- The sale and shipment of counterfeit goods is now a multibillion-dollar industry.
- The funds from counterfeits have been linked to criminal organizations and bombings.
- We visited a Customs and Border Protection Officer at JFK Airport to see how he’s stopping and destroying fakes.
- See more stories on Insider’s business page.
Following is a transcription of the video:
Narrator: This guitar might look like a real Gibson, but it’s not.
Steve: This is coming from China. Wait, and it’s Gibson, S-O-N, not S-U-N.
Narrator: These are fake, too.
Steve: Coach bag with a Michael Kors zipper. Ooh, we have Nike sneakers here.
Narrator: They’re a part of a huge counterfeit industry worth over $US1 ($AU1) trillion dollars. And since these fakes come through the mail, Customs and Border Protection officers are tasked with seizing them. In 2020 alone, CBP seized over 26,000 counterfeit good shipments.
Dyan: Knockoffs are getting better and better and more profitable for these counterfeiters.
Narrator: Not only are these fake products dangerous for consumers …
Steve: They’ve had cadmium, arsenic, lead, and cyanide inside makeup, and it’s disfigured people. Perfume has had horse urine in it.
Narrator: Profits of counterfeits are known to fund criminal activity, including attacks and bombings.
Steve: People think it’s a victimless crime. “Oh, what’s the harm? I’m just buying this pocketbook. What could it do?” It does a lot, because the problem is where the money is going.
Narrator: And as everything is now sold online, buying counterfeit goods is getting easier, but stopping them is much harder.
Dyan: It’s like whack-a-mole. They come up, you go after them, they come down, and they go up again.
Steve: And here we have a counterfeit watch.
Narrator: That’s customs officer Steve Nethersole. He’s America’s first line of defense against counterfeits.
Steve: I’ve had many million-dollar watch seizures.
Narrator: We visited him at JFK to learn how he’s spotting and stopping fakes, all while the counterfeit market is surging.
Counterfeit goods are anything that infringes on a company’s intellectual property rights, or IPR. Think fake Air Jordans, Rolexes, or Louis Vuitton purses. And because these products are trademarked, counterfeiting them is illegal.
Steve: You could just be guaranteed that your product is going to get counterfeited. It’s just a matter of time.
Narrator: Half of the counterfeit goods CBP seized in 2019 came through the mail from China, followed by Hong Kong and Singapore. Before a package ever lands in the US, CBP gathers intelligence on the sender, container, and aircraft. Using this intel and X-ray machines, CBP narrows down a million packages into the ones that’ll get pulled for further inspection. Those suspicious packages will go straight to Steve. He’ll start by looking at the box.
Steve: Well, I’m looking because I don’t have my glasses on, so I’m cheating. The first when it comes in is the country of origin. Louis Vuitton, they’re coming from France. The watch is coming from Switzerland. When it’s coming from China, bing, that’s your No. 1 red flag. Then you look at the dilapidated boxes.
Narrator: Then he’ll open up the package.
Steve: And this is from a familiar sender that sends counterfeit items, possibly footwear. Ooh, we have Nike sneakers here. This is obviously to save space, but this is not traditional of the manufacturer to crush all these items. We try and take care of when we open it up so that if it is something that’s legitimate, we’ll tape it up and put it back the way it originally was.
Narrator: But that’s rare. More than likely, what he finds is fake.
Steve: The most common counterfeited handbag is Louis Vuitton. The most counterfeited sneaker is Nike Air Jordans. Here we have a Rolex watch.
Narrator: But how does he know they’re counterfeits? Well, brands train Steve on the telltale signs to spot a fake.
Dyan: They’ll sometimes send a kit, and the kit will include a genuine product. It will include kind of a hit list as to what to look for.
Narrator: Most of the hit list is kept top secret to protect the brand against counterfeiters. But Steve could share a few things.
Steve: Rolex would never put their watches in little Ziploc bags. They don’t put these inside it, the silica gel. Rolex does not send to individuals in the United States. They only send to their retail stores.
