AML CHALLENGES
What are counterfeiting and piracy?
ounterfeiting and piracy are terms
used to describe a range of illicit
activities linked to intellectual
property rights (IPR) infringement.
Counterfeiters and pirates target products with high profit margins, taking into
account detection risks, potential penalties, the size of exploitable markets and the
technological and logistical challenges in
producing and distributing products.
On the demand side, consumers either
buy counterfeit products naively thinking
that they have purchased genuine items or
intentionally buy lower-priced counterfeit
goods. The frequency of consumers intentionally buying counterfeited goods depends
on the characteristics of the products concerned. For example, because of pricing
and distribution methods, it is obvious the
consumer knows when luxury goods are
purchased, but this is not necessarily the
case when purchasing counterfeit software
that affects sophisticated packaging.
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Similar effects on the business community
Counterfeit products force genuine products out of the market; thereby, impacting
the revenue base of legitimate manufacturers and retailers while lining the pockets
of unlawful entrepreneurs and criminal
organizations. This activity is analogous
to a “front” business whose sole objective
is to garner criminal proceeds from criminal activity. Most consumers purchase
counterfeit goods unwittingly, but there
is a current trend whereby purchasers see
their acquisitions as no more than obtaining a great deal.
A recent investigation using a “storefront” determined that several retail outlets were selling software that could only
be detected as counterfeit by a person with
extensive product knowledge. These retails
outlets were commingled with competitors
and to the untrained eye, the software
appeared identical. Of course, the counterfeiter had an unfair advantage because
the product could be sold at a cost below
the wholesale price being paid by the
legitimate business. During the course of
the investigation, it was determined that
the offending retailers were purchasing
their software from two wholesalers who
were known offenders and were importing the product from China. The business
software manufacturer was operated by
an organized crime group reported to be
the source for 50 percent of the seized
software globally.
This scenario is all too common, but often
does not come to the attention of authorities
www.ACAMS.org
because it is discreet and inoffensive.
However, the effects on the business community and taxpayer are no different than
when money laundering occurs.
Conventional investigative methods
Intellectual property crime has
increased dramatically in recent years
because it provides low-risk opportunities
for organized crime and terrorist groups
to generate significant amounts of illicit
revenue. Investigative efforts by both the
private and public sectors produce reasonable results but as with all criminal activities, eventually these methods are less
effective. The conventional methods are
described as follows.
• The “test purchase method” entails an
operative who buys the product and
uses the evidence to support criminal
charges and or a “cease and desist”
(C&D) order.
• The “storefront” investigation involves
setting up a business to infiltrate counterfeiters selling at the wholesale level.
• “Anton Piller” orders are civil search
warrants and provide court authority to
conduct search-and-seizure action.
• “Consent searches” are often effective
and are combined with a C&D order.
When the C&D is being served, the violator is asked to voluntarily relinquish
their counterfeit product.
• The “criminal process” can be a police
investigation or a private investigation that is packaged and presented
to law enforcement who then forward
the evidence to the courts or the prosecutor’s office.
Unique strategies
In an effort to keep up with the counterfeiting activities, legitimate retailers
and manufacturers have had to engage
outside investigative firms that are recognized as being inventive in their investigative efforts. In the Greater Vancouver
area, empirical evidence demonstrates
that more counterfeit pro