SHANGHAI—An Associated Press investigation found widespread fraud in China’s murky anti-counterfeiting investigations industry. That means money spent fighting fakes often doesn’t make things better—and sometimes makes them worse.
The scope of the problem is huge. Most Western companies subcontract work to private investigators paid on commission. The more fakes they find, the more they get paid. So investigators do their best to “find” as many fakes as possible, doctoring documents and colluding with factories to make counterfeit goods they can “seize” for their Western bosses. Some run protection rackets, taking money from counterfeiters in exchange for directing raids against their competitors. In five instances, Western firms paid investigators who doubled as counterfeiters who manufactured or sold counterfeit goods on the side, the AP found. That means brand protection budgets were inadvertently increasing the supply of fakes.
What’s at stake?
The Associated Press found cases of investigative fraud involving counterfeit auto parts, medicine, personal care products and electrical components. That means investigative fraud is not only a waste of corporate anti-counterfeiting dollars; it also makes it easier for potentially dangerous counterfeit goods to slip into global supply chains.
Top global companies are victims
Swiss power giant ABB hired China United—which at one time was a leading Chinese investigation agency—to solve its counterfeiting problem. A dozen years into their partnership, a key China United employee was convicted of selling fake ABB products for export. China United is no longer in business, but the men who ran it quietly bought stakes in a new investigations company: Sinofaith, whose clients included GE, 3M, Nike, Toyota, and Schneider Electric.
Gucci lost a Chinese lawsuit this year because its case was based on apparently faked government documents.
A Chinese investigator with a primary school education defrauded one of the world’s biggest consumer goods companies, opening four factories to pump out counterfeit goods he could “seize” and present for payment.