With the financial gains to be made from selling counterfeit goods proving to be irresistible to some, wholesalers must be on their guard to stop fake products entering the warehouse, as the outcome could endanger the business and the lives of consumers.
Andrew Burnyeat discovers how a range of government bodies are taking action. Counterfeit products remain a major potential headache for wholesalers in the UK, indeed around the world, with clever operations continuing to supply sophisticated fake products that can fool even wary distributors.
And the risks of a fake slipping through the net and ending up on a retailer’s shelf can be serious. With food, drink, alcohol, tobacco, vaping products, cosmetics and shampoos being among key targets for counterfeiters, if discovered, wholesalers can lose reputation, especially as consumer health is on the line.
Claudia Köver, of the European Anti-Fraud Office (OLAF), says: “The purchase price can give you an indication if the product is genuine or not. If in doubt, the wholesaler can contact the manufacturer and enquire about sourcing and price. The wholesaler must make sure that the products come from genuine producers. If goods are bought via certain sources, i.e. Alibaba, eBay, or similar, this may already raise suspicions.”
Working against illicit trades
Fortunately, help is available for British wholesalers. A complex network of public and private agencies and companies are working together to target these illicit trades. They include Her Majesty’s Revenue and Customs (HMRC), the UK Border Agency, local trading standards officers (TSOs), Interpol, European Union (EU) police agency Europol, the Food Standards Agency (FSA), trade associations such as the Scotch Whisky Association and legitimate brand owners, to name just a handful.
The issue is very much in the industry spotlight following an official letter to the Federation of Wholesale Distributors (FWD) sent out in May from Damian Hinds MP, the Exchequer Secretary to the Treasury.
In it, Hinds threatens to expose and investigate illicit alcohol wholesalers ahead of the introduction of the UK Alcohol Wholesaler Registration Scheme (AWRS). All alcohol wholesalers should now be registered for the scheme, which comes into effect in April 2017.
Hinds said the Treasury would take “robust action” in cases where wholesalers are found not to have complied with the scheme’s regulations, “despite knowing that they should”.
Intelligence is now being gathered ahead of the launch by a UK government task force probing the problem, established in 2015.
Under the scheme, retailers will have to check they are buying from a legitimate wholesaler. Buying alcohol from an unregistered wholesaler will become an offence, with potential fines reaching as much as £10,000. David Visick, of the FWD, said: “The FWD welcomes this initiative, and we will be co-operating with the Treasury to make sure our members fully understand their obligations under the law.” He added that retailers will be able to check wholesaler registrations online.
Fighting the counterfeits
The big money in fakes is by copying high-end products, and the Scotch whisky industry has fought counterfeits for decades. Lauren McArthur, of the Scotch Whisky Association, stresses that the industry offers aids for wholesalers to make sure they are stocking legitimate product: “Technological advances such as encrypted bottle codes and ‘tamper-proof’ closures, employed by distillers at the production stage, can also provide enhanced safeguarding for wholesalers and retailers,” she tells Better Wholesaling. She adds that the association’s legal team liaises directly with wholesalers, exhibiting case studies and advice on identifying illegal products.
The Scotch Whisky Research Institute (SWRI) helps, carrying out chemical analysis on products to establish authenticity and works closely with the Scotch Whisky Association.
And wholesalers need to monitor warnings from such trade bodies and public authorities. For instance, counterfeit vodka containing high levels of methanol was discovered by Halton Borough Council officers in Cheshire in fake vodka products purporting to be Booker’s Chekov brand. Careful wholesalers would have known that genuine Chekov vodka has a black inkjet-printed lot mark on the red bottle cap; the counterfeit product did not feature the same mark.
Is this product too good to be true?
The FSA also gives advice on how to spot fake alcohol, using the ‘4Ps’ – place; price; packaging; and product. A spokesperson for the FSA says: “If the price of, say, vodka is too good to be true, then it probably is,” before reiterating to wholesalers the need to look out for suspicious packaging and to buy only from bona fide, trusted sources.
Fake food products can also be dangerous. The FSA is proactive in this field, vowing to protect industry whistleblowers. Such reports can damage unwary or dishonest wholesalers. To be convicted of food fraud, a wholesaler must knowingly intend to deceive the customer by selling them unfit items, which are past their sell-by date, for example, or falsely labelled items, for instance, farmed salmon sold as wild. Whistleblowers who have been involved in such illicit work receive automatic protection from being charged if the offence they report is likely to lead to a criminal prosecution and the report is made in good faith.
Interpol gets involved too, as proffered fakes are often made abroad. Michael Ellis, head of Interpol’s trafficking in illicit goods unit, says: “False labelling is very common in foodstuffs around the world. We have found peanuts relabelled as pine nuts, posing a significant threat to allergy sufferers. Fake and dangerous food and drink threaten the health and safety of people around the world.”
In Europe, Interpol and Europol have been running an annual set of raids on fakes called Operation Opson. More than 10,000 tonnes and one million litres of hazardous fake food and drink were seized in operations across 57 countries last year, including nine tonnes of counterfeit sugar contaminated with fertiliser and 85 tonnes of olives which had been ‘painted’ with copper sulphate solutions to enhance their colour. In the UK, Opson officers recovered 10,000 litres of fake alcohol including wine, whisky and vodka.
HMRC and TSOs are also active. They close down premises selling counterfeit tobacco or cigarettes. TSO raids in Derbyshire, Manchester, Croydon and Coventry last year have all led to large-scale prosecutions. Typical was the jailing of four Lancashire men, including a postmaster, in May after they attempted to steal more than £16m in tax by selling illegal cigarettes and tobacco.
Why it’s not worth the risk
The profit involved in tobacco fakes is such that counterfeiters take a lot of risks and wholesalers can be offered many fake cigarettes. A spokesperson for Derbyshire County Council says: “Our trading standards team works with the police, UK Border Force, HMRC, district and borough councils and other regional trading standards teams and regularly uses sniffer dog detection company Wagtail UK to carry out their programme of enforcement work.”
In May 2016, 13 shops throughout Coventry were exposed for selling illegal cigarettes or tobacco in an undercover operation run in conjunction with tobacco firm JTI. In test purchases, more than 50% of their cigarettes were counterfeit.
And with vaping becoming more popular, counterfeiters are looking for a slice of this action too. Batteries are the most commonly counterfeited vaping component. James Dunworth, director of E-Cigarette Direct, claims major battery manufacturers are uncomfortable being associated with e-cigarettes, and so don’t sell their vaping batteries openly, which creates an opportunity for counterfeiters.
Counterfeit batteries can overheat in e-cigarettes, creating potential legal headaches for wholesalers. As for e-cigarettes, most high-end vaping products use a successful ‘scratch-and-check’ authenticity sticker system which reassures customers that the product comes directly from the supplier. This has not proved a failsafe however, and E-Cigarette Direct has gone to court several times to protect the ‘halo’ symbol on its vaping liquid products from counterfeiters: “It’s a simple legal process to stop it but it’s a short-term gain for the people who rip it off,” Dunworth adds.
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