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Counterfeit Goods Now as Lucrative as Drug Trafficking for Organized Crime in Asia

Thursday, April 18, 2013
By Shawn McCausland
Sandler, Travis & Rosenberg Trade Report

The United Nations Office on Drugs and Crime released April 16 a report finding that trafficking in counterfeit products is now as lucrative a practice for transnational organized crime organizations in the East Asia and Pacific region as drug trafficking. Using the Organization for Economic Cooperation and Development’s estimate that counterfeiting accounts for about 2% of world trade, the UNODC finds that the value of counterfeit goods imported from EAP to the U.S. and the European Union in 2010 was about $24.4 billion. The report also calculates that the combined flow of counterfeit drugs from the EAP to Southeast Asia and Africa in 2010 was worth $5 billion. The report attributes the growth of this trade to regulatory challenges associated with the region’s rapid economic and social changes over the past few decades as well as high levels of demand for counterfeit goods throughout the world and the EAP’s increasing ability to meet this demand.

The report also examines several types of environmental crime, which it says are profitable because many countries in the EAP are rich in natural resources but lack the capacity to enforce laws to protect them. The regional value of illicit trade in wildlife is conservatively estimated at $2.5 billion a year, and the report notes that trade in lesser-known animals is “far greater in scale than that of large, emblematic species.” The value of illegal trade from and within the region of wood-based products is valued at $17 billion, or 30-40% of the total quantity and export value of such goods exported from the region in 2010, and the report states that most of this illegal trade is “carried out in parallel with the legal market, by formal business enterprises operating through fraudulent methods.” The smuggling of electrical and electronic waste into the region, primarily to China but also to Indonesia, Thailand and Vietnam, is growing rapidly and is valued at $3.75 billion.

The report notes that while dedicated counterfeit factories have been detected in large numbers, production is often decentralized, making use of networks of specialists. The key players in counterfeit markets are brokers and logisticians who connect supply and demand. Following production, the counterfeit goods are concealed, frequently through false customs declarations or disguised with lesser-known logos. Circuitous routes are used to transport the goods, often through free-trade zones. The primary modes of transport are through direct mail to the consumer or through containerized shipment of larger volumes. In both the U.S. and the European Union, maritime shipments comprise the bulk of the value of counterfeits seized.

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