Last month, CNBC reported that, for the first time since becoming a public company, Amazon added a risk factor to its Annual Report addressing the growing problem of counterfeit goods on its marketplace. The 10-K filing read, in part:
“We also may be unable to prevent sellers in our stores or through other stores from selling unlawful, counterfeit, pirated, or stolen goods, selling goods in an unlawful or unethical manner, violating the proprietary rights of others, or otherwise violating our policies.”
Amazon’s admission of the counterfeit problem is significant because for the last several years, the sale and distribution of counterfeit goods has risen steadily, but yet most online retailers do not actively police their supply chain for counterfeits. MarkMonitor has been tracking the proliferation of counterfeit goods in online marketplaces for years.
But the sale of counterfeit goods has a far greater impact, and is more sinister, than simply creating unsatisfied consumers and tarnishing the reputations of the world’s biggest brands. The proceeds from the sale of counterfeit goods is the financial backbone which is used to fund terrorism, human trafficking, organized crime, transportation of illegal weapons, health care fraud, drug offenses, sex related crimes, and money laundering enterprises.
Recently MarkMonitor partnered with Michigan State University’s Center for Anti-Counterfeiting and Product Protection (A-CAPP) to commence a research study into the overlap of counterfeiting with other, more serious, crimes. The research study used the center’s Product Counterfeiting Database to search thousands of court records and empirical databases to correlate counterfeit operations with many other illegal activities.
The research study yielded three important conclusions. First, counterfeiters do not operate in an ad hoc fashion. Counterfeiting is not a stand-alone crime, rather, it intersects often with legitimate and illicit business enterprises. Second, the cash flow activity that counterfeit goods generate is staggering which is why it continues to be the preferred source of funding.
The A-CAPP study found that the median illicit revenue generated by a single counterfeiting scheme was a staggering $1.4M. Finally, A-CAPP’s research showed that neither brands nor marketplaces can afford to be complacent when it comes to policing the Internet for counterfeit goods. No longer can brands write off product fakes as “the cost of doing business” and no longer can online marketplaces s turn a blind eye and claim, “We are not to blame, we are just a platform.” With each new counterfeit scheme, criminals are funding activities that go far beyond merely inconveniencing a consumer – they threaten the safety and security of our society.
Making an investment in stopping counterfeit is mission critical for a company. Doing so protects its reputation, protects its customers from harm and fraud, and protects society at large. The sale and distribution of counterfeit goods is not a problem we can eradicate, but it’s a problem that must be addressed with the proper attention and resources given its scope.