Imitation Nation

Imitation Nation Episode 39 is now available! In this episode, we explore two major cases of fraud and counterfeiting—one involving fake postage labels that cost the US Postal Service over a hundred million dollars, and another involving an international scheme of counterfeit Apple devices. These stories reveal the complexities of brand protection, the importance of robust security systems, and the ongoing battle against counterfeiters.

Transcript: 

 

Shabbir (00:02)
All right, welcome to Imitation Nation number thirty nine. It is a federal holiday today, which means that Sven and I don't have hair and makeup support. Which, you know usually with

Sven (00:14)
Hair and makeup support

for me would be very short lived. It's just or or or it takes a long

Shabbir (00:24)
Usually we look better than this, but you know, the hair and makeup talent is not in the office today.

Sven (00:30)
A as I said before, I have a face made for radio and you know, so here we go. Anyways, good to see you, my friend.

Shabbir (00:37)
Good to see you traveling for the rest of the week.

Sven (00:40)
I'm traveling for the rest of week. My daughter qualified for national championships with her sport and so we're gonna be heading to Pennsylvania and Maryland, and I'm quite excited to see her compete. So it'll be great.

Shabbir (00:54)
That's great. She's a equestrian,

is that right?

Sven (00:57)
She

is an equestrian, yes. So it's hunter jumper and she qualified for indoors nationals and super proud of her. In her first national, she placed fourth in nation. And so we'll see how the other indoors goes. And she's she's very in talented and very proud of her.

Shabbir (01:14)
Good dad moment.

Sven (01:15)
Thank you.

Shabbir (01:18)
so I wanted to start with the big story that happened this week. You know how I love a good

Sven (01:23)
All right.

Shabbir (01:24)
fake stamp story. I love fake stamps.

Sven (01:26)
It does That's true.

Shabbir (01:30)
this past within the past two weeks, the Department of Justice charged a Pakistani national with selling five million postage labels, shipping labels.

Sven (01:40)
Wow.

Shabbir (01:40)
That caused,

by their calculation, the Postal Service to lose over a hundred million dollars in revenue. So you know

Sven (01:47)
Wow, that's crazy.

Shabbir (01:50)
you know how you take your package to the post office and maybe you already printed out the shipping label or they print it out and they weigh it and they figure out where it's going and they figure out what it's supposed to cost?

Sven (02:00)
Wow. Yeah.

Shabbir (02:02)
So these guys basically figured out a way to generate counterfeit labels, which were worth two dollars, regardless of where you were shipping your package and regardless of how big it was or how much it cost. And then they sold them online basically in batches, through this website, labelsbank dot com, to over five thousand people. And you can't look at the website except through the Internet Archive Wayback Machine anymore, because the government seized the domain name and took it over.

as part of their as part of their indictment.

Sven (02:33)
Incredible. Incredible. yeah the case the case is the case is amazing and the the screenshots you have and I hope you put them with show notes. But like what are all the charges that there were were were charged with that are levied against them and like who brought the case ultimately?

Shabbir (02:49)
So the charges actually use the word forged and counterfeit stamps, but a stamp can really be just anything that is an official record, official like postage produced by the post office. they have conspiracy to defraud the US, can the conspiracy to make and sell forged and counterfeit stamps, and of course, because the whole thing was done primarily electronically, wire fraud.

And it was the postal

Sven (03:13)
Course.

Shabbir (03:13)
inspectors of Miami who brought the case. although, you know, the the defendants in one of the defendants, there's there's a number of co conspirators at once in Pakistan, so nobody appeared in court.

Sven (03:26)
Yeah,

wire wire fraud is interesting. So is is the wire fraud a charge that that you need to commit the predicate crime, or is is a is it a predicate for other crimes? Like which one comes first?

Shabbir (03:39)
So it is a standalone charge. You can get charged with wire

Sven (03:41)
Okay.

Shabbir (03:42)
fraud on its own. But yeah, in in the world of prosecutors, and I'm not a lawyer, so don't take my advice if you're charging somebody. sometimes you need to prove one case to prove one charge to have access to another charge. And the most famous of those are RICO and money laundering. So wire fraud

Sven (03:59)
Right.

Shabbir (04:00)
is a predicate crime. If you have been charged with wire fraud,

Then a prosecutor can justify also charging you with RICO or money laundering. Money laundering is a big one, you know. In the counterfeiting world, it is hard to get people for money laundering unless they defraud a federal health program. So you, as a prosecutor, you look for someone defrauding Medicaid or Medicare first. And then once you know they've done that, you can then charge them with money laundering in a pretty straightforward fashion. And so you see

Sven (04:30)
Yeah.

Shabbir (04:30)
Often prosecutors looking looking for federal health care fraud for that reason.

Sven (04:35)
Yeah, no, it's great. One of the things that wire fraud also does, it allows you to pull it into your jurisdiction because the wires literally

Shabbir (04:41)
Mm.

Sven (04:42)
cross into your jurisdiction. And so even if the crime was somewhere else, if there's wire fraud and the wires go through, we have done that before where it then allows you to pull it in. so how did they end up catching them ultimately?

Shabbir (04:55)
I think what happened to some extent is that they were such a large competitor to the Postal Service, it was impossible to ignore. In the same way as if there was somebody out there doing the exact same job as you, making a lot of money, but they were not authorized to do what you were doing, you might notice them in the marketplace. But I think they basically busted themselves by again selling over a hundred million dollars worth of fake postage.

Sven (05:21)
Crazy.

That's crazy. See the the the thing about the US Postal Service, and it comes back to with the stamps we have as well. It you know, the US Postal Service by statue is an amazing system, if you think about it. A place that guarantees to deliver your mail, even if you're the only person within, you know, 500 miles of anywhere, right? That's what the US Postal Service does. And so that's also when people criticize it for not making profit. It's not supposed to be.

a for-profit business. It's a service to US consumers. However, their technology is so antiquated. Like when I've been to international media centers and seen it, and like this, that you don't see that what a hundred million fake labels run through your system.

Like wow, you should see that faster. The same like the stamps we

Shabbir (06:11)
Yeah. It

Sven (06:12)
bought. You should see that.

Shabbir (06:14)
Yeah, it's they were good enough fakes that in the indictment, which we'll put in the show notes and you should read, they they said, you know, somebody asked one of the the conspirators about this and he said, You can take your package to the post office and at

Sven (06:30)
Mm-hmm.

Shabbir (06:31)
the self cert kiosk scan it and it will accept it. But

Sven (06:35)
Mm-hmm.

Shabbir (06:36)
You they'll they'll know if they check deep in their system. So I think basically

Sven (06:40)
I don't

Shabbir (06:40)
if you were going to the self service kiosk, it couldn't actually ask you, is this where it's going? It could only it would only take it. And then when they went to handle the package, they would see where it was going. If a if a postal worker looked at it and then said, Hey, that price doesn't look right, let me double check, they would they would have noticed. And so they were telling people not to interact with postal employees when taking their packages in.

Sven (07:04)
Right. That's crazy. So where where's the case now? Have people been arrested? Like what's the what's the status?

Shabbir (07:11)
So if you look in PACER, which is where federal court docs live, there is not yet there is one sealed file. So I don't know what that has in it, but there's no arrest warrant. usually when you have a case like this and somebody gets arrested, you see an arrest warrant and then it goes off and they get arrested. There's nothing like that here. The indictment names one Pakistani national who appears to be in Pakistan.

that's my guess. And a number it it mentions co-conspirators, but it doesn't actually mention the any of them by name. And the interesting thing is that the US and Pakistan don't have an extradition treaty.

Sven (07:49)
Right, I was just thinking that.

Shabbir (07:50)
so like they can't just pick up and grab him. It will have to be negotiated. There is for those who don't know, I'm half Pakistani. Pakistan split away from India in partition when the Hindus and Muslims decided that each needed their own country.

And of course, India itself before that broke off from Britain. The US and Britain actually have an extradition treaty in nineteen thirty-two that they signed.

Sven (08:11)
Hmm.

Shabbir (08:12)
And there's this there's this convoluted argument that people try to make that that treaty applies to India and Pakistan now. in truth, what happens is that they get politically negotiated when you have people like this.

Sven (08:23)
Right. Right.

Shabbir (08:25)
I think there's some possibility that one of the people involved, one of the co conspirators that's unnamed, may be involved. But I think they would have called them a confidential informant in the indictment, not a co conspirator. And so that's

Sven (08:36)
Yeah.

Shabbir (08:37)
why I'm not really sure I I I I'm not sure we're gonna see anybody for a little while in in court.

Sven (08:44)
Well, good good good for good for the US Postal Inspector Service to take it take it out and take it down. that's a good get, but man, hundred and twenty million, that's crazy big.

Shabbir (08:56)
It is a lot of money. I you know, it you have to be kind of a big jerk to defraud the postal service. I feel like

I feel like

Sven (09:02)
Yeah.

Shabbir (09:02)
there are less moral, e ethically easier targets than our our hardworking postal employees and the system that they that they run every day.

Sven (09:12)
Yeah. Well let let's move on to story two and find the next e larger target. also a massive case, that one against Apple, right? So this just for time frame, okay, we're gonna cover here basically the indictment and the sentencing memo that just came out. Sentencing memo now came out, was issued in twenty twenty four, and the case started in twenty fourteen. So just four.

perspective how long these things take, right?

Shabbir (09:37)
And Sven, we

we covered this before, but can you tell everybody what the crime is?

Sven (09:43)
Yes, will do. So it's it's remarkable. And you're right, we covered it at the time, we wondered how it was, and this court case laid out a lot of it. So it is a counterfeit case out of California, and basically federal prosecutors had charged five individuals back in 2014 with running an elaborate scheme against Apple that stretched back, you know, at least a decade. And what the indictment says is they took counterfeit iPhones, iPads, other Apple devices from China.

But instead of just selling counterfeit devices, they took those counterfeit devices and gave them to Apple stores and submitted them for warranty. Like this device doesn't work, I would like a new device, and got warranty replacements. They did this by putting counterfeit serial numbers of genuine devices that they had in the US onto the product, was covered under warranty, and then they got the associates to basically give them or ship them a new product and that

happened mainly in China and what the prosecutors alleged, the size of it, that there were 16,000 different counterfeit items basically handed in and genuine products come back and twelve point three million dollars in losses were incurred.

Shabbir (11:00)
my god. So I remember when we covered this, and there was an arrest because we covered the indictment. I think

there was somebody

Sven (11:06)
Mm-hmm.

Shabbir (11:07)
arrested around May in 2024, and we were wondering how this is going to turn out. I'm actually surprised that this is a very similar story to the fake Rolexes being serviced by the Rolex dealer. We you had somebody cap carrying in a f a counterfeit Apple device to an Apple store, and the Apple store did not recognize it and

gave them a giant pile of money and they did it sixteen thousand times.

Sven (11:34)
That's basically it. And the indictment is is really detailed and folks should read it. Where it describes the the extent to this went through. They they did counterfeit iPads and the iPads, because they returned them as like, hey, this device isn't working, they didn't even try to always produce working devices. They may filled them with metal weights, made them look and feel authentic. But the trick was that the serial number was genuine. So they got genuine serial numbers.

From the United States, so there was probably also a benefit of it from coming from another country. And that allowed them to then exchange these worthless counterfeits for genuine products. So slightly different than the Rolex, because the fake, super fake Rolexes, they work, they look super real. People report that they still very nice watches, they're just not Rolex. Because these were basically iPad bricks that are not even iPads, but the identification number.

allowed it to then be exchanged. And so that's a good example when oftentimes we talk about a serial number or security feature, you name it. Will that solve it? Well it doesn't always solve it because you gotta make sure that you have it built in a system where you can really authenticate it. And clearly here, it wasn't able to be authenticated sixteen thousand times.

Shabbir (12:54)
okay, so I I gotta ask how let's say you come up with a scheme where you have a partner in China that managed to find manages to find under warranty serial numbers and then produce perfect, nearly perfect looking iPads with weights that don't turn on, right? So you walk

in and say,

Sven (13:11)
Uh-huh.

Shabbir (13:11)
My my i my brand new iPad is bricked. How do you get away with that for 10 years? How do you how do you operate at that kind of scale without being stopped? Because I would think

Within six months somebody would figure out that one of them is a complete and utter fake with just lead weights instead of circuitry in it,

Sven (13:28)
Agreed.

Shabbir (13:30)
and then put an alert out to every store that says, you know, you have to crack this open before you can give their money back.

Sven (13:37)
Well, but but probably worked in their advantage how massive Apple is and how giant China is, right? So they just did it by saying we're gonna go really, really big. So employees started there's some stores that reported that employees had suspicions, but the defendants basically did it by they used a aliases, so they used fake names, they rented mailboxes, they went out throughout different stores. there was one employee actually.

That rejected an iPad because the Apple logo reflected light differently. There's another employee that reported that he started to become suspicious of an individual because he noticed him multiple times in the store. That defendant then also reported that he visited 10 different Apple stores in a single day, attempting 14 exchanges. And so that was a coordinated effort to basically go to as many Apple stores as you can across Southern California. and

you just use the sheer size of Apple. Like in Columbus where I live, we have three Apple stores, right? In California, there's probably twenty, thirty Apple stores. So you can run it. You run it with fifty different people and you you just make it appear as random as possible. But yes, after a while they started to catch on and now came the purchases and the the test buys and starting to dismantle it.

Shabbir (14:53)
I mean, the few times I have walked into an Apple store, there is and if I look even the least bit puzzled, there is an Apple store employee right on me asking me if I need something. And

Sven (15:03)
Yeah.

Shabbir (15:04)
if I were to hand them a bricked iPad, I'm sure they would run off in the back and see what they could do to refund my money. my God. so

I still don't understand how it went on for ten years though. I feel like someone was asleep at the wheel at some point. not not checking return hardware to see if it was real. Something like that. It it may have also been hard to find, right? Like you get this return hardware.

Sven (15:25)
And again Right, and the entire the entire scheme

wasn't the entire scheme wasn't ten years because investigate further the conviction and prosecution, so there was time there. But yes, they ran it for a couple of years, one hundred percent.

Shabbir (15:38)
Wow. So I mean that's a lot of money. It's like sixteen million dollars now that we've got now

Sven (15:44)
Uh-huh.

Shabbir (15:45)
that we've got a plea bargain and there's a sentencing, what's happening to the defendants and do we is there any statement about recovering this money? Because that is a lot of money.

Sven (15:54)
Yeah.

So the amazing thing actually is the following. when the case was brought, the indictment said twelve point three million dollars in charges, but the case they they gave him sixteen point nine million restitution. So it was more restitution than they even claimed in the claimed in the indictment. So one individual, Lynn, pleaded guilty to conspiracy to commit wire fraud. There's wire fraud again and mail fraud, always a very good charge to have, and received a sentence of time served.

Followed by three years of supervised release, including 18 months, and the court ordered them to pay more than 16.2 million dollars to Apple. However, however, the judge specifically found that Lynn's financial circumstances, I'm quoting, didn't permit immediate or future payment of the full amount. The order requires an additional $100,000 payment within 90 days, followed by payments tied to income. So

We can run the math, but $100,000 to restitute $16.2 million might take a moment. so there's a there's a big difference between getting the the judgment and actually collecting on it. I I find it unlikely that Apple will collect all of it,

or

Shabbir (17:07)
Yeah.

Sven (17:07)
most of it, but it it certainly is a large degree for these cases that you do them A, you make them stop, plus it's intended as a deterrent to say, do not mess with my trademark.

Shabbir (17:19)
Yeah. I mean, interestingly, if it had been if they if they were to file a civil Lanham

Sven (17:23)
Five us.

Shabbir (17:24)
Act trademark infringement case, they would get an enormous number of additional penalties, right? I was just thinking about what does it mean to have to do the paperwork to prepare

Sven (17:34)
But

Shabbir (17:35)
and prove that you have been handed thousands of counterfeit devices with your trademark on them. That alone, if you were to compute that, like even at a hundred dollars an hour.

For sixteen million or twelve million dollars worth of fake devices, that would have taken a long time. That alone, plus the attorney's fees that you would need for the Lanham Act case, it's a lot of it would be a lot more money. But

Sven (17:57)
Yes.

Shabbir (17:57)
yes, money probably exited the initial conspirators and is not available to them anymore.

Sven (18:06)
Well it might sit in China, like it might still be technically available to them, but it's overseas and I can't just, you know, randomly seize a Chinese bank account. So yeah, no, I don't I don't think Apple will see all of it, but good win for them, good case, good investigation. crazy scheme, and crazy it ran as long as it did.

Shabbir (18:23)
Sven, what is a brand protection expert who is not someone who was defrauded for years and years and years by someone bringing in fake lead filled devices learned from this?

Sven (18:34)
a a lot of it what comes down to for me for is is your IT. It actually goes similar to the US Postal Service case. The fact that I can defraud a number, that I can f defraud a serial number on a postage label, or I can defraud a serial number on a on a on a Apple case, I can always make the number fake, look fake, look real, copy a real number, that exists. The systems need to be built in a way that you have

some.

form of two-factor authentication, something that allows you to check it against a real database and say, no, this really makes sense. This product, this this item number corresponds with this item number. it is it is making a multi-layer system of security features that allows that. And then lastly building good policies such as when you have returns, there can be a Apple has

pretty short return period at this point because I think they're trying to combat that as well. and then additional policies of is there a holding period, like I will not send you a replacement device until two weeks because I need to really test it. various other places stop taking returns for certain things. So you you can you can hedge against it. But I think the biggest piece is really making sure that as they saw these fake devices coming in.

'Cause they were coming probably into a repair center, and I open them up and I'm like, wait, that's that that's not a real thing. You gotta way faster work into the system. partially of what I think might might have happened there, this will sound horrible and I don't want to make make Apple feel bad. Apple is a how many billion dollar company, right?

Shabbir (20:11)
Yeah.

Sven (20:13)
Sixteen million is a lot, there's no doubt about it. sixteen million over ten years for Apple, it's probably not even what the fuel of their corporate jets.

Uses right. So it's just it's the scale, the scale of the size of how much resources do I put against it. Yes, for an individual who commits the crime, that's massive. For you as a company, it's 0.001% of your revenue. It's a it's a nuisance that probably really upset the brand protection director for a while to figure out how do I stop this. But do I make a company-wide massive investment to change it? That's all that's always the struggle. now, what always changes the

calculation in that, if there's human health involved. So like a lot of the folks

Shabbir (20:52)
Mm.

Sven (20:53)
you work with, yeah, the moment this would happen in a pharmaceutical space or something where no no people will get hurt. Yes, companies will act much larger. This is one of those where like it it's it's it's really annoying, but it's technically a rounding air for Apple. I it's not a short answer. Unfortunately there's not an easy answer, but more sophisticated layered systems and figuring out

Which company resource to deploy against?

Shabbir (21:19)
And I think what I learned from this is that the policies Apple has in three things. The policies Apple has in place for returns are not thorough enough in their vetting, that their return infrastructure is not studying the products well enough when they come

Sven (21:39)
Mm-hmm.

Shabbir (21:39)
back to see if they're being defrauded. And the third I would say is that.

At least at the time of the crime, there were no easy to understand secondary packaging or on device anti-counterfeiting marks that an Apple employee could check. Or

Sven (22:00)
I guess.

Shabbir (22:01)
if they were, if there are, they don't know about it or weren't checking. Right? If there's like some sort of hidden ink writing or a special series of dots or some steganography or anything else on the device.

besides a serial number that would tell you that it's valid, the Apple employees either didn't exist or the Apple employees didn't know it existed or didn't check it. and that that's actually quite disturbing to think about is that like all it takes is a serial number and and someone to walk in and you you've got yourself basically a a fake refund.

Sven (22:37)
No, and and to your point, it now always comes back down to having worked in that world, and I know this it it'll sound you're like, let's just put a mark on. You then as the brand protection director go through the corporation, you're like, hey, I need whatever the money is, five, ten million dollars to implement that system into the company. And the company will say, You're trying to spend ten million dollars to offset what? And he will say, I'm trying to spend ten million dollars to offset a two million dollar loss. And they're Yeah, we're not spending ten million dollars to offset a two million dollar loss, right? So

Shabbir (23:06)
Yeah.

Sven (23:06)
It it it's those pieces. They're unfortunately not easier. In in a previous employer I had, our products were returned en masse as counterfeit to Costco. we couldn't fix it. We actually had a tech solution in place to fix it, which cost many, many, many millions. And our solution was we told Costco you're not allowed to accept returns anymore. So we fixed it through policy versus technology. Because that's always the trade-off, right? What's your ROI on

Yeah, put a twenty million dollar solution in place for a five million dollar problem.

Tricky.

Shabbir (23:38)
Yeah.

I mean, I think with if if you were to get a return for a brand new device still under warranty, there's a customer sub there's a customer happiness problem, right? This brand new

Sven (23:49)
Mm-hmm.

Shabbir (23:50)
thing I just bought. You want to make them happy. Maybe though you need to take a picture of the driver's license. Maybe there's a variety of ways you need to authenticate it if you can't check it on the spot that you need to know that you can find that person later. But yeah, this this was

This they they really found a hole and drove a truck through it.

Sven (24:10)
And and I and to to your to your point, again, because this case started ten years ago, the last Apple product I returned, it did seem tighter. Like it was and I was returning I think a phone case, it's something not significant. I had to have a the receipt of the store I had, it had to be tied to my Apple account. Like it was really the no, this is the product I bought, it's my product, you saw I bought it, all of all of so they might have put all of the policy solutions around in place where you now really

link no this device. I'm linking this to Sven. I know you bought it and so you can return it. Not hey, here's a random device I found I wanted to return. so a lot of this might have been fixed. But yes, certainly a large case. Good job by Apple for bringing it to to justice and stopping it. But certainly certainly a large case.

