Fakes are real, big business. The ubiquity of counterfeit goods on- and offline, the lack of awareness of the penalties or fear of being caught have almost normalized the issue. It’s become commonplace and accepted in mainstream society to buy fake goods, so much so the scale and impact of the problem is often underestimated.
Nevertheless, counterfeit goods are illegal. They make illegitimate use of the brand owner’s trademarks and reputation. The goods for sale may be of inferior quality and sometimes actually dangerous to the consumer.
Merchants who sell counterfeit goods pose increased risk for the acquirers and payment service providers (PSPs) who provide them with card acceptance. According to card scheme rules, acquirers must not knowingly accept a transaction that is illegal. Or that the merchant and/ or acquirer should have known was illegal.
#1 predicate offence for money laundering
Counterfeiting and pirating of pharmaceuticals, consumables, luxury goods and intellectual property is the biggest single trans-national criminal activity. It likely exceeds US$1 trillion in retail value, according to Global Financial Integrity, a US think tank This makes it the #1 predicate offence for money laundering — bigger than illegal narcotics, human trafficking and cybercrime.
The problem is particularly acute in Europe. The EU imports twice as many fakes as the rest of the world, mostly from China. 6.8 percent of imports from non-EU countries are counterfeit compared to 3.3 percent globally, according to a report by the OECD and the EU Intellectual Property Office. France, Italy, Germany and Switzerland together accounted for more than half of all fake goods seized in 2016.
Availability is one driver in the sale and purchase of counterfeit goods. Consumer attitudes is another. In a PwC survey, over half the UK consumers asked said they’d bought some form of fake. 18 percent sometimes bought fake alcohol. 16 percent bought fake medicines. Despite 90 percent believing it to be morally wrong, survey respondents were more worried about handing over bank details (73 percent) or the goods not arriving (48 percent) than getting caught (35 percent).
Wild, Wild Web
Replica designer handbags, watches or apparel may look the part and do the job. They are good for people who cannot afford the genuine article. Or feel that genuine products are overpriced. So much so the trade in fake goods is often felt to be a victimless crime.
However, counterfeit goods create an enormous drain on the world economy with loss of legitimate revenue, taxation and jobs. Sales help fund criminal and terrorist organisations and expose consumers to dangerous or ineffective products. For example fatal electric shocks from fake iPhone chargers and choking hazards from fake pre-school toys. Then there are deaths from fake drugs, a $200 billion market annually, according to the World Health Organisation.
For acquirers and those involved in merchant underwriting, the barriers to entry for unscrupulous e-commerce merchants is low. It’s relatively quick and cheap to set up a website selling fake goods, compared to opening a physical store-front. Merchant locations may be difficult to establish. Plus, merchants can change their locations quickly, almost overnight in some cases.
Booking social media adverts and bidding for keywords on popular search engines makes attracting customers worldwide easy and cost-effective. Up to 60 percent of the first-page results from searches carried out during a recent study led researchers to websites selling fake and possibly dangerous goods. In more than a quarter of cases counterfeit goods featured in the top three results.
How Web Shield can help
The best companies manage risk best. They understand which risks matter the most and mitigate them appropriately. The likelihood, impact and clock-speed on e-commerce risk is growing. It is no longer possible to rely on manual processes alone to detect and monitor risks. For every high-risk website submitted to us, we report two previously unknown URLs on average to clients. So, acquirers only know about one-third of the websites they process (Web Shield Internal Research)
InvestiGate automates manual investigations for faster and cheaper on-boarding. Clients can choose and customise the 24 modules depending on their business, portfolio and risk appetite. Risk scoring starts as soon as the underwriter enters the merchant’s data.
Ongoing monitoring and periodic reviews can help flag any unusual or sudden changes. Or any which would make merchants non-compliant. Web Shield Monitor delivers effective surveillance of a merchant portfolio via persistent monitoring, tailored to your needs.
Deceptive marketing practices will also be the subject of the fifth book in the Web Shield‘ Fundamentals of Card-Not-Present Merchant Acceptance’ series launched at the RiskConnect networking conference, 19-20 November 2019 in Warsaw.