Counterfeit goods, mainly from China, have become as profitable for Asia’s criminal gangs as illegal drug trafficking, the United Nations said

April 16, 2013, 1:58 a.m. ET

Fake Goods Rival Drug Profits for Asia’s Criminals


SYDNEY—Counterfeit goods, mainly from China, have become as profitable for Asia’s criminal gangs as illegal drug trafficking, the United Nations said in a report published Tuesday.

The U.N.’s Office on Drugs and Crime, or UNODC, looked into international organized crime across much of the Asia-Pacific region. Its report, the first ever published by the agency on the topic, catalogues how rapid economic growth has led to the proliferation of criminal networks profiting from illegal trade in goods and people.

A surge in Asia’s exports, which have nearly quadrupled in the past decade or so to $5 trillion, according to the World Trade Organization, has been accompanied by a rise in the trafficking of fake-branded products including handbags and medicines, the U.N. report found.Counterfeit goods accounted for about a third of illicit tradeflows in what the report, based on data in the years between 2008-2010, defines as the East Asia and the Pacific region. The $24.4 billion earned from fake goods, combined with the estimated $5 billion of annual profits the U.N. estimates the region makes from trafficking fake pharmaceutical products to South East Asia and Africa, is close to what the international body estimates criminals made from illegal narcotics.

Overall, the U.N. agency estimates that the smuggling of drugs, people, counterfeit goods and wildlife was worth around $90 billion a year on average during the period—more than eight times the economic output of Cambodia.

“Illicit trade is growing rapidly,” said Jeremy Douglas, UNODC’s Regional Representative for Southeast Asia and the Pacific, in an interview. “As globalization occurs and you have the integration of economies, you also have the integration of criminal economies.”

Much of the trade in counterfeit goods can be traced back to China, which is the direct source of about two-thirds of the world’s counterfeit goods, the UNODC report said. Customs data from its largest trading partners, the U.S. and Europe, put the figure even higher, at more than 75%, the report said.

China’s growing role has irked both the U.S. and Europe, which say that failure to rein in the country’s counterfeit-goods trade has undermined the intellectual property of companies and poses dangers to consumers. Last year, U.S. health authorities warned that several fake batches of the cancer drug Avastin had made their way into the country’s medical system.

Stopping the flow of fake goods is also proving difficult. The U.S. and Europe seized only about $161 million worth of counterfeit goods from East Asia in 2010—equivalent to around 1.25% of the estimated illegal trade between Asia and its largest trading partners.

Mr. Douglas said Asia’s criminal gangs were aping their legal counterparts by broadening their geographic reach and pushing into new markets. Last week, officials seized a shipment of fake cigarettes from China in the Panama Canal, showing how far such groups were able to move their products, he added.

“These groups are looking to expand, just like any legitimate business, and they don’t have to deal with any regulatory red tape,” Mr. Douglas said.

China has responded by cracking down on the producers of fake goods and giving harsher sentences to people convicted of breaking the law. Still, catching offenders has become more difficult because of the increasingly complex nature of the supply chains used by manufacturers, the U.N. report said.

Since many counterfeit products are made in exactly the same factories as genuine items before the branding occurs in different countries, many companies involved in the process may be unaware they are breaking the law, it added.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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