TT Talk - Counterfeit goods

TT Talk - Counterfeit goods

Counterfeit products put the health and safety of consumers worldwide at risk whilst depriving governments, businesses and communities of tax revenues, profits and legitimate jobs.

The negative impacts of counterfeiting and piracy are projected to drain US$4.2 trillion from the global economy and put 5.4 million legitimate jobs at risk by 2022.

As emerging technology improves and becomes more accessible, counterfeiters reproduce food and beverages brands, medicines, electronics and electrical supplies, auto parts and everyday household products. These are sold in markets both on-line and in the real world. Meanwhile, copyright pirates have created multi-million dollar networks capable of producing, transporting and selling their unauthorised music, videos and software.

Illicit trade on this magnitude undermines economic development, a sound market economy system and open international trade and investment. No legitimate business or country is immune to the impact of counterfeiting and piracy, and no single actor can successfully fight the battle alone.

An OECD report in 2016  stated that illegal trade was worth approximately US$461 billion in 2013, the equivalent of 2.5% of global gross domestic product. It is estimated that in the same year there were approximately 122.35 million TEU’s imported and exported globally. On this basis, around three million TEU movements may have contained counterfeit goods.

E-commerce has facilitated rapid growth in the volume of small parcels and individual shipments globally. However, criminal organisations have always used the traditional supply chain to transport larger amounts of cargo and with a view to avoiding detection. Some strategies are to ship a mix of genuine and counterfeit goods as a part of the same consignment or as an LCL consignment along with other genuine commodities.

Enforcement authorities are under-resourced and it is difficult for them to focus on both small parcels and containers. Equally, the broad range of shipping options available to criminal organisations means that targeted enforcement may simply result in changed practices that lessen the risk of being apprehended. However, where inspections are currently made, a far greater volume of counterfeit goods are detained through containerised cargo than through postal trade lanes.

“a far greater volume of counterfeit goods are detained through containerised cargo than through postal trade lanes”

Risks for supply chain stakeholders
The shippers associated with this type of cargo are unlikely to be those motivated to focus on good practice. There is therefore arguably an increase in the likelihood of poorly stowed and secured cargoes, a greater propensity to mis-declare the nature and mass of cargo being shipped in order to avoid detection. For those goods that should be classified as dangerous this may endanger the entire supply chain .

“an increased likelihood of poorly stowed and secured cargoes, a greater propensity to mis-declare the nature and mass of cargo”

Where counterfeit cargoes are identified and seized by authorities there is likely to be operational disruption and financial impact for supply chain stakeholders. Apart from delays, increased inspection scrutiny, detention and confiscation risks, there may be reputational damage as well as the spectre of custodial sentences for those directly involved.

The criminals involved may be motivated to abandon the goods in the event of seizure, raising challenges as to which party owns the goods and who may be held liable for the associated costs of inspection, storage and destruction of the counterfeit cargo.

Stakeholders may be requested by Customs authorities to hold seized goods in bonded storage pending investigations. It is important to ensure safe keeping and security during the period such goods remain in your custody. Incidents of theft and or damage can give rise to complex claims, additionally involving stakeholders beyond the usual supply chain. 

Where theft or damage occurs a receiver may bring a claim against the contractual carriers, on the basis that they had entered into what they believed to be a legitimate purchase and therefore can demonstrate a financial loss. Whilst such claims may not ultimately succeed there is a risk that stakeholders will incur significant legal defence costs. Where illegal trade is concerned, this may also impact your ability to rely on your insurance policy in covering the associated costs in handling such a situation.

What protections are available?
Raising awareness within your organisation of the associated risks and the potential cost is an essential starting point. Reviewing current practices can assist in detecting illegitimate trade.

“Perform due diligence on all customers”

It is critical to know your customer and engaged contractors in order to protect your business adequately. Perform due diligence on all customers, particularly those that are new and where you are seeking to enter into new geographical trade lanes. Consider risk profiling of your customer base to ensure that you satisfy yourself of their legitimacy. 

It is good practice where appropriate to perform periodic due diligence on your employees; investigating their circumstances and criminal record in particular could provide a red flag indicator as to the risk of complicity.

Counterfeit goods and copyright piracy drain legitimate global trade and expose the supply chain to increased risk in terms of safety, security and disruption. Since 2016 several major global stakeholders in the supply chain, as well as many brand owners, have now made a public commitment through the International Chamber of Commerce  to collaborate in stopping the transport of counterfeit goods as signatories to the Declaration of Intent to Prevent the Maritime Transport of Counterfeit Goods. Further information on this issue can be found under ‘Counterfeiting & Piracy (BASCAP)’ on the ICC website 

We gratefully acknowledge the assistance in the preparation of this article of Toe Su Aung, Co-founder and Director, Elipe Limited.

We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.

We look forward to hearing from you.

Peregrine Storrs-Fox
Risk Management Director, TT Club

Through Transport Mutual Insurance Association Limited and TT Club Mutual Insurance Limited, trading as the TT Club. TT Club Mutual Insurance Limited, registered in the UK (Company number: 02657093) is authorised by the Prudential Regulation Authority and regulated in the UK by the Financial Conduct Authority and Prudential Regulation Authority. In Hong Kong, TT Club Mutual Insurance Limited is authorised and regulated by the Hong Kong Insurance Authority, in Singapore by the Monetary Authority of Singapore and in Australia by the Australian Prudential Regulation Authority. In the United States, TT Club Mutual Insurance Limited is approved as a surplus lines insurer in all states and is accessible through properly licensed surplus lines brokers. The registered offices are: 90 Fenchurch Street, London, EC3M 4ST.

Through Transport Mutual Insurance Association Limited, registered in Bermuda (Company number: 1750) is authorised and regulated in Bermuda by the Bermuda Monetary Authority. 

The UK VAT Identification number for Through Transport Mutual Insurance Association Limited is: GB 564 5244 35 and for TT Club Mutual Insurance Limited is: GB 564 3375 30. The Italian VAT Identification number for TT Club Mutual Ltd is: 03627210101.

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