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30 August 2018

When Brands Ignore Counterfeits, Everyone Pays

In the famous words of American statesman Benjamin Franklin, “In this world nothing can be said to be certain, except death and taxes.”  His words still ring true for almost everyone.... except, perhaps, the criminal organizations making billions off counterfeit products.

The manufacturing and selling of counterfeit goods is one of the more profitable industries in the world, representing as little as 2.5 percent of world trade in some estimates, and as much as 7 percent of world trade in others.

A Massive Illegal Economy

Beyond the potential harm to individuals and IP owners, the relentless growth in illegal trade is diverting billions of untaxed dollars into the pockets of mafias and organized crime groups, funding criminal enterprises such as money laundering, sex trafficking, and drug trafficking instead of supporting public coffers to make our communities safer and more prosperous. 

So exactly how much money are we talking about? The annual revenue made by counterfeiters worldwide adds up to more than the combined GDP of Ireland and the Czech Republic.

According to Europol, counterfeit goods make $461 billion USD per year. Even more alarming is that the Organisation for Economic Co-operation and Development and the European Union Intellectual Property Office both forecast that the value of trade in counterfeit and pirated goods could reach $991 Billion by 2022. All of that revenue is earned by illegal activity, and none of that money goes toward the common good.

Honest Citizens Lose The Most

For the European Union alone, the OECD reports a loss of 14.3 billion EUR in annual tax revenues, including VAT and excise duties. The trade of counterfeit products is twice as bad in the European Union as it is worldwide, accounting for about 5% of all imports.

With waves of populism and anti-European Union sentiment growing in the current political atmosphere, imagine how much economic growth and security could be provided to EU citizens with an extra 14.3 billion EUR per year. Quality of life, health, education, infrastructure, and the economy in general would most definitely improve, easing tensions and preventing possible financial crises.

The fight to stop the counterfeit trade can be seen as overwhelming and at times impossible to governments, brands, and consumers. But even small victories have the potential to change the game. According to the International Chamber of Congress, reducing the intensity of counterfeiting and piracy by even just one percentage point in 2017 would have been worth $30 to $54 billion for the 35 OECD countries.

The True Cost of Crime 

It’s important to note that the counterfeit trade represents not only a loss of money flowing into societies that would pay for social benefits, it also inflicts more costs on the already taxed public, according to the United Nations Office on Drugs and Crime. Because of these illegal activities, counterfeiters rack up a large bill through the need of additional customs enforcement, policing, litigation, and security systems.

To add to the public’s bill, counterfeit manufacturers produce these fake goods in the cheapest ways with unregulated toxic materials that get poured into the air, water, and soil, creating a public health hazard. Even the disposal of these illegal items causes harm and cost to public health, as customs officials tend to incinerate the majority of the counterfeit goods they seize.

Dangerous work environments also cause physical harm to the people working under the thumb of these criminals. All of this adds up to costing governments more through higher medical and social security fees, and putting a huge burden on public health systems owing to injuries and illness in the population.

In the words of Oliver Wendell Holmes, “Taxes are what we pay for a civilized society.” And when a big chunk of the world’s trade is going untaxed — with no contribution to education, safety, public health, social programs, infrastructure, crime fighting, and public investments to promote economic growth and development — society becomes a little less civilized for everyone.

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