Record sentences imposed in counterfeit drugs case

Israel

In State of Israel v Rozenblatt (Cr C (TA Distr) 40238-06, November 6 2011), the Tel Aviv District Court has imposed unprecedentedly severe sentences on two individuals accused of counterfeiting and five companies used by them.

The defendants were found to have been operating three clinics between 1999 and 2004 through which they sold several types of counterfeit drugs for the treatment of sexual dysfunction, which they presented as genuine drugs. In doing so, the defendants had infringed registered trademarks and endangered the health of patients in that they dispensed the drugs, without prescription, though the clinics in Israel and on the internet in Israel and abroad.

The first defendant smuggled the counterfeit drugs via local and offshore companies under his control without obtaining the necessary permits and without paying the applicable duties and taxes. The first defendant was held to be the dominant figure in the scheme: he controlled the defendants' criminal activity and was the primary beneficiary of it; he also set up several companies registered in the name of third parties to conceal his ownership. The second defendant, a physician, consented to act as a front man for the first defendant: he was registered as a director in some of the companies and as the owner of some of the corporate bank accounts.

The court found that over 400,000 counterfeit pills had been sold, with sales reaching a total of over IS23 million.

The defendants were convicted of a number of offences, including:

  • offences under the Prohibition of Money Laundering Law (5760-2000);
  • offences under the Customs Ordinance and Value Added Tax Law (smuggling of goods and fraudulent avoidance of duties and VAT);
  • the offence of selling goods marked with counterfeit marks under Section 60(a)(3) of the Trademarks Ordinance (New Version) (5732-1972);
  • the offence of fraudulently obtaining goods and committing negligent acts endangering human life under the Penal Law (5737-1977); and
  • offences under the Pharmacists Ordinance and the Physicians Ordinance.

The prosecution demanded that severe penalties be imposed due to several aggravating factors, including the following:

  • The first defendant had conducted a criminal activity of a sophisticated nature by using front men and entities as a cover and to make it difficult to trace the monies going through the accounts of the corporate entities involved.
  • The volume of counterfeit products sold was unprecedented.
  • The defendants sold prescription drugs without prescription and without medical examination, thereby endangering the buyers' lives.
  • The defendants had committed large-scale trademark infringement, which harmed fair trade and created unfair competition and, more importantly, meant that the State of Israel was added to the blacklist of countries where IP rights are violated.
  • The tax offences, which had been committed over a long period of time, had diverted large amounts from the public treasury and violated the principle of equality.
  • The defendants had been found guilty of money laundering under the Prohibition of Money Laundering Law through carefully planned and concealed criminal activity. Severe punishment was required for deterrence purposes, and to match the extent and sophistication of the offence.
  • Because the offences were committed for financial gain, the punishment should have a financial impact on the defendants - especially the first defendant, who concealed most of the wrongfully obtained funds; a fine should also be imposed on the second defendant, who also profited from the offences to some extent.
  • The first defendant had already been convicted of fraudulently obtaining goods, with a 10-month conditional sentence pending. Moreover, the second defendant was the subject of a complaint to the Ministry of Health for allegedly negligent treatment.

The second defendant requested a more lenient sentence than that imposed on the first defendant in light of:

  • the fact that he had been acquitted of many of the offences for which the first defendant was convicted;
  • his lack of understanding, at the time of the offence, of the significance and extent of his involvement, which resulted from his dependence on the first defendant, and not from a desire to obtain financial gain; and
  • personal difficulties resulting from the loss of his license as a result of the proceedings.

The defence counsel requested that the second defendant not be imprisoned, as the deterrence effect had already been achieved.

The first defendant also requested a more lenient sentence, arguing, among other things, that other offenders had been sentenced to lesser terms for similar offences.

The district court agreed with the prosecution that the circumstances of the case were particularly grave compared to prior cases, due to:

  • the carefully planned and sophisticated nature of the criminal activity; 
  • the large scale of the criminal activity; and
  • the large monetary volume.

While the prosecution argued jointly in respect of both the first and second defendants, the court saw it appropriate to distinguish between them.

The court noted that the second defendant, despite his medical qualifications, had acted upon the instructions of the first defendant out of a desire to continue his employment in the first defendant's clinics. His salary derived from the medical examination of patients and the prescription of drugs, which he sold in the knowledge that they were counterfeit. The court noted that the first defendant was the primary beneficiary of the criminal activity; however, this did not diminish the severity of the second defendant's actions.

The court held that punishments for tax and economic offences should focus on deterrence; therefore, such punishments should affect the defendants' freedom, as well as their pockets.

The court deemed it appropriate to activate the first defendant's suspended sentence and noted that the first defendant's financial liabilities did not interfere with his financial operations and considerable personal purchases through others, including via the second defendant's credit card. The court stressed that the first defendant was not financially deprived, but had merely succeeded in concealing his assets, so that the fine imposed on him should not be substituted for additional imprisonment.

As to the second defendant, the court held that, although his role was less important, he had made his services available to the first defendant so that the latter could carry out his criminal activity. Although the criminal activity had been conceived and executed by the first defendant, it would not have been possible without the assistance of the second defendant, who served as the front man of the companies and bank accounts used by the first defendant. The court found that the second defendant was not naive: he knew the meaning of his acts and was aware that the drugs were counterfeit. However, the following factors weighed in favour of a more lenient sentence:

  • the second defendant's lesser role in the criminal activity;
  • his acquittal from a number of offences;
  • the degree to which he benefited from the activity;
  • his personal relationship with the first defendant; 
  • the difficulty, as a foreign physician, of finding employment in the public health system; and
  • his lack of prior convictions.

The first defendant was sentenced to five years and 10 months in prison (which included the earlier suspended sentence), with an additional two-year suspended sentence, and a fine of IS500,000. The second defendant was sentenced to a year and a half in prison, with an additional two-year suspended sentence, and a fine of IS50,000. The defendant companies each received a fine of IS50,000.

David Gilat and Sonia Shnyder, Gilat Bareket & Co, Reinhold Cohn Group, Tel Aviv

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