I have another package here. This one’s coming from Thailand. We have an assortment of items here. We have Chanel eyewear. We have Gucci eyewear, watches, jewelry, Louis Vuitton pouch. The high-end manufacturers like this, never commingle their products. In other words, a Gucci inside of a Fendi or a Louis Vuitton. These people will stuff watches, a wallet inside a handbag. They don’t put any of this in it, the filler inside it. And their items wouldn’t come in bubble wrap like this.
Narrator: Some of the counterfeits are obvious.
Steve: Here we have a Burberry coat, and it says Burbelly mistakenly on the button.
Narrator: But some aren’t as easy to spot.
Dyan: The quality is getting better. Sometimes these factories, especially in China, it’s the same factory that’s making the good for the brand owner is also making the counterfeits. And that’s a real problem for the luxury brand owners.
Narrator: Sometimes the brands themselves can’t even tell the difference.
Steve: Some of the counterfeits are that good. I’ve never seen one like this before. So of course I’m going to be delicate with it. The packaging and the brand doesn’t look like the normal counterfeit that we normally see. It’s coming from Israel. What is the country of manufacturer for Paul Reed Smith?
Sandeep Singh: Seoul, South Korea.
Steve: Israel is not a manufacturer. There are a lot of red flags. It’s like half and half. It’s got model code, serial number, UPC number. But for the country that it’s coming from is the thing that’s throwing me off. So I’m going to put it over here on hold and it will be determined later on.
Narrator: But in order for Steve to seize anything, there has to be a trademark on that product.
Steve: See what we got in here? Shirts. This is all Suzuki shirts. Suzuki has motorcycle and car trademark, but not on apparel. So this will end up being released.
Narrator: But whether it’s a copycat of a product that’s trademarked or not, counterfeits can be dangerous. That fake makeup? Well, it can cause rashes, swellings, and burns.
Steve: They’ve had cadmium, arsenic, lead, and cyanide inside makeup. And it’s disfigured people. Cadmium is in rechargeable batteries and control rods in nuclear reactors. Perfume – laboratory tests have shown there’s been horse urine in it.
Narrator: Steve says fake safety equipment is even more alarming.
Steve: When it comes to automotive parts, that’s a very big danger. Spark plugs, which can cause the engine to go on fire. Oil filters that cause instant damage to the engine. Airbags are a big thing.
Steve Shapiro: That’s something that you may not necessarily realize is something to even consider. Until you need that airbag, and it doesn’t go off in the protective way that it should. Counterfeit manufacturers have no regard to health or safety or who they hurt along the way. All they’re concerned about is the bottom line.
Narrator: Many studies have shown that counterfeiting is one way criminal organizations fund themselves. The accused group in the 2004 Madrid train bombing sold fake CDs to partially finance their attacks. For the 1993 World Trade Center bombing …
Steve: Co-conspirators in that sold counterfeit T-shirts on Broadway to fund that.
Narrator: The two brothers behind the 2015 attack on the Charlie Hebdo publication …
Steve: That killed 12 people and injured 11. They funded their weapons partly through counterfeit Nike sneakers.
Shapiro: And sometimes it’s hard to make that connection between a purse you might have bought on the street corner and an organized crime activity. But this activity that seems to be going under the radar can be lucrative for criminals.
Steve: And it’s because it’s high-profit and low-risk.
Narrator: So when Steve finds a counterfeit good, he seizes it. Then he figures out the item’s MSRP, using the brand’s website and CBP’s internal database.
Steve: This one here would be about $US11,000 ($AU15,141). That’s the MSRP – what the manufacturer would be losing had this been genuine. These are generally on the internet for about $US200 ($AU275).
Narrator: In 2020, CBP seized over 26,000 packages for intellectual property rights violations. That’s a total value of over $US1 ($AU1) billion. But it’s not just the manufacturer’s profits that take a hit. Their reputations do. When a buyer doesn’t know they’ve bought a knockoff and it falls apart, it’s the real company that customer blames. And over time, consumers’ trust in the brand is eroded. Steve does all the paperwork for every seized package. Then he stores the goods.
