David Reece of Pinkerton points to the economic damage that counterfeiters can wreak, and some security solutions.
Undoubtedly counterfeiting must be one source of funds for terrorism. However, terrorists get their money from a number of sources, ranging from na‹ve or enthusiastic sympathisers using legitimate money, through deals with organized crime and the terrorists’ own money-raising operations ‘ drugs, extortion, fraud on benefits, kidnap, etc. Should the attack on counterfeiting be any different to the attack on these other sources of funds’ I believe it is a different challenge, and that in this instance law enforcement plays a secondary role. Unlike most other forms of illegal fund-raising, the attack on counterfeiting must be a partnership between business and government. And I would suggest that in this partnership, business has to take the lead. Counterfeiting, rather like fraud, is often seen as a crime without a victim. Law enforcers, under pressure from politicians and the public to show results in the fight against crime, largely ignore crime against the business in favour of combating headline-grabbing crimes against the citizen and his property. Yet the victim of counterfeit is real and can suffer grievously. A business can be brought to its knees almost before it realizes that its products are being copied. Every fake item sold represents a direct loss to the bottom profit line, making it difficult to recover the investment in research, design and distribution. If the fake is dangerous to the consumer, the business can also lose market share through fear, rumour and bad publicity. For premium products with high margins, such as cosmetics and fashion items, the brand represents much of the cost of the product, and damage to the brand can be fatal. Ultimately a failed company can bring as much misery to individuals as other more direct forms of crime. The counterfeit market continues dramatically to increase. The appeal to the criminals is obvious. It is relatively easy to do: if you can make it you can fake it. The penalties are light. No surprise that counterfeiting is endemic in China, when the punishment for being caught is often a derisory fine, while a drug dealer gets a bullet in the head. Counterfeiting was already a problem when it was an industry to supply prized goods in markets where the public could not afford the real item: now it has grown into a network around the world that is as complex and as hard to eradicate as the drug network. The focus is also changing. International manufacturers can no longer concentrate all their anti-counterfeiting efforts in Asia. The Indian sub-continent, North Africa and Eastern Europe have their own counterfeit industries. A recent Pinkerton Europe case involving a humble domestic hygiene product has uncovered factories in Russia and Bulgaria, warehouses in Morocco, Ukraine, Dubai and Turkey, and supply routes stretching through the Mediterranean to India and as far as China. What can companies do to protect themselves better against the counterfeit scourge’ One problem for international companies is that the problem often exists at a regional level, while the resources to combat it are present at the corporate level. Thus a profit centre is losing market share, perhaps unwittingly, while the corporate HQ with the capability to bring investigative and enforcement assets to bear is not involved with the issue. An awareness programme to bring home to senior management the need for brand protection is the first step to an integrated counter-counterfeit strategy. This should be broad enough to include the whole range of intellectual property theft, since the fakes are often produced with expertise gained from inside knowledge. A leading audit firm recently estimated that more than 80 per cent of the value of many listed companies lay in their intellectual property assets. A further way in which companies can reduce the threat from counterfeiting is to tackle the problem head-on with a strategic program. Too often companies hire investigative companies only when a counterfeit issue has been discovered. This leads to piecemeal actions that are expensive for the results they achieve. A better way is to run a regular and structured sampling programme that monitors markets for evidence of counterfeit. This can be done in a cost-effective way by targeting specific areas or products, for example in support of the launch of a new high-premium product, for a defined time. The optimal solution is to do all the above, but beforehand to involve specialist expertise in the design phase of a new product. In this way the product and the packaging can be designed to include unique features which are difficult to reproduce, or which allow the product to be easily traced and validated throughout the supply chain. There is probably no company which can genuinely offer manufacturers a complete anti-counterfeit service from product design, through manufacture, distribution, to the retail outlet, and, if necessary, enforcement. Pinkerton’s solution is to work with selected partners to provide this one-stop service to clients. After an analysis of the vulnerabilities of the particular sector by both partners, the product is optimized for ‘traceability’. Deliveries are then followed throughout the distribution stages, and sampled. Meanwhile an intelligence system monitors for evidence of breaches. This can range from maintaining close links with local law enforcement agencies to sophisticated target searches on the internet. The final stage where necessary is enforcement ‘ legal action, raids, destruction of counterfeit product. The most important piece of office equipment in the Pinkerton Asia offices is a flame-thrower! Of course business needs better support from government in the fight against the counterfeiters. Both tighter laws and better law enforcement could create dramatic change. But these are matters which will only be improved by individual states as they perceive a need and depending on their resources. Organisations like the World Trade Organisation can help by highlighting the damage that the counterfeit criminal does to legitimate trade. But the fight against counterfeiting will remain essentially market-driven, and businesses can best improve their defences by integrating anti-counterfeit strategies in the core of their business processes.