The Steep Price for Cheap Goods: Money Laundering and Human Trafficking’s Role in Counterfeit Goods

Using luxury goods to project status is a silent language understood around the world. All too often though, many can find counterfeit goods that look almost exactly like genuine articles, but at a fraction of the price. What they might not know is that their knock-off Chanel bag, or their $30 Rolex, is likely a device to launder money from organized crime groups — and was made by victims of human trafficking.

In Michael Schidlow’s session today at the ACFE Global Fraud Conference, “Counterfeit Goods: Money Laundering in Plain Sight,” he delved into the seedy underbelly of counterfeit products and the groups that profit from them. He said organized crime groups like the Yakuza, the Camorra and the Triads have turned to counterfeiting as a different way to make, and launder, money. Schidlow, CFE, CAMS, explained, “They’ve already got the infrastructure. They’ve already got the network … so why not diversify how they’re making their money?”

It is estimated that the market for counterfeiting goods is as high as $250 billion annually. “There’s very little that doesn’t get counterfeited,” he told attendees. “The people producing these goods don’t care.” The United Nations Office on Drugs and Crime estimates that clothing, accessories and shoes make up 57 percent of counterfeited goods, and 10 percent of goods tend to be jewelry and watches.

Aside from regular consumer goods, an alarming six percent of counterfeited goods are medicine. Schidlow said it is estimated that one million people per year die from counterfeit pharmaceuticals and that Interpol believes up to 30 percent of pharmaceuticals currently on the market are counterfeited.

Even when the counterfeit good does not pose an immediate risk to the consumer, all too often it is made using victims of human trafficking. Organized crime groups like to use human trafficking as a source of cheap, or free, labor to keep their operations running with little cost. While human trafficking victims sold into prostitution can fetch anywhere from 50 percent to 1000 percent return on investment for their captors, victims can also be used for organ farms or as forced laborers.

Ultimately Schidlow stressed that as fraud examiners, it’s our duty to educate the public about not buying counterfeit goods. “This really is a grassroots effort,” he said, and anti-fraud professionals can add extra layers of controls to ensure due diligence. For bank employees, he advised them to look for transactions that go to and from known trafficking and crime hubs. He also explained that often human traffickers have their victims open up multiple bank accounts that the criminal organization can then use to shuffle money frequently.

CFEs are important voices in the dialogue of counterfeit goods. By educating those around you on the true impacts of buying counterfeit goods, you may help halt the spread of human trafficking and money laundering.