Counterfeit Goods Driving International Crime

 In AML Surveillance, Anti-Money Laundering, Compliance, Terror Financing, Trending

When one thinks of the sale and purchase of counterfeit products, they often picture tourists haggling with local street vendors on the sidewalks of major cities both in the United States and abroad, harmlessly purchasing fake designer products such as handbags, watches, and other reproductions of great quality. With every dollar spent however, these individuals are unknowingly driving one of the world’s largest thriving underground industries, one that often has widespread negative effects on cities, states, and even countries altogether. The counterfeit goods industry accounts for 7% of all global trade, amounting to hundreds of billions of dollars across the globe on annual basis, with annual losses of approximately $29 to $41 billion annually seen in the U.S. alone. The diversion of these funds from local and national economies not only affects the respective countries directly impacted by counterfeiting, but also countries that depend on trade with these regions. The trend forces companies that are not being reimbursed for counterfeits of their legitimate products to increase the prices of their commodities, subsequently leading to inflation and effectively reducing the value of real money, among other ill effects.

The problem continues to grow in scope, specifically with the rise of technology and social media outlets that grant counterfeiters and criminals the ability to exploit uninformed and naïve consumers located anywhere in the world. The sale of luxury counterfeit goods from countries such as Russia and China through the popular photo-sharing platform “Instagram” in particular continues to increase, feeding into organized crime and financing terrorism in many of these areas. While the rise in technology and the vast capacities offered by the internet have surely powered today’s tech-centered society, the fact remains that criminals continue to use the same common tools provided by major staples in our every day lives (Facebook, eBay, Amazon, etc.) to attract customers to their showcases of illicit products, and to ultimately move their dirty money. So far neither the government nor the platforms themselves have taken sufficient action to right the ship in regards to this phenomenon, one that threatens to grow larger with the each new post or direct message being streamlined directly to our phones.

Overall, the trend of counterfeiting continues to spread like wildfire throughout both developed and lesser-developed countries around the world. This trend has also led to increased involvement of criminal groups in the overall production and distribution of these products, which now include counterfeit medicines. International authorities have discovered that some of the world’s most powerful organized criminal groups have “diversified into the illicit trafficking of counterfeit goods, while at the same time being involved in crimes varying from drug and human trafficking, to extortion and money laundering” (UNODC, 2017).

One country has become notoriously synonymous with this trend, and is viewed by many as being one of the prime drivers of this growing international problem. The Commission on the Theft of American Intellectual Property has labeled China the world’s number 1 culprit for counterfeiting, finding that the country “accounts for 87 percent of counterfeit goods seized entering the United States” and believing that “the Chinese government encourages counterfeiting and “intellectual property theft” (AP, 2017).

It seems that counterfeiters and criminals from smaller countries have taken notice on the opportunity provided by this market, and have begun to implement some of the same strategies that have become so effective within the world’s larger countries. According to the article “Money from fake goods trade funds terrorism, drugs” cited in BSA News Now on December 13th, 2017, a recent report from the Dubai police department has discovered that terrorists, drug & human traffickers, and notable financial criminals have benefitted greatly from the revenues produced by the sale and trade of counterfeit products both within the United Arab Emirates and in neighboring countries. Speaking on the findings at Dubai’s annual Community Safety Conference early last week, Major General Abdul Qudoos Al Obaidly, Assistant Commander-in-Chief for Quality and Excellence Affairs at Dubai Police and chairman of the Emirates Intellectual Property Association, urged the country’s citizens to be more vigilant when purchasing luxury products from second-hand dealers. Al Obaidly firmly believes that this illicit activity is having a significant negative impact on the global economy, stating that by the year 2022, officials expect the annual counterfeiting dollar figure, now at around $600 billion, to reach the trillion-dollar plateau annually. Obaidly did not downplay the fact that “there is a need for greater cooperation between the government and the private sectors” in order to combat this issue, one that is growing in prominence at the global level (Shouk, 2017).

Obaidly stated that United Arab Emirates as a whole is aiming to become one of the world’s premier counterfeit-fighting countries – a process that is undoubtedly beginning in the world’s most populous city, Dubai. According to Dubai’s Department of Economic Development, authorities within the city seized a total of “67.7 million fake goods worth approximately Dh1.16 billion last year” (Shouk, 2017). Additionally, “Dubai Police recorded 243 cases of trading in and possessing fake products and piracy in 2017 involving a total estimated value of Dh288 million” (Shouk, 2017). The city and country altogether are aiming to deter this form of activity by potentially ramping up financial and criminal penalties for both the sale and purchase of counterfeit products, although legislation of this nature is still in its preliminary stages. Overall, Al Obaidly hopes that his address will demonstrate the severity of the issue at hand, and will encourage citizens to report counterfeiters and their products if they are encountered. In order to have any chance of countering this problematic trend, it will require vast amounts of time, energy, and cooperation amongst world leaders to implement the necessary changes and set a proper example for lesser-developed countries. The need for the general public to do their part in regards to passing up on the opportunity to purchase inexpensive knock-offs cannot be understated, but without adequate penalties in place for consumers of these products at the national and international level, this may be difficult to accomplish.

