trade
The rise of illicit trade – and the organized criminal activity
to which it is tied – is owed largely to the equally significant
rise of online technologies. As the International Chamber
of Commerce states in its March 2015 Business Action
to Stop Counterfeiting and Piracy (BASCAP) study, “Along
with trade liberalization, the growth of sophisticated logistic
networks and information sharing through data networks
and the Internet has dramatically increased the volume of
products and information moving around the world.”
Churning them out
Global seizures of pirated or counterfeit goods
By country of origin, 2013, ‘000
0
5
10
15
20
Egypt
Pakistan
U.A.E.
Morocco
India
Thailand
Singapore
Turkey
Hong Kong
China
29.8
88.3
Source: Stamping it out, The Economist
No doubt, more and more consumers are trading traditional
brick and mortar stores for online retailers, making it easier
for counterfeiters to connect to buyers and jurisdictions
that have traditionally been beyond their reach. Moreover,
operating in the anonymous world of e-commerce affords
counterfeiters the means to set up websites with ease and
disappear overnight at first notice of detection – all without
fear of losing their loyal consumers.
Online opportunities notwithstanding, counterfeiters have
also benefited from supply chains which are evolving to
become less centralized and more spread out among
global parties. This, coupled with the increasing ease and
decreasing cost of delivering small packages to anywhere
in the world, has given counterfeiters and pirates the
means to deal in black market consumer goods with less
risk and at a greater volume than ever before.
© 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Stemming the tide
The effects of illicit trade are varied and far-reaching. Most
obvious are the negative impacts on profit margins for rights
holders, and the fact that industries flooded with large
volumes of counterfeit or pirated products face ongoing
pressure to reduce their prices in order to remain competitive.
Less obvious is the eroding effect counterfeit products have
on reputed brands. This happens when consumers who do
not know they are purchasing illicit goods find themselves in
possession of low-quality products which wear out and break
easily or – in extreme circumstances – pose a risk to their
health and safety. The legitimate rights owner may not be to
blame, but it’s their name on the product.
So what are companies doing about this? Increasingly, they’re
coming together to organize strategies, promote consumer
awareness, and assist each other in pursuing infringers. These
are the goals behind organizations like the ICC’s BASCAP, and
the motivation behind similar global initiatives.
The war on illicit goods is also being waged on a technological
front. Italy’s Ferragamo shoes, for example, uses passive
radio identification (RFID) tags within their shoes to verify
authenticity – a tactic that has already ended to the sale of
thousands of counterfeit shoes online. Elsewhere, brand
owners are also using near field communication (NFC) chips
and QR codes to authenticate their own products while
using complex software to sniff out fake websites and online
copyright infringements.
There are, however, risks to doing it completely alone. For
one, purchasing counterfeit goods can land companies
in legal trouble – even if the intent is to do research or
gather evidence on counterfeiting activities. As well, giving
a government official anything of value in exchange for
information on illicit trade activity can be construed as a bribe
in certain countries, once again exposing the company to
criminal charges despite a its good intentions. Companies
that wish to pursue their own actions are therefore advised to
seek professional advice to conduct proper risk assessments
and take necessary precautions to ensure their well-meaning
actions aren’t endangering their business.
Illicit trade is growing, and it can impact any industry or
business, regardless of size. All businesses and industries
are potentially at risk. To protect themselves, companies
must work on a united front and consider all the risks prior to
striking back.
Purchasing counterfeit goods can land
companies in legal trouble - even if
the intent is to do research or gather
evidence on counterfeiting activities.
While a growing number of companies are partnering with
law enforcement agencies to fight counterfeit activity, there
are still many which are leading the charge by themselves.
© 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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