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THE KESSLER REPORT Continued
A Publication of Michael G. Kessler and Associates, Ltd.
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FraudBusters® Edition
Volume 1

Question Mark Logo Number 1

Counterfeiting Information

PRODUCTS THAT HAVE RECENTLY BEEN COUNTERFEITED

  • Watches
  • Clothing
  • Sunglasses
  • Handbags
  • Video Tapes
  • Baby Food
  • Shampoo
  • Nutritional formula
  • Cough drops
  • Liquor
  • Fragrances
  • Candy
  • Children's toys
  • Brake pads
  • Helicopter parts
  • Airplane parts
  • Computer software
  • Ulcer medication
  • Antibiotics
  • Birth control pills
  • Artificial heart valves
  • Health and Beauty Aids
HOW TO SPOT A FAKE:

The International Anti-Counterfeiting Coalition offers consumers five tips to help avoid purchasing counterfeit goods. Keep an eye out for:

  1. Labels that are blurred or torn.
  2. Product names that are misspelled or altered.
  3. Unannounced changes in product content, color, smell or packaging.
  4. Missing codes, 800 consumer numbers or trademarks.
  5. Products with unusual claims and warranties, or those lacking the usual guarantees and/or licensing agreements one should find.
IF YOU THINK A PRODUCT MAY NOT BE LEGITIMATE, CALL THE NUMBERS LISTED BELOW:

  • For automobile parts: GM AWARE LINE: 800-244-3460
  • For computer software: Software Publishers Association: 1-800-388-7478
  • For sports merchandise: 800-TEL-CAPS
  • If you have difficulty locating the manufacturer or require additional information about counterfeiting and diversion, call The Kessler & Associates Tip Line: 1-888-TIP-OFFS

For other products, or for further information, contact the International Anti-Counterfeiting Coalition at (202) 223-5728.

...Countering Counterfeiting
(continued from page 1)

babies generic baby food with Similac labels, and many of the infants refused to eat the lower-quality food or developed rashes or experienced seizures. Users of fake Head & Shoulders were exposed to bacteria that made people with weakened immune systems ill. Both companies addressed the problem, but it is impossible to say how many consumers now hesitate to buy these products because they fear purchasing tainted goods. These companies' reputations have suffered.
      As counterfeiting continues to grow rapidly on a worldwide scale, companies are being forced to take their heads out of the sand. Customized proactive programs are becoming increasingly popular. One of my clients says, "We think of it as insurance, and set aside money in our budget to protect ourselves from counterfeiting and diversion just as we do to protect ourselves from fire. It makes sense in today's world. We would rather spend a little money now than a lot later."

...Product Diversion
(continued from page 1)

likes the idea of expanding into new markets, and it knows that you're still making a profit, so the deal is agreed to. Smart business move, right? Maybe not. The retailer, it seems, took delivery of the widgets and immediately shipped them back to the States, where he sold them to distributors at $16.95 apiece. Even with the shipping costs, he made a tidy profit, the distributors increased their margin, and consumers still got legitimate goods. Everyone is happy, except for you. Your business was undercut. That's diversion.

When Profits Mean Losses

      Diverted goods are a problem because so many companies adopt a flexible pricing plan in order to optimize profits. Many foreign countries couldn't afford to buy American goods at domestic wholesale prices, so the wholesale price is lowered. Or new markets may open up domestically, provided that the company is willing to sell products at special promotional or institutional rates. Diverters see these price differentials as opportunity. Buy low, sell high. It's the bedrock beneath all investment strategies, the mantra chanted by Wall Street's gurus. It's also a violation of contractual agreements, conspiracy to defraud, and a breach of international trade and transportation laws. But diverters fail to mention that.

The Victimless Crime

      One problem with prosecuting diversion is that it is difficult to establish where the harm was done. With counterfeited ulcer medication, there are clear victims-the consumer was sold bogus goods, the manufacturer lost market share. But with diversion, it's less clear. The goods are legitimate, the manufacturer still
made a profit (though smaller), and no one was harmed. But the business suffering from diversion can lose millions of dollars a year.

What You Can Do

      To avoid having your products diverted, there are several steps you can take. First, be wary of new accounts. If a potential overseas distributor asks you to print all shipping markings only in English ("so that we know it's really American goods"), if he offers his own shipping services, or if he claims to have a large market ready to buy, check him out. He may have set up a front company that has a reputation for dealing in gray goods, or he may have a history of making shady deals. If he has absolutely no history, and the company seems to have been created recently, be equally suspicious.
      Second, get a third-party evaluation of all unusual new accounts. Don't leave decisions to sales and marketing, because they're trying to meet quotas and increase numbers. Do research and be objective. Third, consider using a cargo inspection company to oversee the transportation of goods, making sure that shipments actually go where they are supposed to. Knowing that such a company is involved will often cause a potential diverter to back out in search of easier prey. And fourth, contact a third-party investigative consultant to regularly review your paperwork. Employees who know that they are being checked up on are far less likely to try making a little money on the side than employees who feel they are given free rein. Periodic reviews of bills of lading, invoices, and shipping receipts will assure you that your product is moving as it should. And if something out of the ordinary comes up, trained investigators will know how to quickly follow the paper trail and find out where the goods went.

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