 

Weekly Roundup

 

 

Australia Takes Big Step on Crypto Legislation

 

A major expansion to Australia’s anti-money laundering (AML) initiative took place last week, as the country will now bring budding cryptocurrency exchanges under the scope of current regulatory enforcement legislation. The amendment to the Anti-Money Laundering and Counter Terrorism (CTF) Financing Bill now includes definitions on digital currencies, and will require “’providers of registrable designated remittance services or registrable remittance network services’ to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC)” (Nation, 2017). This increase in transparency and in “Know Your Customer”(KYC) requirements for digital exchanges will undoubtedly help ease some of the worry that has gone hand-in-hand with cybercurrency as a whole since its introduction less than a decade ago. Even so, there is still a feeling of uncertainty amongst the general public both in Australia and internationally surrounding the overall level of security provided by the technology, one that is exacerbated following each and every highly-publicized crypto-breach seen across the globe.

After its initial introduction in late August, the amendment had continued the development and editing process, gaining traction in the months leading up to its eventual passing last week. AUSTRAC believes that these new protocols will boost the money laundering and terror financing mitigation efforts seen throughout the country, and will further protect current users of the exchanges and potential investors. Nicholas Steiger, co-head of the Financial Technology (FinTech) company Australia Blockchain Working Group, summed up the general opinion of those operating in the country’s financial sector perfectly following the legislation’s passing last Tuesday. Steiger stated that in order to “enable further growth of the digital currency industry in Australia, this is a milestone achievement that will allow for an equal regulatory playing field, and should only solidify consumer trust in this new industry” (Nation, 2017).

 

HSBC Closes the Book on Billion-Dollar Scandal

 

One of the more notorious and drawn out money laundering scandals in recent history involving a financial institution in the U.S. appears to be finally drawing to a close. Five years after being issued a $1.9 billion fine for multiple compliance failures related to Mexican drug cartels laundering hundreds of millions of dollars, HSBC recently proclaimed that the “deferred prosecution agreement (DPA) entered into with the Department of Justice (DoJ) had expired – lifting the threat of further penalties” (SkyNews, 2017). In addition to this positive news, Europe’s largest bank also received another encouraging sign in the form of a 2.5% rise in the value of company shares following the announcement. The DPA required HSBC to meet a number of regulatory standards before granting them a release from the deferred charges, a very challenging and expensive process. Nevertheless, HSBC was up to the task, living up to all of its commitments and being freed from the burden of looming charges.

Since being issued the debilitating penalty, HSBC has been steadily committed to the improvement of its regulatory compliance systems. The company currently invests more than $1 billion annually into compliance in order to stay up to par with today’s ever-challenging regulatory climate both in Europe and the United States. Overall, the sanctions against HSBC have turned into a positive for the company, as the organization is now in a much better place in regards to combatting financial crime and augmenting the global financial system altogether.

 

Commonwealth Bank in More Hot Water

 

New AML breach claims against the embattled Commonwealth Bank of Australia (CBA) threaten to further engulf the country’s largest financial institution in its downward spiral.  AUSTRAC, the financial intelligence agency of Australia, recently announced an expansion into its anti-money laundering probe on the bank, adding that it failed to efficiently monitor suspected terrorist financiers. According to the AUSTRAC report, “the bank engaged in ‘serious and systemic non-compliance’ with anti-money laundering laws involving thousands of transactions” over a six year period (Malaysian Insight, 2017). Commonwealth Bank admitted that the claims were brought forth due to a number of late submissions of transaction reports, 53,500 to be exact, blaming a systems error for these faults. Overall the bank has been accused of “failing to deliver to AUSTRAC on time reports for cash transactions of A$10,000 or more at ATM’s between November 2012 and September 2015, with a total value of A$624.7 million” (Malaysian Insight, 2017).

A large fine is looming for CBA, one that threatens to dwarf the unprecedented $45 million fine imposed against Australian wagering and gaming company Tabcorp Holdings earlier this year due to their compliance failures in regards to AML and terror financing laws. AUSTRAC also believes that CBA became aware of the potential money laundering through these ATM’s and failed to report the suspicious matters, nor monitor customers for money laundering risks within that time frame. Officials from CBA released this statement following AUSTRAC’s decision to extend the probe: “We contest a number of allegations but admit others, including the allegations relating to the late submission of 53,506 threshold transaction reports, which were all caused by the same single systems-related error” (Malaysian Insight, 2017).

 

Citations

 

Associated Press. “Counterfeit Goods Cost the U.S. $600 Billion a Year.” Inc.com, Inc., 27 Feb. 2017.

“Australia’s Commonwealth Bank Faces More Breaches Claims.” The Malaysian Insight, 14 Dec. 2017.

“HSBC Draws a Line under Money Laundering Scandal.” Sky News, 11 Dec. 2017.

“The Illicit Trafficking of Counterfeit Goods and Transnational Organized Crime.” United Nations Office on Drugs and CRIME, 2017.

Nation, Jeremy. “Aussie AML Legislation Will Encompass Cryptocurrency Exchanges.” ETHNews.com, 12 Dec. 2017.

Shouk, Ali Al. “Money from Fake Goods Trade Funds Terrorism, Drugs, Officer Says.” GulfNews, 12 Dec. 2017.

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