The new blood diamond: how cheap knock-offs fund terrorism and crime

When scrolling through Facebook Marketplace or Depop in search of the next great bargain, it is not uncommon to come across cheap luxury items. Picture a brand-new Gucci Marmont bag, with its shining hardware and strap carefully wrapped in plastic. It seems too good to be true. That’s because usually it is.

Perhaps this is the same allure consumers felt in 2015 when faced with gleaming bright knock-off Nike trainers (most likely being sold below market price). Little did they know that their money was used to purchase weapons used in the 2015 Charlie Hebdo attacks.

In 2009, the United Nations Office on Drugs and Crime found that the value of counterfeiting in the OECD region was estimated to be around USD$250 billion. In 2022, Frontier Economics updated that figure to a global estimate of USD$2 trillion. In Australia, counterfeit goods can be found across different industries. In June, three men were arrested following a police raid in Western Sydney. Police recovered Rolexes, Lamborghinis and thousands of dollars in cash, which were all allegedly procured from the sale of counterfeit luxury handbags, clothes, and shoes. The police alleged the group profited about $9.7 million from the scam.

Alarmingly, in April this year, the TGA identified and stopped counterfeit Ozempic, the popular weight loss drug, at the Australian border.

Buying counterfeits isn’t a victimless crime

There are two types of consumers of counterfeit products. The first category is those who are duped by counterfeiters and have no idea that the item they are purchasing is a fake. The second category is those who willingly choose to buy counterfeit. Generally, the second group are motivated by ‘value consciousness’ and getting the most value for the cheapest price.

Luxury items, especially from brands with high recognition, give a sense of social allure and status. However, they generally come with a hefty price tag. That is where counterfeit products gain traction. They are cheaper, more accessible and often almost indistinguishable from the real thing. So, what is so bad about them?

Links to terrorism and organised crime

Counterfeits have a dark side that verges into the underworld of terror, hate and criminal enterprise. Counterfeiting is one of the most lucrative categories of crime. It has a low investment cost, high profit margins, and relatively lenient penalties for producers who are caught. In its 2017 report, ‘Illicit trade: Fuelling terror financing and organised crime’, KPMG found that counterfeiting has become the second largest source of income for criminals worldwide.

For many organised criminal groups, the question is often: why risk the hefty prison sentences that come from drug or weapons trafficking when you can sell fake clothing or pharmaceuticals for a higher profit margin?

In its report, ‘Intellectual property crime and enforcement in Australia,’ the Australian Institute of Criminology reported that Al-Qaeda, Hezbollah, Hamas, the IRA, Chinese triads and the Italian, Japanese and Russian Mafia have all been linked to counterfeiting. Documents from Al-Qaeda propaganda have referenced counterfeiting as a means to raise funds for the organisation’s operations and the terror group has received funds through the sale of fake goods. In 2019, the Irish National Liberation Army made tens of thousands of pounds a month selling fake clothing at Christmas markets.

The Australian Institute of Criminology has identified two types of terrorist involvement in counterfeiting:

• Direct involvement: where the terrorist group is implicated in the production or sale of counterfeit goods and remits a significant portion of those funds for the activities of the group; or
• Indirect involvement: where sympathisers involved in intellectual property crime provide financial support to terrorist groups via third parties.

Health concerns

Counterfeiters aren’t limited to producing fake luxury clothes, handbags, and shoes. They also produce products that consumers use on their body or ingest, such as pharmaceuticals, perfume, makeup, and cigarettes. These present a significant risk to consumers, as they are not subjected to the same product standards, testing, and regulations that genuine products must comply with.

Medical products such as Viagra have been popular with counterfeiters targeting Australia, with 6,000 seizures made in Australia between 2004 and 2014. Some of the fake pharmaceuticals seized in Australia reveal a shocking cocktail of dangerous ingredients after testing revealed harmful ingredients from paint, heavy metals, chalk, to rat poison and antifreeze.

Fake cosmetics are no better. In England, counterfeit makeup products were found to contain arsenic, mercury and lead. The Police Intellectual Property Crime Unit found that counterfeit perfume contained cyanide and human urine.

The Australian Federal Police have issued warnings about counterfeit medical devices and pharmaceuticals including blood glucose strips and contact lenses, stating that even if they may not be actively harmful, they are usually ineffective.

Links to modern slavery

Counterfeiting is closely connected to modern slavery practices and worker exploitation. Counterfeit production is a labour-intensive crime that creates serious labour safety concerns and often involves some of the world’s most vulnerable people. ‘Recruiters’ target recent migrants, including children, who have been smuggled out of their home country and coerce them into selling counterfeit products. There are examples from Europe and Argentina where illegal migrants and street vendors are threatened, attacked and coerced into selling counterfeit goods.

In a world where even the most reputable brands and companies have been found to engage in exploitative and dangerous labour practices within their supply chains, it is not controversial to assume that working conditions are the same, if not worse within the secretive counterfeiting production chain.

There are countless documented instances of worker exploitation in this criminal economy. A reporter for Harper’s Bazaar recalls joining a police raid in Guangzhou, China and witnessed “two dozen sad, tired, dirty children, ages 8 to 14, making fake Dunhill, Versace, and Hugo Boss handbags on old, rusty sewing machines.” In 2013, a factory in Italy that was manufacturing counterfeits caught fire, resulting in the deaths of seven workers. The investigation into the fire found workers found workers “had fourteen-to-sixteen-hour workdays, no days off, and slept within the factory itself, which did not have any fire prevention or alarm systems.”

The law in Australia

In Australia, counterfeiting falls under the intellectual property umbrella and constitutes a breach of copyright, trademark and/or patent law. However, most cases of intellectual property infringement are civil wrongs and do not carry criminal penalties.

There are a few specific exceptions that do promise the victims of counterfeiting some retribution. Under section 148 of the Trade Marks Act 1995 (Cth) the false use of a trade mark is considered a crime and carries a five year prison sentence and/or a fine of 550 penalty units. It is also illegal under the Therapeutic Goods Act 1989 (Cth) to produce or distribute counterfeit medicine or medical devices. Several investigative teams operate in Australia to target assets related to organised crime such as the Criminal Assets Confiscation Taskforce (CACT) and the State Crime Command’s Organised Crime Squad Unexplained Wealth Team.

Despite these safeguards, the reality is that many of the real offences happen overseas and the criminals behind these enterprises stay far out of Australia’s reach.

An unsatisfactory conclusion?

This illicit industry spans far beyond the average consumer’s Facebook marketplace adventures and dives deep into the underworld of organised crime, terrorism and exploitation. Beyond international law enforcement cooperation and targeted law reform, consumers have the power to alter their buying practices and fight this particularly sinister form of crime by refusing to partake.

There is a dark side of fake luxury and consumers should be armed with the knowledge of what lies behind a Facebook Marketplace post. This dark, adjacent economy should make us question our ethics and attitudes towards fake luxury, and just how much that $100 Gucci Marmont bag really costs.