Shabbir (24:59)
Yeah. The last thing I want to talk about, and not in great detail, is that Health Canada has put out an alert advising med spas and medical practices in the country about avoiding counterfeit laser hair removal devices. And I I just want to say, in the world of health and safety,

Someone's like fake knockoff laser that might be used near my very, very sensitive skin is i it is actually is in some ways wor I mean it it's not worse for my health than counterfeit medicine, but it makes me more squeamish.

Sven (25:35)
i i yeah, i it was it was a very, very strange one. And and again for this one it was the the way it looked to me like they weren't actually counterfeiting the devices. They were just selling a product that wasn't even close to it, but where they're copying the credentials that the buyer relied

Shabbir (25:50)
Hell.

Sven (25:51)
on it to establish the trust, right? So it comes again, it was defrauding the actual check mechanism that was intended to check against counterfeits. So a a crazy one. And a a clinic might have had best intentions.

But if they didn't

Shabbir (26:04)
Yeah.

Sven (26:04)
really verify it, they ended up with something that they thought was genuine, but was not.

Shabbir (26:09)
Yeah, the alert says the manufacturer

has confirmed that they're counterfeit. And I don't think that the Canadian Med Spa and Aesthetic Physician Practice are big listeners to Imitation Nation.

Sven (26:18)
The teacher.

Shabbir (26:19)
So I don't know that we're actually gonna reach anyone who buys these things. But I'll just say it that it never ends. There are counterfeits of everything. And this is one that I don't want anywhere near my body.

Sven (26:32)
No. A and a the other piece is it kind of shows you that

Whoever thinks that my product would never be counterfeited, don't be sure. If it's a market that's large enough, it will get counterfeited, it will get defrauded. And I think every company is well advised, even if you're small, be aware if it exists, be aware of resellers. Like I run another company on the side as well. We always check for folks that all of that we have resellers pop up. We're like, I don't think I authorized you as a reseller. I don't think I ever sold anywhere. Like, where do you get your product from? So just

Be very aware of what goes on in the marketplace because people will try to take advantage of you.

Shabbir (27:13)
All right, well that's it for Invitation Nation on this holiday day. Hopefully our lack of makeup and hair staff did not affect your appreciation of the episode. Sven, I hope you have a

Sven (27:22)
Very good.

Shabbir (27:23)
good week traveling with your daughter and being the proud admiring dad that you I know you are.

Sven (27:29)
Well, thank you so much, and I will see you in a week. And with that, Shabbir read us out.

 

Imitation Nation Episode 39 is now available! In this episode, we explore two major cases of fraud and counterfeiting—one involving fake postage labels that cost the US Postal Service over a hundred million dollars, and another involving an international scheme of counterfeit Apple devices. These stories reveal the complexities of brand protection, the importance of robust security systems, and the ongoing battle against counterfeiters.

 

Transcript:

 

Shabbir (00:02)
All right, welcome to Imitation Nation number thirty nine. It is a federal holiday today, which means that Sven and I don't have hair and makeup support. Which, you know usually with

Sven (00:14)
Hair and makeup support

for me would be very short lived. It's just or or or it takes a long

Shabbir (00:24)
Usually we look better than this, but you know, the hair and makeup talent is not in the office today.

Sven (00:30)
A as I said before, I have a face made for radio and you know, so here we go. Anyways, good to see you, my friend.

Shabbir (00:37)
Good to see you traveling for the rest of the week.

Sven (00:40)
I'm traveling for the rest of week. My daughter qualified for national championships with her sport and so we're gonna be heading to Pennsylvania and Maryland, and I'm quite excited to see her compete. So it'll be great.

Shabbir (00:54)
That's great. She's a equestrian,

is that right?

Sven (00:57)
She

is an equestrian, yes. So it's hunter jumper and she qualified for indoors nationals and super proud of her. In her first national, she placed fourth in nation. And so we'll see how the other indoors goes. And she's she's very in talented and very proud of her.

Shabbir (01:14)
Good dad moment.

Sven (01:15)
Thank you.

Shabbir (01:18)
so I wanted to start with the big story that happened this week. You know how I love a good

Sven (01:23)
All right.

Shabbir (01:24)
fake stamp story. I love fake stamps.

Sven (01:26)
It does That's true.

Shabbir (01:30)
this past within the past two weeks, the Department of Justice charged a Pakistani national with selling five million postage labels, shipping labels.

Sven (01:40)
Wow.

Shabbir (01:40)
That caused,

by their calculation, the Postal Service to lose over a hundred million dollars in revenue. So you know

Sven (01:47)
Wow, that's crazy.

Shabbir (01:50)
you know how you take your package to the post office and maybe you already printed out the shipping label or they print it out and they weigh it and they figure out where it's going and they figure out what it's supposed to cost?

Sven (02:00)
Wow. Yeah.

Shabbir (02:02)
So these guys basically figured out a way to generate counterfeit labels, which were worth two dollars, regardless of where you were shipping your package and regardless of how big it was or how much it cost. And then they sold them online basically in batches, through this website, labelsbank dot com, to over five thousand people. And you can't look at the website except through the Internet Archive Wayback Machine anymore, because the government seized the domain name and took it over.

as part of their as part of their indictment.

Sven (02:33)
Incredible. Incredible. yeah the case the case is the case is amazing and the the screenshots you have and I hope you put them with show notes. But like what are all the charges that there were were were charged with that are levied against them and like who brought the case ultimately?

Shabbir (02:49)
So the charges actually use the word forged and counterfeit stamps, but a stamp can really be just anything that is an official record, official like postage produced by the post office. they have conspiracy to defraud the US, can the conspiracy to make and sell forged and counterfeit stamps, and of course, because the whole thing was done primarily electronically, wire fraud.

And it was the postal

Sven (03:13)
Course.

Shabbir (03:13)
inspectors of Miami who brought the case. although, you know, the the defendants in one of the defendants, there's there's a number of co conspirators at once in Pakistan, so nobody appeared in court.

Sven (03:26)
Yeah,

wire wire fraud is interesting. So is is the wire fraud a charge that that you need to commit the predicate crime, or is is a is it a predicate for other crimes? Like which one comes first?

Shabbir (03:39)
So it is a standalone charge. You can get charged with wire

Sven (03:41)
Okay.

Shabbir (03:42)
fraud on its own. But yeah, in in the world of prosecutors, and I'm not a lawyer, so don't take my advice if you're charging somebody. sometimes you need to prove one case to prove one charge to have access to another charge. And the most famous of those are RICO and money laundering. So wire fraud

Sven (03:59)
Right.

Shabbir (04:00)
is a predicate crime. If you have been charged with wire fraud,

Then a prosecutor can justify also charging you with RICO or money laundering. Money laundering is a big one, you know. In the counterfeiting world, it is hard to get people for money laundering unless they defraud a federal health program. So you, as a prosecutor, you look for someone defrauding Medicaid or Medicare first. And then once you know they've done that, you can then charge them with money laundering in a pretty straightforward fashion. And so you see

Sven (04:30)
Yeah.

Shabbir (04:30)
Often prosecutors looking looking for federal health care fraud for that reason.

Sven (04:35)
Yeah, no, it's great. One of the things that wire fraud also does, it allows you to pull it into your jurisdiction because the wires literally

Shabbir (04:41)
Mm.

Sven (04:42)
cross into your jurisdiction. And so even if the crime was somewhere else, if there's wire fraud and the wires go through, we have done that before where it then allows you to pull it in. so how did they end up catching them ultimately?

Shabbir (04:55)
I think what happened to some extent is that they were such a large competitor to the Postal Service, it was impossible to ignore. In the same way as if there was somebody out there doing the exact same job as you, making a lot of money, but they were not authorized to do what you were doing, you might notice them in the marketplace. But I think they basically busted themselves by again selling over a hundred million dollars worth of fake postage.

Sven (05:21)
Crazy.

That's crazy. See the the the thing about the US Postal Service, and it comes back to with the stamps we have as well. It you know, the US Postal Service by statue is an amazing system, if you think about it. A place that guarantees to deliver your mail, even if you're the only person within, you know, 500 miles of anywhere, right? That's what the US Postal Service does. And so that's also when people criticize it for not making profit. It's not supposed to be.

a for-profit business. It's a service to US consumers. However, their technology is so antiquated. Like when I've been to international media centers and seen it, and like this, that you don't see that what a hundred million fake labels run through your system.

Like wow, you should see that faster. The same like the stamps we

Shabbir (06:11)
Yeah. It

Sven (06:12)
bought. You should see that.

Shabbir (06:14)
Yeah, it's they were good enough fakes that in the indictment, which we'll put in the show notes and you should read, they they said, you know, somebody asked one of the the conspirators about this and he said, You can take your package to the post office and at

Sven (06:30)
Mm-hmm.

Shabbir (06:31)
the self cert kiosk scan it and it will accept it. But

Sven (06:35)
Mm-hmm.

Shabbir (06:36)
You they'll they'll know if they check deep in their system. So I think basically

Sven (06:40)
I don't

Shabbir (06:40)
if you were going to the self service kiosk, it couldn't actually ask you, is this where it's going? It could only it would only take it. And then when they went to handle the package, they would see where it was going. If a if a postal worker looked at it and then said, Hey, that price doesn't look right, let me double check, they would they would have noticed. And so they were telling people not to interact with postal employees when taking their packages in.

Sven (07:04)
Right. That's crazy. So where where's the case now? Have people been arrested? Like what's the what's the status?

Shabbir (07:11)
So if you look in PACER, which is where federal court docs live, there is not yet there is one sealed file. So I don't know what that has in it, but there's no arrest warrant. usually when you have a case like this and somebody gets arrested, you see an arrest warrant and then it goes off and they get arrested. There's nothing like that here. The indictment names one Pakistani national who appears to be in Pakistan.

that's my guess. And a number it it mentions co-conspirators, but it doesn't actually mention the any of them by name. And the interesting thing is that the US and Pakistan don't have an extradition treaty.

Sven (07:49)
Right, I was just thinking that.

Shabbir (07:50)
so like they can't just pick up and grab him. It will have to be negotiated. There is for those who don't know, I'm half Pakistani. Pakistan split away from India in partition when the Hindus and Muslims decided that each needed their own country.

And of course, India itself before that broke off from Britain. The US and Britain actually have an extradition treaty in nineteen thirty-two that they signed.

Sven (08:11)
Hmm.

Shabbir (08:12)
And there's this there's this convoluted argument that people try to make that that treaty applies to India and Pakistan now. in truth, what happens is that they get politically negotiated when you have people like this.

Sven (08:23)
Right. Right.

Shabbir (08:25)
I think there's some possibility that one of the people involved, one of the co conspirators that's unnamed, may be involved. But I think they would have called them a confidential informant in the indictment, not a co conspirator. And so that's

Sven (08:36)
Yeah.

Shabbir (08:37)
why I'm not really sure I I I I'm not sure we're gonna see anybody for a little while in in court.

Sven (08:44)
Well, good good good for good for the US Postal Inspector Service to take it take it out and take it down. that's a good get, but man, hundred and twenty million, that's crazy big.

Shabbir (08:56)
It is a lot of money. I you know, it you have to be kind of a big jerk to defraud the postal service. I feel like

I feel like

Sven (09:02)
Yeah.

Shabbir (09:02)
there are less moral, e ethically easier targets than our our hardworking postal employees and the system that they that they run every day.

Sven (09:12)
Yeah. Well let let's move on to story two and find the next e larger target. also a massive case, that one against Apple, right? So this just for time frame, okay, we're gonna cover here basically the indictment and the sentencing memo that just came out. Sentencing memo now came out, was issued in twenty twenty four, and the case started in twenty fourteen. So just four.

perspective how long these things take, right?

Shabbir (09:37)
And Sven, we

we covered this before, but can you tell everybody what the crime is?

Sven (09:43)
Yes, will do. So it's it's remarkable. And you're right, we covered it at the time, we wondered how it was, and this court case laid out a lot of it. So it is a counterfeit case out of California, and basically federal prosecutors had charged five individuals back in 2014 with running an elaborate scheme against Apple that stretched back, you know, at least a decade. And what the indictment says is they took counterfeit iPhones, iPads, other Apple devices from China.

But instead of just selling counterfeit devices, they took those counterfeit devices and gave them to Apple stores and submitted them for warranty. Like this device doesn't work, I would like a new device, and got warranty replacements. They did this by putting counterfeit serial numbers of genuine devices that they had in the US onto the product, was covered under warranty, and then they got the associates to basically give them or ship them a new product and that

happened mainly in China and what the prosecutors alleged, the size of it, that there were 16,000 different counterfeit items basically handed in and genuine products come back and twelve point three million dollars in losses were incurred.

Shabbir (11:00)
my god. So I remember when we covered this, and there was an arrest because we covered the indictment. I think

there was somebody

Sven (11:06)
Mm-hmm.

Shabbir (11:07)
arrested around May in 2024, and we were wondering how this is going to turn out. I'm actually surprised that this is a very similar story to the fake Rolexes being serviced by the Rolex dealer. We you had somebody cap carrying in a f a counterfeit Apple device to an Apple store, and the Apple store did not recognize it and

gave them a giant pile of money and they did it sixteen thousand times.

Sven (11:34)
That's basically it. And the indictment is is really detailed and folks should read it. Where it describes the the extent to this went through. They they did counterfeit iPads and the iPads, because they returned them as like, hey, this device isn't working, they didn't even try to always produce working devices. They may filled them with metal weights, made them look and feel authentic. But the trick was that the serial number was genuine. So they got genuine serial numbers.

From the United States, so there was probably also a benefit of it from coming from another country. And that allowed them to then exchange these worthless counterfeits for genuine products. So slightly different than the Rolex, because the fake, super fake Rolexes, they work, they look super real. People report that they still very nice watches, they're just not Rolex. Because these were basically iPad bricks that are not even iPads, but the identification number.

allowed it to then be exchanged. And so that's a good example when oftentimes we talk about a serial number or security feature, you name it. Will that solve it? Well it doesn't always solve it because you gotta make sure that you have it built in a system where you can really authenticate it. And clearly here, it wasn't able to be authenticated sixteen thousand times.

Shabbir (12:54)
okay, so I I gotta ask how let's say you come up with a scheme where you have a partner in China that managed to find manages to find under warranty serial numbers and then produce perfect, nearly perfect looking iPads with weights that don't turn on, right? So you walk

in and say,

Sven (13:11)
Uh-huh.

Shabbir (13:11)
My my i my brand new iPad is bricked. How do you get away with that for 10 years? How do you how do you operate at that kind of scale without being stopped? Because I would think

Within six months somebody would figure out that one of them is a complete and utter fake with just lead weights instead of circuitry in it,

Sven (13:28)
Agreed.

Shabbir (13:30)
and then put an alert out to every store that says, you know, you have to crack this open before you can give their money back.

Sven (13:37)
Well, but but probably worked in their advantage how massive Apple is and how giant China is, right? So they just did it by saying we're gonna go really, really big. So employees started there's some stores that reported that employees had suspicions, but the defendants basically did it by they used a aliases, so they used fake names, they rented mailboxes, they went out throughout different stores. there was one employee actually.

That rejected an iPad because the Apple logo reflected light differently. There's another employee that reported that he started to become suspicious of an individual because he noticed him multiple times in the store. That defendant then also reported that he visited 10 different Apple stores in a single day, attempting 14 exchanges. And so that was a coordinated effort to basically go to as many Apple stores as you can across Southern California. and

you just use the sheer size of Apple. Like in Columbus where I live, we have three Apple stores, right? In California, there's probably twenty, thirty Apple stores. So you can run it. You run it with fifty different people and you you just make it appear as random as possible. But yes, after a while they started to catch on and now came the purchases and the the test buys and starting to dismantle it.

Shabbir (14:53)
I mean, the few times I have walked into an Apple store, there is and if I look even the least bit puzzled, there is an Apple store employee right on me asking me if I need something. And

Sven (15:03)
Yeah.

Shabbir (15:04)
if I were to hand them a bricked iPad, I'm sure they would run off in the back and see what they could do to refund my money. my God. so

I still don't understand how it went on for ten years though. I feel like someone was asleep at the wheel at some point. not not checking return hardware to see if it was real. Something like that. It it may have also been hard to find, right? Like you get this return hardware.

Sven (15:25)
And again Right, and the entire the entire scheme

wasn't the entire scheme wasn't ten years because investigate further the conviction and prosecution, so there was time there. But yes, they ran it for a couple of years, one hundred percent.

Shabbir (15:38)
Wow. So I mean that's a lot of money. It's like sixteen million dollars now that we've got now

Sven (15:44)
Uh-huh.

Shabbir (15:45)
that we've got a plea bargain and there's a sentencing, what's happening to the defendants and do we is there any statement about recovering this money? Because that is a lot of money.

Sven (15:54)
Yeah.

So the amazing thing actually is the following. when the case was brought, the indictment said twelve point three million dollars in charges, but the case they they gave him sixteen point nine million restitution. So it was more restitution than they even claimed in the claimed in the indictment. So one individual, Lynn, pleaded guilty to conspiracy to commit wire fraud. There's wire fraud again and mail fraud, always a very good charge to have, and received a sentence of time served.

Followed by three years of supervised release, including 18 months, and the court ordered them to pay more than 16.2 million dollars to Apple. However, however, the judge specifically found that Lynn's financial circumstances, I'm quoting, didn't permit immediate or future payment of the full amount. The order requires an additional $100,000 payment within 90 days, followed by payments tied to income. So

We can run the math, but $100,000 to restitute $16.2 million might take a moment. so there's a there's a big difference between getting the the judgment and actually collecting on it. I I find it unlikely that Apple will collect all of it,

or

Shabbir (17:07)
Yeah.

Sven (17:07)
most of it, but it it certainly is a large degree for these cases that you do them A, you make them stop, plus it's intended as a deterrent to say, do not mess with my trademark.

Shabbir (17:19)
Yeah. I mean, interestingly, if it had been if they if they were to file a civil Lanham

Sven (17:23)
Five us.

Shabbir (17:24)
Act trademark infringement case, they would get an enormous number of additional penalties, right? I was just thinking about what does it mean to have to do the paperwork to prepare

Sven (17:34)
But

Shabbir (17:35)
and prove that you have been handed thousands of counterfeit devices with your trademark on them. That alone, if you were to compute that, like even at a hundred dollars an hour.

For sixteen million or twelve million dollars worth of fake devices, that would have taken a long time. That alone, plus the attorney's fees that you would need for the Lanham Act case, it's a lot of it would be a lot more money. But

Sven (17:57)
Yes.

Shabbir (17:57)
yes, money probably exited the initial conspirators and is not available to them anymore.

Sven (18:06)
Well it might sit in China, like it might still be technically available to them, but it's overseas and I can't just, you know, randomly seize a Chinese bank account. So yeah, no, I don't I don't think Apple will see all of it, but good win for them, good case, good investigation. crazy scheme, and crazy it ran as long as it did.

Shabbir (18:23)
Sven, what is a brand protection expert who is not someone who was defrauded for years and years and years by someone bringing in fake lead filled devices learned from this?

Sven (18:34)
a a lot of it what comes down to for me for is is your IT. It actually goes similar to the US Postal Service case. The fact that I can defraud a number, that I can f defraud a serial number on a postage label, or I can defraud a serial number on a on a on a Apple case, I can always make the number fake, look fake, look real, copy a real number, that exists. The systems need to be built in a way that you have

some.

form of two-factor authentication, something that allows you to check it against a real database and say, no, this really makes sense. This product, this this item number corresponds with this item number. it is it is making a multi-layer system of security features that allows that. And then lastly building good policies such as when you have returns, there can be a Apple has

pretty short return period at this point because I think they're trying to combat that as well. and then additional policies of is there a holding period, like I will not send you a replacement device until two weeks because I need to really test it. various other places stop taking returns for certain things. So you you can you can hedge against it. But I think the biggest piece is really making sure that as they saw these fake devices coming in.

'Cause they were coming probably into a repair center, and I open them up and I'm like, wait, that's that that's not a real thing. You gotta way faster work into the system. partially of what I think might might have happened there, this will sound horrible and I don't want to make make Apple feel bad. Apple is a how many billion dollar company, right?

Shabbir (20:11)
Yeah.

Sven (20:13)
Sixteen million is a lot, there's no doubt about it. sixteen million over ten years for Apple, it's probably not even what the fuel of their corporate jets.

Uses right. So it's just it's the scale, the scale of the size of how much resources do I put against it. Yes, for an individual who commits the crime, that's massive. For you as a company, it's 0.001% of your revenue. It's a it's a nuisance that probably really upset the brand protection director for a while to figure out how do I stop this. But do I make a company-wide massive investment to change it? That's all that's always the struggle. now, what always changes the

calculation in that, if there's human health involved. So like a lot of the folks

Shabbir (20:52)
Mm.

Sven (20:53)
you work with, yeah, the moment this would happen in a pharmaceutical space or something where no no people will get hurt. Yes, companies will act much larger. This is one of those where like it it's it's it's really annoying, but it's technically a rounding air for Apple. I it's not a short answer. Unfortunately there's not an easy answer, but more sophisticated layered systems and figuring out

Which company resource to deploy against?

Shabbir (21:19)
And I think what I learned from this is that the policies Apple has in three things. The policies Apple has in place for returns are not thorough enough in their vetting, that their return infrastructure is not studying the products well enough when they come

Sven (21:39)
Mm-hmm.

