Counterfeiting and organised crime

Facts and figures

The IP world knows well that intellectual property is critical fuel for our economies, gross domestic product (GDP) and employment. This has been clearly illustrated in a recent industry-level analysis report by the EUIPO and the EPO. The report calculated that industries that rely on intellectual property support more than 29% of employment in the European Union, which equates to around 63 million jobs. Another 22 million jobs are generated by businesses that help to sustain the main IP industries through the supply of goods and services. Together, the total proportion of IP-related jobs in the European Union rises to 39%. Moreover, 30% of these industries rely on trademarks to protect their products and services.

The contribution that IP industries make to EU GDP is a staggering €6.5 trillion (45%). In the United Kingdom, IP-intensive businesses contribute 44% to the economy and 27% to employment. Companies that rely on trademarks provide 22% of all UK jobs.

Nevertheless, we are not the only ones to recognise the true value of intellectual property, and criminals have shown that they will always follow the money.

Unfortunately, IP crime has become a chosen path for many organised criminal networks. In Spring 2019 the Organisation for Economic Cooperation and Development (OECD) and the EUIPO clarified this by updating figures on the scope and scale of IP crime, revealing that the world trade in fake goods is now worth $509 billion, or 3% of world trade. Almost 7% of products imported into Europe are now counterfeit, corresponding to €121 billion per year.

What is more, 37% of the fake articles detained at EU borders have been found to be dangerous to consumers. In fact, the EU Rapid Exchange of Information System, RAPEX – which aims to calculate and report on unsafe consumer products and the measures taken to protect buyers – has reported that 97% of all ‘recorded’ counterfeit goods now pose a clear health risk.

Further, in December 2019, a joint report by the UK Intellectual Property Office (UKIPO) and the OECD was published. This established that the overall UK market in fake goods is now worth £13.6 billion, compared with £9.3 billion in 2013. The figures highlight that counterfeit goods made up 3% of all UK imports and that the total value of lost sales from products smuggled into the United Kingdom is £9.2 billion. Moreover, the report established that £11 billion had been in lost sales, which has resulted in 60,000 job losses and £3 billion in lost taxes. The overall impact of counterfeiting on the United Kingdom had been a reduction of £4 billion in public revenue.

What prompted the rise in counterfeiting?

How did all this come about? Market reforms that took place in the 1990s dramatically changed the world. Add to these:

• the development and spread of digital technologies, which resulted in dissolved borders and borderless markets;
• the evolution of new and developed container freight systems, postal and courier services;
• reduced travel costs; and
• more globalised banking systems, which meant that huge sums could be moved across the world at lightning speed.

The effects of counterfeiting and illicit trade

The result? An alarming growth in illicit markets, which attracted and brought together new transnational crime networks, to create a global illicit-trafficking nightmare.

These crime groups were clearly more empowered than ever before. They took on and subverted international mobility to such an extent that it is estimated that, in some countries, criminal markets account for almost 50% of national income.

However, emerging and developing countries have not been the only ones to feel the heat. The United Kingdom, the European Union and the United States are just some of the large economies that have been suffering from the effects of counterfeiting and illicit trade, which pose multifaceted problems for governments, business and enforcement in a time of competing priorities and decreasing resources.

Transnational organised crime groups scrutinise legal systems and then work to infiltrate legal supply chains and legitimate intermediary businesses. In short, they identify and make use of any weaknesses. Moreover, the sheer scope and scale of world trade in counterfeit goods makes it almost impossible to comprehensively prevent and respond to the growing threats.

As a result, transnational, serious and organised crime groups have had a significant impact on the global trade in counterfeit goods. Such groups have adapted and become more localised, decentralised and specialised. This has enabled them to engage professional facilitators outside of their domains to quickly move products in the developing global environment. Working in this way eases the prospect of detection. Further, they have more capacity to conceal their ill-gotten money and assets.

