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Anti-counterfeiting: Caution is Advised, Even Between Businesses

Counterfeiting has been a major problem since the beginning of the industrial revolution. Two centuries ago, most items were produced by hand, and their uniqueness made them easily traceable.  Since most produced parts now look alike, it is easy for counterfeiters to create replicas, cheaper both in production costs and quality. But while buying counterfeit parts is a known nightmare for the individual consumer, companies should beware also, as counterfeiting can have even more catastrophic consequences for them.

The most visible part of counterfeiting is the B2C segment of the market. When a counterfeit leather purse is bought, the customer will most likely cry out his outrage in public. An expression of anger and resentment most likely o tarnish the producer’s image, hence the companies’ eagerness to fight off forgery. A raid on counterfeit North-Korean Chanel bags had made headlines in 1995, with CEO Michael Burke outlining how damaging such activities were to his trade: “Both Chanel and Louis Vuitton executives said they have all but stopped targeting low-level vendors, opting instead to chase after those making or distributing the phony merchandise. “Once the goods have hit the streets, there’s nothing we can really do. We have to stop it in Korea or at customs. Going after the plants is the only way that we can have an impact.”, reported the Los Angeles Times. However, a customer who wishes to be immune to that risk can always choose the safe option: go to the brand’s stores.  And if a foul purchase were to occur, the damage would be contained to aspect and quality.
In the case of B2B counterfeiting, it gets a lot nastier, and companies are on the brink to protect their customers from that risk. And the counterfeiting market is so enormous that no segment is spared.

PYMTS gives an assessment: “According to the latest edition of “Transnational Crime and the Developing World” recently released by Global Financial Integrity (GFI), the global trade value of counterfeit and pirated goods is estimated to generate between US$923 billion to $1.13 trillion annually. To put that in more comprehensible numbers: The global value of the counterfeit goods market is about the same size as the GDP of Canada.”

On September 8, 1989, Danish-operated Partnair Flight 394 inexplicably crashed into the sea, despite the aircraft coming fresh out of maintenance and being flown by a perfectly fit and highly-experienced crew. After months of intense investigation, it was revealed that counterfeit bolts had been used in the replacement of a mount on the auxiliary power unit. These bolts were in appearance perfectly similar to the original parts, had however not been heat-treated. Once in the engine, they gradually lost their strength, then failed, sending the aircraft into the Northern sea and its 55 passengers to their death. Since, airline specialists have slowly been realizing to what extent counterfeiters attempt to infect the market.  A few years after the crash, the New York Times quoted A. Mary Schiavo, FAA Inspector General, who “…said that uncertified parts were “quite rampant,” but that the agency did not have a clear idea of how big the problem was because it had failed to gather information aggressively and had misclassified some data it had gathered.” 

Counterfeit parts are still present on the airline market today, and operators fear that their suppliers may have shipped sub-par counterparts instead of the original goods. Such a fraud, should it occur, would potentially render the airline liable for damages and irreversibly tarnish its reputation.

The most outstanding case of business counterfeit fraud broke out in 2012 when a US Senate Committee announced that hundreds of thousands of fake Chinese parts had been found inside US military equipment. The BBC covered the scandalThe failure of a key part could pose safety and national security risks and lead to higher costs for the Pentagon, the committee said […] It highlighted suspect counterfeit parts in SH-60B helicopters used by the Navy, in C-130J and C-27J cargo planes and in the Navy’s P-8A Poseidon plane. After China, the UK and Canada were found to be the next-largest source countries for fake parts.” Obviously, some suppliers are not too shy to sell counterfeit parts even to the US Army, with the inherent risk of jeopardizing military operations.

There are ways, however, in which businesses can protect themselves from counterfeiting, such as carefully choosing where they operate their purchases, and how close they choose to be with their suppliers. Rob Holmes, an anti-counterfeiting expert advises:“I believe there are some marketplaces that built their entire business model on the facilitating of counterfeit goods. Please research my case Chloe v. Tradekey where we proved it in federal court […]  It’s perfectly fine to let the fox watch the hens from outside, but what fool let them inside the hen house? Meet with them. Befriend them. But don’t let them share an office with you.”

And of course, it is always instructive to take a look at the working methods of companies whose very job it is to attack counterfeiting head-on. As the tip of the genuine spear, their work can only be inspiring to others. Oberthur Fiduciaire CEO Thomas Savare runs the company responsible for producing banknotes for dozens of central banks throughout the world, and shares his expertise on the matter: “Obviously I can’t go into too much detail into the secure technologies that we use, but there can’t be only one security feature that prevents counterfeiting. At Oberthur Fiduciaire, we use a collection of different barriers to fight potential forgers. There are a lot of technologies used to make the paper itself, the threads, the fibers, the printing techniques… It’s a very thorough combination of different security features..”Oberthur Fiduciaire uses no less than 70 patented production techniques to fight off counterfeiters.

Of course, whatever fraudulent parts have been sold in the B2B sale, will eventually end up in the B2C segment, meaning absolutely everyone is at risk. Reporter Kevin Dietz addressed the counterfeit auto-parts market in Detroit: “The feds have confiscated millions of dollars in counterfeit car parts, but they know that millions more are finding their way into vehicles. In one local bust, they found counterfeit airbags didn’t even work when tested. It didn’t surprise agents on the front lines.  Whether it be counterfeit airbags that deploy and emit shrapnel or hazardous chemicals or don’t deploy at all because of their faulty, they are dangerous things that you could be putting into your vehicle”.

The key word for businesses to protect themselves from counterfeit parts is diligence. Trust will always be placed in a business relationship, for better or for worse.  But trusting a supplier doesn’t mean no checks should be made, or that the supplier should be given all and any information he wants. For instance, Oberthur Fiduciaire applies strict control on its supply chain and recently announced the acquisition of the banknote paper Arjowiggins so as to secure its own production upstream. Perhaps the most efficient diligence-booster for businesses is the unsavory reminder that, if they sell counterfeit parts, even unknowingly, the splash will be on them.

Written By

Senior business advisor

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