The nefarious tentacles of the trade in counterfeit goods siphons 600 to 700 billion dollars from the world economy annually. Tom Fin takes a guided tour through Bangkok’s Museum of Counterfeit goods to discover who benefts and who pays for this booming trade.

Does the blood of innocent people stain your tee shirt? Most of us think of buying counterfeit goods -DVD’s, jeans, handbags, polo shirts
-as victimless crimes. Victimless? Terrorists selling counterfeit tee
shirts helped finance the 1993 bombing of the New York World Trade Center that injured 1,042, killed six, and trapped 17 kindergartners between the 35th and 36th floors for five hours.

Counterfeiting is not victimless or a new crime. China, today considered the capital of counterfeit goods, first obtained this dubious recognition in the 17 century when Domingo Nav­arette, a Spanish priest, observed, “The Chinese are very in­genious at imitation. They have imitated to perfection what­soever they have seen brought out of Europe.”

And while China continues to lead in the manufacture of much that is coun­terfeit, few countries escape the degradation of its markets, the corruption of its civil servants, the extension of its criminal class and the contempt from the international business community that the counterfeiting industry leaves in its wake.

Counterfeiting is big business. Yearly, counterfeit goods take 600 to 700 bil­lion dollars from the world market. Additional government revenue from taxes, duties, and tariffs are also lost. Dig deeper and you will discover more nefarious and overtly sinister aspects of the counterfeiting industry. We will take a brief look at these malignant tumors forged by the cancerous cells of counterfeiting and the destruction that these tentacles are causing. Then, let us determine if we need to rethink our attitude toward counterfeit shirts.

Why has counterfeiting become such a big business and a worldwide prob­lem? While not new, confluences of events during the past thirty or so years have produced the fertile field for the counterfeiter to plow cotton into dol­lars. The tee shirt, once a lowly undergarment or an item worn by thugs or rebellious youth epitomized by Marlon Brando and James Dean, became a status item by dropping a cheap logo on it and hoisting the price. Put a horse on the standard golf shirt and add 40 bucks. Take some canvas and saturate it in LV initials, shape it into a handbag, display it clutched by the rich and famous in a glitzy ad setting, and they line the Champs Elysees throwing money at the clerks to clutch their own Louis Vuitton bag.

While the profit margins were immense, the manufactures of these luxury goods further increased their earnings by moving the manufacturing to China, Southeast Asia and other developing countries where cheap labor was readily available. They found the labor, built the plant, but neglected the Intellectual Property rights that remained on the shelves in their home countries.

At the same time, a technological revolution turned delicate workmanship into a commodity that anyone could copy. And as the world began to see these luxury products designed for the rich and famous, the envious hoi polloi clamored for their share of the material glamour. Counterfeiting gave posh to peasants. Without concern for IP rights entrepreneurs with dubious ethics filled the demand with cheap knock-offs.

To understand and inspect the talent of the counterfeiter, I visited the pri­vate, by appointment only Museum of Counterfeit Goods at the prestigious law offices of Tilleke & Gibbins International Ltd in central Bangkok.

My hosts, Varunee Ratchatapattanakul and Areeya Ratanayu showed me some of the 1500 pieces of goods infringing on trademark and copyright. Largely, they explained, the desire for counterfeit goods is simply the force of the market. People want brand name or status goods. Counterfeiting al­lows everyone to acquire the patina of wealth and prestige without wealth or prestige.

And many people hanker to save money and are unaware that the product is counterfeit. The thrifty consumer is deceived and buys a knock off that uses lower quality material. The counterfeiter hitches a free ride on the marketing and good will established by the original producer through years of brand name advertising, marketing, research, and development. The product of­ten serves the purpose intended and costs less. Even when the consumer is aware that the product is counterfeit, price negates illegality. The consumer sees no harm.

The average person lacks understanding of intellectual property laws and fewer have concern for the economic havoc and death that uncontrolled counterfeiting can cause. It is, they believe, a law to protect the elite and make the rich richer. To these consumers a raid on a street merchant selling counterfeit Polo shirts or DVD’s hurts the average shopper. It destroys jobs and families, they believe, and puts innocent men and woman out of work.

