The True Cost of the Global Trade in Illicit Goods
Abdominal pain is first. After three days, the kidneys fail. After five days, neurological dysfunction leads to paralysis and breathing difficulties. Patients who survive will be dialysis dependent for the rest of their lives. But in the end, most will die.
Diethylene glycol is a poisonous liquid found in commercial products such as resins, antifreeze, inks, and glues. In contrast, glycerin is one of the most common ingredients in pharmaceuticals, and specifically, cough syrup. But in 2006, an estimated 100 Panamanians, many of them children, died from ingesting cough syrup made with diethylene glycol falsely marketed as safe glycerin. Panama is not alone; since 1990, India, Argentina, Haiti, Bangladesh, and Nigeria have all experienced mass poisonings from counterfeit glycerin.
More than 10 percent of medicines worldwide, and more than 25 percent of medicines sold in developing countries, are counterfeit according to the World Intellectual Property Organization. The Center for Medicine in the Public Interest reports that worldwide counterfeit sales are increasing at about 13 percent annually – nearly twice the pace of legitimate pharmaceuticals – and are a $75 billion industry.
In the case of Panama, 46 barrels of the toxic liquid arrived from a chemical plant in the Chinese Yangtze Delta, which exported the poison as “99.5 percent pure glycerin.” They passed through three trading companies on three continents, yet no one tested their contents to confirm authenticity. The purity label was altered to read “pure glycerin,” in order to match US pharmaceutical standards, while the name of the true manufacturer was replaced with a false one. Had the label information been accurate when the shipment reached Panama, customs officials would have easily discovered that this Chinese manufacturer was not licensed to produce pharmaceutical products. Even worse, when Chinese officials investigated the role of Chinese companies in the Panamanian tragedy, they found that no laws had been broken because of the void in China’s drug enforcement regulations.
Lax enforcement and confusing identification processes not only cause problems for patients, but for doctors too. In Nigeria, physicians frequently earn a vote of no confidence for medical accidents, which, after careful examination, can be traced to poor quality drugs. As a solution, doctors are increasingly buying drugs for their patients personally, instead of relying on the hospital to supply them. While helpful, particularly with critical cases and pregnancy, not all doctors can afford this expensive course of action.
Additionally, the developed world is not immune from the crisis. Nearly 80 percent of drugs bought in America are made elsewhere, according to the Food and Drug Administration (FDA). The Chinese company implicated in the 1997 Haiti glycerin poisonings also shipped 50 tons of the counterfeit to the United States in 1995. In February 2012, the FDA announced that 19 medical practices mistakenly bought counterfeit Avastin, a popular cancer drug. In both cases, the mistake was discovered before disaster occurred, but these incidents remain incredibly alarming.
Counterfeit medicines, however, are just one small part of the global trade in illicit goods. In 2008, a study by Frontier Economics found that the total economic value of counterfeit goods was as much as $650 billion a year, and is projected to reach nearly $1.8 trillion by 2015. The US Bureau of Customs and Border Protection estimates that counterfeiting costs the US $200 billion and 750,000 jobs annually. The costs to the US citizens, however, are even more shocking: In May 2012, an investigation conducted by the Senate Armed Services Committee found more than one million suspected counterfeit parts made their way into the Department of Defense’s supply chain. Suspected counterfeit electronic parts were found in several critical military systems, including thermal weapons sights delivered to the Army, mission computers for the Missile Defense Agency’s Terminal High Altitude Area Defense missile, and a large number of military airplanes.
Even breakfast is at risk. The counterfeit food industry is worth about $49 billion a year, according to the World Customs Institute, and it involves everything from fine food to boxed fruit juice. In 2008, Chinese officials reported that milk adulterated with melamine — a chemical that makes milk appear to have higher protein content — caused 900 infants to be hospitalized for kidney problems. When six of those babies died, a media firestorm shone a spotlight on food fraud in China and touched off a wave of panic in the US.
But perhaps the most distressing news is that, increasingly, sophisticated transnational organized crime groups have turned to counterfeiting as part of their criminal enterprises. In 2002, after a cigarette smuggling ring in North Carolina was caught and convicted, authorities discovered the ringleader had sent a significant portion of profits — estimated to be more than $1.5 million — back to Hezbollah, a Lebanon-based militant group. This past April, Customs Enforcement Homeland Security Investigations seized thousands of counterfeit items including pirated CDs, DVDs, and fake designer handbags from a market in El Paso. Disturbingly, a Mexican drug cartel was using the location to collect taxes from street vendors in order to fund other criminal activities. In Los Angeles, police investigations show that street gangs have completely switched from selling illegal drugs to counterfeit goods because they make more money at lower risk. And a 2009 report from the Rand Corporation, funded by the Motion Picture Association of America, identified 14 independent cases linking organized crime and film piracy.
The multi-faceted nature of the counterfeiting crisis — public health, safety, and economic security — warrants a variety of innovative approaches to make a difference. Many online websites can now help companies protect their brands through the tracking of counterfeiters on the web. The Center for Safe Internet Pharmacies is working to establish a publicly available list of all safe online pharmacy websites. Some companies are even exploring incorporating special genetic markers into the packaging of each product, so that a literal “DNA check” is used to confirm authenticity.
Moreover, governments and supra-national organizations are taking steps to combat the problem. In 2010, President Obama appointed the first intellectual property (IP) tsar to develop a new enforcement strategy. The Department of State, Department of Commerce, and US Trade Representative all have offices devoted to the protection of IP rights. The European Union has formed an anti-counterfeiting “observatory” to collect better data and disseminate tips on how best to detect fake goods. Since the conclusion of the Uruguay Round in 1994, the World Trade Organization requires its members, and prospective candidates, to ensure their laws and practices conform to the Trade-Related Aspects of Intellectual Property Rights Agreement.
The key step, however, is for the average consumer to understand the implications of something as “harmless” as purchasing unlicensed music, movies, or designer goods. Counterfeiters rarely engage in only one enterprise, whether it is using fake handbags to fund illegal drug activities, or the documented link between organized crime and counterfeit medicines. Thus, it is imperative to stop and think about where the money is going when knowingly making illegal purchases. The world of illicit trade rarely deals in honesty, but this is the truth: fake Prada is not only a crime against fashion, but also against the public well-being. Unfortunately, awareness of both is lacking.
Established in 1995, the Georgetown Public Policy Review is the McCourt School of Public Policy’s nonpartisan, graduate student-run publication. Our mission is to provide an outlet for innovative new thinkers and established policymakers to offer perspectives on the politics and policies that shape our nation and our world.
I worked for a company that imported goods from China; there’s a lot of bribery happening; the officials who check for safety, even in children’s toys, can be bought.