Counterfeiting: Many Risks and Many Victims

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Counterfeit goods may have a reputation for poor design, unsafe parts and toxic elements, but consumers don’t seem to mind.

No country has been associated with dangerous knockoffs more often than China. According to US Customs & Border Protection data, more than 75 percent of counterfeit goods seized between 2004 and 2009 were manufactured there. Apparently, people love a bargain, and they don’t mind taking a risk to get one.

Despite the risks, it’s easy to see why counterfeit goods are appealing. The customer gets what looks like a Louis Vuitton handbag for $50 instead of $2500, and if anything shady happened on its way from the factory to the hawker’s table, the buyer usually doesn’t know about it. This allows most people to assume that counterfeiting is a victimless crime. The truth, however, is a different story.

Illegal Products and Illegal Labor

A counterfeit product is often created in a sweatshop, in violation of child labor laws, anti-sweatshop laws and basic human rights. Dana Thomas, described the conditions she witnessed in sweatshops in her 2007 book Deluxe: How Luxury Lost Its Luster.

"I remember walking into an assembly plant in Thailand a couple of years ago and seeing six or seven little children, all under 10 years old, sitting on the floor assembling counterfeit leather handbags. The owners had broken the children's legs and tied the lower leg to the thigh so the bones wouldn't mend. [They] did it because the children said they wanted to go outside and play. "

According to the International Trademark Association’s Alan Drewsen, this type of exploitation of minors is par for the course at counterfeit clothing factories. "There are issues of child labor in a lot of these plants around the world," he told the New York Daily News.

Shoppers Beware

It’s not only the labor force that is exposed to unsafe conditions. On “Counterfeit Alley,” a strip of Broadway south of 34th Street in Manhattan, a sidewalk bazaar operates that’s thick with vendors selling scarves, DVD’s and NFL T-shirts. But the real action is in the office buildings lining the street. Inside, makeshift boutiques have been set up selling counterfeit clothing, jewelry, compact discs and more.

It is common for the shoppers to be locked into these showrooms until they make a purchase. According to John Feinblatt, New York City’s criminal justice coordinator, this is not just a consumer protection issue, but also a public safety issue. “These buildings violate every code in the book, the exit signs are obliterated, or the fire exits are locked or blocked by boxes of merchandise. They’re firetraps," he told the New York Times.

The shoppers in these buildings know that they’re getting bogus goods, but many people who purchase counterfeit products do so unknowingly. According to Susan Scafidi, a Fordham University law professor, the Internet has made the sale of counterfeit goods more widespread than ever, as consumers using this retail channel can’t verify the authenticity of the product they’re buying.

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"Rather than visiting a familiar and trusted corner store for every purchase, consumers have turned to the convenience of the Internet—and can't necessarily make informed judgments about the seller on the other end of the transaction," says Scafidi.

"The shopper who would never have considered buying from the guy on the corner whispering, 'Pssst! Want to buy a watch?' can easily be fooled by a website that looks genuine but isn't," she told the Christian Science Monitor.

Dangerous and Deadly

The newest commodity for counterfeiters is perhaps the most dangerous of all—medicine. Whether a counterfeit drug is diluted, toxic or falsely labeled, the patient who takes it risks dangerous reactions and may see their illness worsen as they continue to use a product with no clinical benefit. The World Health Organization reported that in 2009 a counterfeit anti-diabetic medication reached the Chinese market. It contained six times the normal amount of its active ingredient, glibenclamide, resulting in nine hospitalizations and two deaths.

Counterfeiting is a large-scale enterprise. According to the International Chamber of Commerce, it accounts for 5 to 7 percent of all global trade. However, according to The Economic Impact of Counterfeiting and Piracy, a 2008 study by the Organization for Economic Cooperation and Development, data on the subject should be viewed with a skeptical eye. The report states that many government and industry assessments of the extent of counterfeiting “rely excessively on fragmentary and anecdotal information; where data are lacking, unsubstantiated opinions are often treated as facts.”

Despite the lack of statistics, there is no disputing that counterfeit goods pose a considerable threat to consumers and relies upon the exploitation of the young and the poor to manufacture its goods. The notion that it is a victimless crime is patently false. Counterfeit products victimize almost everyone they encounter, from the assembly line to the cash register.

Watch the premiere of "Crime, Inc: Counterfeit Goods," a CNBC special presentation hosted by Carl Quintanilla, Wednesday July 14 at 9pm ET.