A few years ago in Bangkok, a raid scheduled in the Photharam district to confiscate stuffed Mickey Mouse toys and other furry critters brought 1,000 people to the streets to fend off the police. The mob saw the raid as an attack on the workers of Thailand and further proof that the police protect the rich to the detriment of the poor. The government intervened, confiscated Mick­ey and friends, and closed down the manufacturing sweatshops – at least for a while. The government won the battle but lost the war as Mickey and his entourage located new production facilities and returned within a few days.

As I looked at the cases of real versus counterfeit merchandise in the Coun­terfeit Museum’s beautiful and elegant display room, I marveled at the talent and ingenuity that the counterfeiters employ to deceive, cheat, and swindle the public in their quest for illegal riches. The packaging, colors, fonts, de­sign is perfectly matched. Experts have difficultly determining a fake from the real thing. Surly these clever counterfeiters could have made a good deal of money in the legit world. Why travel the illegal and potentially dangerous route of counterfeiting?

For a simple reason: Counterfeiting provides a high return at low risk and is an easy get rich quick business. Of all illegal activities one aspires to, coun­terfeiting offers the greatest reward with the smallest downside.
While the museum is a good start to observe the real versus the fake, it is on the streets and the back alleys, the sweatshops and cruddy warehouses where the trade takes place that the whiff of evil lingers. Counterfeiting has moved into every category of product and is posing a health and safety risk of proportions unimaginable to a Silom Road tourist looking for the latest James Bond flick on DVD.

The World Health Organization believes that five to seven percent of all drugs are counterfeit. The hurt is not just the old geezer’s inability to perform due to a fake erectile dysfunction pill but a child’s pain when stricken with ma­laria after taking fake preven­tion and treatment medication and people dying from AIDS after taking fake HIV anti viral medication. Toothpaste, baby formula, and disfiguring skin lighting cream have recently made headlines, and it seems, a new item added every day.

Schneider Electric of Thailand has placed a warning on its web site and voiced concern over counterfeit electrical parts used in Thailand and Great Britain. These inferior parts can cause fires and potentially a loss of life. Enough counter­feit car parts are counterfeited and available to build a new car. Moreover, in the United States you can buy fake brakes made from grass or wood.

Thailand’s Krongthip cigarettes have lost 10 to 15 percent of market share to counterfeiters. Raids confiscated 50,000 packs coming from Cambodia, and other countries import cigarettes into Thailand by the truck­load. Even local tourist oriented companies such as Jim Thompson Silk has had their products counterfeited and sold on the streets.

What about airplanes? Sure enough. Of the 26 million parts installed each year, two percent are counterfeit according the United States Federal Avia­tion Administration; many come with fake certificates of authentication. And what about the captains aviation certificate? Something to think about while brushing your teeth with made in China toothpaste as you prepare to land after a long flight.

Next time you use the elevator in a skyscraper take a look at the brand name. Mitsubishi elevators have shown up on the counterfeit item list. And a Chi­nese company put together Yamaha motor cycles using fake parts and sold them as the real deal.

The BBC reports 49 Chinese students and one Taiwanese pupil have been expelled from Newcastle University after the certificates they used to gain entry were found to be forged. And fake student term papers, purchased on the internet, are a hot commodity.

In the counterfeiting hierarchy, the top banana is the mighty United States dollar. Crisp hundred dollar bills weave and bob in the dreams of the aggres­sive counterfeiter. And, if he is not greedy, passing a few hundred thousand dollars of counterfeit bills without being caught is very possible as technol­ogy has made the counterfeiting of money a relatively easy and inexpensive process. The problem, though, is that a counterfeiter is a crook, a crook is greedy, a greedy crook makes mistakes, and mistakes land crooks in jail. Also, security technology has made quality counterfeiting for the average do-it-yourselfer more difficult. Pass a few fake Franklins and you may stay under the radar. Pass enough funny money and land in jail.

