Raids Crack Down on Fake Goods
DALLAS - When federal and sheriff's investigators showed up with a search warrant at Bargain Corner Jean Store here, they found about $130,000 worth of fake True Religion, Ed Hardy, Affliction and other high-end jeans, T-shirts and sneakers. They hauled out 1,500 items in 40 trash bags and 18 boxes from the store, the owner's minivan and employees' cars.
Not everything was counterfeit, investigators said. Mixed in were some pairs of legitimate Levi's and Wrangler jeans. But federal agents acted after being tipped off by one of the affected brands.
Counterfeiting "is a multibillion-dollar industry, a global crime and a serious threat," says Marcy Forman, director of Immigration and Customs Enforcement's (ICE) National Intellectual Property Rights Coordination Center in Arlington, Va.
Apparel-related counterfeiting doesn't get the same attention as counterfeit toothpaste, batteries or Christmas lights because no one dies or gets physically hurt from knock-offs of pricey jeans, purses and belts. But arguments that the phony products are made without safety standards - often using child labor and sold by people connected to terrorist activity or organized crime - are starting to gain traction.
So, just as the stores and websites that sell knock-off designer clothes and accessories were gearing up for their holiday rush, so too were the investigators and agents. Raids, including the one here coordinated by ICE officials, hit 41 stores, flea markets and warehouses in the U.S. and Mexico for six days beginning Dec. 8, confiscating $26 million in counterfeit goods, ranging from fake fashions to pharmaceuticals.
In fiscal 2009, nearly 80% of counterfeit goods seized came from China. Shoes - such as the bogus Nike sneakers with rock-hard soles on display at the government's IPR Center - were the biggest category, making up 38% of merchandise seized.
While most consumers either ignore or exacerbate the problem by buying phony goods, companies are getting more cooperation than ever from state and federal law enforcement. The businesses selling counterfeit goods often don't pay sales taxes, so they're a popular target for local jurisdictions.
Last week, New York City Mayor Michael Bloomberg's Office of Special Enforcement closed 31 stores on Canal Street in Chinatown for selling counterfeit designer goods.
Late last month, the FBI arrested 13 members of a crime ring, including an alleged arms trader who an FBI affidavit said "conspired to acquire a missile system designed to shoot down aircraft." Along with purportedly stolen cellphones and Sony PlayStations, the FBI says the ring bought counterfeit Nike sneakers from an undercover agent to fund terrorism.
"In this particular case, we see Hezbollah, a known, identified terror organization . . . utilizing counterfeit merchandise as a new way to fund their activities," says Stuart Drobny, president of Stumar Investigations, which assisted the FBI with the case and has done anti-counterfeiting work for clients including Tiffany and Nike. "If you sell drugs, you go to jail. If you sell counterfeit products, the penalties aren't as stiff, so terrorists see this as an easy way to make money."
Luxury-goods makers are hoping that educating consumers about the true costs of counterfeiting will cut down on demand.
"When a person buys a counterfeit, they're actually supporting organized crime," says Brian Brokate, general counsel of Rolex Watches USA. "One of the challenges for the industry as a whole is public awareness."
ICE's Forman says there is at least a "dotted line" to terrorism, noting the "tri-border area" of Paraguay, Brazil and Argentina "has been known to house potential terrorist organizations" and is also a hotbed of counterfeiting.
Some shoppers can fall for claims that stores or websites purchased overstock from high-end department stores or brands. And some of the knock-offs look so legitimate that investigators have to look for designer-placed indicators to determine authenticity. But Rolex's Brokate says he believes only a small percentage of consumers who buy counterfeit luxury goods are duped.
Teresa Neasley of Denver used to be a willing knock-off shopper.
"I have knowingly bought counterfeit designer handbags and attended purse parties where knock-offs were being sold," says Neasley. "I knew that it was illegal, yet I didn't feel one ounce of guilt . . . until I read a few articles last year about the black market of counterfeit and knock-off merchandise."
The challenge for luxury brands is convincing consumers that the damage is far-reaching.