Shabbir (21:39)
back to see if they're being defrauded. And the third I would say is that.

At least at the time of the crime, there were no easy to understand secondary packaging or on device anti-counterfeiting marks that an Apple employee could check. Or

Sven (22:00)
I guess.

Shabbir (22:01)
if they were, if there are, they don't know about it or weren't checking. Right? If there's like some sort of hidden ink writing or a special series of dots or some steganography or anything else on the device.

besides a serial number that would tell you that it's valid, the Apple employees either didn't exist or the Apple employees didn't know it existed or didn't check it. and that that's actually quite disturbing to think about is that like all it takes is a serial number and and someone to walk in and you you've got yourself basically a a fake refund.

Sven (22:37)
No, and and to your point, it now always comes back down to having worked in that world, and I know this it it'll sound you're like, let's just put a mark on. You then as the brand protection director go through the corporation, you're like, hey, I need whatever the money is, five, ten million dollars to implement that system into the company. And the company will say, You're trying to spend ten million dollars to offset what? And he will say, I'm trying to spend ten million dollars to offset a two million dollar loss. And they're Yeah, we're not spending ten million dollars to offset a two million dollar loss, right? So

Shabbir (23:06)
Yeah.

Sven (23:06)
It it it's those pieces. They're unfortunately not easier. In in a previous employer I had, our products were returned en masse as counterfeit to Costco. we couldn't fix it. We actually had a tech solution in place to fix it, which cost many, many, many millions. And our solution was we told Costco you're not allowed to accept returns anymore. So we fixed it through policy versus technology. Because that's always the trade-off, right? What's your ROI on

Yeah, put a twenty million dollar solution in place for a five million dollar problem.

Tricky.

Shabbir (23:38)
Yeah.

I mean, I think with if if you were to get a return for a brand new device still under warranty, there's a customer sub there's a customer happiness problem, right? This brand new

Sven (23:49)
Mm-hmm.

Shabbir (23:50)
thing I just bought. You want to make them happy. Maybe though you need to take a picture of the driver's license. Maybe there's a variety of ways you need to authenticate it if you can't check it on the spot that you need to know that you can find that person later. But yeah, this this was

This they they really found a hole and drove a truck through it.

Sven (24:10)
And and I and to to your to your point, again, because this case started ten years ago, the last Apple product I returned, it did seem tighter. Like it was and I was returning I think a phone case, it's something not significant. I had to have a the receipt of the store I had, it had to be tied to my Apple account. Like it was really the no, this is the product I bought, it's my product, you saw I bought it, all of all of so they might have put all of the policy solutions around in place where you now really

link no this device. I'm linking this to Sven. I know you bought it and so you can return it. Not hey, here's a random device I found I wanted to return. so a lot of this might have been fixed. But yes, certainly a large case. Good job by Apple for bringing it to to justice and stopping it. But certainly certainly a large case.

Shabbir (24:59)
Yeah. The last thing I want to talk about, and not in great detail, is that Health Canada has put out an alert advising med spas and medical practices in the country about avoiding counterfeit laser hair removal devices. And I I just want to say, in the world of health and safety,

Someone's like fake knockoff laser that might be used near my very, very sensitive skin is i it is actually is in some ways wor I mean it it's not worse for my health than counterfeit medicine, but it makes me more squeamish.

Sven (25:35)
i i yeah, i it was it was a very, very strange one. And and again for this one it was the the way it looked to me like they weren't actually counterfeiting the devices. They were just selling a product that wasn't even close to it, but where they're copying the credentials that the buyer relied

Shabbir (25:50)
Hell.

Sven (25:51)
on it to establish the trust, right? So it comes again, it was defrauding the actual check mechanism that was intended to check against counterfeits. So a a crazy one. And a a clinic might have had best intentions.

But if they didn't

Shabbir (26:04)
Yeah.

Sven (26:04)
really verify it, they ended up with something that they thought was genuine, but was not.

Shabbir (26:09)
Yeah, the alert says the manufacturer

has confirmed that they're counterfeit. And I don't think that the Canadian Med Spa and Aesthetic Physician Practice are big listeners to Imitation Nation.

Sven (26:18)
The teacher.

Shabbir (26:19)
So I don't know that we're actually gonna reach anyone who buys these things. But I'll just say it that it never ends. There are counterfeits of everything. And this is one that I don't want anywhere near my body.

Sven (26:32)
No. A and a the other piece is it kind of shows you that

Whoever thinks that my product would never be counterfeited, don't be sure. If it's a market that's large enough, it will get counterfeited, it will get defrauded. And I think every company is well advised, even if you're small, be aware if it exists, be aware of resellers. Like I run another company on the side as well. We always check for folks that all of that we have resellers pop up. We're like, I don't think I authorized you as a reseller. I don't think I ever sold anywhere. Like, where do you get your product from? So just

Be very aware of what goes on in the marketplace because people will try to take advantage of you.

Shabbir (27:13)
All right, well that's it for Invitation Nation on this holiday day. Hopefully our lack of makeup and hair staff did not affect your appreciation of the episode. Sven, I hope you have a

Sven (27:22)
Very good.

Shabbir (27:23)
good week traveling with your daughter and being the proud admiring dad that you I know you are.

Sven (27:29)
Well, thank you so much, and I will see you in a week. And with that, Shabbir read us out.

 

In this episode, we explore the latest developments in counterfeit pill presses, vinyl records, and counterfeit products, highlighting law enforcement efforts, legislative updates, and the importance of industry collaboration.

 

Transcript:

 

00:00:00:03 - 00:00:23:03
Speaker 1
So in South Carolina, this guy walks into a Dollar General with counterfeit bills like bleached tens that they printed 50s on, and he tries to give them to the cashier to load them on to like an app for like a card. And the cashier looks at them, realizes they're fake, and says, I cannot accept these. And so guess what?

00:00:23:05 - 00:00:25:07
Speaker 1
Guess what? The guy says to the cashier.

00:00:25:08 - 00:00:26:22
Speaker 2
I don't know.

00:00:27:00 - 00:00:30:14
Speaker 1
Can I have those back?

00:00:30:16 - 00:00:43:19
Speaker 1
And the Dollar General cashier, who's probably seen everything because they're a Dollar General cashier, is like, no. And the guy goes to his car and and he's driving to Audie. One of the other employees walks out and takes a picture of the car and the license plate as he.

00:00:43:19 - 00:00:50:14
Speaker 2
Drives away. Yeah, it's not always the brightest bulbs that that do this. That's funny.

00:00:50:15 - 00:00:58:11
Unknown
The Imitation Nation podcast covers all things counterfeit, hosted by Shabbir Amber Schaffner of the partnership for Safe Medicines and Sven Bergmann of Venture Global.

00:00:58:16 - 00:01:06:15
Speaker 1
All right, Sven, welcome back to Imitation Nation number 38. And one of my favorite topics is the first story. Guess what that is?

00:01:06:17 - 00:01:13:05
Speaker 2
Well, it's normally counterfeit money, but I don't think that's our first story. So peel presses.

00:01:13:07 - 00:01:14:14
Speaker 1
Is all Bill presents.

00:01:14:18 - 00:01:15:20
Speaker 2
So I thought.

00:01:15:22 - 00:01:46:10
Speaker 1
So often when you see someone who a law enforcement agency that has raided and playing this in drug lab, there's often a pill press in that drug lab, right? And sometimes it's made by a company called Elephant Machines. And LFA machines is one of the biggest, well, most well-known makers of pill presses in the world. And three of their longtime employees and executives just got indicted for six counts.

00:01:46:12 - 00:02:07:07
Speaker 1
Wow. As well as the company itself. They haven't been tried yet. They've just been indicted and I think arrested. So all of this, all of these accusations by the Department of Justice are alleged. But basically they said that they were knowingly selling pill presses to people that they knew were going to make counterfeit, controlled substance pills.

00:02:07:08 - 00:02:10:16
Speaker 2
Wow. That is incredible.

00:02:10:18 - 00:02:32:18
Speaker 1
This investigation has been going since 2019, and it was led by DEA Tucson in Arizona, which is also where the current administrator of the DEA, Shari Oz, was. She was a special agent in charge in Arizona of one of the officers. So that is. Yeah, good friend of ours. Good, good friend of of protecting Americans from fake pills.

00:02:32:18 - 00:02:50:18
Speaker 1
She has seen everything. Yeah. So they were due in court last week on the 23rd. I don't remember what I was doing that day, but I was not paying attention to it. And the DOJ has been very clear that they have recovered their machines from clandestine drug labs all over the world.

00:02:50:23 - 00:03:16:06
Speaker 2
Wow. And okay, that's you don't have any speechless often, but because you and I have talked about pill presses a lot. Right. And so normally it's the like, oh, yeah, those are some makers in China. And, you know, they're hard to get. That's the first like executives, which I believe are U.S. executives. So what exactly is the government alleging they did that led to this indictment and arrest?

00:03:16:07 - 00:03:38:15
Speaker 1
So there's not a lot of detail in the complaint. But if you look at it, they talk about that LFA had a do not sell to list and that somehow they can even though they discussed people that should not be sold to, they still sold the machines. They also site. And I'm not sure that this is as on on his easy legal ground.

00:03:38:15 - 00:04:01:11
Speaker 1
But they talk about how the firm a press powder that they sell, which is what you use. You mix in your active ingredient with the powder. And the powder, when it's in, a machine binds together and holds together to make a pill. They talk about how it comes in these colors that just mysteriously and perfectly mimic the counterfeit controlled substances and criminals like to make.

00:04:01:12 - 00:04:28:21
Speaker 1
And we don't know a lot of the details, but the agent who who signed the complaint said that he saw multiple covert, controlled purchases of tablet machines and powder being sold to people that the defendants had talked about or placed on the do not sell to list. So there's clearly more story there, and LFA has not had a chance to respond obviously to this, which they're going to want to do, and they have the right to.

00:04:28:21 - 00:04:31:21
Speaker 1
But that's that's what they accused him of.

00:04:31:23 - 00:04:52:22
Speaker 2
Okay. That that's that's that's really bad. You know, we often talk about that people should do a good know your customer. And that's step one. When you then do know your customer and you put people on a those are not good people do not sell to and then you still sell to them. You're creating your own evidence against yourself.

00:04:52:22 - 00:05:08:12
Speaker 2
So what's really interesting apparently with this, this evidence, the government also what I read has filed a post indictment restraining order. Never heard of that before. What is that? So it turns out.

00:05:08:14 - 00:05:34:17
Speaker 1
That the LFA is owned by a larger conglomerate of companies that are all in this space, and apparently the parent company is having some cash flow issues. They own a lot of other companies like LFA. LFA is just the biggest one, but the government has asserted that they are struggling financially and that they have defaulted on some loans in the range of millions of dollars.

00:05:34:17 - 00:05:50:07
Speaker 1
And I think the government is worried that will sell the assets of LFA, and there will be nothing left to pay the the penalties, forfeiture and restitution that the government thinks they're going to get out of this, out of this case.

00:05:50:09 - 00:06:07:04
Speaker 2
That is that is interesting. Yeah. And, you know, it'll be God, I can't wait to see all the court documents and where it goes. But Deb might have been part of it, where if you're in financial straits and you're like, I need to make money. These people are technically do not sell this. But, you know, money is always green.

00:06:07:04 - 00:06:17:02
Speaker 2
And obviously the powder seller's blue. But okay, so what's your what's your what's your take on the case and who do we who do we think for this. Like who was involved.

00:06:17:04 - 00:06:34:15
Speaker 1
So and I just want to say again that this is just an indictment. And I think there were arrests. But LFA has not had a chance to respond. And they may have a very different take on this, but I don't think that the government would have assembled seven years of evidence and then brought an indictment unless they thought it was pretty solid.

00:06:34:16 - 00:07:03:06
Speaker 1
That's that's not how the feds operate. They like to go in with overwhelming proof of what they have to say. I can't believe that we won't. I don't have any exact proof that that DEA administrator Oz Shari Oz worked on this, but this is the kind of passionate work that I think she would have done. The DOJ specifically cited Homeland Security Task Force in the state called HSF Arizona, which is not an acronym I heard.

00:07:03:07 - 00:07:22:20
Speaker 1
But they did also thank the High Intensity Drug Trafficking Area group hideout, which is which is something we're familiar with. And all this comes out of DEA Tucson. So if you are listening and you're an agent and DEA Tucson and you worked on this case, we're not ever going to name you, but we're going to thank you. So so we'll give you our thank you.

00:07:22:20 - 00:07:44:02
Speaker 1
And then the list of agencies that contribute to this is insane. It's the IRS, the ATF, Customs and Border Protection, the FBI, sheriffs and local police. Hilariously, of course, not surprisingly, the Postal Service inspectors. You never want to get on the wrong side of leave it or not, the Bureau of Land Management, which I wasn't expecting to see.

00:07:44:02 - 00:08:00:20
Speaker 1
And of course, finally, the Secret Service and that one I haven't figured out for sure the Secret Service currency and presidential protection. There must be something else here. I'm not aware of that they that they cover, but the Secret Service apparently was thanked as one of the entities.

00:08:00:22 - 00:08:24:22
Speaker 2
Wow. No, that's that's that's fantastic. That was a huge task force. To your point, seven years in the in the making. I think, you know, whenever I talk to folks that that one faster enforcement and go like, oh, you know can can't the government or cops basically just work faster and for folks to really understand. No, it takes a really long time to build a good case, especially a case like this.

00:08:24:22 - 00:08:51:07
Speaker 2
When you go after a US company, you go after top executives. You got to be sure you build in a way, and for them to build it with all the parts in their postal service, making sure we're seeing our shift. IRS obviously money movements put the locals in. Yeah, Secret Service would be interesting, I wonder I wonder what that's about, but kind of pull everybody in, make sure everybody is there with all the all working together, everybody pulling, pulling their authority together.

00:08:51:07 - 00:08:59:18
Speaker 2
So I'm sure we have a trove of documents. Right? We have them on our website or where do we have to and what can people where can people see those documents.

00:08:59:20 - 00:09:09:13
Speaker 1
So we'll they'll be in the show notes, the press release, the indictment, the restraining order and the affidavit from the agent involved will all be linked in our show notes.

00:09:09:19 - 00:09:20:06
Speaker 2
Very good. Well, and the last thing is, I know from my team, I was told this is not the only big thing that happened in process. There's something else that is happening on process right now, right?

00:09:20:07 - 00:09:46:00
Speaker 1
Yes. And indeed it is your team. Your team is monitoring congressional legislation on pill presses and told me that the the Stop Pills That Kill Act, which are 8005, passed the house. It requires all pill presses and many of the parts to carry serial numbers and creates a new crime of removing those numbers. PSM my my organization that you and I both work for endorsed it.

00:09:46:00 - 00:10:00:23
Speaker 1
And you know, I'm hoping to see what we can do to see if we can get it passed through the Senate. It is a little late in the year. Basically, at this point it's going to have to get passed in lame duck, or it's going to have to wait for the next Congress to take to take their seats.

00:10:00:23 - 00:10:10:05
Speaker 1
But this is more progress than I think we've seen than in the pill press legislation, than at any other time in the history that I've been watching it for seven years.

00:10:10:06 - 00:10:30:07
Speaker 2
Yeah, 100%. And the nice thing about this bill is it has bipartisan support. It was it was broadly passed through through the House. A separate version, very similar, was previously passed through the Senate. I'm sure they'll find a way to reconcile it to make sure that it passes. So lame duck will be will be a nice nice clean up to to hopefully for them to to get to it.

00:10:30:07 - 00:10:32:23
Speaker 2
So good news on pill presses I like it.

00:10:33:04 - 00:10:42:00
Speaker 1
And my kudos to your federal affairs team staff. They they they know I love them, but I love that they watch they watch stuff like this.

00:10:42:02 - 00:10:49:13
Speaker 2
Yeah, there's there's a lot to watch. All right.

00:10:49:15 - 00:10:52:17
Speaker 1
So tell me about what's what's happening in LA.

00:10:52:19 - 00:11:20:17
Speaker 2
So I got a really interesting story. It's a it's a massive seizure that happened in California. Let me set it up a little bit. So the Los Angeles County Sheriff's Department worked together with the Department of Homeland Security and Homeland Security Investigations, many other partners, federal and local, and they announced the seizure of nearly 26,000 counterfeit products with an estimated retail value of $10 million from a warehouse.

00:11:20:17 - 00:11:21:03
Speaker 1
And a lot.

00:11:21:03 - 00:11:40:15
Speaker 2
Of shoes. That's that's a lot of items from a warehouse in Arcadia, California. And the products, as you said, included counterfeit Nike's Adidas Fear of God essentials, which I don't know what their brand is, but it sounds like a really cool apparel brand and other luxury streetwear and footwear. So a massive seizure.

00:11:40:17 - 00:11:48:15
Speaker 1
So what is different about this raid? I don't want to. I don't want to minimize it. I think these things probably happen all the time. But why did this one catch your eye?

00:11:48:17 - 00:12:15:06
Speaker 2
It caught my eye. Not because it was just a raid. It did two things for me a the sheer size, like $10 million in a single raid in a warehouse in the United States, again, this big. But when you look into the case and it's how investigators got there, right? So it started out when CBP started to intercept some shipments that were destined for California Port of entries, and when they started to seize them, they started to.

00:12:15:07 - 00:12:41:15
Speaker 2
Now it comes back down to really good investigative work. They looked at all the shipping documents and they said, What is common here? And they started to notice that it's the same consignor. It's the same warehouse in Arcadia. These keep going to and they said, let's start tracking these. And instead of just, you know, seizing one pair of of shoes, they started to build the case and started to track the shipments, develop probable cause.

00:12:41:16 - 00:12:47:03
Speaker 2
And then, when it was big enough, obtained a search warrant and executed the raid.

00:12:47:05 - 00:12:55:12
Speaker 1
So they really this wasn't a warehouse raid. This they basically dismantled a counterfeiting import and distribution operation.

00:12:55:12 - 00:13:15:12
Speaker 2
That's exactly it. And again, this comes down to like when folks sometimes say, oh, you know, just see stuff at the border. And that's the end of an investigation. No, most of the time that's just the beginning. Right. As you and I know, every shipment has paperwork, every shipment has a destination, and every shipment has people that, you know, wait for it on the one side and people that shipped it.

00:13:15:15 - 00:13:46:10
Speaker 2
The more and more that can be put together as a case, the more and more you can get info to identify what it is. Which, by the way, quick plug here for the bill on information sharing, which is also in Congress. And hopefully you make it in the in the lame duck session. And that's exactly it. When you have all of these documents, investigators then can use those data points to identify importers, warehouses, distributors and hopefully ideally the criminal organization behind it really building the case, right.

00:13:46:12 - 00:13:47:03
Speaker 2
Yeah.

00:13:47:04 - 00:13:51:01
Speaker 1
So I'm assuming that this wasn't just LA County sheriff. This was.

00:13:51:02 - 00:14:12:20
Speaker 2
It was it was not just well, it was LA County sheriff, but LA County sheriff's has not a big surprise since since LA, but has a dedicated unit, which is the LA County Sheriff's Department Counterfeit and piracy enforcement team. Plus they work together. Yeah, of course it's Los Angeles. They have to. And they're also worked together with Homeland Security Investigations and Customs.

00:14:12:20 - 00:14:27:21
Speaker 2
And so a nice big a task force and then a specialized unit that Los Angeles County has for counterfeit and piracy, which given that there's a lot of fashion and a lot of movie industry in Los Angeles, a very natural development.

00:14:27:23 - 00:14:35:23
Speaker 1
I don't know of another operation like that. Like what? What is how active is this L.A. County sheriff? Anti-Counterfeiting.

00:14:36:01 - 00:14:58:19
Speaker 2
So they're very active. And to your point, there is not a lot, actually. Phoenix what we just talked about, Phoenix says something similar is called the best team. They do something very similar. Larger metros sometimes have specialized teams. But this team in Los Angeles is is particularly active. They have served over the last year, roughly 25 search warrants and recovered roughly 200,000 counterfeit products.

00:14:58:19 - 00:15:10:00
Speaker 2
So they are very active. It's not isolated and they're clearly doing a really good, good job in in building nice large cases that really can be brought to to justice.

00:15:10:02 - 00:15:15:11
Speaker 1
All right. So if you're a brand owner, what is the takeaway here from this operation.

00:15:15:14 - 00:15:37:12
Speaker 2
It it reinforces a lot of the things we often talk about. Right. Don't just focus on the seizure. Focus on really providing and working with investigators to build really good investigations as seizures. Just the first interception, the paperwork, study and logistics are needed, helping to identify warehouses and ultimately work their way to the people that are running this.

00:15:37:12 - 00:16:01:06
Speaker 2
And so again, I want to quickly put a plug here. Our good friend Travis Johnson, who we have had on a previous part, is, together with many others, working very diligently to pass a bill in Congress that actually would make sure that customs can share exactly all the info we just described about the shipping manifests, the shipping documents, the labels, etc. with brand owners.

00:16:01:06 - 00:16:22:14
Speaker 2
So de, together with law enforcement can build that case. And that bill also has been passed through through the House. It is sitting on the floor of the Senate again with precious time in the Senate. I know lots of fingers and toes crossed. It would be tremendous to do because as both of our first stories show, it's so hard to build a really, really good case.

00:16:22:14 - 00:16:33:09
Speaker 2
And the more we can share info between law enforcement, private industry that really makes sure we can get to the big players behind the seizure. That for me is really the big the big takeaway.

