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Commentary & Analysis

Counterfeiting and Brand Protection: A Conversation with Security Printing Expert Dick Warner

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By Richard Romano
Published: February 22, 2008

In the classic 1949 Carol Reed film The Third Man, Harry Lime (Orson Welles) is the scourge of post-war Vienna, a criminal dealing in counterfeit penicillin. A watered down version of the real drug, when administered to disease victims, it does more harm than good, especially to children. Fiction? Or, at the very least, an anachronistic problem far removed from today’s pharmaceutical quality control standards? The Third Man, based on a novella by Graham Greene, was based on a real problem in 1940s Europe—and, according to security printing expert Dick Warner, is by no means an outdated problem.

Warner is a 25-year veteran of GATF’s research department, specializing in security printing. Retiring from GATF six years ago, he now works as a security printing consultant, doing contract work for various government agencies and, basically, “trying to counterfeit things,” the goal of course being to devise ways of thwarting the real counterfeiters. Warner is headlining a session on counterfeiting—in the context of “brand protection”—at Graphics of the Americas. The session will be held at 3:00 p.m. on Thursday, February 28.

Defining Our Terms

“‘Counterfeiting’ is an umbrella term for any action that infringes on intellectual (or ‘real’) property, whether that be fake or genuine,” says Warner. Security experts identify three broad categories of “counterfeiting”: forgery, knockoffs, and “true” counterfeiting.

orgery tends to be confined to documents and comprises illegal alterations of a pre-existing legal document. Check kiting also falls into this category (think of Leonardo DiCaprio in Catch Me If You Can). Knockoffs are bogus versions of real products (made “out of license”) that often include counterfeit packaging, labels, and other materials and documents that, on the surface, look genuine. True counterfeiting is often applied to “funny money,” or bogus currency.

The focus of the Brand Protection Conference is knockoffs, especially where counterfeit packaging is concerned. It’s difficult to quantify the problem; estimates run in the hundreds of billions of dollars a year ($600 to $700 billion a year is the generally accepted range); part of the difficulty is that consumer products companies are not eager to share whatever data they have gleaned on the subject of the counterfeiting of their products. Cosmetics and pharmaceuticals are the two consumer product categories most likely to be attractive to counterfeiters, but any industry is susceptible, especially one “where there is a complex distribution scheme,” Warner says. “That is a criminal’s delight.” Products that have rebates are also ripe for knockoffs.

Items subject to wide variations in interstate or international taxes and tariffs, like tobacco, are also are draw for counterfeiters. Successful products are also a draw for counterfeiters. “If your product is not being looked at by counterfeiters, you probably don’t have anything worth counterfeiting,” says Warner.

Counterfeiting As a Means to an End

Much of the time, counterfeiting isn’t done solely to ride the coattails of a successful product. Often, knockoff products are part of an elaborate scheme to launder money obtained through illicit means. This is common in pharmaceutical counterfeiting. “Why would anyone knockoff vitamins?” asks Warner. “It’s not because they want to counterfeit vitamins, but because they are laundering illegal money.” The counterfeiter may have as their “primary business” the distribution of Schedule 1 street drugs, and the money made from that enterprise is laundered through a counterfeit pharmaceutical operation.

Chillingly, product counterfeiting has also been tied to money laundering schemes to finance terrorist operations. Pharmaceuticals are a classic example because they often involve a complex distribution chain. Counterfeiters themselves may also own their own distribution company or brokerage, which explains in large part how knockoff items get into the market to begin with.

The Brand Protection Conference will culminate in a demonstration of the counterfeiting of a vitamin package to show not only how easy it is to produce “high-quality” bogus packaging, but also to highlight ways that brand owners and converters can protect themselves and their product lines.

Technology Has Made It Easy

The same technology that has been revolutionizing the graphic arts over the past 25 years has also made it easy for counterfeiters to ply their trade. The counterfeiter may say, according to Warner, “‘All I need is someone who is really good with design, computers, and graphics and is gainfully employed.’” That is, have access to the “tools of the trade.” It should also be mentioned that blackmail is often used as a means to getting graphic designers to aid and abet the criminal element.