Response to danger

In responding to the danger, many businesses have tended to work on the basis that organised crime networks are very large, international chains, connected and managed by individual leaders. However, the contrary could also be true – the Anti-Counterfeiting Group’s work and the ongoing analysis by the OECD Illicit Trade Task Force is finding that different criminal activities, committed by organised crime groups, make use of displaced and multifarious structures. In the case of counterfeiters, they have developed small networked units, with different cells that take on different functions. This is clear because, although counterfeiting is an enormous $509 billion global crimewave, there have been very few examples of a huge international organisation being in control. In fact, when moving fakes across borders, organised crime makes use of small units in single countries or regions, creating fluid and flexible networks.

Of course, the use of new technologies has also helped criminals and has become a key factor in counterfeiting. Technology allows organised crime groups to directly target businesses and consumers from remote locations. Using highly sophisticated-looking websites, social media and encrypted communication devices and applications, crime groups have made it more difficult for law enforcement to tackle the problem – all the while, making counterfeiting increasingly attractive to criminals.

Unfortunately, despite growing knowledge thanks to the excellent reports about the growth and dangers of counterfeiting produced by international businesses, national and European IP agencies and the OECD, high-level decision-makers still need to be convinced of the need to recognise that organised crime is involved and that the dangers are continually growing.

In 2017, one of Europol’s flagship reports, the Serious and Organised Crime Threat Assessment (SOCTA), which updates Europe’s law enforcement decision-makers on developments in serious and organised crime and the threats that it poses, failed to recognise that counterfeiting and piracy is a significant priority and that organised crime is involved. The Europol IC3 team works with national law-enforcement agencies, businesses and partner organisations such as the EUIPO, to combat this destructive crime. In doing so, Europol has developed several key operations to seize fake goods, shut down the websites selling them, and arrest members of the criminal networks involved.

SOCTA is key in helping to join nations in Europe with those further afield. It is a cornerstone of a four-year policy cycle to help “create a greater measure of continuity for the fight against serious international and organised crime”. Therefore, it is crucial in ensuring law enforcement and related agencies and institutions acknowledge the counterfeiting menace and work together to build an effective response.

Organised crime in counterfeiting has a growing international dimension, and initiatives that coordinate national and international approaches are needed to help harness business and domestic and international agencies’ resources, capabilities, expertise and knowledge.

First, we must all work harder to convince our individual governments to properly accept the threat and then raise it to international security levels. This is particularly necessary in source provenance countries. We must then drive home greater understanding that this is no longer a problem for individual states and agencies. Once done, we can begin to tackle it through more multi-dimensional strategies, which can help our more vulnerable trading partners to improve governance and enhance cooperation and intelligence sharing. This will foster more effective cross-border and inter-agency actions enabling us to break the current financial strength of organised crime, which uses counterfeiting profits to feed other insidious forms of trafficking.

The Anti-Counterfeiting Group is committed to real partnership working. We are a not-for-profit organisation with a small in-house team. However, we foster tangible support and engagement to help enforcement authorities, by coordinating and facilitating a genuine response to IP crime. Together, our members represent around 3,000 international brands in 30 countries around the world. Collectively, they contribute 38% to UK GDP and 21% to overall UK employment.

To help combat this growing and threatening form of criminality on the ground, the Anti-Counterfeiting Group has an intelligence coordinator in place. This enables us to take a lead role on intelligence-led actions against some of the most notorious UK markets and online traders. This important function allows us to gather, collate, analyse and package intelligence from our members and other sources. We then identify appropriate enforcement partners to take direct action. However, the role also gives us a position in other initiatives and projects including the UK National Markets Group, which the Anti-Counterfeiting Group has chaired for six years. The UK National Markets Group has been a continuous success, enabling our members to help prevent and, in some instances, halt organised counterfeiters from infiltrating traditional and online markets, including social media platforms. As part of this work, we have again collected and provided vital intelligence on active counterfeiters and assisted law enforcement and government agencies in further actions.

Further, the Anti-Counterfeiting Group works with the UK Border Force on intensification exercises, at major UK airports. These exercises have resulted in thousands of fake goods being detained at UK borders.