00:16:33:11 - 00:16:48:17
Speaker 1
Awesome. All right. Well, Travis, we are with you in spirit. And also I endorsed your bill, so I am with you. I am with you. My signatures on your dotted line. That's right.

00:16:48:19 - 00:17:01:15
Speaker 1
All right. So I want to talk about the resurgence of vinyl records, which have had a real, I think, ever since Pearl jam did that album they released as vinyl.

00:17:01:15 - 00:17:33:15
Speaker 1
We've seen a huge explosion in people listening to vinyl, buying vinyl, and, not surprisingly, counterfeit vinyls, of course. So in Britain, there was just a really good article in The Guardian about a gentleman who ran a vinyl record counterfeiting operation. It's been running for nine years, they said, since 2017. Wow. He just pleaded guilty to two charges of breach of copyright and acquiring and using criminal property, which is not in charge.

00:17:33:15 - 00:17:59:09
Speaker 1
I think this is familiar to me in the States. He was guilty, Gilchrist. He pled guilty on both counts, and he got two years and eight months. Okay. And then I think three and a half years for the second charge. So he's going to serve those concurrently. He's going to be in jail for three and a half years for counterfeit vinyl records, which I suppose if you're a collector, you probably think is probably pretty good because you cut off, I guess.

00:17:59:10 - 00:18:02:03
Speaker 1
So this wasn't a by the way.

00:18:02:06 - 00:18:09:08
Speaker 2
Was not. So what did you bootleg? How many, how many, how many LPs has he done? And like which artist like what has he done?

00:18:09:12 - 00:18:31:12
Speaker 1
So when they raided his warehouse and he, he was selling out of his warehouse on eBay and Discogs, if you're if you have a friend who's a vinyl nerd, they've probably talked to you about always looking for new records on Discogs, which is a big vinyl trading marketplace and sale marketplace. When they raided this warehouse, they raided, they picked up 15,000 records.

00:18:31:12 - 00:18:32:16
Speaker 2
Wow.

00:18:32:18 - 00:18:36:11
Speaker 1
Yeah, it is not small.

00:18:36:13 - 00:18:44:03
Speaker 2
So was he was he just faking like. Because last time we talked about, like, how did it do it? Do you just buy and then put fake labels on. How did he. How did he do it.

00:18:44:06 - 00:19:05:08
Speaker 1
So he pretty much did everything I think except print the labels. He was he was pirating first new release records. Right. It's one thing, I suppose. Probably still not legal. There's one thing to, like, find a bootleg recording of. I'm just going to use a Grateful Dead as an example Grateful Dead show, and then turn it into a vinyl record that you release.

00:19:05:09 - 00:19:27:11
Speaker 1
He was pirating first run brand new releases by like, Taylor Swift and other major artists. And it was something where like the, the, the folks say they were very surprised by the whole thing because he wasn't he didn't use like a mastering a piece of equipment. So I don't know how he was making it, but he was not doing it in the traditional way that they were expecting.

00:19:27:11 - 00:19:30:09
Speaker 1
But he made a lot, quite, quite a lot.

00:19:30:12 - 00:19:51:13
Speaker 2
And and you're right, as we talked before. Right. My kids are also, you know, they're they're 17. 19. They're huge into vinyl. And so it's actually funny when you say this. And then when you brought me the story and I looked at it and I looked at the pictures of the seizure, and I saw some of the broken vinyl records that were there that didn't work well in production.

00:19:51:13 - 00:20:11:11
Speaker 2
And when I saw these, like he's doing, as you say, he's doing the first runs and he's doing like special collection kind of pieces. So like, for example, Taylor Swift, my kids, they have a lot of her special vinyls that are like pink or red or certain special colors. And so he then fakes the color and all of that and makes these like special runs.

00:20:11:11 - 00:20:37:17
Speaker 2
And it's it's tremendous for the story. So to look at how big it's gotten. And in 2025, according to the data I saw, there's about $1 billion worth of vinyl that's being sold like, that's huge, $1 billion in vinyls being sold. And, you know, as you said, for this guy, he didn't just do the label, he got the actual vinyl pressing machine.

00:20:37:18 - 00:20:59:06
Speaker 2
Don't know to your point how he copied the master, how good the quality was. And it's and it's and it's tremendous. And the other thing that that this let us down, I looked at how often this has happened in the UK alone. They have executed 43 search warrants against fake vinyl and CD bugler operations, with a street value of about 8 million pounds.

00:20:59:06 - 00:21:04:10
Speaker 2
It's about 10 million USD. So it's big business.

00:21:04:12 - 00:21:23:09
Speaker 1
Yeah, he he was so prolific that apparently after the raid, the the the British Phonographic Industry, which is an incredibly great retro name. Yeah. For what's probably the vinyl trade association over there, the rights, the rights organization, they had to contract 100 contact 108 different artists.

00:21:23:10 - 00:21:24:14
Speaker 2
Wow.

00:21:24:16 - 00:21:35:13
Speaker 1
To sort of confirm that he wasn't authorized, you know, to to to press records for them. So he was he was not he would he did not have a niche. He was doing everything.

00:21:35:15 - 00:21:53:19
Speaker 2
And he wasn't messing. He wasn't a messing about, you know, it's what an operation. It reminds me kind of of the what does it catch me, if you can, with, with Leonardo DiCaprio when he has that big printing machine for the fake checks and all that, you know, go big or go home like, he sure went big so well.

00:21:53:19 - 00:22:06:12
Speaker 1
So the BPI said that there are ten other active counterfeiting operations that they're monitoring in the UK right now. So this is probably not the last of these incidences we're going to see.

00:22:06:14 - 00:22:12:01
Speaker 2
I can't wait to see the next nine.

00:22:12:03 - 00:22:29:21
Speaker 1
So I don't have a whole big story on fake money, which you know, along with stamps is one of my favorite topics and pill presses. But I will say that there's a lot of little incidences all over the news, all over the country, in the US this week about people passing fake money in casinos, which I don't know.

00:22:29:23 - 00:22:42:08
Speaker 1
Let me just let me give you some free advice on your crime. Don't pass fake money at a casino. They look at bills all day. It's not going to make it unless you have a super fake you're done.

00:22:42:10 - 00:22:51:21
Speaker 2
Or to or to a judge or obviously or bill or the third one we can add to story you're about to cover. Don't do that either.

00:22:51:23 - 00:23:14:02
Speaker 1
So in New York, in North Manheim Township, some dude was went to a Dollar General to load a chime card, which I guess is a cash value card with money with six fake 20s and two real fives. And and they kept that. So it's, it's it's happening all over. You know, we'll bring you a full story when we get like a really big story about it.

00:23:14:02 - 00:23:23:15
Speaker 1
But, you know, continue as a normal person or as a small business owner to be wary of fake currency, because there's a lot of people out there trying to pass it on to you.

00:23:23:17 - 00:23:34:17
Speaker 2
Very good, very, very good advice. If if you know, don't don't give counterfeit money to judges, bail money. And when somebody discovers his fake money, don't ask back for it. Got it.

00:23:34:18 - 00:23:38:14
Speaker 1
They're not going to give it back to you if they're doing their job. All right. Thank you. Sven,

00:23:38:19 - 00:23:42:21
Speaker 2
All right. Fantastic. Nice talking to you and Shabbir. Read us out.

00:23:42:23 - 00:23:48:05
Unknown
The Imitation Nation podcast is a production of Cost Stories and is the sole owner of this production.

00:23:48:05 - 00:23:51:03
Unknown
All statements are of their own and not the opinions of their employers.

00:23:51:07 - 00:23:56:01
Unknown
Podcast management by Sarah Imber Safdar after theme music written by Jonathan Boyle.

 

In this episode, we explore the latest developments in counterfeit pill presses, vinyl records, and counterfeit products, highlighting law enforcement efforts, legislative updates, and the importance of industry collaboration.

 

In this episode, we explore the latest developments in counterfeit pill presses, vinyl records, and counterfeit products, highlighting law enforcement efforts, legislative updates, and the importance of industry collaboration.

 

Transcript:

 

00:00:00:03 - 00:00:23:03
Speaker 1
So in South Carolina, this guy walks into a Dollar General with counterfeit bills like bleached tens that they printed 50s on, and he tries to give them to the cashier to load them on to like an app for like a card. And the cashier looks at them, realizes they're fake, and says, I cannot accept these. And so guess what?

00:00:23:05 - 00:00:25:07
Speaker 1
Guess what? The guy says to the cashier.

00:00:25:08 - 00:00:26:22
Speaker 2
I don't know.

00:00:27:00 - 00:00:30:14
Speaker 1
Can I have those back?

00:00:30:16 - 00:00:43:19
Speaker 1
And the Dollar General cashier, who's probably seen everything because they're a Dollar General cashier, is like, no. And the guy goes to his car and and he's driving to Audie. One of the other employees walks out and takes a picture of the car and the license plate as he.

00:00:43:19 - 00:00:50:14
Speaker 2
Drives away. Yeah, it's not always the brightest bulbs that that do this. That's funny.

00:00:50:15 - 00:00:58:11
Unknown
The Imitation Nation podcast covers all things counterfeit, hosted by Shabbir Amber Schaffner of the partnership for Safe Medicines and Sven Bergmann of Venture Global.

00:00:58:16 - 00:01:06:15
Speaker 1
All right, Sven, welcome back to Imitation Nation number 38. And one of my favorite topics is the first story. Guess what that is?

00:01:06:17 - 00:01:13:05
Speaker 2
Well, it's normally counterfeit money, but I don't think that's our first story. So peel presses.

00:01:13:07 - 00:01:14:14
Speaker 1
Is all Bill presents.

00:01:14:18 - 00:01:15:20
Speaker 2
So I thought.

00:01:15:22 - 00:01:46:10
Speaker 1
So often when you see someone who a law enforcement agency that has raided and playing this in drug lab, there's often a pill press in that drug lab, right? And sometimes it's made by a company called Elephant Machines. And LFA machines is one of the biggest, well, most well-known makers of pill presses in the world. And three of their longtime employees and executives just got indicted for six counts.

00:01:46:12 - 00:02:07:07
Speaker 1
Wow. As well as the company itself. They haven't been tried yet. They've just been indicted and I think arrested. So all of this, all of these accusations by the Department of Justice are alleged. But basically they said that they were knowingly selling pill presses to people that they knew were going to make counterfeit, controlled substance pills.

00:02:07:08 - 00:02:10:16
Speaker 2
Wow. That is incredible.

00:02:10:18 - 00:02:32:18
Speaker 1
This investigation has been going since 2019, and it was led by DEA Tucson in Arizona, which is also where the current administrator of the DEA, Shari Oz, was. She was a special agent in charge in Arizona of one of the officers. So that is. Yeah, good friend of ours. Good, good friend of of protecting Americans from fake pills.

00:02:32:18 - 00:02:50:18
Speaker 1
She has seen everything. Yeah. So they were due in court last week on the 23rd. I don't remember what I was doing that day, but I was not paying attention to it. And the DOJ has been very clear that they have recovered their machines from clandestine drug labs all over the world.

00:02:50:23 - 00:03:16:06
Speaker 2
Wow. And okay, that's you don't have any speechless often, but because you and I have talked about pill presses a lot. Right. And so normally it's the like, oh, yeah, those are some makers in China. And, you know, they're hard to get. That's the first like executives, which I believe are U.S. executives. So what exactly is the government alleging they did that led to this indictment and arrest?

00:03:16:07 - 00:03:38:15
Speaker 1
So there's not a lot of detail in the complaint. But if you look at it, they talk about that LFA had a do not sell to list and that somehow they can even though they discussed people that should not be sold to, they still sold the machines. They also site. And I'm not sure that this is as on on his easy legal ground.

00:03:38:15 - 00:04:01:11
Speaker 1
But they talk about how the firm a press powder that they sell, which is what you use. You mix in your active ingredient with the powder. And the powder, when it's in, a machine binds together and holds together to make a pill. They talk about how it comes in these colors that just mysteriously and perfectly mimic the counterfeit controlled substances and criminals like to make.

00:04:01:12 - 00:04:28:21
Speaker 1
And we don't know a lot of the details, but the agent who who signed the complaint said that he saw multiple covert, controlled purchases of tablet machines and powder being sold to people that the defendants had talked about or placed on the do not sell to list. So there's clearly more story there, and LFA has not had a chance to respond obviously to this, which they're going to want to do, and they have the right to.

00:04:28:21 - 00:04:31:21
Speaker 1
But that's that's what they accused him of.

00:04:31:23 - 00:04:52:22
Speaker 2
Okay. That that's that's that's really bad. You know, we often talk about that people should do a good know your customer. And that's step one. When you then do know your customer and you put people on a those are not good people do not sell to and then you still sell to them. You're creating your own evidence against yourself.

00:04:52:22 - 00:05:08:12
Speaker 2
So what's really interesting apparently with this, this evidence, the government also what I read has filed a post indictment restraining order. Never heard of that before. What is that? So it turns out.

00:05:08:14 - 00:05:34:17
Speaker 1
That the LFA is owned by a larger conglomerate of companies that are all in this space, and apparently the parent company is having some cash flow issues. They own a lot of other companies like LFA. LFA is just the biggest one, but the government has asserted that they are struggling financially and that they have defaulted on some loans in the range of millions of dollars.

00:05:34:17 - 00:05:50:07
Speaker 1
And I think the government is worried that will sell the assets of LFA, and there will be nothing left to pay the the penalties, forfeiture and restitution that the government thinks they're going to get out of this, out of this case.

00:05:50:09 - 00:06:07:04
Speaker 2
That is that is interesting. Yeah. And, you know, it'll be God, I can't wait to see all the court documents and where it goes. But Deb might have been part of it, where if you're in financial straits and you're like, I need to make money. These people are technically do not sell this. But, you know, money is always green.

00:06:07:04 - 00:06:17:02
Speaker 2
And obviously the powder seller's blue. But okay, so what's your what's your what's your take on the case and who do we who do we think for this. Like who was involved.

00:06:17:04 - 00:06:34:15
Speaker 1
So and I just want to say again that this is just an indictment. And I think there were arrests. But LFA has not had a chance to respond. And they may have a very different take on this, but I don't think that the government would have assembled seven years of evidence and then brought an indictment unless they thought it was pretty solid.

00:06:34:16 - 00:07:03:06
Speaker 1
That's that's not how the feds operate. They like to go in with overwhelming proof of what they have to say. I can't believe that we won't. I don't have any exact proof that that DEA administrator Oz Shari Oz worked on this, but this is the kind of passionate work that I think she would have done. The DOJ specifically cited Homeland Security Task Force in the state called HSF Arizona, which is not an acronym I heard.

00:07:03:07 - 00:07:22:20
Speaker 1
But they did also thank the High Intensity Drug Trafficking Area group hideout, which is which is something we're familiar with. And all this comes out of DEA Tucson. So if you are listening and you're an agent and DEA Tucson and you worked on this case, we're not ever going to name you, but we're going to thank you. So so we'll give you our thank you.

00:07:22:20 - 00:07:44:02
Speaker 1
And then the list of agencies that contribute to this is insane. It's the IRS, the ATF, Customs and Border Protection, the FBI, sheriffs and local police. Hilariously, of course, not surprisingly, the Postal Service inspectors. You never want to get on the wrong side of leave it or not, the Bureau of Land Management, which I wasn't expecting to see.

00:07:44:02 - 00:08:00:20
Speaker 1
And of course, finally, the Secret Service and that one I haven't figured out for sure the Secret Service currency and presidential protection. There must be something else here. I'm not aware of that they that they cover, but the Secret Service apparently was thanked as one of the entities.

00:08:00:22 - 00:08:24:22
Speaker 2
Wow. No, that's that's that's fantastic. That was a huge task force. To your point, seven years in the in the making. I think, you know, whenever I talk to folks that that one faster enforcement and go like, oh, you know can can't the government or cops basically just work faster and for folks to really understand. No, it takes a really long time to build a good case, especially a case like this.

00:08:24:22 - 00:08:51:07
Speaker 2
When you go after a US company, you go after top executives. You got to be sure you build in a way, and for them to build it with all the parts in their postal service, making sure we're seeing our shift. IRS obviously money movements put the locals in. Yeah, Secret Service would be interesting, I wonder I wonder what that's about, but kind of pull everybody in, make sure everybody is there with all the all working together, everybody pulling, pulling their authority together.

00:08:51:07 - 00:08:59:18
Speaker 2
So I'm sure we have a trove of documents. Right? We have them on our website or where do we have to and what can people where can people see those documents.

00:08:59:20 - 00:09:09:13
Speaker 1
So we'll they'll be in the show notes, the press release, the indictment, the restraining order and the affidavit from the agent involved will all be linked in our show notes.

00:09:09:19 - 00:09:20:06
Speaker 2
Very good. Well, and the last thing is, I know from my team, I was told this is not the only big thing that happened in process. There's something else that is happening on process right now, right?

00:09:20:07 - 00:09:46:00
Speaker 1
Yes. And indeed it is your team. Your team is monitoring congressional legislation on pill presses and told me that the the Stop Pills That Kill Act, which are 8005, passed the house. It requires all pill presses and many of the parts to carry serial numbers and creates a new crime of removing those numbers. PSM my my organization that you and I both work for endorsed it.

00:09:46:00 - 00:10:00:23
Speaker 1
And you know, I'm hoping to see what we can do to see if we can get it passed through the Senate. It is a little late in the year. Basically, at this point it's going to have to get passed in lame duck, or it's going to have to wait for the next Congress to take to take their seats.

00:10:00:23 - 00:10:10:05
Speaker 1
But this is more progress than I think we've seen than in the pill press legislation, than at any other time in the history that I've been watching it for seven years.

00:10:10:06 - 00:10:30:07
Speaker 2
Yeah, 100%. And the nice thing about this bill is it has bipartisan support. It was it was broadly passed through through the House. A separate version, very similar, was previously passed through the Senate. I'm sure they'll find a way to reconcile it to make sure that it passes. So lame duck will be will be a nice nice clean up to to hopefully for them to to get to it.

00:10:30:07 - 00:10:32:23
Speaker 2
So good news on pill presses I like it.

00:10:33:04 - 00:10:42:00
Speaker 1
And my kudos to your federal affairs team staff. They they they know I love them, but I love that they watch they watch stuff like this.

00:10:42:02 - 00:10:49:13
Speaker 2
Yeah, there's there's a lot to watch. All right.

00:10:49:15 - 00:10:52:17
Speaker 1
So tell me about what's what's happening in LA.

00:10:52:19 - 00:11:20:17
Speaker 2
So I got a really interesting story. It's a it's a massive seizure that happened in California. Let me set it up a little bit. So the Los Angeles County Sheriff's Department worked together with the Department of Homeland Security and Homeland Security Investigations, many other partners, federal and local, and they announced the seizure of nearly 26,000 counterfeit products with an estimated retail value of $10 million from a warehouse.

00:11:20:17 - 00:11:21:03
Speaker 1
And a lot.

00:11:21:03 - 00:11:40:15
Speaker 2
Of shoes. That's that's a lot of items from a warehouse in Arcadia, California. And the products, as you said, included counterfeit Nike's Adidas Fear of God essentials, which I don't know what their brand is, but it sounds like a really cool apparel brand and other luxury streetwear and footwear. So a massive seizure.

00:11:40:17 - 00:11:48:15
Speaker 1
So what is different about this raid? I don't want to. I don't want to minimize it. I think these things probably happen all the time. But why did this one catch your eye?

00:11:48:17 - 00:12:15:06
Speaker 2
It caught my eye. Not because it was just a raid. It did two things for me a the sheer size, like $10 million in a single raid in a warehouse in the United States, again, this big. But when you look into the case and it's how investigators got there, right? So it started out when CBP started to intercept some shipments that were destined for California Port of entries, and when they started to seize them, they started to.

00:12:15:07 - 00:12:41:15
Speaker 2
Now it comes back down to really good investigative work. They looked at all the shipping documents and they said, What is common here? And they started to notice that it's the same consignor. It's the same warehouse in Arcadia. These keep going to and they said, let's start tracking these. And instead of just, you know, seizing one pair of of shoes, they started to build the case and started to track the shipments, develop probable cause.

00:12:41:16 - 00:12:47:03
Speaker 2
And then, when it was big enough, obtained a search warrant and executed the raid.

00:12:47:05 - 00:12:55:12
Speaker 1
So they really this wasn't a warehouse raid. This they basically dismantled a counterfeiting import and distribution operation.

00:12:55:12 - 00:13:15:12
Speaker 2
That's exactly it. And again, this comes down to like when folks sometimes say, oh, you know, just see stuff at the border. And that's the end of an investigation. No, most of the time that's just the beginning. Right. As you and I know, every shipment has paperwork, every shipment has a destination, and every shipment has people that, you know, wait for it on the one side and people that shipped it.

00:13:15:15 - 00:13:46:10
Speaker 2
The more and more that can be put together as a case, the more and more you can get info to identify what it is. Which, by the way, quick plug here for the bill on information sharing, which is also in Congress. And hopefully you make it in the in the lame duck session. And that's exactly it. When you have all of these documents, investigators then can use those data points to identify importers, warehouses, distributors and hopefully ideally the criminal organization behind it really building the case, right.

00:13:46:12 - 00:13:47:03
Speaker 2
Yeah.

00:13:47:04 - 00:13:51:01
Speaker 1
So I'm assuming that this wasn't just LA County sheriff. This was.

00:13:51:02 - 00:14:12:20
Speaker 2
It was it was not just well, it was LA County sheriff, but LA County sheriff's has not a big surprise since since LA, but has a dedicated unit, which is the LA County Sheriff's Department Counterfeit and piracy enforcement team. Plus they work together. Yeah, of course it's Los Angeles. They have to. And they're also worked together with Homeland Security Investigations and Customs.

