AFTER the crowd has long gone at the famous English racecourse, shadowy figures are sifting through the rubbish left behind. They seize empty cigarette packets and load them into polythene bags.
A strange sight, perhaps, but this is known as “garbology” — an attempt to estimate the prevalence of counterfeit cigarettes in Britain by analysing discarded packets.
The results of one day’s rummaging, according to Bob Fenton, security liaison manager for the Tobacco Manufacturers’ Association (TMA), reveal that out of 229 packs collected, 14 — or 6% — are counterfeit.
The TMA estimates that about 2.6% of all cigarettes consumed in Britain are counterfeit, which equated to 1.8 billion in 2005 at a cost to the exchequer of £360m in lost tax revenue.
Overall, counterfeiters are estimated to sell up to £10 billion worth of fake goods a year in Britain, from sportswear and cigarettes to perfume and medicines, DVDs to compact discs.
Seizures of counterfeit goods in the EU rose from 10m articles in 1994 to 68m in 2000 and 103.5m in 2004, the latest year for which figures are available.
Ruth Orchard, head of the UK-based Anti-Counterfeiting Group, which represents 200 branded-goods businesses, said: “Counterfeiting is very difficult to measure accurately, but all the evidence suggests that this problem has been growing exponentially. It has increased way beyond anything that could have been foreseen five years ago.”
The problem extends to a wide range of brands. In 2004, counterfeit Lipton teabags made up 67% of the foodstuffs seized. Adidas and Nike copies accounted for 27% and 26% of the seized sportswear. Louis Vuitton ripoffs comprised 18% of seized accessories. Philip Morris counterfeits made up 47% of seized cigarettes. And Rolex fakes accounted for 16% of watches and jewellery.
Cigarettes are probably the counterfeit item that costs the British taxpayer the most: 2,000 customs officers are engaged in trying to catch tobacco smugglers and, increasingly, counterfeiters. One manufacturer, Imperial Tobacco, said it has 25 of its staff on the case.
Fenton said: “If someone is selling Benson & Hedges or Silk Cut or Marlboro, with ‘UK duty paid’ written on the packets, for £2.50 to £3, then they must be stolen or counterfeit, because the duty alone in this country is £4.”
It is not difficult to identify fake cigarette packets. “I have seen Benson & Hedges packs with ‘duty free pack’ written on one side, and ‘UK duty paid’ on the other. That is an impossibility — it must be one or the other,” said Fenton.
“Others have had the wrong colour of gold on the pack, and I’ve even seen one with the word ‘gold’ misspelt as ‘glod’.”
Counterfeits are also a big problem with hand-rolling tobacco brands such as Golden Virginia. “A recent raid on a house near Heathrow airport found four women working round a kitchen table, stuffing pouches full of tobacco,” said Fenton.
“Raw leaf is easier to get into this country than a consignment of cigarettes — it might be brought in as compost, and may not show up on a customs x-ray.”
In the drinks industry, rather than concentrating on the packaging, the main way of identifying brand impostors is to analyse the liquid in suspect bottles.
Diageo, the owner of whisky brands such as Johnnie Walker and J&B, uses a machine called the Authenticator, which was developed at a cost of £100,000 and is about the size and weight of a mid-1980s “brick” mobile phone.
The tester injects a syringe-full of whisky into the Authenticator. After analysis with ultra-violent light, the machine spells out on its screen the name of a recognised brand or the word “fail”.
Robert McElroy, technical director of Diageo, said there were now 75 Authenticator machines worldwide, each costing £6,500. Tests last only 15-20 seconds. “You can go into any city, take thousands of samples and act quickly,” he said.
Diageo has about 20 staff engaged in anti-counterfeit work. In developed markets such as the UK, the problem is often a case of illegal substitution — unscrupulous bar owners refilling empty bottles with something cheaper and then selling it at the price of the drink on the label. In emerging markets, it is generally a question of home-made spirit masquerading as a Scotch brand.
McElroy said: “What we say to the authorities is that counterfeit whisky is a danger to health, results in a loss of tax revenue and can often be used to finance other criminal activity.”
EU figures show that China looms large as the origin of many fake goods — 54% of all fakes seized in 2004. It accounted for 47% of cigarettes seized, 59% of clothing and accessories and 54% of watches and jewellery.
The next-biggest source of all fakes was Taiwan (7.5%).
The luxury-goods and cosmetics industries are in a particularly high state of alert. LVMH, maker of Dior perfume and Louis Vuitton leather goods, said it has “some 60 people at various levels of responsibility working full time on anti-counterfeiting, in collaboration with a wide network of outside investigators and a team of lawyers”.
L’Oreal reports that since the beginning of 2006 it has seized about 1m fakes purporting to be its branded goods. The numbers are staggering.
On April 2, it had eight shipping containers seized in the port of Dubai. On April 3, a consignment of 42,000 fake make-up products was seized in Thailand. On April 16, 44,296 fake perfumes and cosmetics were seized in Saudi Arabia. On May 3, 39,931 fake fragrances destined for the German market were seized in Turkey. And on May 19, 52,824 fake cosmetics were seized in Serbia.
“In the last three years, our activity to seize counterfeit products has increased at an annual rate of 30%, and so have our expenses. This reflects the fact that there is a lot of counterfeiting going on, and also that we are getting more efficient at tackling it,” said Jose Monteiro, L’Oreal’s chief trademark counsel.
He added: “Contrary to what happened in the 1980s, when counterfeiting activity in cosmetics was limited to selling to tourists — for example, fake perfumes in southeast Asia — now it is a real business.
