Transnational Crime and the Developing World

For OCGs, counterfeiting provides an ideal avenue for laundering the profits of other transnational organized
crime as well as financing other crimes. The penetration and sale of counterfeit and pirated goods in the
legitimate supply chain is a money laundering scheme in itself, as the illicit funds used to produce the
goods are laundered by their sale. 214 OCGs involved in other illicit markets will also reinvest the proceeds
from counterfeiting into other criminal ventures, such as drug trafficking. 215
According to the United Nations Office on Drugs and Crime, the primary roles in this market are brokers and
logisticians, who “invest the money, coordinate production and transport, unload the merchandise, and
reap the rewards.” 216 Counterfeiting has exploded in part due to the incorporation of industrial production
logistics. No longer is counterfeiting and piracy conducted as a cottage industry, rather production is
achieved through greater access to technology, allowing OCGs and other criminal actors to achieve
economies of scale. 217
D. Developing Countries
Counterfeiting and piracy have deep impacts on the economy, security, and welfare of developing
countries. Counterfeit goods cost governments and legitimate businesses revenues while providing OCGs
and terrorist groups with financing. In addition, they impact the health and safety of the general public.
For developing countries, one of the biggest impacts of counterfeit and pirated goods is lost tax revenue. In
international trade, counterfeit goods are often under-invoiced or smuggled (undeclared) when imported,
causing governments to lose beneficial excise and value added tax. Domestically, countries lose sales tax
when goods are sold below fair market value or if they are sold on the black market. Kenya’s counterfeit
goods market is worth approximately US$900 million annually, which robs the government of US$84
million to $490 million in tax revenues. 218
Another issue for developing countries is job loss, as counterfeit production can push out legitimate
suppliers. Counterfeit and pirated goods are frequently priced lower than genuine products, which can
cause legitimate companies to lose business. Companies whose products compete against counterfeits
may be forced to let employees go or even close in response to lost business. In addition, insufficient
protection of intellectual property rights deters innovation, as counterfeiting reduces the ability for investors
to recoup money spent on research and development. 219
The proceeds from the sale of counterfeit and pirated items provide financing to OCGs as well as
terrorist groups. Organizations such as the Basque separatist group Euskadi Ta Askatasuna (ETA) have
been involved since at least the 1970s, whereas the involvement of Al-Qaeda and the Irish Republican
Army (IRA) began in the 1990s. Al-Qaeda propaganda has actually instructed militants to engage in the
counterfeit trade to generate greater funding. 220 Figure IV shows a list of terrorist organizations and some
of the counterfeit and pirated products they have traded in order to raise financing. 221
214
“Illicit Trafficking of Counterfeit Goods.”
215
Business Action to Stop Counterfeiting and Piracy (BASCAP), Confiscation of the Proceeds of IP Crime,13.
216
United Nations Office on Drugs and Crime, TOC in East Asia and the Pacific, 126.
217
Union des fabricants, Counterfeiting & Terrorism (Paris: Union des fabricants, 2016), 8, http://www.unifab.com/wp-content/uploads/2016/06/
Rapport-A-Terrorisme-2015_GB_22.pdf.
218
Louise I. Shelley, “The Diverse Facilitators of Counterfeiting: A Regional Perspective,” Journal of International Affairs 66, no. 1 (2012): 23.
219
Frontier Economics, The Economic Impacts of Counterfeiting and Piracy, 40.
220
Union des fabricants, Counterfeiting & Terrorism, 14.
221
Ibid., 12–18.
Global Financial Integrity
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