00:14:12:20 - 00:14:27:21
Speaker 2
And so a nice big a task force and then a specialized unit that Los Angeles County has for counterfeit and piracy, which given that there's a lot of fashion and a lot of movie industry in Los Angeles, a very natural development.

00:14:27:23 - 00:14:35:23
Speaker 1
I don't know of another operation like that. Like what? What is how active is this L.A. County sheriff? Anti-Counterfeiting.

00:14:36:01 - 00:14:58:19
Speaker 2
So they're very active. And to your point, there is not a lot, actually. Phoenix what we just talked about, Phoenix says something similar is called the best team. They do something very similar. Larger metros sometimes have specialized teams. But this team in Los Angeles is is particularly active. They have served over the last year, roughly 25 search warrants and recovered roughly 200,000 counterfeit products.

00:14:58:19 - 00:15:10:00
Speaker 2
So they are very active. It's not isolated and they're clearly doing a really good, good job in in building nice large cases that really can be brought to to justice.

00:15:10:02 - 00:15:15:11
Speaker 1
All right. So if you're a brand owner, what is the takeaway here from this operation.

00:15:15:14 - 00:15:37:12
Speaker 2
It it reinforces a lot of the things we often talk about. Right. Don't just focus on the seizure. Focus on really providing and working with investigators to build really good investigations as seizures. Just the first interception, the paperwork, study and logistics are needed, helping to identify warehouses and ultimately work their way to the people that are running this.

00:15:37:12 - 00:16:01:06
Speaker 2
And so again, I want to quickly put a plug here. Our good friend Travis Johnson, who we have had on a previous part, is, together with many others, working very diligently to pass a bill in Congress that actually would make sure that customs can share exactly all the info we just described about the shipping manifests, the shipping documents, the labels, etc. with brand owners.

00:16:01:06 - 00:16:22:14
Speaker 2
So de, together with law enforcement can build that case. And that bill also has been passed through through the House. It is sitting on the floor of the Senate again with precious time in the Senate. I know lots of fingers and toes crossed. It would be tremendous to do because as both of our first stories show, it's so hard to build a really, really good case.

00:16:22:14 - 00:16:33:09
Speaker 2
And the more we can share info between law enforcement, private industry that really makes sure we can get to the big players behind the seizure. That for me is really the big the big takeaway.

00:16:33:11 - 00:16:48:17
Speaker 1
Awesome. All right. Well, Travis, we are with you in spirit. And also I endorsed your bill, so I am with you. I am with you. My signatures on your dotted line. That's right.

00:16:48:19 - 00:17:01:15
Speaker 1
All right. So I want to talk about the resurgence of vinyl records, which have had a real, I think, ever since Pearl jam did that album they released as vinyl.

00:17:01:15 - 00:17:33:15
Speaker 1
We've seen a huge explosion in people listening to vinyl, buying vinyl, and, not surprisingly, counterfeit vinyls, of course. So in Britain, there was just a really good article in The Guardian about a gentleman who ran a vinyl record counterfeiting operation. It's been running for nine years, they said, since 2017. Wow. He just pleaded guilty to two charges of breach of copyright and acquiring and using criminal property, which is not in charge.

00:17:33:15 - 00:17:59:09
Speaker 1
I think this is familiar to me in the States. He was guilty, Gilchrist. He pled guilty on both counts, and he got two years and eight months. Okay. And then I think three and a half years for the second charge. So he's going to serve those concurrently. He's going to be in jail for three and a half years for counterfeit vinyl records, which I suppose if you're a collector, you probably think is probably pretty good because you cut off, I guess.

00:17:59:10 - 00:18:02:03
Speaker 1
So this wasn't a by the way.

00:18:02:06 - 00:18:09:08
Speaker 2
Was not. So what did you bootleg? How many, how many, how many LPs has he done? And like which artist like what has he done?

00:18:09:12 - 00:18:31:12
Speaker 1
So when they raided his warehouse and he, he was selling out of his warehouse on eBay and Discogs, if you're if you have a friend who's a vinyl nerd, they've probably talked to you about always looking for new records on Discogs, which is a big vinyl trading marketplace and sale marketplace. When they raided this warehouse, they raided, they picked up 15,000 records.

00:18:31:12 - 00:18:32:16
Speaker 2
Wow.

00:18:32:18 - 00:18:36:11
Speaker 1
Yeah, it is not small.

00:18:36:13 - 00:18:44:03
Speaker 2
So was he was he just faking like. Because last time we talked about, like, how did it do it? Do you just buy and then put fake labels on. How did he. How did he do it.

00:18:44:06 - 00:19:05:08
Speaker 1
So he pretty much did everything I think except print the labels. He was he was pirating first new release records. Right. It's one thing, I suppose. Probably still not legal. There's one thing to, like, find a bootleg recording of. I'm just going to use a Grateful Dead as an example Grateful Dead show, and then turn it into a vinyl record that you release.

00:19:05:09 - 00:19:27:11
Speaker 1
He was pirating first run brand new releases by like, Taylor Swift and other major artists. And it was something where like the, the, the folks say they were very surprised by the whole thing because he wasn't he didn't use like a mastering a piece of equipment. So I don't know how he was making it, but he was not doing it in the traditional way that they were expecting.

00:19:27:11 - 00:19:30:09
Speaker 1
But he made a lot, quite, quite a lot.

00:19:30:12 - 00:19:51:13
Speaker 2
And and you're right, as we talked before. Right. My kids are also, you know, they're they're 17. 19. They're huge into vinyl. And so it's actually funny when you say this. And then when you brought me the story and I looked at it and I looked at the pictures of the seizure, and I saw some of the broken vinyl records that were there that didn't work well in production.

00:19:51:13 - 00:20:11:11
Speaker 2
And when I saw these, like he's doing, as you say, he's doing the first runs and he's doing like special collection kind of pieces. So like, for example, Taylor Swift, my kids, they have a lot of her special vinyls that are like pink or red or certain special colors. And so he then fakes the color and all of that and makes these like special runs.

00:20:11:11 - 00:20:37:17
Speaker 2
And it's it's tremendous for the story. So to look at how big it's gotten. And in 2025, according to the data I saw, there's about $1 billion worth of vinyl that's being sold like, that's huge, $1 billion in vinyls being sold. And, you know, as you said, for this guy, he didn't just do the label, he got the actual vinyl pressing machine.

00:20:37:18 - 00:20:59:06
Speaker 2
Don't know to your point how he copied the master, how good the quality was. And it's and it's and it's tremendous. And the other thing that that this let us down, I looked at how often this has happened in the UK alone. They have executed 43 search warrants against fake vinyl and CD bugler operations, with a street value of about 8 million pounds.

00:20:59:06 - 00:21:04:10
Speaker 2
It's about 10 million USD. So it's big business.

00:21:04:12 - 00:21:23:09
Speaker 1
Yeah, he he was so prolific that apparently after the raid, the the the British Phonographic Industry, which is an incredibly great retro name. Yeah. For what's probably the vinyl trade association over there, the rights, the rights organization, they had to contract 100 contact 108 different artists.

00:21:23:10 - 00:21:24:14
Speaker 2
Wow.

00:21:24:16 - 00:21:35:13
Speaker 1
To sort of confirm that he wasn't authorized, you know, to to to press records for them. So he was he was not he would he did not have a niche. He was doing everything.

00:21:35:15 - 00:21:53:19
Speaker 2
And he wasn't messing. He wasn't a messing about, you know, it's what an operation. It reminds me kind of of the what does it catch me, if you can, with, with Leonardo DiCaprio when he has that big printing machine for the fake checks and all that, you know, go big or go home like, he sure went big so well.

00:21:53:19 - 00:22:06:12
Speaker 1
So the BPI said that there are ten other active counterfeiting operations that they're monitoring in the UK right now. So this is probably not the last of these incidences we're going to see.

00:22:06:14 - 00:22:12:01
Speaker 2
I can't wait to see the next nine.

00:22:12:03 - 00:22:29:21
Speaker 1
So I don't have a whole big story on fake money, which you know, along with stamps is one of my favorite topics and pill presses. But I will say that there's a lot of little incidences all over the news, all over the country, in the US this week about people passing fake money in casinos, which I don't know.

00:22:29:23 - 00:22:42:08
Speaker 1
Let me just let me give you some free advice on your crime. Don't pass fake money at a casino. They look at bills all day. It's not going to make it unless you have a super fake you're done.

00:22:42:10 - 00:22:51:21
Speaker 2
Or to or to a judge or obviously or bill or the third one we can add to story you're about to cover. Don't do that either.

00:22:51:23 - 00:23:14:02
Speaker 1
So in New York, in North Manheim Township, some dude was went to a Dollar General to load a chime card, which I guess is a cash value card with money with six fake 20s and two real fives. And and they kept that. So it's, it's it's happening all over. You know, we'll bring you a full story when we get like a really big story about it.

00:23:14:02 - 00:23:23:15
Speaker 1
But, you know, continue as a normal person or as a small business owner to be wary of fake currency, because there's a lot of people out there trying to pass it on to you.

00:23:23:17 - 00:23:34:17
Speaker 2
Very good, very, very good advice. If if you know, don't don't give counterfeit money to judges, bail money. And when somebody discovers his fake money, don't ask back for it. Got it.

00:23:34:18 - 00:23:38:14
Speaker 1
They're not going to give it back to you if they're doing their job. All right. Thank you. Sven,

00:23:38:19 - 00:23:42:21
Speaker 2
All right. Fantastic. Nice talking to you and Shabbir. Read us out.

00:23:42:23 - 00:23:48:05
Unknown
The Imitation Nation podcast is a production of Cost Stories and is the sole owner of this production.

00:23:48:05 - 00:23:51:03
Unknown
All statements are of their own and not the opinions of their employers.

00:23:51:07 - 00:23:56:01
Unknown
Podcast management by Sarah Imber Safdar after theme music written by Jonathan Boyle.

 

In this episode, Shabbir and Sven explore the complexities of counterfeit products, focusing on airbags and luxury watches. They discuss the challenges faced by online marketplaces in verifying authenticity and the broader implications for safety and brand integrity.

 

Transcript:

 

shabbir (00:01)
Sven welcome to episode number thirty seven, a prime number I'd point out of Imitation Nation.

Sven (00:08)
Okay. That that took me a second to think, but yes, that is a prime number. happy Friday. How are you?

shabbir (00:13)
I'm good. I usually try and

Sven (00:14)
Okay.

shabbir (00:15)
pretend that I take Fridays off. I clearly never take Fridays off. But I am dressed down as if I am taking Friday off. In the sweatshirt of my daughter's high school, which is for all of us of a certain age, it's a fame high school, like from the TV shows. So she spends half

Sven (00:31)
Nice.

shabbir (00:32)
her day playing cello.

Sven (00:33)
That's lovely. That actually was an excellent movie, side note. So today today is today is the 80s movie day. I reminded Stacy, one of our team members, today on some good 80s movie she should watch with everything developing in AI, I recommended she watch War Games. I don't know if you remember that movie with Matthew Broderick. Just

shabbir (00:52)
Yes.

Sven (00:53)
stuff just becoming really real. And I'm like, you might want to watch that because that's it's very, very relevant right now. So

shabbir (00:59)
The only

shabbir (01:00)
winning move is not to play.

Sven (01:02)
There you go, good quote,

shabbir (01:03)
Ha ha ha.

Sven (01:04)
like it. Well good to see you, sir.

shabbir (01:08)
Good to see you and good to see us both in our home. I think we just recorded an episode recently from you in a hotel room in Colorado, which was a very scenic warm lamp you had, just like the one you have in your office.

Sven (01:19)
That was lovely, yeah. No, and and this is one of the few where I'm not travelling. Starting next week it's gonna be it's gonna be a wild three months of travel.

shabbir (01:29)
Yeah. I

Sven (01:30)
So you will see me

Sven (01:31)
in lots of unusual spots during our recordings, I think.

shabbir (01:35)
I I am going to be traveling to visit with pa a patient victim next week and try and get her story on camera. And remains to be seen if I will be traveling internationally for more peptide victims, but we're finding them all over the world. People I'll just say this, we're not gonna do a whole story on this, but don't be taking those unapproved by the FDA peptides. That is not safe.

Sven (01:58)
no.

Sven (01:59)
No, and as as you and I talked about, because you you told me about this, I started researching it, and so I started researching it on my social media platforms. And because these algorithms now think that I like this or I'm looking for that, my entire social media feed is now full of this. And it is scary what's out there. So yeah, don't don't don't take any of this unapproved stuff. It's crazy.

shabbir (02:24)
So I want to start talking about airbags because

Sven (02:29)
Okay.

shabbir (02:30)
we have talked a lot about airbags, we talked about the big jury settlement, the big award, wrongful

Sven (02:37)
Mm-hmm.

shabbir (02:38)
death suit. In that case, the airbag was sold on eBay. And eBay responded this week by banning the sale of airbags on its platform. Not surprisingly.

Sven (02:51)
I'm I'm sure it's complete

Sven (02:52)
completely uncorrelated. I'm sure it's completely uncorrelated.

shabbir (02:57)
So this takes effect September twenty-fourth. eBay will probi prohibit the sale of all airbags and airbag inflators after a series of fatalities. I think we have nine or ten deaths in the US that have been traced to counterfeit airbags and the six hundred and three million dollar wrongful death verdict. The one young woman with children who don't have a mother anymore. the lawsuit did name eBay. I don't know if that was the deciding factor, but eBay has not

shabbir (03:25)
eBay is not what I would call a poor actor all the time. I mean everybody has in the brand protection world has issues with eBay, but they it's you cannot call them non-responsive. but in this case they have chosen to to respond by banning the sale of of of airbags on its platform. And I I think you've looked at the other platforms that are that that have policies on airbags, Sven. What have you found?

Sven (03:50)
no, and and I think, you know, well, so first of all, glad that eBay is doing this. Like it's one of those moves that's just it's very overdue. was the lawsuit a contributing factor? I would just say yes. I'm sure that they looked at it and say, hey, listen, this while they got dismissed from the lawsuit because of section 230 protection, a six hundred three million dollar verdict. You're like, you look at this and you're like, listen, that's not worth it. and but more importantly.

Sven (04:17)
Is pretty much every other large platform: Amazon, Facebook Marketplace, Alibaba, AliExpress, all of them, and several other marketplaces already have adopted over the years the policy to not sell airbags because they're like, we can't verify them, right? We can't match them to a VIN and all of that, and people falsify them. And so they many of those most marketplaces already prohibited it. So for me, eBay is kind of.

Sven (04:45)
catching up with that, which is great. I wouldn't be surprised if eBay as well as other marketplaces also start to ban all kinds of other automotive OEM parts like brake pads and all of that, because I can't verify it. And I've seen brake pads that are counterfeit that are made literally out of sawdust. and when you hit that on the highway, right? That's just gonna evaporate. So from

shabbir (05:07)
Yeah.

Sven (05:07)
a pure liability perspective

Sven (05:09)
These platforms hopefully will get more cautious with with things that's really safety critical.

shabbir (05:15)
Here's what I don't get.

shabbir (05:19)
With all the resources that eBay has and all the cooperation that they could possibly get from manufacturers, what this basically says when you say we're banning the sale of airbags on our platform and airbag inflators is that we cannot tell you if someone lists it if it's real. Right? That is a huge infrastructure problem. And

Sven (05:41)
Mm-hmm.

shabbir (05:42)
for a marketplace, even with the cooperation of the manufacturer, to not be able to say that we cannot.

shabbir (05:48)
demonstrate that this is real? Like they they could they could have taken the step that the only person allowed to sell airbags is a is an a manufacturer. Right? They could have taken that step, but they decided that that was even contained risk that they didn't want. What does it say when when even the largest marketplace, one of the largest marketplaces in the world with resources to do brand protection, throws up their hands and says, we can't do it. It's not

shabbir (06:17)
It's not possible to tell you

Sven (06:18)
Yeah.

shabbir (06:19)
if the airbag for sale is real or not. That's crazy.

Sven (06:23)
And and I I I for that one I don't even blame eBay for it. I think, you know, you and I, because we deal a lot in the pharmaceutical world, which is a a wonderful world because it's a it's a closed distribution system. The US system is a closed distribution system, and it's only licensed parties are allowed to trade with each other. everybody should know that you're licensed, you ask for licenses. often they're licensed federal, state, municipality through.

Sven (06:51)
That's a nice closed system. I know who's playing in it. For most other products, especially car OEMs, that doesn't exist. Almost anybody can buy automotive parts, especially secondary marketplace. So, like things that are replacement parts for repairs. There are wholesalers, there are sub jobbers, then there are repair places. So they never established a licensed marketplace. So it starts out with the I don't know who is allowed to sell.

Sven (07:20)
And then what they're also missing, for example, in the pharmaceutical world, you have it. You have a you have a track and trace system with a serial number I can track. And in cars, you don't always have that. Now with airbags, they tried to solve it by linking the airbag to the VIN. but if it's a replacement one, I don't have a VIN to link it to. So they just didn't serialize. So it they don't have the basic fundamentals in place to either authenticate the seller.

Sven (07:47)
or authenticate the product. And yeah, it's a it's a massive, it's a massive issue. In the oem market, it's a massive issue. It's generally the issue a lot of counterfeiters are dealing with that they don't have close distribution chains And that makes it really, really hard to combat counterfeit. So yeah, a hundred percent.

shabbir (08:05)
That's really the takeaway. You cannot layer a secure online marketplace on an unlicensed, chaotic, lacking authorization physical supply chain. And that's what airbags are, right? It's not the maker Takata of the airbag listing on eBay. It's some reseller. And they apparently don't have a closed distribution chain for those resellers to be able to s tell eBay.

shabbir (08:30)
And these are the only eleven companies allowed to sell.

Sven (08:33)
That's exactly it. That's exactly it. And Takata might have they might have because I assume Takata's from overseas. So Takata probably has a distribution partner overseas, then they have several importers here. Those importers then ship to distributor partners here, those sell to sub jobbers, so you are you're three levels in and I have no chance to authenticate that. None.

shabbir (08:55)
Yeah, and no licensing. Yeah. It's it's crazy. I'm I'm I'm glad to see eBay do it. I'm sorry they're the last ones. I actually like to think of them as being more more proactive than that, but it's a shame. But they did it and we should give them props for doing it. And it's becoming impossible to imagine that any airbag you buy online is not unsafe. Something I say about medicine every day.

Sven (09:21)
Agreed.

Sven (09:25)
All right, I have a second story. And the second story actually ties nicely into that. it's another industry where there is no certified seller-reseller network. There is no licensing scheme. There are not track and trace mechanisms in place. and when you have those conditions in place and you put a lot of valuable items into it, counterfeiters go like, that's a that's a fun one to exploit. And so it ties back to the fake watch and Rolex w story we were

Sven (09:53)
covering a couple of weeks ago. You remember that we were talking about some major major seizures that were coming out of Louisville and and Indianapolis. just to refresh folks, that was where those two C B P ports have had seized a total of a hundred twenty five million of fake watches over the last couple of months and we just talked about that. So now now there's a new indictment that just came out where federal prosecutors in Connecticut charged a Brooklyn woman.

Sven (10:21)
and she's accused of trafficking counterfeit Rolex, audemars piguet Panera watches in from China. And according to the indictment, CBP intercepted 74 separate parcels that she had shipped that were tied to the organization she works with, with a combined retail value of more than 16 million dollars, just that one individual in her group. and investigators seized roughly $900,000 in cash. So a

Sven (10:47)
big case that is connected to all of these seizures that C V P is doing increasingly.

shabbir (10:53)
I I'm a successful adult white collar professional, but I'm not successful enough that there's nine hundred thousand dollars of cash lying around my house.

Sven (11:02)
Normally not,

Sven (11:03)
no. No. You know, and and what was really interesting about that case is the timeline. So the the DOJ or the the USA laid it out fantastically. The investigation and this entire Rolex scheme ready started in twenty twenty. So that's six years ago. Six years ago

shabbir (11:23)
Yeah.

Sven (11:23)
they started. They started to seize several items, they started to investigate.

Sven (11:28)
Then in twenty twenty four they they arrested several members of that organization and they keep looking, keep digging before now this final defendant was now charged in twenty twenty six. So besides part of that organization being taken out, they kept at it. It's crazy.

shabbir (11:47)
Yeah, it it's fascinating. I I I don't wanna say there's there's probably no one should interpret what I'm about to say as I think that they are too slow about the investigation because doing an investigation well that'll hold up in court takes time. And you have to follow all the rules. The criminals don't have to follow any frickin' rules. You have to follow all the rules as

Sven (12:08)
Right. Yes.

shabbir (12:10)
law enforcement and as a prosecutor.

shabbir (12:13)
but I I I imagine that along the way there were opportunities to collect evidence on co conspirators to try and get a vision of the entire supply chain to see how they could really stop this crime instead of just making sort of some small arrest that would be handed off as a first offense minor, you imported one watch, two watches, right? At the point at which you've imported sixteen million dollars or so of of fake watches and

shabbir (12:43)
sold them. Right. I think maybe it's time to build a better case. So my hat's off to C VP for the work here and for the U.S. attorney. and I think this is a really interesting moment. I mean I'm not really into watches. I think you are and I have friends who are, but

Sven (12:59)
Somewhat.

shabbir (13:00)
the perfect super fake secondary market is gonna be a really interesting thing. When if if a watch doesn't hold value

shabbir (13:09)
because no one can tell the difference. I don't know what that does to to to the watch industry, but it's probably gonna devalue a lot of it.

