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Insights from Counterfeiting Roundtable Part 1

A roundtable of executives was held at North Carolina State University on May 31, 2017, focused on exploring insights into the following questions related to counterfeiting in the supply chain.

  • What processes are companies using to identify and understand the scope and level of counterfeiting across their tier 1 and tier 2 nodes (upstream and downstream) in the supply chain? (A secondary question is the size of the counterfeit problem across supply chains.
  • What are the means through which organizations can contain existing flow of counterfeit product? (Examples include supplier audits, logistics container seals, track and trace technologies, or other means).
  • How can organizations work to proactively prevent counterfeit products from successfully broaching the supply chain through improved resiliency approaches such as blockchain and IoT technologies?

A diverse group of executives attended this session.  The meeting began with an overview of the Document Security Alliance. The alliance was initially founded by the Secret Service following 9-11, and the origin of the group was driven by the need to identify the origin of the counterfeit drivers licenses used to gain access to the airport, using the fingerprints on these licenses, and working with the print manufacturers. The focus of this group is not on how to improve documents and counterfeit deterrents, to counteract fraud and criminalization. The group has a broad objective that goes beyond counterfeiting, and goes beyond simple return on investment private sector issues. They explore a number of technologies that can make documents secure, including passport security that is often the means through which human slaves are trafficked. More than 1 million children in particular are being trafficked across borders, supported by counterfeit passports, which in turn supports organized crime and terrorism.

The cost of fraud is estimated to be significant, over $1.7 T. The presentation showed how entire factories are coming over in container-loads through the LA port, and the outer wrapping and tax stamps of these cigarettes and liquor are professional and look exactly similar to the untrained eye. Videos showed how real cans of Budweiser were being “refilled, re-sealed, and re-sold” from a factory in China. Other products that have been counterfeited are Tide, baby formula, and other packages that are often collected from trash cans, cleared up, repacked with fake product, and re-sold. There is also a large element focused on taking recycled goods shipped to China, stripping it down, clearing it up, and re-labeling it. This occurs a lot with electronic boards, often recycled and sold back through distributors to government agencies. Logs may be harvested in the US, shipped to China, processes as plywood using formaldehyde, and then imported and used to construct houses in the United States.   Even though these are not counterfeit, they are fraudulent as they do not meet housing code requirements.

What is needed to address counterfeiting is a holistic view of collaboration. There is also a need to come to grips with the fact that there is apathy on the part of the consumer towards document and brand fraud. Prescription fraud is an issue that is also not adequately highlighted, even though people are ingesting fake drugs. There is no single silver bullet that will work, but there needs to be a layering of security processes and bringing together different technologies that span cover, semi-covert, and overt technologies to stay ahead.

But there are also constraints to the proposed solutions. It must meet regulations, and be cost effective. If it slows down manufacturing productivity, it will be a ‘non-starter’. All of these factors must be considered through cross-functional team engagement and solution exploration. Data storage for product serialization records, for example, is a big issue. Who will manage it and who will validate the data, as this is becoming very expensive. Currently, no one “owns” the verification data and processes, and the criminals are exploiting this gap.

If you are interested in this subject, read more in Part 2.