Elicius Analysis: Businesses need to prepare for a post-COVID wave of counterfeit goods

New analysis by Elicius Intelligence indicates that European businesses should prepare themselves for a post-COVID wave of counterfeit goods, as organised criminal gangs along Europe’s border take advantage of the ideal market conditions created by the end of lockdown.

In 2020 alone, the market for counterfeit goods was estimated to be worth USD 1.8 trillion. The post-COVID value of this market is likely to exceed even this figure, with an expected surge in counterfeit products in the wake of the pandemic.

Elicius has drawn upon recent casework experience in developing this analysis, including monitoring trends on key dark web marketplaces, and synthesising human intelligence from traders directly involved in black and grey markets. Taken together, the analysis describes a scenario that will cause concern for legitimate businesses and brand owners.

Learning from the Past

Significant disruptions to markets always create new opportunities for businesses, both legitimate and illegal. During the years following the 2009 financial crash, trading standards bodies reported a five-fold increase in seizures of counterfeit alcohol in the UK alone. 

COVID has been perhaps the most disruptive event in the global economy outside of wartime. As we rebuild after the pandemic, the most disruptive event in the global economy in peacetime, our intelligence is indicating that criminal actors involved in producing and distributing counterfeit goods are likely to take advantage of ideal market conditions.

The Pandemic: A Perfect Storm for Counterfeit Goods

Our sources active in the illegal goods trade have identified several direct and indirect consequences of the pandemic which have created ideal market and logistical conditions for those involved in counterfeit goods.

Firstly, just as COVID has driven digitalisation within legitimate businesses, criminal gangs are also increasingly exploiting its potential. Encrypted messaging platforms, the dark web, and cryptocurrency, are increasingly being used by organised crime involved in counterfeiting as an alternative to burner phones or the traditional Hawala system of money transfer.

Secondly, wider economic conditions in North Africa and the Eastern Mediterranean have acted as a driver too. For instance, the Lebanese economy, which was already fragile before the pandemic, has further weakened, forcing more workers to seek to earn US dollars through the grey market economy. Additionally, the explosion in the Port of Beirut has removed any real oversight of trade through the country, with most import/export operations now run out of Tripoli. This has created a chaotic situation which bad actors have been able to exploit.

Similarly, Port Saïd in Egypt, which had fallen out of favour during the political crises of recent times, has used the relative stability of the pandemic to regain its mantle as a key location for transshipment, laundering of bills of lading, and concealment of illicit products destined for Southern Europe.

Ports in these territories have also gained a commercial advantage as the costs of international freight from Asia have increased as a direct result of the pandemic, with China particularly impacted with several major ports closed due to COVID.

This has created ready and established routes to move stockpiles of counterfeit goods from territories where they are produced to waiting European markets.

Pent-Up Supply

It is clear from our contacts that there is significant supply already in place. Intelligence from our informants active in regions and industries heavily involved in the illegal goods trade suggest that, whilst lockdown severely disrupted distribution networks for goods, production beyond the EU’s borders has been largely unaffected.

Over the past 8 months, new counterfeiting operations have been established on Europe’s doorstep whilst existing ones have expanded to incorporate new lines. In Kurdistan alone, we are aware of three factories producing counterfeit consumer goods which have been established from scratch, or have expanded, since early 2020.

The combination of continued production and constrained distribution has resulted in growing stockpiles of counterfeit goods in several ‘feeder’ jurisdictions of the EU, particularly in the Balkan countries, North Africa and the Levant.

Owners of these goods are simply waiting for international distribution networks to be re-established. One Eastern European manufacturer of counterfeit consumer goods that Elicius spoke to, has already generated more than his anticipated 2021 revenue from existing orders alone. This would more than make up for profits lost in lockdown.

Consumer demand

Lower quality, lower priced, counterfeit products are likely to find a ready market. Post-COVID purchasing power is constrained, both for individual consumers and, critically, for key sectors such as hospitality and retail. This means that there is likely to be significant demand for lower-priced alcohol and tobacco products. There are also concerning reports of counterfeit personal protective equipment (PPE) which could pose a wider risk to public health.

In recent weeks, face-to-face meetings between key players in the counterfeit goods market have re-started in the bars and cafes of the Eastern Mediterranean. These meetings are specifically focused on re-establishing distribution routes to meet this demand.

The authorities have been taking action to try and close down these potential distribution networks, but it is likely that they will be ultimately overwhelmed. Italy and Spain have traditionally provided significant entry points into Western Europe for illicit goods, facilitated by systemic organised crime and bribery in the ports, but were severely affected by the pandemic and subsequent lockdowns. The Guardia Civile and Guardia di Finanza (financial crimes agencies in Spain and Italy) carried out a series of high-profile busts of counterfeiting operations within their own borders during the recent period, but these gains are likely to be wiped out in short order as we emerge from the pandemic.

Industry Response

Responding to the threat that an explosion in counterfeit goods poses will require coordinated action from businesses, law enforcement, and government agencies. We expect that some companies, who feel particularly vulnerable to counterfeit goods, may engage specialist support to take proactive investigative action, and identify these stockpiles and manufacturing facilities before international routes are allowed to mature and the counterfeiters entrench their market share.

For other clients we anticipate that the focus will be on risk mitigation measures, built around granular, regional-level intelligence on supply chains for materials and finished counterfeits.

How Elicius can help

We are experienced, not only at monitoring trends in specific industries, but in working with clients, legal teams, and enforcement bodies to both prevent and respond to the threats that counterfeiting presents to your brand.

If you are concerned about the threats that post-COVID counterfeiting could pose to your own business and brand, get in touch with Elicius’s specialist team for a confidential discussion.

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