Sven (13:19)
Yeah. No, a hundred percent. And so, you know, to what you say, you know, with the timeline and I I looked at the same couple of things. A it started in twenty twenty, and then there was this little thing, the pandemic in between. So I'm sure that or not I'm sure, I know because I worked on it, C B P and A USAs and all of those were very busy with counterfeit masks, counterfeit vaccines, all the weird stuff that

Sven (13:45)
People said you should inject or use or whatever that came into the country. So they were busy with COVID fraud. So that probably derailed that investigation. And that's also something to for also to keep for brand owners in mind when you sometimes think, I want for you to act quicker on my Rolex watch, for example. Yeah, but I might have something that has a direct health and safety impact, right? So I have fake vaccines, fake masks coming in. I'm gonna prioritize that over. I understand the watch is important, but I'm gonna prioritize that over.

Sven (14:16)
And so I would assume that, you know, lay dormant for two years, maybe three years. And they picked it back up in twenty-three, prosecuted in twenty-four, they got most of them. The ring didn't shut down. She kept going. They're like, fine, we'll build more evidence for that person. Plus, that person was in China. And so they also needed for wait for that person to re-enter the United States. And once that person did that, they they they took advantage of it. So no, but 100%, 100% agree with you. The entire super fake.

Sven (14:45)
system. And for this episode, I'm gonna try to find can we can we post TikTok links into our our show notes?

shabbir (14:54)
Yeah, I'm sure we can, yes.

Sven (14:56)
Right. I'll I'll I'll find I'll find a documentary, so to speak, that I was watching on TikTok, which is my social media vice of of choice. and they were looking at the super fake marketplace in China. And there are two companies that are known in China. One produces a almost impossible to identify outer case for the watch. So it's like the band and the metal and face and all of that.

Sven (15:25)
And then there's a second company and they produce the internal mechanism. And that's that's and they work together. And but those two pieces are so good that you cannot distinguish them. Furthermore, those companies, as most criminal organizations do, don't just do it in one outlet. Like each one of them has multiple production facilities. So even if law enforcement takes one of them out, they just switch it over to the other. And

shabbir (15:50)
Yeah.

Sven (15:51)
those watches were the ones that

Sven (15:53)
I mean, I should put another link in there from the Wired folks, where the Wired reporter that we covered in the last podcast, I saw the video of him with the watch literally going to the Rolex store. And he's like, This is a counterfeit watch. I know it's a super fake because I bought it. And he goes in the store and he comes back out and he's like, and they told me what a beautiful piece you have. That's how good they are. So

shabbir (16:17)
Yeah.

Sven (16:17)
yeah, it's a tremendous problem for for these for these companies.

shabbir (16:22)
It's gonna be interesting to watch, but you know, that is the world we live in.

Sven (16:28)
Well the the interesting

Sven (16:29)
piece here is now gonna kinda connect it actually back to what we had with the airbags. So I know you and I in the last pod were like, my God, if if Rolex is not freaked out about this. So I made some phone calls, called around and asked, and yes, Rolex is highly aware of this. They are very freaked out about it, but to a degree they also figured out we don't know exactly how to stop that. So what they did actually separately, Rolex had launched probably two years ago at this point.

Sven (16:56)
A certified, like a Rolex certified pre owned program, which like if you want to make sure that the Rolex you buy on a secondary market is an authenticate Rolex, you sell it through their marketplace. And Rolex will basically take the watch, really authenticate it, and then say, Yes, that's a watch that we can authenticate is a Rolex. And then Rolex of that takes, of course, a cut from it, like they take a processing fee. So they make money twice

shabbir (17:22)
Of course.

Sven (17:22)
on the watch, once the original and once on the resale.

Sven (17:25)
Because they're like, fine, we'll just we'll just sell the watch twice and then we make money off that because we know we can't combat the counterfeit issue. So credit to them for that. But long term it might really, really continue to undermine what a Rolex is worth and how much they can charge. Because like every Rolex I now see on my friend's wrists. I'm like, I don't know if that's real, man. Because I don't.

shabbir (17:52)
Yeah. Yeah, it's not like a Ferrari, right? If you buy a Ferrari, then you have these scheduled maintenances at the Ferrari dealership

Sven (18:00)
I guess.

shabbir (18:01)
every X thousand miles. They they definitely make a little bit of money keeping the car in shape over time. Rolex, until they invented this, doesn't necessarily have a a reason to make money on a watch once they sell it once.

Sven (18:15)
Right, one one time sale and and normally you have you have collectors obviously who own many and you have the you can only have this Rolex if you already own five different ones. So they have like which Ferrari also is that model? which I I never understood what but it's fine. I'm not that much into watches. but yeah, no, it's it's it's a massive issue. And for folks that are following this, the upcoming special 301 notorious market reports will focus

Sven (18:42)
On superfakes. So the USTR is trying to understand. Okay, talk to us what all exists in the superfakes market. And so I think that'll be a very interesting special 301 notorious markets to read to see what are what are, and we will probably do a special episode on this. What are all the super fakes out there? Like watches, jewelry, bags. It'd be be fascinating what it is.

shabbir (19:07)
I mean we I I personally you and I have personally seen the super fakes in the pharmaceutical world. They they actually have real serial numbers that are were really issued by the original manufacturer. Sometimes the counterfooters put them on a hundred different units, which is how you can know if you're looking at a hundred units with the same serial number that that that is not real. but those exist. and I'm sure that there's some others.

shabbir (19:35)
you know in the in the electronics world

Sven (19:38)
yeah. Well think of think about actually the the Gilead case, right? Where they were basically recycling existing bottles where they were basically buying bottles from the homeless community. Those were real bottles. So now that's actually a super fake because I can't authenticate that because it's a legit bottle, but you put something in it that's not it. So yeah, that probably that probably would also qualify as a super fake. Yeah.

shabbir (20:02)
Some of them are probably super fakes. They're they're I've seen some of the pictures of the bottles from that litigation and some of them are very damaged after having been toted around by homeless people with the rest of their belongings. They're it's not an ideal storage environment.

Sven (20:16)
It's a kind way of putting it. Fair point.

shabbir (20:21)
Well that's all we have for today. Thanks everybody for watching and look at your watch real careful.

Sven (20:28)
That's right. Shabbir,

Sven (20:29)
have a wonderful weekend which is upcoming and please read us out.

In this episode, Shabbir and Sven explore the complexities of counterfeit products, focusing on airbags and luxury watches. They discuss the challenges faced by online marketplaces in verifying authenticity and the broader implications for safety and brand integrity.

 

Transcript:

 

shabbir (00:01)
Sven welcome to episode number thirty seven, a prime number I'd point out of Imitation Nation.

Sven (00:08)
Okay. That that took me a second to think, but yes, that is a prime number. happy Friday. How are you?

shabbir (00:13)
I'm good. I usually try and

Sven (00:14)
Okay.

shabbir (00:15)
pretend that I take Fridays off. I clearly never take Fridays off. But I am dressed down as if I am taking Friday off. In the sweatshirt of my daughter's high school, which is for all of us of a certain age, it's a fame high school, like from the TV shows. So she spends half

Sven (00:31)
Nice.

shabbir (00:32)
her day playing cello.

Sven (00:33)
That's lovely. That actually was an excellent movie, side note. So today today is today is the 80s movie day. I reminded Stacy, one of our team members, today on some good 80s movie she should watch with everything developing in AI, I recommended she watch War Games. I don't know if you remember that movie with Matthew Broderick. Just

shabbir (00:52)
Yes.

Sven (00:53)
stuff just becoming really real. And I'm like, you might want to watch that because that's it's very, very relevant right now. So

shabbir (00:59)
The only

shabbir (01:00)
winning move is not to play.

Sven (01:02)
There you go, good quote,

shabbir (01:03)
Ha ha ha.

Sven (01:04)
like it. Well good to see you, sir.

shabbir (01:08)
Good to see you and good to see us both in our home. I think we just recorded an episode recently from you in a hotel room in Colorado, which was a very scenic warm lamp you had, just like the one you have in your office.

Sven (01:19)
That was lovely, yeah. No, and and this is one of the few where I'm not travelling. Starting next week it's gonna be it's gonna be a wild three months of travel.

shabbir (01:29)
Yeah. I

Sven (01:30)
So you will see me

Sven (01:31)
in lots of unusual spots during our recordings, I think.

shabbir (01:35)
I I am going to be traveling to visit with pa a patient victim next week and try and get her story on camera. And remains to be seen if I will be traveling internationally for more peptide victims, but we're finding them all over the world. People I'll just say this, we're not gonna do a whole story on this, but don't be taking those unapproved by the FDA peptides. That is not safe.

Sven (01:58)
no.

Sven (01:59)
No, and as as you and I talked about, because you you told me about this, I started researching it, and so I started researching it on my social media platforms. And because these algorithms now think that I like this or I'm looking for that, my entire social media feed is now full of this. And it is scary what's out there. So yeah, don't don't don't take any of this unapproved stuff. It's crazy.

shabbir (02:24)
So I want to start talking about airbags because

Sven (02:29)
Okay.

shabbir (02:30)
we have talked a lot about airbags, we talked about the big jury settlement, the big award, wrongful

Sven (02:37)
Mm-hmm.

shabbir (02:38)
death suit. In that case, the airbag was sold on eBay. And eBay responded this week by banning the sale of airbags on its platform. Not surprisingly.

Sven (02:51)
I'm I'm sure it's complete

Sven (02:52)
completely uncorrelated. I'm sure it's completely uncorrelated.

shabbir (02:57)
So this takes effect September twenty-fourth. eBay will probi prohibit the sale of all airbags and airbag inflators after a series of fatalities. I think we have nine or ten deaths in the US that have been traced to counterfeit airbags and the six hundred and three million dollar wrongful death verdict. The one young woman with children who don't have a mother anymore. the lawsuit did name eBay. I don't know if that was the deciding factor, but eBay has not

shabbir (03:25)
eBay is not what I would call a poor actor all the time. I mean everybody has in the brand protection world has issues with eBay, but they it's you cannot call them non-responsive. but in this case they have chosen to to respond by banning the sale of of of airbags on its platform. And I I think you've looked at the other platforms that are that that have policies on airbags, Sven. What have you found?

Sven (03:50)
no, and and I think, you know, well, so first of all, glad that eBay is doing this. Like it's one of those moves that's just it's very overdue. was the lawsuit a contributing factor? I would just say yes. I'm sure that they looked at it and say, hey, listen, this while they got dismissed from the lawsuit because of section 230 protection, a six hundred three million dollar verdict. You're like, you look at this and you're like, listen, that's not worth it. and but more importantly.

Sven (04:17)
Is pretty much every other large platform: Amazon, Facebook Marketplace, Alibaba, AliExpress, all of them, and several other marketplaces already have adopted over the years the policy to not sell airbags because they're like, we can't verify them, right? We can't match them to a VIN and all of that, and people falsify them. And so they many of those most marketplaces already prohibited it. So for me, eBay is kind of.

Sven (04:45)
catching up with that, which is great. I wouldn't be surprised if eBay as well as other marketplaces also start to ban all kinds of other automotive OEM parts like brake pads and all of that, because I can't verify it. And I've seen brake pads that are counterfeit that are made literally out of sawdust. and when you hit that on the highway, right? That's just gonna evaporate. So from

shabbir (05:07)
Yeah.

Sven (05:07)
a pure liability perspective

Sven (05:09)
These platforms hopefully will get more cautious with with things that's really safety critical.

shabbir (05:15)
Here's what I don't get.

shabbir (05:19)
With all the resources that eBay has and all the cooperation that they could possibly get from manufacturers, what this basically says when you say we're banning the sale of airbags on our platform and airbag inflators is that we cannot tell you if someone lists it if it's real. Right? That is a huge infrastructure problem. And

Sven (05:41)
Mm-hmm.

shabbir (05:42)
for a marketplace, even with the cooperation of the manufacturer, to not be able to say that we cannot.

shabbir (05:48)
demonstrate that this is real? Like they they could they could have taken the step that the only person allowed to sell airbags is a is an a manufacturer. Right? They could have taken that step, but they decided that that was even contained risk that they didn't want. What does it say when when even the largest marketplace, one of the largest marketplaces in the world with resources to do brand protection, throws up their hands and says, we can't do it. It's not

shabbir (06:17)
It's not possible to tell you

Sven (06:18)
Yeah.

shabbir (06:19)
if the airbag for sale is real or not. That's crazy.

Sven (06:23)
And and I I I for that one I don't even blame eBay for it. I think, you know, you and I, because we deal a lot in the pharmaceutical world, which is a a wonderful world because it's a it's a closed distribution system. The US system is a closed distribution system, and it's only licensed parties are allowed to trade with each other. everybody should know that you're licensed, you ask for licenses. often they're licensed federal, state, municipality through.

Sven (06:51)
That's a nice closed system. I know who's playing in it. For most other products, especially car OEMs, that doesn't exist. Almost anybody can buy automotive parts, especially secondary marketplace. So, like things that are replacement parts for repairs. There are wholesalers, there are sub jobbers, then there are repair places. So they never established a licensed marketplace. So it starts out with the I don't know who is allowed to sell.

Sven (07:20)
And then what they're also missing, for example, in the pharmaceutical world, you have it. You have a you have a track and trace system with a serial number I can track. And in cars, you don't always have that. Now with airbags, they tried to solve it by linking the airbag to the VIN. but if it's a replacement one, I don't have a VIN to link it to. So they just didn't serialize. So it they don't have the basic fundamentals in place to either authenticate the seller.

Sven (07:47)
or authenticate the product. And yeah, it's a it's a massive, it's a massive issue. In the oem market, it's a massive issue. It's generally the issue a lot of counterfeiters are dealing with that they don't have close distribution chains And that makes it really, really hard to combat counterfeit. So yeah, a hundred percent.

shabbir (08:05)
That's really the takeaway. You cannot layer a secure online marketplace on an unlicensed, chaotic, lacking authorization physical supply chain. And that's what airbags are, right? It's not the maker Takata of the airbag listing on eBay. It's some reseller. And they apparently don't have a closed distribution chain for those resellers to be able to s tell eBay.

shabbir (08:30)
And these are the only eleven companies allowed to sell.

Sven (08:33)
That's exactly it. That's exactly it. And Takata might have they might have because I assume Takata's from overseas. So Takata probably has a distribution partner overseas, then they have several importers here. Those importers then ship to distributor partners here, those sell to sub jobbers, so you are you're three levels in and I have no chance to authenticate that. None.

shabbir (08:55)
Yeah, and no licensing. Yeah. It's it's crazy. I'm I'm I'm glad to see eBay do it. I'm sorry they're the last ones. I actually like to think of them as being more more proactive than that, but it's a shame. But they did it and we should give them props for doing it. And it's becoming impossible to imagine that any airbag you buy online is not unsafe. Something I say about medicine every day.

Sven (09:21)
Agreed.

Sven (09:25)
All right, I have a second story. And the second story actually ties nicely into that. it's another industry where there is no certified seller-reseller network. There is no licensing scheme. There are not track and trace mechanisms in place. and when you have those conditions in place and you put a lot of valuable items into it, counterfeiters go like, that's a that's a fun one to exploit. And so it ties back to the fake watch and Rolex w story we were

Sven (09:53)
covering a couple of weeks ago. You remember that we were talking about some major major seizures that were coming out of Louisville and and Indianapolis. just to refresh folks, that was where those two C B P ports have had seized a total of a hundred twenty five million of fake watches over the last couple of months and we just talked about that. So now now there's a new indictment that just came out where federal prosecutors in Connecticut charged a Brooklyn woman.

Sven (10:21)
and she's accused of trafficking counterfeit Rolex, audemars piguet Panera watches in from China. And according to the indictment, CBP intercepted 74 separate parcels that she had shipped that were tied to the organization she works with, with a combined retail value of more than 16 million dollars, just that one individual in her group. and investigators seized roughly $900,000 in cash. So a

Sven (10:47)
big case that is connected to all of these seizures that C V P is doing increasingly.

shabbir (10:53)
I I'm a successful adult white collar professional, but I'm not successful enough that there's nine hundred thousand dollars of cash lying around my house.

Sven (11:02)
Normally not,

Sven (11:03)
no. No. You know, and and what was really interesting about that case is the timeline. So the the DOJ or the the USA laid it out fantastically. The investigation and this entire Rolex scheme ready started in twenty twenty. So that's six years ago. Six years ago

shabbir (11:23)
Yeah.

Sven (11:23)
they started. They started to seize several items, they started to investigate.

Sven (11:28)
Then in twenty twenty four they they arrested several members of that organization and they keep looking, keep digging before now this final defendant was now charged in twenty twenty six. So besides part of that organization being taken out, they kept at it. It's crazy.

shabbir (11:47)
Yeah, it it's fascinating. I I I don't wanna say there's there's probably no one should interpret what I'm about to say as I think that they are too slow about the investigation because doing an investigation well that'll hold up in court takes time. And you have to follow all the rules. The criminals don't have to follow any frickin' rules. You have to follow all the rules as

Sven (12:08)
Right. Yes.

shabbir (12:10)
law enforcement and as a prosecutor.

shabbir (12:13)
but I I I imagine that along the way there were opportunities to collect evidence on co conspirators to try and get a vision of the entire supply chain to see how they could really stop this crime instead of just making sort of some small arrest that would be handed off as a first offense minor, you imported one watch, two watches, right? At the point at which you've imported sixteen million dollars or so of of fake watches and

shabbir (12:43)
sold them. Right. I think maybe it's time to build a better case. So my hat's off to C VP for the work here and for the U.S. attorney. and I think this is a really interesting moment. I mean I'm not really into watches. I think you are and I have friends who are, but

Sven (12:59)
Somewhat.

shabbir (13:00)
the perfect super fake secondary market is gonna be a really interesting thing. When if if a watch doesn't hold value

shabbir (13:09)
because no one can tell the difference. I don't know what that does to to to the watch industry, but it's probably gonna devalue a lot of it.

Sven (13:19)
Yeah. No, a hundred percent. And so, you know, to what you say, you know, with the timeline and I I looked at the same couple of things. A it started in twenty twenty, and then there was this little thing, the pandemic in between. So I'm sure that or not I'm sure, I know because I worked on it, C B P and A USAs and all of those were very busy with counterfeit masks, counterfeit vaccines, all the weird stuff that

Sven (13:45)
People said you should inject or use or whatever that came into the country. So they were busy with COVID fraud. So that probably derailed that investigation. And that's also something to for also to keep for brand owners in mind when you sometimes think, I want for you to act quicker on my Rolex watch, for example. Yeah, but I might have something that has a direct health and safety impact, right? So I have fake vaccines, fake masks coming in. I'm gonna prioritize that over. I understand the watch is important, but I'm gonna prioritize that over.

Sven (14:16)
And so I would assume that, you know, lay dormant for two years, maybe three years. And they picked it back up in twenty-three, prosecuted in twenty-four, they got most of them. The ring didn't shut down. She kept going. They're like, fine, we'll build more evidence for that person. Plus, that person was in China. And so they also needed for wait for that person to re-enter the United States. And once that person did that, they they they took advantage of it. So no, but 100%, 100% agree with you. The entire super fake.

Sven (14:45)
system. And for this episode, I'm gonna try to find can we can we post TikTok links into our our show notes?

shabbir (14:54)
Yeah, I'm sure we can, yes.

Sven (14:56)
Right. I'll I'll I'll find I'll find a documentary, so to speak, that I was watching on TikTok, which is my social media vice of of choice. and they were looking at the super fake marketplace in China. And there are two companies that are known in China. One produces a almost impossible to identify outer case for the watch. So it's like the band and the metal and face and all of that.

Sven (15:25)
And then there's a second company and they produce the internal mechanism. And that's that's and they work together. And but those two pieces are so good that you cannot distinguish them. Furthermore, those companies, as most criminal organizations do, don't just do it in one outlet. Like each one of them has multiple production facilities. So even if law enforcement takes one of them out, they just switch it over to the other. And

shabbir (15:50)
Yeah.

Sven (15:51)
those watches were the ones that

Sven (15:53)
I mean, I should put another link in there from the Wired folks, where the Wired reporter that we covered in the last podcast, I saw the video of him with the watch literally going to the Rolex store. And he's like, This is a counterfeit watch. I know it's a super fake because I bought it. And he goes in the store and he comes back out and he's like, and they told me what a beautiful piece you have. That's how good they are. So

shabbir (16:17)
Yeah.

Sven (16:17)
yeah, it's a tremendous problem for for these for these companies.

shabbir (16:22)
It's gonna be interesting to watch, but you know, that is the world we live in.

Sven (16:28)
Well the the interesting

Sven (16:29)
piece here is now gonna kinda connect it actually back to what we had with the airbags. So I know you and I in the last pod were like, my God, if if Rolex is not freaked out about this. So I made some phone calls, called around and asked, and yes, Rolex is highly aware of this. They are very freaked out about it, but to a degree they also figured out we don't know exactly how to stop that. So what they did actually separately, Rolex had launched probably two years ago at this point.

Sven (16:56)
A certified, like a Rolex certified pre owned program, which like if you want to make sure that the Rolex you buy on a secondary market is an authenticate Rolex, you sell it through their marketplace. And Rolex will basically take the watch, really authenticate it, and then say, Yes, that's a watch that we can authenticate is a Rolex. And then Rolex of that takes, of course, a cut from it, like they take a processing fee. So they make money twice

shabbir (17:22)
Of course.

Sven (17:22)
on the watch, once the original and once on the resale.