"If it gets to the point where you can't trust a brand name on a product, then it's really scary," says Robert Weigel, a lawyer representing Gucci at the law firm Gibson Dunn&Crutcher.
Luxury brands have gotten complaints that the dye on their purses has come off on car seats - a sure sign of a knock-off - while Coach has gotten complaints that the customer service on websites selling its products wasn't up to par. Some counterfeit Coach sites can seem authentic by promoting the same in-store events the real company does. Handles and zippers often quickly break on counterfeit versions of pocketbooks that can cost hundreds or more when real. Lead paint has been used on some fake designer bags, investigators say.
When Rolex's trademark appears on a shoddy-looking product that eventually breaks, consumers aren't getting their money's worth, either, says Brokate. A consumer who buys a fake Rolex for $200 "could have gone into Macy's and bought Seiko or Casio or some other brand watch in that price range" with some assurance of quality, Brokate says.
Tired of watching their brands become synonymous with counterfeiting, manufacturers are stepping up their trademark enforcement.
Gucci is suing Woodforest National Bank in Texas for processing credit cards for counterfeiters. Tiffany is appealing a counterfeiting case it lost against eBay, which claimed it was the jeweler's, not the auction site's, responsibility to weed out fakes. And LVMH, parent company of brands including Louis Vuitton and Fendi, is suing Internet service provider Akanoc Solutions, alleging it knowingly allowed online counterfeiting. Coach alone has filed 100 lawsuits in the past year. In October, it sued Target for the second time over trademark violations, this time for selling purses it says are identical to Coach's.
The brands also often raid businesses with U.S. law enforcement each year.
"The whole idea is to create a general deterrent," says Coach general counsel Todd Kahn. While "you can't stop all counterfeiting," the company hopes to convince criminals that "if you counterfeit Coach, it's an expensive proposition."
Late last month, Michelle Bunfill of Granite Bay, Calif., was sentenced to 36 months probation and 10 months of home detention after pleading guilty to selling fake Chanel, Dolce&Gabbana and other counterfeit purses and accessories at purse parties and "recruiting others" to sell them at their own parties, according to Assistant U.S. Attorney Robin Taylor. From June 2006 to August 2007, Bunfill's gross sales were $184,046.
Like the high-end designers they copy, counterfeiters have their favorite hubs of commerce, typically Harry Hines Boulevard in Dallas, Miami, Los Angeles and New York City's Canal Street. Canal Street became such a haven for knock-offs that it was a regular stop on many tour bus routes. Out-of-state tourists have often been seen walking the streets with black trash bags filled with purses that investigators say are brought home and sold at purse parties.
Police and the brands have cracked down so much in this area that it can be difficult to even find a store openly selling knock-offs. When a USA TODAY reporter visited recently, hooded men often stood shoulder to shoulder on the sidewalks whispering "handbags, handbags" to passers-by, waiting for a hint of interest.
The big chill on Canal Street counterfeiting started in February of last year when city officials shut down 31 stores in Chinatown for counterfeiting offenses. A three-story "mall" that took up a city block still sits empty.
But counterfeiting continues.
Bargain Corner owner Haim Akiva "wasn't surprised" when law enforcement showed up, said Michael Dusenberry, an ICE group supervisor who was on the Dallas raid. Nancy Kratzer, the deputy special agent in charge of the Dallas ICE office, says having inventory seized is often viewed as "a cost of doing business" in counterfeiting, much as it is for drug dealers.
But Akiva may have a tougher fight ahead. Dallas sheriff's investigator Raul Reyna says the convicted felon, on probation since 2006 for selling counterfeit designer clothing and sneakers, had guns in his top drawer and enough counterfeit merchandise to constitute a second-degree felony. Akiva, 71, could face up to 20 years in prison if convicted. He could not be reached for comment.
Neasley, the former knock-off shopper, says she knows quality now.
"For some, it may be hard to understand saving (up) for a handbag, but obviously they haven't touched or seen a Gucci or Prada," says Neasley. "If I choose to spend a small fortune of my hard-earned money on a handbag, I will, and it definitely will not be a fake."