“It concerns not only perfumes but also the mass-market products such as make-up where we have brands such as Maybelline and L’Oreal Paris.
“The fight will need a tremendous effort from our side, money and action. However, until China controls the goods exported, it will be very difficult.”
Unilever, the food manufacturer, believes Beijing is making progress. Richard Heath, its global anti-counterfeiting counsel, said: “We are beginning to see good co-operation from China, particularly from its customs department and the state enforcement authorities, although they accept they have a long way to go.”
He said the main brand-protection group has had significant influence politically, including with China’s vice-premier Wu Yi. The powerful “Mrs Fix-it” of Chinese politics, she tackled bird flu and now heads a task force trying to rid China of its reputation as a counterfeiters’ paradise.
Heath added: “Increasingly, counterfeiters are tending to set up in three or four different provinces, making individual components. Their finishing plants tend to be very mobile, and they use distribution centres such as Yiwu, some 200 miles from Shanghai, before shipping out of the major ports.
“We have come across our brand being used on sun-care products claiming a protection factor of 90. There are two things wrong with that — the sun-protection numbers go up to only about 50; and, worse still, this product did not contain any sun protection at all. It was being produced in China and was seized en route to Israel.”
Glaxo Smith Kline, the pharmaceuticals conglomerate, said the problem had increased “massively”, with much of the trade going through the United Arab Emirates port of Jebel Ali, where ships are able to start with new paperwork, obscuring the origin of their goods.
“One guy in China with a hand-crank can produce 5,000 tablets a day, and within a week there is enough quantity to cause problems,” said Glaxo.
The two main ways for counterfeit goods to reach British consumers are through open-air vendors and the internet.
Late last year, 30-40 police and trading-standards officers wearing anti-stab vests took part in Operation Dawn — four weeks of raids on Wembley market in north London in which they seized £1.5m worth of fake branded goods, mainly clothing, such as Nike and Adidas imitations, DVDs and CDs.
Lisa Lovell, managing director of Brand Enforcement UK, took part in the raids. She said: “A trader might tell you that he had a proper paper trail for all his products, but this is no defence. If he is found to be selling trademarked goods without the permission of the trademark owner, he is criminally liable.”
On the internet, unscrupulous vendors are using their own websites, spam e-mails and auction sites to sell everything from fake Viagra to bogus car airbags.
Monteiro at L’Oreal said: “Recently there have been a lot of fake goods put up for sale on the internet, particularly on auction sites in Britain and other countries.”
David Wilson, a partner at Bird & Bird, a legal firm, has advised pharmaceutical companies on how to pursue counterfeiters. He said: “The threat has increased significantly because of the popularity of online pharmacies selling prescription-only drugs. People may think they are buying the genuine article, but it may in fact contain something dangerous, or nothing at all — and that can be dangerous, too, if you are relying on a medicine to treat a serious condition.”
Online auction site Ebay has strong anti-counterfeiting measures in place, including a “verified rights programme” in which its staff co-operate with brand owners to keep counterfeit products off the site, and 2,000 employees worldwide working on trust and safety issues.
Orchard at the Anti-Counterfeiting Group said: “I think Ebay has found itself in a situation it did not expect. The sheer volume going through its site would be overwhelming if they wanted to check everything.
“However, some manufacturers among the membership of the Anti-Counterfeiting Group believe the burden is too great on the brand owner and that Ebay needs to take more responsibility.”
Gareth Griffiths, head of trust and safety at Ebay, said: “A certain percentage of world trade is in counterfeit goods, and the internet is part of that picture. We want to see the people involved in counterfeiting convicted. As far as Ebay is concerned, I would say the issue is well contained.”
Others are not so sure. Some businesses think that, despite all their efforts on technology, security and political lobbying, counterfeiting may go on rising for another five years.
At the Group of Eight summit at Gleneagles last July, leaders of America, Britain and other developed countries issued a statement on “reducing intellectual-property piracy and counterfeiting” and promised concrete steps to “enhance detection and deterrence of the distribution and sale of counterfeit goods through the internet”.
Heath at Unilever said: “We are at a point where we have reached a good level of political awareness, as the G8 statement showed. We have now to increase consumer awareness about the social and economic impact of counterfeiting. “I think we can get on top of the problem, but we have a long way to go.”
Machines that detect fake diamonds
SITTING on hundreds of laboratory and jewellers’ worktops from Maidenhead to Johannesburg are machines about the size of home breadmakers. These devices cost £5,400 each and their job is to tell diamonds worth tens of thousands of pounds from synthetic look-a-likes.
A beam of light passes through a stone in the Diamondview and the mini-screen flashes up either ‘pass’ or ‘refer for further testing’.
Jonathon Pudney, in charge of customer confidence at De Beers, said the machine is 99.5% effective in telling real diamonds from their three imitations — cubic zirconia (CZ), a new material called moissanite, and synthetic stones or ‘grit’ with the same chemical composition as diamonds.
The three have been mounting an unprecedented challenge to genuine diamonds in the past few years — particularly in emerging markets.
Pudney said: ‘There is some concern about the mislabelling of products. For instance, CZ is called Russian Diamond in China, and American Diamond in India. Of course, it is not diamond at all.’
De Beers, which sells 45% of the world’s rough diamonds, is piloting in Hong Kong a hallmarking process that would add a microscopic diamond symbol and serial number to every De Beers diamond. If the decision were taken to extend this globally on all its diamonds of more than a third of a carat, the cost could be several hundred million dollars a year.