Sven (17:25)
Because they're like, fine, we'll just we'll just sell the watch twice and then we make money off that because we know we can't combat the counterfeit issue. So credit to them for that. But long term it might really, really continue to undermine what a Rolex is worth and how much they can charge. Because like every Rolex I now see on my friend's wrists. I'm like, I don't know if that's real, man. Because I don't.

shabbir (17:52)
Yeah. Yeah, it's not like a Ferrari, right? If you buy a Ferrari, then you have these scheduled maintenances at the Ferrari dealership

Sven (18:00)
I guess.

shabbir (18:01)
every X thousand miles. They they definitely make a little bit of money keeping the car in shape over time. Rolex, until they invented this, doesn't necessarily have a a reason to make money on a watch once they sell it once.

Sven (18:15)
Right, one one time sale and and normally you have you have collectors obviously who own many and you have the you can only have this Rolex if you already own five different ones. So they have like which Ferrari also is that model? which I I never understood what but it's fine. I'm not that much into watches. but yeah, no, it's it's it's a massive issue. And for folks that are following this, the upcoming special 301 notorious market reports will focus

Sven (18:42)
On superfakes. So the USTR is trying to understand. Okay, talk to us what all exists in the superfakes market. And so I think that'll be a very interesting special 301 notorious markets to read to see what are what are, and we will probably do a special episode on this. What are all the super fakes out there? Like watches, jewelry, bags. It'd be be fascinating what it is.

shabbir (19:07)
I mean we I I personally you and I have personally seen the super fakes in the pharmaceutical world. They they actually have real serial numbers that are were really issued by the original manufacturer. Sometimes the counterfooters put them on a hundred different units, which is how you can know if you're looking at a hundred units with the same serial number that that that is not real. but those exist. and I'm sure that there's some others.

shabbir (19:35)
you know in the in the electronics world

Sven (19:38)
yeah. Well think of think about actually the the Gilead case, right? Where they were basically recycling existing bottles where they were basically buying bottles from the homeless community. Those were real bottles. So now that's actually a super fake because I can't authenticate that because it's a legit bottle, but you put something in it that's not it. So yeah, that probably that probably would also qualify as a super fake. Yeah.

shabbir (20:02)
Some of them are probably super fakes. They're they're I've seen some of the pictures of the bottles from that litigation and some of them are very damaged after having been toted around by homeless people with the rest of their belongings. They're it's not an ideal storage environment.

Sven (20:16)
It's a kind way of putting it. Fair point.

shabbir (20:21)
Well that's all we have for today. Thanks everybody for watching and look at your watch real careful.

Sven (20:28)
That's right. Shabbir,

Sven (20:29)
have a wonderful weekend which is upcoming and please read us out.

In this week's episode of the Imitation Nation Podcast, Sven and Shabbir talk with Piotr Stryszowski, a long time expert in the global counterfeit trade problem. Check it out!

Shabbir (00:01)
Welcome to Imitation Nation. This is Imitation Nation, maybe episode 36, and we have our first European guest on. So this is the first time we've tried

Sven (00:11)
Yay.

Shabbir (00:11)
to span an ocean. Our guest today is Piotr Stryszowski from the OECD. We've got a lot of exciting things to talk about. And if you don't follow Piotr on LinkedIn, you should.

Shabbir (00:22)
And he has a he has a lot to say about the counterfeit trade and we're gonna talk a little about that today. But thank you for making time for us. It's very well it's very generous of you.

Piotr (00:33)
Thank you for having me.

Shabbir (00:34)
tell us a little bit about y how you got into illicit trade because you're obviously a international expert in illicit trade, which is why we we are so excited to talk to you. What what's your origin there? What's what was your entree and what do you find most fascinating?

Piotr (00:52)
Well, Shabbir thank you so much for this introduction. I'm really honored. I'm an economist by training, right? So sometimes asking myself, who am I to tell people something? my best skill is to bring people to the table smarter than me, offer them some coffee, excellent French croissants, and listen to them. but back to your question. well, I'm an economist by training.

Piotr (01:15)
Right, I did my PhD in the economics of IP, intellectual property, how actually intellectual property adds value to products, to countries. It's a legal concept, but how to assess economically IP? Is it possible? Right. That was that was my main thesis. and then after I completed this, I got a job at the OVCD.

Piotr (01:41)
Where eventually, after some years, I ended up managing working party on countering illicit trade. Right, so it's it sounds a bit of a stretch from IP to illicit trade, but actually it's not. Right? The our working party is dedicated to understanding illicit trade today.

Piotr (02:06)
At the OECD, well, we are mostly economists, right? we work with data. We want to understand things using data, using numbers. so when you apply this logic to illicit trade, you see that there is lots of counterfeit goods being smuggled today. That's explains the kind of the move from like an IP economist, smart, arrogant, and young.

Piotr (02:32)
To well, I wish humble, humble bureaucrats trying to understand what's the hell is going on out there in this world. but well, thank you for mentioning me being as an expert, right? My my role here at the OECD, I see it, is to understand how illicit trade looks like and to help our member countries with the knowledge, right? But I gather knowledge from data.

Piotr (02:58)
And from talking to people who know more about this subject than me.

Sven (03:02)
Very cool. Well, Piotr, it's really, really nice to meet you. I read your most recent report w with a lot of interest. you know, for me I found it really, really fascinating that the study that we're gonna discuss, kinda report that you've done, it it's it's really the first study I've seen that had been done, and you were one of the lead authors on it that was trying to statistically demonstrate kind of

Sven (03:28)
what the relationship is between forced labor and weaker labor protections and illicit trade. So can you talk about what what you have found in that report? What's the connection between forced labor and counterfeit goods? I I I'd love for you to share that.

Piotr (03:47)
Excellent question. maybe before jumping to this question, some like background information. our work, I mean, we are in the international organization, right? Meaning that our work is overseen by our member countries. We're really proud to work for member countries, right? What we do is supposed to help countries and citizens, people in these countries. we work a lot with the United States.

Piotr (04:13)
With the PTO, with DHS, with the State Department. And because we work for countries, sometimes we don't have the luxury

Sven (04:22)
Yeah.

Piotr (04:22)
of going into our interpretations. We must be very conservative in what we publish, in what we what we do. Right? So I'm just saying this as a preemptive, well, I know how to say it.

Piotr (04:36)
strike to say that our findings are sometimes trivial and obvious,

Sven (04:40)
Yeah.

Piotr (04:41)
right? Well you mentioned link between forced labor and counterfeit trade or trade in counterfeit goods. When you think about it conceptually it's in a way trivial or it becomes straightforward. But our work is really to to change a narrative from seems to into is right so

Sven (05:02)
And

Piotr (05:03)
We need to be comfortable to say, yes, there is a link, right? Or now our work, as I said, we want to gauge the problems, we want to understand the problems using data. And we have a big data set that comes from customs offices around the world of seizures of counterfeit goods, right? Basically.

Piotr (05:28)
Customs officers that the are supposed to do 10,000 jobs, right? Seizing everything from well, narcotics to substandard medicines. They also need to seize counterfeits. And we

Sven (05:41)
Mm-hmm.

Piotr (05:42)
receive regularly data from customs offices around the world about seizures of counterfeit products. What's been seized, where from, where to, quantities, brands, all the information.

Piotr (05:56)
These data are confidential. We work with them in-house, we don't disclose them. What we disclose is just aggregates results. And we use this data really to understand better the trends in counterfeiting and relation of counterfeiting with other measurable phenomena.

Sven (06:16)
Mm-hmm.

Piotr (06:17)
But this is just to say that measuring counterfeiting is difficult, right? Customs data are not perfect.

Piotr (06:24)
It's not like, you know, your weight, you put on a scale and say, crap, it's too much. I wish

Shabbir (06:28)
Yeah.

Piotr (06:29)
my weight was measured with such precision as counterfeiting sometimes.

Shabbir (06:33)
Ha ha ha ha.

Sven (06:33)
Well yeah, since it's

Sven (06:35)
no since it's clandestine in nature, it makes sense. It's much harder to see and you you try to

Piotr (06:39)
Exactly.

Sven (06:39)
triangulate it with all the data. So when when you looked at all of it and you're triangulating it all and you're looking at all the seizure data, what did what did you see? And how did you now make the correlation to force labor?

Piotr (06:50)
Exactly. So I mean it it's it's not it's in a way easy, right? Our research is easy because we don't want to go too deep to keep robustness of results at a high level. We looked on the one hand at available measures of counterfeiting, right? Because these customs data provide us inputs into aggregated measures of counterfeiting. these measures are done at country level.

Piotr (07:17)
We want to assess to what extent exporting countries export counterfeits. Right? So for each country in the world, we have a like an artificial index that assigns certain intensity. Of course, some countries are general exporters of everything, right? So this should be also taken into account. But we have this one on the one hand, we have index of counterfeiting. And here, on the other hand, we have existing measures of forced labor.

Piotr (07:46)
Here we talk about available indices, right? And we need to take into account all other measures that could impact this relationship, right? So here, like being an economist, I'm throwing everything that comes to my mind, ranging from economic variables through some trade measures to also other socioeconomic variables. I look at trends, anything, anything that comes to mind. Just to check if there is a direct link.

Piotr (08:15)
between both counterfeiting, export of counterfeits, and well protection of labor that cannot be explained by anything else. And here importantly, when we look at forced labor, we also looked at in accidents. So like I would say how safe labor conditions are, and at child labor, right? So like all different indices.

Piotr (08:44)
yeah, that's what that was the that was the black box, right? That's

Sven (08:47)
Yeah.

Piotr (08:48)
in a way simple, right? We want to keep it simple. And and the findings are again not surprising. There is a link, there is a correlation between both. Counterfeiting, yeah.

Sven (09:00)
So when you when

Sven (09:02)
you just said there's a correlation, is there did you find a correlation or did you find a causation? Like which which link did you find?

Piotr (09:09)
Well look here, I'm really no that we could not establish causality, right? but also when you think about it, I what would be what would be the origin of a problem? The fact that there is bad guys that export goods that are counterfeit, or the fact that these guys do not only I mean these guys don't it's not like they only don't care about IP laws but also about labor laws right? It's it's like

Piotr (09:37)
Two sides of the same coin. And here I would say it's more a philosophical question about causality. It just says that there's bad guys who don't care about IP and who don't care about, well, human rights, right? Who just look for money, no ethics.

Shabbir (09:53)
Yeah.

Shabbir (09:58)
You know, we have talked on the on the podcast a lot about the change, the constant change in shipping requirements and and entry requirements in different countries. The biggest story, I think, for us that affects illicit trade is the change in what we in the US call de minimis shipping. I guess you might call it the same thing in Europe, but the rules around de minimis have been changing for the past two years, and they've had a really notable effect on illicit trade.

Shabbir (10:27)
especially for illicit goods that come out of China into the US. At least that's that's the part I'm familiar with. what do you see in the in the regulatory environment and and how is it how do you see these changes in rules around small package, small value parcel shipping affecting the illicit trade market?

Piotr (10:47)
Excellent question. Well, like firstly, we just talked about forced labor, right? Forced labor it's it's disgusting. It's it's awful. There is nothing good about forced labor, it's it's disgusting crime. I don't want us to think the same about small parcels. Small parcels are amazing.

Piotr (11:10)
I would not survive COVID without small parcels.

Shabbir (11:12)
Ha ha.

Piotr (11:13)
So here we we deal with different phenomena, right? Small parcels are amazing. There's a huge revolution in how commerce operates, in how trade operates. It's being non-native speaker, I lack proper language, proper vocabulary to express the dynamism of small parcels. I know explosion, volcano.

Piotr (11:35)
Billions of small parcels flying around the world. Amazing, amazing. And it is great, great for consumers. But at the same time, there are challenges, right? And the challenges are on the enforcement end. As I said at the beginning, like customs, they are like Swiss Army knives. They need to deal with 10,000 problems these days. And this of this explosion of small parcels, billions.

Piotr (12:00)
of small parcels, right? Doesn't help the situation. So here the challenge is really how it's not like with forced labor, how to really crunch it, but how to make sure that customs are able to to do their job properly without really hindering consumers. And here the policies around the minimis rules, in my opinion, right, it's in my opinion, are a very relevant move, right?

Piotr (12:28)
To end the abuse by many bad actors of this fantastic solution that is that is small parcels, right? But again, it's I think it's a bit too early to say how it will work. From what we see is that counterfeiters and bad guys are very smart. So it might be that those

Shabbir (12:44)
Yes.

Piotr (12:45)
bad things that used to enter the US are right now being rerouted and going to other countries.

Piotr (12:52)
We've seen it like the COVID was a great example of such thing where many borders were closed. It's like a labyrinth with some you know walls moving, and you can see that illicit trade finds a new route. So we've seen seizures in places that a few years ago were relatively free or not so intensely abused by bad guys. Here with de minimis, we certainly need to wait to see the results, how the impact will look like.

Piotr (13:21)
And also we would need some coordination between different countries, introducing de minimis, right? Not to say that okay, the dam is right now here, so the water will just will just go this way.

Shabbir (13:33)
Yeah, I mean I think given the fact that we've watched we watched data come out and it's sometimes a year or two old from let's say the UK Customs Authority, I think we're gonna probably be studying the effects of of these regulatory changes for for years before we really have a good handle on it.

Piotr (13:52)
Exactly. But again, small parcels are great. It's just like from my perspective, for many years the regulatory environment, maybe not regulatory, but the policy environment, international environment around small parcels, was not updated, right? So in many countries we still deal with paper, right? So it's it's pretty old.

Piotr (14:15)
And here we talk when

Shabbir (14:15)
Yes.

Piotr (14:16)
we talk small parcels, we also talk about e-commerce, which which shrinks the whole global trade into one computer or one iPhone, right? So it's there is this discrepancy between advancement in technology that allows consumers to kind of shop everywhere, and relative rigidity of enforcement. And not only national enforcement, but also international collaboration in enforcement.

Piotr (14:41)
enforcement.

Sven (14:43)
Yeah, it was it was really interesting for me when I when I read the when I read the report, kind of what you talked about, finding the, you know, correlation between, for example, child labor, forced labor, and counterfeiting, and then reading even further. And I found it fascinating when I read that there's a negative correlation actually to unions. So the more unions a country has, the less likely it actually is that they have either forced labor and or therefore have counterfeiting.

Sven (15:11)
And now talking about de minimis, that kind of all makes sense. Like the more lax and a regulatory environment of a country is, like the less they have or the less organized it is, the more porous it is, so to speak, the more and more it is able for people to conduct counterfeit operations in that country because you just have a very porous regulatory environment. So that was a really cool correlation that your report laid out there.

Piotr (15:38)
Well, thank you. I mean, we try to look at these correlations all the time to understand better the environment around counterfeiting. And here kind of a trivial statement that counterfeiting is not something that I would say poor countries can specialize in, right? It requires a certain degree of development. It requires good production network.

Piotr (16:02)
It requires good trading infrastructure. So I wouldn't say that this is kind of a way for poor countries to cope with development gaps and go ahead. No, when you look actually at the at the list of countries with respect to their likelihoods to do counterfeiting, you see many wealthy countries there.

Sven (16:24)
No, it's interesting. So actually switching topics a little bit when you say, you know, always interesting to see when you kind of look at broader at the data, what are some of the trends you're seeing coming up in counterfeiting? So we recently on a on a pod last week we talked about some extremely sophisticated, good looking super fakes, fake luxury watches that were so good that a reporter from Wired magazine was actually able to take into a Rolex dealer.

Sven (16:51)
and they actually service those watches. That's how convincing those counterfeit watches were. what what are you seeing kind of as a trend in counterfeiting overall that is of of concern for you.

Piotr (17:03)
great

Piotr (17:03)
question. I would say my biggest concern is that the planet of counterfeiting is so huge, it's really hard to hard to find a common denominator. Right? It's like counterfeiters are smart businessmen that look for money. And because today's world relies on IP, trademarks are everywhere, there is lots of money, lots of opportunities.

Piotr (17:30)
Right? The example you gave about watches. well, counterfeiters no longer just fool casual buyers, they also beat trained experts. well, we call it two types of markets: primary market and secondary market. Secondary market is like cheap counterfeits that you can just buy on the corner of a street that are not supposed to fool even consumers, right? That's I suppose yeah, like luxury goods that you know what you're buying, right? So

Shabbir (17:56)
Mm-hmm.

Piotr (17:56)
cheap.

Piotr (17:57)
Must be fake. But at the same time, there are many counterfeits flying around that are supposed to fool experts. Or at least at least those that introduce them to the official supply chain. Here it's not only about luxury goods, it's also spare parts. Right? You go with your car to a garage, you pay full price for a spare part, and then oof.

Piotr (18:24)
It's also about medicines, food, toys, right? I have three kids. I want to pay a lot to make sure they are safe.

Shabbir (18:35)
Yeah.

Piotr (18:36)
Right? So I'm a potential target for counterfeiters. Right? So there is this primary-secondary market, right? This kind of fooling consumers because it's money. And with

Piotr (18:48)
e-commerce everywhere with such an ease of access right to online shops, it becomes easy. So I would say that's that's the trend. That's what we can see today. Well another another I would say trend or or phenomenon is that counterfeiting impacts all products that have trademark on them.

Piotr (19:10)
Sometimes when it say counterfeit you think like fake, well whatever, luxury bags or some watches in the example. Well, when you look at the data, when I look at our data and imagine that on the horizontal axis you have different product, like product categories, and on the vertical axis you have intensity of counterfeiting. Say 20 years ago it was like pretty skewed towards luxury goods. Now it becomes flatter and flatter.

Piotr (19:39)
Right, so what used to be anecdotal or like funny becomes now like well, it's it's more regular, right? Or

Sven (19:47)
Yeah.

Piotr (19:47)
what used to be free from counterfeiting now becomes anecdotal. here there are many anecdotes that might sound funny, but they're only initially funny, like well, fake guitars, fake cement, fake electricity switches.

Piotr (20:06)
Fake baby formulas, fake cat food, right? Even

Shabbir (20:12)
Yeah.

Piotr (20:13)
yeah, there's everything can be fake. Everything because IP adds value to products. IP is trust, IP is quality. So anything can be a target, especially in the world where customs deal with ten thousand different priorities.

Sven (20:28)
Yeah, no, I I think you make a very good

Shabbir (20:29)
Yeah, we did a s we

Shabbir (20:31)
we covered a story about counterfeit sinks that possessed a a a special mark that's supposed to denote them as being compliant with plumbing standards. And I thought, well, I have seen it all now.

Sven (20:44)
Yeah, no, you you make a really good point. You know, I've been in the in the anti-counterfeiting business for, yeah, at this point, almost, you know, twenty, twenty, twenty-five years. And it it was it was interesting when I started in that kind of business, so to speak, right? I I sat for an advisory board on the youth chamber of commerce. And you're right, at that time it basically was large movie studios, a couple of software piracy issues that that existed, and mostly luxury goods, right?

Sven (21:12)
we were there, I was there with Philip Morris and we were tobacco was was a large issue as well. And then you're right, the table started to fill over over the decades and it became more and more of every product that can be counterfeited, started to be counterfeited. As long as there's a margin there, as long as there's a market there, as long as they can make money there, and with the increasing, you know, global proliferation of trade and making the internet purchase easier and easier, you're right, that table started to fill up.

Sven (21:41)
quite a bit with with new members.

Piotr (21:44)
Everything right and actually it's not funny, it's it's scary. It's scary because at the end of the day we are exposed to unknown goods that can that can harm us, that can steal our jobs, that can really rip off taxes. So it's a real problem. It's not a funny anecdote that's yeah makes

Sven (22:02)
Agree.

Piotr (22:02)
us laugh, it's it's it's a problem.

Sven (22:05)
Yeah, there's two key takeaways I have from from today with you that just reiterated for anybody who is listening, right? So if if you work in a company and you have a trademark or you work on a product and you you start to listen to these podcasts because you think Shabbir and I are interesting, but you thought deep inside you're like, that doesn't happen in my company. I I I warn you and I beg you to take a deeper look. There's a if your product is selling, if you have a good market, there's most likely counterfeit somewhere and

Sven (22:31)
I think what also Piotr here said, understand that that counterfeit is not just a it's a nuisance or it's a it's a you know kind of funny story as as Piotr called it. But no, it actually has large crime implications. Plus, it can thrive in countries that have really, really bad human labor standards. And so therefore it fosters human slave forced child labor, all of that. So I think you make a very good.

Sven (22:55)
point Piotr. I think a lot of people underestimate and think like, it's just luxury bags. No, it's not. If your product sells, you you most likely will have counterfeit somewhere.

Piotr (23:06)
Absolutely. You said it Sven Yeah.

Sven (23:09)
No, you said it. I just recapped it.

Shabbir (23:11)
Well, and I'll say, you know, that the the the the report, your your fakes and forced labor correlative report really just reiterates something that is has been a a theme for me in the world of counterfeits, which is that if you're willing to break one law, you'll break all of them. Right. So you don't violate the IP but then obey all the material safety standards to you know, and which is how you end up with a hat that has

Shabbir (23:37)
Formaldehyde chemicals in it that's also a copy of a you know a World Cup logo hat. Once you start breaking laws, you it's easy to break them all.

Sven (23:46)
Yeah, not a lot of not a lot of unionized counterfeiters.

Piotr (23:47)
Absolutely.

Shabbir (23:50)
Yeah.

Piotr (23:50)
Well

Piotr (23:51)
but not only hats, spare parts, right? Pharmaceuticals, medical devices, food, toys, IT equipment, batteries. There's lots of lots of stuff there that's really dangerous.