The Anti-Counterfeiting Group’s intelligence coordination function has helped to disrupt major organised crime gangs and identify strategic and tactical opportunities to mitigate the threat to our member brands. As a result, we have facilitated more than 150 raids in 2019, netting over a million counterfeit products, with an estimated street value of around £20 million.

Nevertheless, we know that tackling counterfeiting cannot be effectively achieved simply through a tactical enforcement element, and consequently we are heavily involved in a number of further initiatives:

• engagement;
• outreach;
• partnership; and
• education and awareness.

Engagement

The Anti-Counterfeiting Group’s quarterly IP roadshows are greatly appreciated by enforcement. At these roadshows, enforcers can learn how to identify specific fakes, listen to brand experts and directly discuss joint approaches with business brand protection managers. In 2019 we trained more than 600 enforcement officers.

Outreach

Our 2019 the Anti-illicit Trade and Counterfeiting Workshop attracted UK and EU participants and the subsequent outcome report has helped the Anti-Counterfeiting Group to engage with numerous government initiatives. For example, we were invited to become a member of the Home Office Economic Crime Strategic Board and the Anti-illicit Trade Group. We are also a member of the EU Observatory on Infringements of IP rights, the EU Customs Working group and the World Customs Organisation. Moreover, we have built closer links to the OECD, the Royal United Services Institute, the Europol IC3 Unit, Interpol, the United Nations Interregional Crime and Justice Research Institute and various EU Commission services. In addition, we are now fully engaged with the National Consumer Federation and play a role on their enforcement group, which aims to prevent and tackle harm to consumers in a wide range of areas.

Partnership

Alongside the Intellectual Property Office, the Police IP Crime Unit, Alibaba and Kings College London, the Anti-Counterfeiting Group co-hosted a very successful business and IP rights protection summit, and our connections with most of the UK, European and international associations have resulted in broadening relationships within the European Union and the United Sates. Among other joint initiatives, this has all led to the development of more collective tactics to deal with street sales in some of Europe’s major cities. In addition, the Anti-Counterfeiting Group is now working more closely with the Asian Coalition Against Counterfeiting and Piracy, numerous all-party parliamentary groups and the Road Haulage Security Forum, which is looking at the transportation of illicit goods.

Education and awareness

The Anti-Counterfeiting Group’s publications, reports and media outreach activities have included articles for newspapers and journals, European Commission studies, a research paper on tobacco, an outline of challenges facing enforcement post-Brexit and numerous television and radio appearances. Moreover, our ‘one belt, one road’ situation study and our contributions to the international report on third and Mediterranean countries have been well received across Europe and in the United States. This work has been backed up by numerous speaking events and lectures throughout the year.

The Anti-Counterfeiting Group believes that we must continually remind governments and enforcement decision-makers that organised crime is clearly involved in counterfeiting because it is so lucrative. There are also comparably low penalties in many countries and a lack of understanding about how counterfeiting subverts security and our economies. As such, it is a fundamental enabler of other forms of crime.

This sinister form of illicit trafficking is also propelling a money-laundering flood. The money being made is quickly given the appearance that it is legitimately created, so that it can be moved without detection and then reinvested as legitimate funds. If initiatives such as SOCTA fail to acknowledge this, then the other priorities that have been identified by Europol as key threats will be bolstered and become even more threatening.

Counterfeiting is playing an increasingly important role in the international organised-crime fraternity. But if we cannot persuade decision-makers about this and the need to adopt end-to-end, cross-border means to combat the dangers, then our international banking and financial systems will be used more and more to launder funds and feed an international crime frenzy.

Our job at the Anti-Counterfeiting Group is to fight this on the ground, but to also bring the fine reports and analysis (conducted in 2019) to the attention of key politicians and the foremost enforcement decision takers, so that they can make more informed decisions about what is needed to protect our economies, consumers and our vital industries that, in the end, bring essential jobs, security and prosperity.