Desktop graphics technology has also spawned a whole “amateur” counterfeiting industry that Warner refers to as “digifeiters,” or “wannabe counterfeiters.” These are housewives or students who use their home computer and a laser or inkjet printer to create counterfeit store coupons and other items. This scheme works like this: the counterfeit coupon is used to buy an item at a discount. The product is then returned for a refund, and the full price of the item is refunded. Since there is usually a 30-day lag time in the verification of coupons, by the time anyone gets wise to the scheme, the digifeiters are long gone. “Lots of retailers have been burned,” says Warner.

Technology has also helped “true” counterfeiters, that is, those who counterfeit currency. Warner cites one case in Ontario, where a high school dropout went to a copy center and ran off a $5 Canadian note on a color copier. He passed it off the following evening at a pub, and a career in counterfeiting was off and running. The RCMP caught up with him, but since it was his first offense, he only received six months probation. While under house arrest, he upgraded to counterfeiting $10 bills. He was caught again, and, sent to prison this time, he met up with professional counterfeiters who taught him some more tricks. He also took the opportunity to learn computers and graphic design software. When he got out, he set up a network of PCs and upgraded to $100 bills. He was netting about $1.25 million a year before he was caught yet again.

The point of the story is to illustrate one of the key attributes of counterfeiting, whatever form it may take: it has a high return on investment with minimal risk. Warner calculates what he calls a “crime selection index,” which is ROI divided by penalty (that is, risk). Counterfeiting has a very high index: high ROI and low risk. “If you are going to pursue a career in illegal activities,” says Warner, “counterfeiting is the best activity to pursue.” That is, as long as the criminals operate at solely the counterfeiting level; occasionally, the perps move up the crime chain to blackmail, breaking and entering (if items can’t be mimicked, the counterfeiter will steal the items required), and producing knockoff items such as pharmaceuticals that threaten peoples’ lives.

Funny Money

According to a 2006 report issued by the U.S. Department of the Treasury (www.treas.gov/press/releases.hp154.html), despite the attractiveness of U.S. currency to counterfeiters overseas ($450 billion of the estimated $760 billion in circulation is held overseas), only about 1 note in 10,000 is believed to be counterfeit. The Feds attribute the declining incidence of counterfeiting to enhanced working relationships between the Secret Service and foreign law enforcement organizations, as well as the anticounterfeiting measures built into the new U.S, currency designs introduced in the 1990s. Still, warns Warner, “older bills are still [in circulation], and a lot of the old technology is easily counterfeited.” At the same time, it is still fairly easy to mimic even the new notes, and since most retail transactions are so quick, it can be difficult for counterfeit bills to be spotted.

Wake Up Calls to Industry

The goal of the Brand Protection Conference at Graphics of the Americas is to highlight the length and breadth of the problem of counterfeit products and packaging, as well as provide solutions for consumer product companies, converters, and printers. Even though technology has played a large part in aggravating the problem, technology is also playing a role in providing solutions. However, says Warner, “There has been a myth going around that there is a magic security device that would be the magic bullet. It doesn’t exist. There is no security printing device that can’t be reverse-engineered. If a human being made it, someone else can make it again.”

Consequently, brand owners, converters, and other “issuers of product” achieve best results with a combination of several deterrents. “The more deterrents—up to a practical level—and the more often you ‘move’ them, the more you protect yourself,” says Warner. “The more [security] devices, the more a counterfeiter is likely to stay away.” However, there is a cost involved in doing this, and consumer product companies need to carefully weigh the costs of implementing security devices vs. the potential cost of not implementing them.

Not that all security solutions have to be costly and elaborate. Although RFID, holograms, panographs, specialty inks, DNA tagging, and other technologies are highly touted, a simple serialization process—to be discussed and demonstrated by HP at the Brand Protection Conference—uses random data to produce “one of a kind” labels. It’s an inexpensive process and, perhaps more importantly, counterfeiters hate having to produce unique one-of-a-kind knockoffs.

At the same time, technology is only half the solution. Consumer product companies, packaging printers, and converters need to have good risk management procedures in place. That is, securing their facilities, and performing both financial and criminal background checks on prospective employees.

More information about Graphics of the Americas and the Brand Protection Conference can be found at www.graphicsoftheamericas.com.

Please offer your feedback to Richard. He can be reached at richard@whattheythink.com.

 

 

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