The United States has identified counterfeit money they call “supernotes.” These bills, printed on the same cotton to linen ratio – three-quarters cotton and one-quarter linen – as the United States mint uses have quality engrav­ing considered as good if not better than the real thing. What makes the notes exceptional quality, though, comes from the printing. The counterfeit­ers used an intaglio press, an expensive, high quality technology for print­ing currency. Governments only can purchase these presses, sold by few companies. And the government that printed the junk money was North Korea. As Stephen Mihm reported on July 23, 2006 in The New York Times, “The North Koreans have denied that they are engaged in the distribution
and manufacture of counter­feits, but the evidence is over­whelming that they are,” Dan­iel Glaser, deputy assistant secretary for terrorist financ­ing and financial crimes in the Treasury Department, told me (Mihm) recently. “There’s no question of North Korea’s in­volvement.”

The North Korean govern­ment was counterfeiting Unit­ed States currency perhaps to support their own failed country or perhaps it was an attempt to undermine the stability and integrity of the United States currency. But it did not end in Korea. The sp­illover dripped and flowed into other areas with the money saturating the dealings of or­ganized crime. The magnitude and breadth of counterfeiting, exemplified in the American government’s investigation code named “Smoking Dragon, Royal Charm” was reported by Te-Ping Chen on October 19,2008 for the Center for Public Integrity. This investigation took place over many years in Los Angeles, New Jersey, and Asia and involved the Secret Service, F.B.I., U.S. Department of Homeland Security, the Royal Canadian Mounted Police, and many other United States agencies.

Charles and May Liu emigrated to the suburbs of Washington DC in the 1980’s. They started a little business importing counterfeit cigarettes. Of the thousands of items available for counterfeiting, cigarettes may be the safest, easiest, and most lucrative. The worldwide market is large, customs agents and border patrols concentrate on drugs not cigarettes, and the profit margin is boggling. A forty-foot container holding 10 million sticks costs $125,000 to manufacturer in China. The street price in the United States is $2 million dollars.

Until 2000, the legitimate American companies of R.J. Reynolds and Philip Morris dominated the market for counterfeit cigarettes. These companies conspired with organized crime to sell their own “counterfeit” cigarettes to
increase market share and plump up profits by bypassing taxes and duty. Re­ports from the International Consortium of Investigative Journalists ended this practice opening up the market for the Chinese and making entrepre­neurs like the Liu’s rich.

By the time of the Liu’s arrest, they had filled the streets with one billion sticks and brought in additional petty cash by hawking counterfeit phar­maceuticals, fake $100 bills, and assorted guns, rockets, and other weapons from North Korea.

When Chinese counterfeiters mastered the technique to copy the holo­grams placed on packs to show legitimacy, the counterfeit cigarette industry rocketed. With the industry providing good jobs, it benefits the economy to protect the criminals. Reports show that the Chinese roll 200 billion cigs a year – again, 200 billion. In 2007, the United States consumed 360 billion cigarettes.

As the investigation of the Liu’s continued, the FBI kept pushing to obtain items other than cigarettes. Introduced to the Koreans, they bought super-notes at 30 cents to the dollar. A meeting arranged in Phuket at Le Meridian Hotel hatched between palm trees and all the girls they could handle for as long as they could keep going. A contract for $1 million in super-notes, 1,200 AK47s, 75 anti-tank rockets, 50 rocket launchers, and 100 machine guns with silencers was drawn up.

Exporting this stuff was easy with fake bills of lading showing low duty items such as wicker and paper products. False walls covered by these items as well as toys kept the agents at bay and the cigarettes, notes, and artillery moved into and through the Ports of Los Angeles and Newark. Other ship­ments brought in additional notes along with crystal meth, and surface-to­air missiles.

The investigation wrapped up with 59 people arrested and 87 indicted in eleven cities. It was a big haul for the government. But it only scratched the surface. These stories raise disquieting questions as to the future of counter­feiting and the influence it may have on our economy and on our govern­ments.

