Consumer Fraud: How Organized Crime is “Cleaning Up” with Fake Detergent
“Trade in counterfeit and pirated goods has risen in the last few years and now accounts for over 3% of international trade.” – Report by the OECD and the EU’s Intellectual Property Office
The State of Global Consumer Fraud
The counterfeiting of consumer products is now expected to cost industries around $10 billion per year in lost sales and bankruptcies. For consumers, health and safety can be compromised by inferior ingredients, which can ultimately undermine trust in legitimate brands and products.
Shoppers and businesses can be oblivious to the fact that a product is counterfeit, but they have also been found to turn a blind eye when deals are “too good to be true” during tough economic times. Even though Interpol, Europol, and the World Customs Organization are increasingly warning the public and businesses of the rise of fake products flooding global markets, supply chains and retailers can still be compromised.
The decrease of visibility and quality control as a result of worldwide sourcing and offshoring to emerging markets has made oversight and prosecution a challenge. When suppliers are under stifling economic constraints and thin margins, a climate of fraudulent activity can occur. This is propelled further by anonymous e-commerce internet channels that easily find buyers around the world that were previously unreachable.
Even though rising consumer product fraud has been dominated by the threat of fake alcohol, pharmaceuticals, and foodstuffs, the online selling of counterfeit laundry detergent has caught the attention of law enforcement. In certain cases, it has been found that organized crime has been repurposing their narcotics network to distribute fake detergent that can sell in bulk without the downside of severe punishment.
U.S. Fake Laundry Detergent Bust
In 2017, ABC news reported on raids conducted by the Los Angeles Counterfeit and Piracy Team that targeted criminal organizations pushing fake laundry detergent. During the operation, law enforcement was able to close 50 factories. When these types of arrests occur, weapons are often found on the premises accompanied by substantial amounts of cash needed for black market transactions.
It was determined that dealers buy laundry detergent at about $5 a bucket and sell it for five times that amount, making it a viable substitute to selling narcotics without significant downsides. ABC journalist, Nick Watt, used a mobile e-commerce app to find detergent offered by four different sellers within a 20-mile radius. As most fake detergent is being sold over the internet and social media, other states, such as Texas, Illinois, and NY, are dealing with similar cases.
On the flip side, well-intentioned citizens have also been found selling 5-gallon buckets of fake Tide, Gain, and Downy detergent at swap meets and fundraisers. This shows the extent of the supply chains being compromised with unsuspecting “last mile” sellers. As none of these brands even make a 5-gallon detergent product for consumers, the source of these fake products must be criminal manufacturing. In many cases, detergent in these 5-gallon buckets has been found to clean no better than plain water and could pose potential health risks due to unknown ingredients used to manufacture it.
Anne Candido, senior communications manager at Proctor & Gamble, reports that, “It’s showing all over the place [on the internet] and social media is the enabler.”
Proctor & Gamble proactively hunts down sellers online and pushes the data to law enforcement who also get tips from concerned citizens, private investigation firms, and affected companies.
Soap Fraud in the UK
In 2019, over 50,000 tons of counterfeit soap was seized in Dover, UK. Due to the use of untested chemicals in fake soap products, there is a real danger to consumers of inducing allergic reactions in the form of skin and eye irritation. Fake toiletries cost the UK an estimated £735 million a year, which is why stopping the manufacture and sale of these products is both critical to the industry and public health.
Multinational Product Fraud Uncovered With Digital Intelligence
In 2014, a shop in the Netherlands was caught selling fake soap powder in boxes labeled with known brands. Police officers confiscated the owner’s smartphone for further investigation. The forensics team was able to access and extract data from the mobile phone device and SD-card using Cellebrite Digital Intelligence solutions.
With the data obtained, law enforcement uncovered the smuggling routes, distribution network, and the location of the factory manufacturing the product. Geolocation metadata, video files, and communication logs gathered from the mobile device were also instrumental during the investigation. As a result of uncovering key digital evidence, law enforcement was able to shut down a multinational manufacturing operation instead of just a single retail location. Read the full case study here.
Putting A Stop To Unsafe Consumer Fraud
By 2022, an estimated loss of 5M jobs worldwide is expected due to counterfeiting, according to a report by the Organization for Economic Co-operation and Development (OECD) and European Union Intellectual Property Office (EUIPO). Without a proper regulatory framework in emerging markets to establish enforceable policies and guidelines on counterfeiting, product fraud will persist as a problem with wider implications.
“Illegal trade in smuggled, counterfeit and pirated goods destabilizes the legal industry, restrains innovation and investments, reduces government revenues, and hampers the health and safety of consumers. Moreover, globally it fuels transnational crime, corruption, and terrorism. As it converges with other criminal activities it undermines the rule of law and the legitimate market economy, creating greater insecurity and instability around the world.” Dr. Sanjaya Baru, Secretary General, FICCI (Federation of Indian Chambers of Commerce & Industry) – Source
Applying Digital Intelligence to Consumer Fraud
For many populations exposed to black market products, border control and customs agencies are often the first line of defense. Yet for these agencies to be effective without slowing down legitimate trade, a digital intelligence strategy is critical to scaling activity, automating processes, and intelligently identifying potential counterfeit goods.
With transnational crime and terrorist organizations continuing to profit from this lucrative market through e-commerce websites and mobile apps, the digital landscape will demand closer attention by national and private security organizations. Local law enforcement will also need to develop a proactive digital intelligence strategy to curb this trend by targeting the distribution syndicates with cutting edge investigative solutions.