Hundreds of customers scour the Garment District of New York City everyday looking for brand name handbags, watches and other items priced a fraction of their retail cost. Recently, however, police have found a new way to crack down on the lucrative trade in fake designer goods: shut down buildings that are rented to counterfeiters.
In New York, the U.S. city the most affected by counterfeiting, disreputable landlords rent old buildings to counterfeiters who split them into dozens of shops. In response, New York Mayor Michael Bloomberg's administration began an anti-counterfeiting initiative aimed at the landlord problem.
"Landlords make incredible amounts of money," said Richard Plansky, the New York Deputy Criminal Justice coordinator. "They put no money in the tenure of the building and get money from counterfeiters."
Since the anti-counterfeiting program began, Plansky's unit has cracked down on 13 buildings in the city. Each time the process is the same. The unit, made up of policemen and fire and health inspectors, arrives early in the morning, forces open the doors and seizes the counterfeit merchandise.
Then the landlord is taken to court. The building -- which Plansky said virtually always violates fire security rules -- is shut down and only reopen when the case is solved and a legitimate tenant has been found.
"Since we began, we collected $800,000 in penalties," said Plansky, adding that many cases were still pending.
The program has also led to the seizure of $47 million of counterfeit goods, including the two largest such seizures in the department's history, according to Plansky.
Companies Pitch In
The secret of this success: generous funding and the help of luxury companies. Mike Zaneis, director of congressional and public affairs for the U.S. Chamber of Commerce, explained that fake products are sometimes so similar to real products that the Landlord program unit actually needs a representative from trademark companies to determine whether the items are fake or legitimate.
The trademark owners' contribution is also key to fight counterfeits in China, where 80 percent of fakes are manufactured, according to the Unifab, a Paris-based anti-counterfeiting lobby, whose members include LVMH, the mother company of Louis Vuitton, Lacoste and L'Oreal.
"Important members of the Unifab spend until $18 million to fight counterfeiting in China," said Marc-Antoine Jamet, director of the Unifab. "It is not rare that middle-size companies spend $1 million on the fight."
And all these investments pay off.
"In China, we have seen progress," said Marc Ramondi, spokesman for the U.S. Immigration and Customs Enforcement.
The efforts of legitimate companies combined with the increasing cooperation of local governments led to the closing of Beijing's Silk Alley, a counterfeit mall similar to New York's that was a tourist favorite.
Counterfeiting Means Lost Taxes, Jobs
The merchandise is cheap because counterfeiters steal good ideas, take advantage of legitimate companies' marketing campaigns and do not pay taxes, explained Marc Ramondi. They also pay workers far less than the brand name companies that make the authentic goods they mimic.
And because they are so inexpensive, counterfeit goods are very popular. They have been flooding the country, shipped in container mainly to New York, Texas and California. The U.S. Customs and Border Protection reports that in 2005, more than $93 million in counterfeit merchandise was seized. While clothing, bags and watches accounted for more than a third of seizures, customs also found fake cigarettes, electronics and pharmaceuticals.
Despite the progress made by law enforcement, counterfeiting continues to plague the U.S. and the world. Each year, New York loses $1 billion in taxes due to counterfeit sales. Counterfeiting represents 10 percent of global trade, according to the Unifab. And the U.S. Customs and Border Protection estimated that fake goods were responsible for the loss of 750,000 jobs in the United States.
Besides hurting the economy, counterfeiting networks fuel criminal and sometimes terrorist activities.
"The same groups which smuggle goods are also involved in prostitution, drug dealing and money laundering," added Ramondi. "There is so much money to make that it attracts criminals."
Counterfeiting has thrived as it allows criminal groups to make profits without bearing the heavy risks tied to drug or weapon dealing.
There have even been claims of links between counterfeiting and terrorist groups. In 2001, fake goods shipped from Dubai to Denmark were sized and an investigation revealed that the merchandise had been sent by a member of al Qaeda.
"People should really think twice before getting involved with such criminals," said Ramondi, referring to criminal groups in New York.
But while producing and selling fake goods is illegal, contrary to Italian or French regulations, U.S. law does not forbid the act to buy and possess counterfeits. The reality is that as long as the fakes remain good and cheap, it's likely consumers will risk the exposure to criminal elements and keep on buying.