LAPD, US Customs Battle Counterfeit Goods Market, Multi-Billion Dollar Industry More Lucrative Than Drugs

Multi-billion dollar industry can fund other crime rings, authorities say.

Oct. 21, 2013— -- In an era when terrorism and illegal narcotics pose a clear and present danger in urban America, why should U.S. law enforcement spend precious resources policing luxury handbags?

Because, authorities say, those fake handbags -- and other counterfeit goods -- are practically an ATM machine for organized crime.

"More than likely it's going to finance some other illicit activity, whether it be terrorism, human trafficking, drugs or some such," said Customs and Border Protection (CBP) supervisor Bryan Nahodil as he surveyed some 16,000 fake Hermes bags seized in Los Angeles.

Counterfeit goods are more lucrative than drugs, according to officers with the Los Angeles Police Department's Vice Division and the CBP, who allowed "Nightline" to embed with them to see firsthand the efforts to combat the problem.

Counterfeit goods account for nearly 10 percent of worldwide trade, an estimated $500 billion annually, according to the World Customs Organization.

U.S. Customs officers said the black market for fake handbags, shoes, purses and other luxury goods helps fund other crime rings, including drugs and human trafficking.

The Port of Los Angeles in Long Beach is the first stop for almost everything the U.S. imports from China, Japan and South Korea. More goods come through L.A. and Long Beach than the other major U.S. maritime seaports combined.

"We're the largest seaport in the country by far," said Todd Owen, the director of field operations in L.A. for U.S. Customs. "Approximately 40 percent of all the maritime cargo that enters the United States does so through this complex here."

With a tsunami of goods coming into the U.S. every day, it is a significant challenge to find contraband. On average, a container arrives in L.A. every six seconds, on massive ships that take days to unload.

Before a vessel can set sail from China, a manifest describing the contents of each of the dozens of containers it has onboard arrives in Los Angeles. Ken Price, a senior import specialist with CBP, has the task of searching for the needle before the haystack reaches American shores.

"I look at container freight coming into the U.S. to make sure it is what they say it is," Price said.

Armed with a computer monitor and 20 years experience, Price has a good eye for things that are out of the ordinary just on the paperwork.

Days, even weeks, before the cargo ship arrives in Los Angeles, Price and other officers comb through shipping records, looking for anything that seems amiss and cross reference the import manifests against familiar crime patterns.

When the ships finally arrive, U.S. immigration agents clear the captain and crew's credentials and customs officers do preliminary searches of the cargo.

Among the most urgent priorities are checking for items that might pose a health or safety threat.

Any cargo item flagged, based on the shipping manifest, goes through the Radiation Portal Monitor (RPM) scanner, a sort of X-ray device. But if a container appears suspicious, U.S. customs officers open it on the spot.

Any goods that are impounded for a secondary inspection end up in a police-controlled warehouse a few blocks from the port. That's where the dozens of boxes of fake Hermes Birken bags ended up.

The real bags retail for $4,000 apiece. If these were real bags, the manufacturer's suggested retail price would be upwards of $200 million. On the black market, the fake bags could fetch almost $300,000.

"When the officers went through our targeting system, what they saw was the importer on record was listed as a home and garden store, but the commodity itself was manifested as handbags, so that didn't add up," Nahodil said.

Whoever they were addressed to is unlikely to complain that the shipment has been seized and slated to be destroyed.

"If they're smart," Nahodil said, "they would just wash their hands completely of it."

The customs officers balk at the notion that the trade in counterfeit goods is a victimless crime and that the U.S. government is helping to prop up the artificially high price of luxury goods targeted by the knock-off artists.

They insist the money from these illegal imports goes right back into organized crime and, in some cases, even funds terrorist groups.

The CBP insists importing counterfeit goods is "the same as importing drugs or people."

"I highly doubt the money that importer or the manufacturer would gain from importing these handbags is going to pay someone's college fund," said Nahodil.

The makers of the real luxury goods are not the only ones taking a hit from the counterfeit market.

"Nightline" also visited the offices of Beachbody, makers of P90X, Insanity and other popular workout videos. Jonathan Gelfand, the chief counsel for Beachbody, told "Nightline" his company loses $75 million a year in fake DVD sales.

"That's 10 percent of our annual revenue," Gelfand said. Money that doesn't go to new making new products, hiring more employees or paying off investors.

Beachbody has several full-time employees whose only job is to search constantly online, looking for deals on Beachbody products that are too good to be true.

"Nightline" tagged along with officers of the LAPD Vice Division and the FBI as they conducted a large raid on a back-alley shop crammed with counterfeit goods. Two big rooms were full, floor to ceiling, with phony handbags, fake watches, and knock-off designer clothes.

The LAPD arrested the 24-year-old shopkeeper. If convicted, he will be deported for a second time.

But LAPD detective Rick Ishitani reckons he'll be back. The counterfeit trade is too lucrative. Ishitani has been on the counterfeit beat for over 12 years and conducts these massive busts several times a month -- 30 to 35 times a year.

He won't say it's a losing battle.

"We're trying to make a difference," he said. "Every step we make it's a gain for us."

ABC News' Kinga Janik contributed to this report