Steve: Here we have the post on full of seizures. So it’s going to go into the storage room. In the end, all of these products will be destroyed.
Narrator: They’re incinerated at a top-secret location. So what happens to the counterfeiters? For one, Homeland Security Investigations can decide to open up a case, but Steve says that doesn’t happen often. The first problem?
Steve: The HSI agents, there’s only so many of them. They’re going to deal with the most important thing, which is narcotics. All the fentanyl and the cocaine that are coming that are killing people, that is a top priority, and it should be.
Narrator: And the second problem? The nature of counterfeiting is that these bad actors operate without a respect for borders.
Dyan: It’s oftentimes very difficult to actually get an individual because they’re not located in the US.
Narrator: American authorities don’t have jurisdiction in China, where a lot of counterfeits are made. So arresting counterfeiters within the US is hard. In 2020, Homeland Security Investigations arrested 203 people for counterfeiting. Of those, just 93 were convicted. Dyan says a more successful tactic is going after counterfeiters online. Many sell their copycat products on platforms like Amazon, Alibaba, and eBay. To fight the fakes, online retailers have launched anti-counterfeiting measures.
Dyan: A lot of these marketplaces are really working with brand owners.
Kebharu: We do not want to be a place where a customer purchases an item that ultimately could impact their health and safety.
Narrator: Amazon’s program is called Project Zero. When companies register for Amazon, they give information on their brands, trademarks, and listings. Using this data, Amazon’s algorithm scans 5 billion products a day for signs of counterfeiting. It looks for things like blurry product photos, copycat product descriptions …
Mary Beth: Payment information. We look at price point. We look at reviews.
Narrator: And if a listing turns out to be a counterfeit, Amazon will suspend the account. In 2019, Amazon blocked 6 billion suspected bad listings on its site.
Mary Beth: We might suspend funds. We might quarantine inventory.
Narrator: Then Amazon’s new Counterfeit Crimes Unit takes over. Formed in 2020, the unit’s made up of former FBI, Homeland Security agents, and federal prosecutors like Kebharu. Whenever a counterfeit is identified, Kebharu’s team will send a packet of information to law enforcement.
Kebharu: This information can consist of IP addresses, banking information, email addresses that help us identify the person behind the computer.
Narrator: And to skirt the jurisdiction problem, the unit sends data to agencies all over the world.
Kebharu: To Europol, Canadian law enforcement, we partner and work with law enforcement on the ground in China.
Dyan: Local law enforcement does react when a brand owner comes to them and wants to do a raid. And I’ve been involved in quite a few of them where they’re really successful.
Kebharu: And we can then decide whether we want to pursue a civil suit or if we want to pursue a criminal enforcement action against them.
Narrator: But even if counterfeiters are caught …
Kebharu: Sentences tend to be low.
Narrator: For counterfeiting, offenders could face 10 years in prison. Compare that to, say, drug trafficking, where punishment can range from 20 years to life in prison, all the way up to a death sentence. And counterfeiters are getting creative at making their products seem legitimate, from creating fake Amazon listings to flooding the US trademark office with phony applications.
Dyan: It is frustrating that it doesn’t stop. That every day there’s new infringements that we uncover for clients.
Narrator: And it’s all led to a surging industry for counterfeits. Today, it makes up 3.3% of global trade.
Kebharu: When counterfeits are being sold, oftentimes taxes aren’t being paid for those goods, and they in turn can impact economies as well.
Narrator: By 2022, the counterfeits industry is expected to suck $US4.2 ($AU6) trillion from the global economy. And it could endanger over 5 million legitimate jobs.
Shapiro: Because we’re dealing with a moving target, it’s a challenging crime problem to address.
Steve: It grows every day, and it’s because of consumer demand. People need to be educated more about the dangers. And the old saying, if it seems too good to be true, it probably is.