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Supply Chain “Intermediaries” Challenged to Fight Harder Against Counterfeit Goods

Posted April 08, 2015

Shipping firms, logistics service providers, and other intermediaries should do more to help keep fake and pirated goods out of the supply chain and off the market, says a new report by the Business Action to Stop Counterfeiting and Piracy (BASCAP), a cross-border initiative formed in 2004 by the International Chamber of Commerce to combat product counterfeiting and copyright piracy worldwide.

The Organization for Economic Co-operation and Development estimates that more than $250 billion in counterfeit goods moves across borders each year. When Internet infringements, in-country sales or indirect losses to governments and consumers are included, the estimated global impact of these illegal activities could add up to more than $1.7 trillion annually.

The new study, Roles and Responsibilities of Intermediaries: Fighting Counterfeiting and Piracy in the Supply Chain, looks at key intermediaries in the physical world and those providing infrastructure and services online, yielding the most comprehensive review to date of the many types of intermediary channels that are being utilized by criminal networks to sell and distribute fakes and pirated content. The BASCAP paper aims to raise awareness of intermediaries’ vulnerabilities to criminal activity and find new ways to tackle the gaps in their processes that allow fake and pirated to infiltrate the supply chain.

“Trade is being revolutionized by the emergence of integrated global value chains and the explosion of online commerce. Intermediaries – from express shipping firms through to online search engines – are now a central part of the global economy, “says BASCAP Director Jeff Hardy. “This is an overwhelmingly positive development, but intermediaries must ensure they have adequate systems in place to address growing counterfeiting and piracy risks.”

According to the study, increasingly complex and far-reaching supply chains create “new risks and vulnerabilities” that enable the infiltration of counterfeit goods and copyright piracy into legitimate trade channels. Counterfeiters exploit the supply chain and feed counterfeit electronic components into mobile phones, computers, printers, automobiles, defense systems and airplanes. Fake raw materials and ingredients can make their way into final products without the knowledge of the manufacturer, the seller of the final product or the consumer that buys it. This situation, BASCAP says, can “compromise the integrity of final products, generate losses to legitimate businesses and expose consumers to fake, faulty or harmful products.”

The study exposes a number of shortcomings in the global network of infrastructures and services that produce, sell and deliver products to customers worldwide. Aside from extremely obvious cases such as websites or other online platforms completely dedicated to piracy and counterfeiting, the study says that it is now “almost impossible to guard against a counterfeit product that has made its way on to a legitimate e-commerce site” and claims that 20 percent of consumers are unknowingly shopping on websites that offer fake products.

Others unwittingly drawn into counterfeit trade include property owners that may rent space to criminals using the premises to manufacture or sell fakes, and cargo shipping companies duped with phony documents into transporting “millions of containers” filled with counterfeit products or raw materials. Pirates abuse the Internet’s new highways to host fake storefronts and manipulate search results to lure and exploit trusting customers. Payment processors and credit card companies are used to cover online transactions for counterfeits as if they were legitimate purchases.

Seeing as they are the “backbone of commerce” with an essential role to play in bringing products from conception to design, assembly, manufacture, marketing and distribution to the final consumer, intermediaries have a “corporate and social responsibility” to restrict use and abuse of their infrastructures to prevent counterfeiting and piracy, the study says. When better informed about potential exploitation and the damage done by counterfeiting and piracy, “most demonstrate a willingness to secure their portion of the supply chain from abuse,” notes the BASCAP director. “It is, quite rightly, a core reputational issue for leading firms.”

The BASCAP study outlines a range of “best practices” to help responsible businesses deal more effectively with potential vulnerabilities in their operations and platforms. Some of the recommended measures include the establishment and enforcement of clear contract terms, development of a clear knowledge and understanding of commercial partners and industry standards/codes of practice, and the use of automated tools to identify suspect transaction patterns. The study also supports the use of technologies such as track-and-trace, content filtering and content verification to help block illicit goods in real-term, but points out that “intermediaries’ adoption of preventative tools should be in proportion to the risk or reality of high-volume abuse.”

Once vulnerabilities in the supply chain that enable the infiltration of counterfeit goods and copyright piracy are identified and understood, tried and true corporate due diligence practices need to be developed and adopted for contractual compliance, BASCAP says, “just as they have been for regulatory issues such as bribery and corruption, money laundering and ethical sourcing.” With publication of this latest study and the comprehensive framework of recommendations that it provides, BASCAP hopes that companies will no longer be able to say “this is not my responsibility” or “there is nothing we can do.”

Click here to download the BASCAP study.