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Organized crime steering the piracy ship

Weapons seized along with 2.5 million counterfeit euros by Spanish police in March 2005 during a special operation in Madrid. Police arrested 27 people.

TEXT: Organized crime steering the piracy ship

Making and selling counterfeit goods used to be a cottage industry -- a small-scale, low level offence.

Not anymore.

Counterfeiting has gone global and mom and pop aren't running the shop anymore.

Marketplace's Stephen Beard reports.

[SOUND: An outdoor market]

BEARD: This is Wembley Market in north London, the largest street market in the British capital -- and the place to go to buy counterfeit goods. In fact, says Tim Phillips, author of "Knock-Off: The Deadly Trade in Counterfeit Goods," you would be hard-put to find any genuine brands here.

PHILLIPS: There are a lot of designer handbags now. You will see jewelry. You will see cosmetics. You will see perfumes. All with the branding applied. But the branding is only skin-deep.

BEARD: These are fakes.

PHILLIPS: These are fakes. The estimate from the police is that on Wembley Market now about 90% of the products on sale here are fakes.

BEARD: Profit, of course, is what drives this huge, illicit international trade. And without the cost of advertising, marketing and managing the brand, the counterfeiters -- says Tim - only have to worry about the cost of manufacture.

PHILLIPS: The profit margin is spectacular because, if there is one thing that we've learned from globalization, it's that it is very, very cheap to manufacture, to mass-produce goods like these.

BEARD: And it's even cheaper when the counterfeiter doesn't have to bother about quality. Gyles Speed, a trading standards enforcement officer, has just raided a stall down here selling sport shoes that are labeled "NIKE" but which are obvious fakes.

GYLES: For example, a lot of this has to do with the poor quality. Once you lift up the base of the shoe, some of the easy give-away is in the poor stitching, and the poor quality.

BEARD: And how much is he selling this for?

GYLES: He was selling this for A£20 when we came on the stall.

BEARD: So that's about $40.

GYLES: Yeah.

BEARD: So the mark-up on this product would be huge?

GYLES: Massive! Fastest growing industry -- counterfeiting -- which is why they keep us so busy!

BEARD: With margins as high as 90%, this "industry" -- as he calls it -- now makes an estimated annual profit of $540 billion around the globe.

The low risk of prosecution has also fueled this growth. Counterfeit expert Tony Northcutt says there are simply not enough enforcement officers at work -- anywhere in the world:

NORTHCUTT: The resources devoted to trying to beat this are small in comparison to other areas of crime detection. Knocking on from that is the low detection rate. The chances of being caught are very low.

BEARD: More profitable and less risky than drug trafficking, counterfeiting has attracted organized crime. The best known groups -- the Russian Mafia, Cosa Nostra and the Chinese Triads -- are all believed to be heavily involved. Many new and violent gangs have emerged specifically to counterfeit goods. There's even evidence of terrorists raising cash through counterfieting. The IRA is known to have produced and sold fake pharmaceuticals. The Middle Eastern group Hezbollah has been active too. Susie Winter of the Alliance Against the Theft of Intellectual Property says the authorities -- including the British government -- are waking up to the threat:

WINTER: I think the government is realizing the scale of money that is being made by criminals in this line of operation and where that money is actually going. And it is going to fund other criminal activities.

BEARD: The vast profits are often plowed back into drug trafficking, people smuggling, and terrorism. The group that staged the first bomb attack on the World Trade Center in 1993 raised money by selling sportswear bearing a fake Olympics logo. . . Oddly enough, says author Tim Phillips, the people who buy knock-off goods think they are striking a blow at corporate greed and having a go at large global companies:

PHILLIPS: The bad guys are just as big as a global corporation. If you put together "Knock-off Inc." as a big company it would be twice the size of Wal-Mart now. These are not little guys any more. They are big, serious, nasty guys.

BEARD: Counterfeiting isn't some mild con trick designed to fleece the stupid and the unwary, he says. This is the real McCoy, the genuine article: A serious, growing and increasingly dangerous crime.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.
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