Shabbir (24:05)
Yeah. Piotr, before we go, do you is there anything you want to touch on that we didn't cover?

Piotr (24:12)
Well thank you. I it was it was amazing. And again, thank you so much. Well, I bet once I disconnect I'll think, I should say this or that. But yeah, that's that's life. That's my messy nature. So thank you for having

Shabbir (24:22)
Well, I'm I'm

Piotr (24:24)
me.

Shabbir (24:25)
I'm gonna suggest that people do what I do, which is I follow you on LinkedIn. And that also leads me to the blog at OECD that you occasionally contribute to, where you where when you when you are have published something or have something to say, it often appears there. is there anywhere else that people should follow you or follow your work?

Piotr (24:44)
Well LinkedIn of course and for those that you don't know me, my surname looks like a sale of consonants, but I'm the only Piotr I think on the OECD. So just type Google Piotr OECD to find me. Otherwise OECD illicit trade is kind of a website of our small small unit here that monitors illicit trade, tries to understand what's going on out there.

Shabbir (25:08)
We will put all that in the show notes and thank you for joining us today and staying up so late in f in France so that you can make this interview.

Piotr (25:17)
Thank you for having me.

Sven (25:18)
Well Piotr it was an absolute pleasure meeting you and with that, Shabbir, read us out.

Piotr (25:24)
Thank you.

 

 

In this week's episode of the Imitation Nation Podcast, Sven and Shabbir talk with Piotr Stryszowski, a long time expert in the global counterfeit trade problem. Check it out!

Shabbir (00:01)
Welcome to Imitation Nation. This is Imitation Nation, maybe episode 36, and we have our first European guest on. So this is the first time we've tried

Sven (00:11)
Yay.

Shabbir (00:11)
to span an ocean. Our guest today is Piotr Stryszowski from the OECD. We've got a lot of exciting things to talk about. And if you don't follow Piotr on LinkedIn, you should.

Shabbir (00:22)
And he has a he has a lot to say about the counterfeit trade and we're gonna talk a little about that today. But thank you for making time for us. It's very well it's very generous of you.

Piotr (00:33)
Thank you for having me.

Shabbir (00:34)
tell us a little bit about y how you got into illicit trade because you're obviously a international expert in illicit trade, which is why we we are so excited to talk to you. What what's your origin there? What's what was your entree and what do you find most fascinating?

Piotr (00:52)
Well, Shabbir thank you so much for this introduction. I'm really honored. I'm an economist by training, right? So sometimes asking myself, who am I to tell people something? my best skill is to bring people to the table smarter than me, offer them some coffee, excellent French croissants, and listen to them. but back to your question. well, I'm an economist by training.

Piotr (01:15)
Right, I did my PhD in the economics of IP, intellectual property, how actually intellectual property adds value to products, to countries. It's a legal concept, but how to assess economically IP? Is it possible? Right. That was that was my main thesis. and then after I completed this, I got a job at the OVCD.

Piotr (01:41)
Where eventually, after some years, I ended up managing working party on countering illicit trade. Right, so it's it sounds a bit of a stretch from IP to illicit trade, but actually it's not. Right? The our working party is dedicated to understanding illicit trade today.

Piotr (02:06)
At the OECD, well, we are mostly economists, right? we work with data. We want to understand things using data, using numbers. so when you apply this logic to illicit trade, you see that there is lots of counterfeit goods being smuggled today. That's explains the kind of the move from like an IP economist, smart, arrogant, and young.

Piotr (02:32)
To well, I wish humble, humble bureaucrats trying to understand what's the hell is going on out there in this world. but well, thank you for mentioning me being as an expert, right? My my role here at the OECD, I see it, is to understand how illicit trade looks like and to help our member countries with the knowledge, right? But I gather knowledge from data.

Piotr (02:58)
And from talking to people who know more about this subject than me.

Sven (03:02)
Very cool. Well, Piotr, it's really, really nice to meet you. I read your most recent report w with a lot of interest. you know, for me I found it really, really fascinating that the study that we're gonna discuss, kinda report that you've done, it it's it's really the first study I've seen that had been done, and you were one of the lead authors on it that was trying to statistically demonstrate kind of

Sven (03:28)
what the relationship is between forced labor and weaker labor protections and illicit trade. So can you talk about what what you have found in that report? What's the connection between forced labor and counterfeit goods? I I I'd love for you to share that.

Piotr (03:47)
Excellent question. maybe before jumping to this question, some like background information. our work, I mean, we are in the international organization, right? Meaning that our work is overseen by our member countries. We're really proud to work for member countries, right? What we do is supposed to help countries and citizens, people in these countries. we work a lot with the United States.

Piotr (04:13)
With the PTO, with DHS, with the State Department. And because we work for countries, sometimes we don't have the luxury

Sven (04:22)
Yeah.

Piotr (04:22)
of going into our interpretations. We must be very conservative in what we publish, in what we what we do. Right? So I'm just saying this as a preemptive, well, I know how to say it.

Piotr (04:36)
strike to say that our findings are sometimes trivial and obvious,

Sven (04:40)
Yeah.

Piotr (04:41)
right? Well you mentioned link between forced labor and counterfeit trade or trade in counterfeit goods. When you think about it conceptually it's in a way trivial or it becomes straightforward. But our work is really to to change a narrative from seems to into is right so

Sven (05:02)
And

Piotr (05:03)
We need to be comfortable to say, yes, there is a link, right? Or now our work, as I said, we want to gauge the problems, we want to understand the problems using data. And we have a big data set that comes from customs offices around the world of seizures of counterfeit goods, right? Basically.

Piotr (05:28)
Customs officers that the are supposed to do 10,000 jobs, right? Seizing everything from well, narcotics to substandard medicines. They also need to seize counterfeits. And we

Sven (05:41)
Mm-hmm.

Piotr (05:42)
receive regularly data from customs offices around the world about seizures of counterfeit products. What's been seized, where from, where to, quantities, brands, all the information.

Piotr (05:56)
These data are confidential. We work with them in-house, we don't disclose them. What we disclose is just aggregates results. And we use this data really to understand better the trends in counterfeiting and relation of counterfeiting with other measurable phenomena.

Sven (06:16)
Mm-hmm.

Piotr (06:17)
But this is just to say that measuring counterfeiting is difficult, right? Customs data are not perfect.

Piotr (06:24)
It's not like, you know, your weight, you put on a scale and say, crap, it's too much. I wish

Shabbir (06:28)
Yeah.

Piotr (06:29)
my weight was measured with such precision as counterfeiting sometimes.

Shabbir (06:33)
Ha ha ha ha.

Sven (06:33)
Well yeah, since it's

Sven (06:35)
no since it's clandestine in nature, it makes sense. It's much harder to see and you you try to

Piotr (06:39)
Exactly.

Sven (06:39)
triangulate it with all the data. So when when you looked at all of it and you're triangulating it all and you're looking at all the seizure data, what did what did you see? And how did you now make the correlation to force labor?

Piotr (06:50)
Exactly. So I mean it it's it's not it's in a way easy, right? Our research is easy because we don't want to go too deep to keep robustness of results at a high level. We looked on the one hand at available measures of counterfeiting, right? Because these customs data provide us inputs into aggregated measures of counterfeiting. these measures are done at country level.

Piotr (07:17)
We want to assess to what extent exporting countries export counterfeits. Right? So for each country in the world, we have a like an artificial index that assigns certain intensity. Of course, some countries are general exporters of everything, right? So this should be also taken into account. But we have this one on the one hand, we have index of counterfeiting. And here, on the other hand, we have existing measures of forced labor.

Piotr (07:46)
Here we talk about available indices, right? And we need to take into account all other measures that could impact this relationship, right? So here, like being an economist, I'm throwing everything that comes to my mind, ranging from economic variables through some trade measures to also other socioeconomic variables. I look at trends, anything, anything that comes to mind. Just to check if there is a direct link.

Piotr (08:15)
between both counterfeiting, export of counterfeits, and well protection of labor that cannot be explained by anything else. And here importantly, when we look at forced labor, we also looked at in accidents. So like I would say how safe labor conditions are, and at child labor, right? So like all different indices.

Piotr (08:44)
yeah, that's what that was the that was the black box, right? That's

Sven (08:47)
Yeah.

Piotr (08:48)
in a way simple, right? We want to keep it simple. And and the findings are again not surprising. There is a link, there is a correlation between both. Counterfeiting, yeah.

Sven (09:00)
So when you when

Sven (09:02)
you just said there's a correlation, is there did you find a correlation or did you find a causation? Like which which link did you find?

Piotr (09:09)
Well look here, I'm really no that we could not establish causality, right? but also when you think about it, I what would be what would be the origin of a problem? The fact that there is bad guys that export goods that are counterfeit, or the fact that these guys do not only I mean these guys don't it's not like they only don't care about IP laws but also about labor laws right? It's it's like

Piotr (09:37)
Two sides of the same coin. And here I would say it's more a philosophical question about causality. It just says that there's bad guys who don't care about IP and who don't care about, well, human rights, right? Who just look for money, no ethics.

Shabbir (09:53)
Yeah.

Shabbir (09:58)
You know, we have talked on the on the podcast a lot about the change, the constant change in shipping requirements and and entry requirements in different countries. The biggest story, I think, for us that affects illicit trade is the change in what we in the US call de minimis shipping. I guess you might call it the same thing in Europe, but the rules around de minimis have been changing for the past two years, and they've had a really notable effect on illicit trade.

Shabbir (10:27)
especially for illicit goods that come out of China into the US. At least that's that's the part I'm familiar with. what do you see in the in the regulatory environment and and how is it how do you see these changes in rules around small package, small value parcel shipping affecting the illicit trade market?

Piotr (10:47)
Excellent question. Well, like firstly, we just talked about forced labor, right? Forced labor it's it's disgusting. It's it's awful. There is nothing good about forced labor, it's it's disgusting crime. I don't want us to think the same about small parcels. Small parcels are amazing.

Piotr (11:10)
I would not survive COVID without small parcels.

Shabbir (11:12)
Ha ha.

Piotr (11:13)
So here we we deal with different phenomena, right? Small parcels are amazing. There's a huge revolution in how commerce operates, in how trade operates. It's being non-native speaker, I lack proper language, proper vocabulary to express the dynamism of small parcels. I know explosion, volcano.

Piotr (11:35)
Billions of small parcels flying around the world. Amazing, amazing. And it is great, great for consumers. But at the same time, there are challenges, right? And the challenges are on the enforcement end. As I said at the beginning, like customs, they are like Swiss Army knives. They need to deal with 10,000 problems these days. And this of this explosion of small parcels, billions.

Piotr (12:00)
of small parcels, right? Doesn't help the situation. So here the challenge is really how it's not like with forced labor, how to really crunch it, but how to make sure that customs are able to to do their job properly without really hindering consumers. And here the policies around the minimis rules, in my opinion, right, it's in my opinion, are a very relevant move, right?

Piotr (12:28)
To end the abuse by many bad actors of this fantastic solution that is that is small parcels, right? But again, it's I think it's a bit too early to say how it will work. From what we see is that counterfeiters and bad guys are very smart. So it might be that those

Shabbir (12:44)
Yes.

Piotr (12:45)
bad things that used to enter the US are right now being rerouted and going to other countries.

Piotr (12:52)
We've seen it like the COVID was a great example of such thing where many borders were closed. It's like a labyrinth with some you know walls moving, and you can see that illicit trade finds a new route. So we've seen seizures in places that a few years ago were relatively free or not so intensely abused by bad guys. Here with de minimis, we certainly need to wait to see the results, how the impact will look like.

Piotr (13:21)
And also we would need some coordination between different countries, introducing de minimis, right? Not to say that okay, the dam is right now here, so the water will just will just go this way.

Shabbir (13:33)
Yeah, I mean I think given the fact that we've watched we watched data come out and it's sometimes a year or two old from let's say the UK Customs Authority, I think we're gonna probably be studying the effects of of these regulatory changes for for years before we really have a good handle on it.

Piotr (13:52)
Exactly. But again, small parcels are great. It's just like from my perspective, for many years the regulatory environment, maybe not regulatory, but the policy environment, international environment around small parcels, was not updated, right? So in many countries we still deal with paper, right? So it's it's pretty old.

Piotr (14:15)
And here we talk when

Shabbir (14:15)
Yes.

Piotr (14:16)
we talk small parcels, we also talk about e-commerce, which which shrinks the whole global trade into one computer or one iPhone, right? So it's there is this discrepancy between advancement in technology that allows consumers to kind of shop everywhere, and relative rigidity of enforcement. And not only national enforcement, but also international collaboration in enforcement.

Piotr (14:41)
enforcement.

Sven (14:43)
Yeah, it was it was really interesting for me when I when I read the when I read the report, kind of what you talked about, finding the, you know, correlation between, for example, child labor, forced labor, and counterfeiting, and then reading even further. And I found it fascinating when I read that there's a negative correlation actually to unions. So the more unions a country has, the less likely it actually is that they have either forced labor and or therefore have counterfeiting.

Sven (15:11)
And now talking about de minimis, that kind of all makes sense. Like the more lax and a regulatory environment of a country is, like the less they have or the less organized it is, the more porous it is, so to speak, the more and more it is able for people to conduct counterfeit operations in that country because you just have a very porous regulatory environment. So that was a really cool correlation that your report laid out there.

Piotr (15:38)
Well, thank you. I mean, we try to look at these correlations all the time to understand better the environment around counterfeiting. And here kind of a trivial statement that counterfeiting is not something that I would say poor countries can specialize in, right? It requires a certain degree of development. It requires good production network.

Piotr (16:02)
It requires good trading infrastructure. So I wouldn't say that this is kind of a way for poor countries to cope with development gaps and go ahead. No, when you look actually at the at the list of countries with respect to their likelihoods to do counterfeiting, you see many wealthy countries there.

Sven (16:24)
No, it's interesting. So actually switching topics a little bit when you say, you know, always interesting to see when you kind of look at broader at the data, what are some of the trends you're seeing coming up in counterfeiting? So we recently on a on a pod last week we talked about some extremely sophisticated, good looking super fakes, fake luxury watches that were so good that a reporter from Wired magazine was actually able to take into a Rolex dealer.

Sven (16:51)
and they actually service those watches. That's how convincing those counterfeit watches were. what what are you seeing kind of as a trend in counterfeiting overall that is of of concern for you.

Piotr (17:03)
great

Piotr (17:03)
question. I would say my biggest concern is that the planet of counterfeiting is so huge, it's really hard to hard to find a common denominator. Right? It's like counterfeiters are smart businessmen that look for money. And because today's world relies on IP, trademarks are everywhere, there is lots of money, lots of opportunities.

Piotr (17:30)
Right? The example you gave about watches. well, counterfeiters no longer just fool casual buyers, they also beat trained experts. well, we call it two types of markets: primary market and secondary market. Secondary market is like cheap counterfeits that you can just buy on the corner of a street that are not supposed to fool even consumers, right? That's I suppose yeah, like luxury goods that you know what you're buying, right? So

Shabbir (17:56)
Mm-hmm.

Piotr (17:56)
cheap.

Piotr (17:57)
Must be fake. But at the same time, there are many counterfeits flying around that are supposed to fool experts. Or at least at least those that introduce them to the official supply chain. Here it's not only about luxury goods, it's also spare parts. Right? You go with your car to a garage, you pay full price for a spare part, and then oof.

Piotr (18:24)
It's also about medicines, food, toys, right? I have three kids. I want to pay a lot to make sure they are safe.

Shabbir (18:35)
Yeah.

Piotr (18:36)
Right? So I'm a potential target for counterfeiters. Right? So there is this primary-secondary market, right? This kind of fooling consumers because it's money. And with

Piotr (18:48)
e-commerce everywhere with such an ease of access right to online shops, it becomes easy. So I would say that's that's the trend. That's what we can see today. Well another another I would say trend or or phenomenon is that counterfeiting impacts all products that have trademark on them.

Piotr (19:10)
Sometimes when it say counterfeit you think like fake, well whatever, luxury bags or some watches in the example. Well, when you look at the data, when I look at our data and imagine that on the horizontal axis you have different product, like product categories, and on the vertical axis you have intensity of counterfeiting. Say 20 years ago it was like pretty skewed towards luxury goods. Now it becomes flatter and flatter.

Piotr (19:39)
Right, so what used to be anecdotal or like funny becomes now like well, it's it's more regular, right? Or

Sven (19:47)
Yeah.

Piotr (19:47)
what used to be free from counterfeiting now becomes anecdotal. here there are many anecdotes that might sound funny, but they're only initially funny, like well, fake guitars, fake cement, fake electricity switches.

Piotr (20:06)
Fake baby formulas, fake cat food, right? Even

Shabbir (20:12)
Yeah.

Piotr (20:13)
yeah, there's everything can be fake. Everything because IP adds value to products. IP is trust, IP is quality. So anything can be a target, especially in the world where customs deal with ten thousand different priorities.

Sven (20:28)
Yeah, no, I I think you make a very good

Shabbir (20:29)
Yeah, we did a s we

Shabbir (20:31)
we covered a story about counterfeit sinks that possessed a a a special mark that's supposed to denote them as being compliant with plumbing standards. And I thought, well, I have seen it all now.

Sven (20:44)
Yeah, no, you you make a really good point. You know, I've been in the in the anti-counterfeiting business for, yeah, at this point, almost, you know, twenty, twenty, twenty-five years. And it it was it was interesting when I started in that kind of business, so to speak, right? I I sat for an advisory board on the youth chamber of commerce. And you're right, at that time it basically was large movie studios, a couple of software piracy issues that that existed, and mostly luxury goods, right?

Sven (21:12)
we were there, I was there with Philip Morris and we were tobacco was was a large issue as well. And then you're right, the table started to fill over over the decades and it became more and more of every product that can be counterfeited, started to be counterfeited. As long as there's a margin there, as long as there's a market there, as long as they can make money there, and with the increasing, you know, global proliferation of trade and making the internet purchase easier and easier, you're right, that table started to fill up.

Sven (21:41)
quite a bit with with new members.

Piotr (21:44)
Everything right and actually it's not funny, it's it's scary. It's scary because at the end of the day we are exposed to unknown goods that can that can harm us, that can steal our jobs, that can really rip off taxes. So it's a real problem. It's not a funny anecdote that's yeah makes

Sven (22:02)
Agree.

Piotr (22:02)
us laugh, it's it's it's a problem.

Sven (22:05)
Yeah, there's two key takeaways I have from from today with you that just reiterated for anybody who is listening, right? So if if you work in a company and you have a trademark or you work on a product and you you start to listen to these podcasts because you think Shabbir and I are interesting, but you thought deep inside you're like, that doesn't happen in my company. I I I warn you and I beg you to take a deeper look. There's a if your product is selling, if you have a good market, there's most likely counterfeit somewhere and

Sven (22:31)
I think what also Piotr here said, understand that that counterfeit is not just a it's a nuisance or it's a it's a you know kind of funny story as as Piotr called it. But no, it actually has large crime implications. Plus, it can thrive in countries that have really, really bad human labor standards. And so therefore it fosters human slave forced child labor, all of that. So I think you make a very good.

Sven (22:55)
point Piotr. I think a lot of people underestimate and think like, it's just luxury bags. No, it's not. If your product sells, you you most likely will have counterfeit somewhere.

Piotr (23:06)
Absolutely. You said it Sven Yeah.

Sven (23:09)
No, you said it. I just recapped it.

Shabbir (23:11)
Well, and I'll say, you know, that the the the the report, your your fakes and forced labor correlative report really just reiterates something that is has been a a theme for me in the world of counterfeits, which is that if you're willing to break one law, you'll break all of them. Right. So you don't violate the IP but then obey all the material safety standards to you know, and which is how you end up with a hat that has

Shabbir (23:37)
Formaldehyde chemicals in it that's also a copy of a you know a World Cup logo hat. Once you start breaking laws, you it's easy to break them all.

Sven (23:46)
Yeah, not a lot of not a lot of unionized counterfeiters.

Piotr (23:47)
Absolutely.

Shabbir (23:50)
Yeah.

Piotr (23:50)
Well

Piotr (23:51)
but not only hats, spare parts, right? Pharmaceuticals, medical devices, food, toys, IT equipment, batteries. There's lots of lots of stuff there that's really dangerous.

Shabbir (24:05)
Yeah. Piotr, before we go, do you is there anything you want to touch on that we didn't cover?

Piotr (24:12)
Well thank you. I it was it was amazing. And again, thank you so much. Well, I bet once I disconnect I'll think, I should say this or that. But yeah, that's that's life. That's my messy nature. So thank you for having

Shabbir (24:22)
Well, I'm I'm

Piotr (24:24)
me.

Shabbir (24:25)
I'm gonna suggest that people do what I do, which is I follow you on LinkedIn. And that also leads me to the blog at OECD that you occasionally contribute to, where you where when you when you are have published something or have something to say, it often appears there. is there anywhere else that people should follow you or follow your work?

Piotr (24:44)
Well LinkedIn of course and for those that you don't know me, my surname looks like a sale of consonants, but I'm the only Piotr I think on the OECD. So just type Google Piotr OECD to find me. Otherwise OECD illicit trade is kind of a website of our small small unit here that monitors illicit trade, tries to understand what's going on out there.

Shabbir (25:08)
We will put all that in the show notes and thank you for joining us today and staying up so late in f in France so that you can make this interview.

Piotr (25:17)
Thank you for having me.

Sven (25:18)
Well Piotr it was an absolute pleasure meeting you and with that, Shabbir, read us out.

Piotr (25:24)
Thank you.