Fake goods: Low prices, big problems

By Elizabeth Strott

Recently I took a walk through New York's Chinatown to see just how easy it was to buy counterfeit goods. As I walked down the street, I passed many storefronts filled with cheap products by no-name or made-up brands. To find brands such as Gucci, Prada, Cartier or Louis Vuitton, though, I was going to have to dig a little deeper.

Eventually, I was approached by a man who claimed to have "really good" fakes several blocks away. I followed him through the crowds for a few blocks until we entered a small store that sold postcards and tourist knickknacks. Then we walked to the very back of the shop and through a secret door. Once we were inside, the door was shut behind us, and we were locked in with hundreds of counterfeit handbags and wallets -- and a handful of shoppers.

In this room, at least, the knockoffs were selling like hotcakes. A counterfeit Gucci bag went for $80; a real one can cost $750. A counterfeit Louis Vuitton wallet was $60; the real deal goes for $535.

It felt creepy to be locked in a small room with frantic women bargaining for bags, but it didn't seem to bother the shoppers. "There's always a danger" when people go into back rooms to buy goods, said Andrew Oberfeldt, the president of Abacus Security. "People take incredible risks for very little value."

A big industry

It's not just fake Prada and Gucci bags on the black market these days. Counterfeits include medicines, shampoos, laundry detergents, semiconductors, computer equipment and even airplane parts.

Seizures of counterfeit products that pose potential safety or security risks surged 124% in fiscal 2008 to a value of $62.5 million, according to U.S. Customs and Border Protection.

In summer 2007, counterfeit Colgate toothpaste was found on discount-store shelves in four states and Canada, as well as in hospitals and prisons. The counterfeit toothpaste lacked fluoride, an ingredient found in real Colgate toothpaste, and some of the toothpaste contained micro-organisms such as bacillus spores, which can cause anthrax, and diethylene glycol, which is typically used in antifreeze.

Phony pharmaceuticals have become a huge problem as well, "partially as a result of the Internet," said Andrea Sharrin, a deputy chief in the Criminal Division's Computer Crime and Intellectual Property Section of the Department of Justice.

"More people are using the Internet as a global marketplace -- because of that, there is more access to counterfeit goods," she said. "If you get your pharmaceuticals online, you might not know what you're getting."

There are also more bogus semiconductors on the market these days, with the biggest issue being the re-marking of products, in which packages are labeled with counterfeit brands, phony speeds or different part numbers, according to the Semiconductor Industry Association.

Counterfeits have even hit aircraft and the military.

The Federal Aviation Administration estimates that 2% of the 26 million airplane parts installed each year are counterfeit.

Fake computer components and routers have been found in military aircraft, computer networks and other equipment. "What we have is a pollution of the military supply chain," retired four-star Gen. William G.T. Tuttle Jr., a former chief of the Army Materiel Command and now a defense industry consultant, told BusinessWeek last fall.

Tackling the problem

That "pollution" extends far beyond the military.

There are many stages in the supply chain, and often intermediaries are involved, providing openings for counterfeiters.

"If you're buying from authorized distributors and directly from manufacturers, you limit your exposure to counterfeiting," Richard Tapping, the general manager of Semicentral.com, told EDN, an electronics-industry news and information Web site. Semicentral.com facilitates component trading among original equipment manufacturers and contract manufacturers. "Also, if somebody quotes you $2 for a $20 part, you might get suspicious. You can see in the price that it has been counterfeited."

The counterfeiting problem has not escaped the federal government's attention: There are a number of criminal statutes that cover copyright violations.

Still, counterfeiting is a good gig compared with weapons smuggling or the drug trade, Abacus Security's Oberfeldt said. "If you get caught for selling fake handbags, you aren't going to do much time -- maybe one year. It's all benefit and no penalty."

Continued: A global problem

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