Traditionally, countries counterfeiting industry is a rite of passage that the economy goes through as it develops and matures. In the 1960’s it was Japan. “Made in Japan” sent ripples of chuckles through the consumer landscape while today, “Made in Japan” signifies quality and originality. In the 1970’s Hong Kong was counterfeiting central and in the 1980’s, Taiwan and South Korea took the bows. China is in the spotlight now. But that, all experts agree, will change as China, like the countries before her, develop higher end industries and improve product quality.

Counterfeiting, for years, has been like a floating crap game, rearing its de­structive allure in different spots throughout the globe and being as easy to stop or prevent as the common cold. But like the cold, its irritations subside and disappear as the country’s economic and political infrastructures ma­ture and strengthen.

Today, though, the counterfeiting industry is spreading beyond the home­grown inevitability of a passing phase. Structure and discipline, doled out by organize crime syndicates such as the Mafia and the Chinese triads, is whipping the counterfeiting industry into a lean, mean economic machine. With the force of muscle and money, counterfeiting may become not just a major source of organized crimes income flow, but serve as a way to launder money obtained through the more traditional channels of drugs, gambling, and prostitution.

For years, the Mafia in the United States and other countries has invested heavily in fortune 500 companies. It is not the desire for economic returns. The stock market, during the best of times, could not meet the Mafia’s re­turn on investment expectations. The stock market is more convenient than shoeboxes and mattresses to hide the money.

Now, counterfeiting, in the mind of the average world consumer, has achieved a gloss of respectability. Law enforcement expertise, thinned down with work on terrorism and drugs, cannot devote the staff to track down and arrest all the counterfeiters. For the crime bosses, the counterfeit industry is not only a place to make money but to hide the loot from other activities as well. Counterfeit vitamins proliferate in many countries. Why counterfeit vitamins? The pharmaceutical industry is a fine way to lauder the money made from schedule 1 street drug. Therefore, we see the illegal activity of counterfeit goods serving as a legitimate cover for organized crime’s illegal activities. We are witness an unprecedented realignment as to what is ac­ceptable in the criminal world.

Rogue governments and governments of questionable moral and ethical ve­racity should garner additional attention and concern. As North Korea’s su­per-notes demonstrate, governments have unique abilities to obtain equip­ment not available to the average citizen. Countries without a coordinated effort to cause commercial market disruption, countries with favorable re­lations with trading partners, may harbor individuals seeking riches from the underworld. A country may discover the criminally inclined at all gov­ernment levels who lack proper supervision or accountability going rogue. Latching on to a crime syndicate or an unscrupulous manufacturer, a single minister or official could undermine a countries good intentioned efforts to police counterfeiters and may inadvertently implicate a country in corrup­tion and economic destabilization schemes.

The least expected source but, at the same time, the most obvious source of counterfeit goods are the legitimate companies themselves. With an at­titude of “if you can’t beat em, join em” we see how easily a manufacturer could link with organized crime and disrupt the competitive marketplace by undercutting prices and monopolizing market share. With a triumvirate of a crime syndicate, manufacturer, and government, a shattering economic force could be unleashed into the marketplace culminating with high priced and inferior products.

Counterfeiting has the potential to become a destabilizing agent in a global market place. The United States government considers a hostile government counterfeiting its currency as an act of war. The simple act of counterfeiting a logo tee shirt may involve terrorism, economic blackmail, and usurping our human rights.

We began by asking the question if your tee shirt is blood stained. If you are a regular purchaser of counterfeit merchandise, perhaps now you may ask yourself how much despair, destruction, and death do you support?

Museum of Counterfeit Goods
64 Soi Tonson, Ploenchit Road T. 02 263 7700
www.tillekeandgibbins.com
By appointment only BTS Chit Lom

Condemn it or not forgery is a huge draw for some. In 1989,
the law firm Tilleke & Gibbons decided to convert collected
fake goods into educational tools for students. An entertain ing site from Toblerone chocolate bars to belly button rings, from anti-malarial tablets to fake MSG 1,500 pieces are neatly laid out, forgeries next to the originals.