China, for some time a paradisiacal haven for counterfeiters and their ill-gotten funds, may be losing its allure as a knock-off utopia as its citizens begin to value product authenticity over affordability.
Last year, China's cabinet, the State Council, announced that it would begin a crackdown on online piracy and fake products. The new effort by Beijing to clamp down on the distribution of counterfeit goods covers all sorts of product categories, including agricultural fakes and spurious pharmaceuticals, on practices from trademark violations to deceptive advertising. While counterfeiting is still an issue in the world's most populous nation, the people who live there are growing less tolerant of it.
Consumers value product authenticity over affordability
A study of consumers from 15 Chinese cities by RedTech Advisors, cited by Bloomberg, noted 91 percent of the respondents checked-off product authenticity as a top concern. One year ago 78 percent of those surveyed had indicated product authenticity as important when shopping. The news outlet explained the story of Wang Wenwen, a resident of Beijing who often used to browse various products online in search of irresistible deals. One day she bought a blue dress advertised as a product made by Five Plus, a popular brand in China. However, that was not exactly the case. Instead she received a dress with no label, constructed from shoddy material. These days Wang likes to touch her clothing before buying it.
A recent AP exclusive report illustrates how prevalent counterfeit goods still are in China, and how easily those knock-off products can make their way to markets around the world. The examination of where counterfeiters' money goes found that state-owned banks in China have emerged as safe havens for the illegal funds. The barely-existent legal cooperation between the West and China has emerged as an advantageous circumstance for counterfeiters selling their products to U.S. consumers.
A number of court cases studied by the AP found a pattern had been established by the knock-off distributors. They would sell the inauthentic goods online to U.S. consumers. Then transfer millions in profit to accounts at some of China's largest banks, such as the Bank of China and the Industrial, Commercial Bank of China and China Merchants Bank. The banks don't dispute that the money in these accounts was acquired through the sale of counterfeits. They just refuse to cooperate with the U.S.
Chinese banks thwarting U.S. attempts to freeze counterfeiters' accounts
U.S. court orders to freeze the ill-gotten funds or to disclose information on the accounts, have been denied by the Chinese banks as a violation of secrecy laws. In 2013 the Chinese embassy addressed a letter to the U.S. State Department noting that repeated attempts to serve subpoenas to Chinese banks could undermine relations between the two nations and serve as an affront to the Asian nation's sovereignty. Tiffany & Co. and Gucci each currently seek damages in court over alleged counterfeit rings siphoning money away from the companies, and each have traced these stolen funds back to Chinese bank accounts.
"Another option could be prevention through improved product authenticity technologies."
Two other lawsuits filed by the U.S. Justice Department traced the returns from illegally sold counterfeit sports jerseys back to Bank of China and ICBC. It seems the only other options for companies seeking damages from accused counterfeiters are to file a lawsuit in China or to submit a request through the Hague Convention, both of which are seen as overly cumbersome routes for retribution.
Another option could be prevention, rather than reaction, through improved product authenticity technologies. With consumers more concerned about avoiding knock-offs than with hunting down deals, regardless of authenticity, ensuring that an item is the real thing could prove advantageous for manufacturers and retailers.
Branddy Spence is OpSec's Director of Corporate Communications. Prior to her current role, she spent several years implementing successful brand protection programs for many well-known licensing and entertainment brands.