The Financial Aspects of the Trade in Counterfeit Products: An Exploratory Study

The trade in counterfeit goods is growing and has been linked to the operations of transnational organised crime (TOC). Much work and popular scrutiny has examined these flows of illicit goods. Less scrutinised are the financial mechanisms that enable them. To enter this criminal market at the wholesale level, 'organised criminals' may need significant financial resources, from credit facilities to processing international transactions. Their need for financing can concern every 'stage' of illicit supply, from production, shipping, to retail, be that small or large scale. However, while large sums of investment may be needed to enter a specific counterfeit market at the wholesale level, participation at the retail stage requires only modest resources; a process that has been simplified for criminal entrepreneurs as late-modern information and communication technologies (ICTs) and electronic commerce have developed over time and space. The appropriation of e-commerce could have a scaling effect allowing 'petty' traders to act globally. The development of the counterfeit trade in cyber-space is significant. Yet little is known about how the financing of counterfeit goods is facilitated by digital technologies. There is also a general lack of information on the blurring of TOC into legitimate actors, which is particularly apparent in the context of the grey market in counterfeit goods.

This project will address these issues. Drawing upon cross-disciplinary research expertise in social sciences (criminology and sociology) the humanities (law and geography), and working in collaboration with practitioners from the National Trading Standards e-Crime Team (NSeCT), the research seeks to investigate the financing of the trade in counterfeit goods. The study focuses specifically on financing and financing-related aspects of illicit markets in material counterfeit goods. Furthermore, while focusing on the UK context, it will contribute to our understanding of TOC by examining financial and physical flows in the counterfeit trade over borders. In this context, China, the dominant manufacturing force in the global economy with an advanced export infrastructure (see Intellectual Property Office and Foreign & Commonwealth Office, 2015), is part of the focus of this project.

Lasting for twelve months, this exploratory project's key objectives are to:
1. Identify the various forms and sources of financing that are being used to trade in counterfeit goods.
2. Map the transnational physical and financial flows relating to the trade in counterfeit products, focusing in particular on UK-China.
3. Examine how the Internet and electronic commerce presents financial opportunities for counterfeiters and to explore how these online processes interact with the material trade in counterfeit products.
4. Consider the role of licit financial and business structures in relation to the illicit trade in counterfeit products.
5. Develop the team's network and expertise in a way that will enrich future research and enhance their contribution to enforcement and regulatory policy and practice on a larger scale beyond the scope of this exploratory project.

The project will begin to develop an important knowledge base for law enforcement, regulatory agencies and policy makers. This will support informed decision making about resource allocation and measures to tackle counterfeiting, criminal financing and transnational organised crime. In addition, the project will establish a cross-disciplinary and cross-sector counterfeiting research network, an innovative methodology to research counterfeiting, and more generally provide an important contribution to the TOC knowledge base.

The research will make contributions to practice and policy that will be of interest to a range of groups outside the academic community.
First, it will be of considerable value to law enforcement agencies, regulatory agencies, criminal investigators and other officials working to combat transnational organised crime at local, national and international levels (e.g. Trading Standards, UK Border Force, National Crime Agency, Medicines and Healthcare products Regulatory Agency, Europol, Interpol). Law enforcement faces many difficulties in targeting and dismantling transnational criminal activities. Illicit financial and physical flows are vast and constant, operations are increasingly moving online and significant resources are required for investigations. This is particularly apparent in the context of the counterfeiting business, wherein a number of economic, political and technological processes and structures provide abundant opportunities to finance, produce and distribute counterfeit goods around the world. However, the trade in counterfeit goods and the mechanisms used to finance it can often be neglected as priority areas. Existing action on TOC instead tends to focus on the most extreme criminal activities and illicit markets, rather than the more common entwining of illicit supply into everyday trade and with licit financial actors. By systematically analysing counterfeiting and criminal financing through co-produced and user-engaged knowledge creation, this project has the potential to directly impact on enforcement priorities, resource allocation and tactics in the field.

Second, the project will also indirectly benefit non-governmental agencies who work in collaboration, or are supportive of, anti-counterfeiting objectives. These include the Anti-Counterfeiting Group, Federation Against Copyright Theft, and Fight The Fakes among others.

Third, the project will benefit policy makers at national and international levels. They will profit from the broader and deeper understanding of criminal financing and counterfeiting that the research will provide, which will help in the development of future measures and policies to raise awareness and tackle it.

Fourth, knowledge of counterfeiting and criminal financing can generate financial and non-financial returns and benefits to the UK economy and society. The counterfeit trade poses a range of economic, physical and social costs to citizens, businesses and creative industries. Better knowledge and awareness leading to the development of more effective enforcement can protect consumers, and businesses in terms of intellectual property rights, trademarks and profits in the UK.

In order to maximise the impact on practice and policy the proposed exploratory study includes:
- Research that will actively consider potential benefits and beneficiaries outside academia from the outset, including the input of practitioners and policy makers throughout the study. This will include the development of an impact strategy with simple evaluation measures during the initial stages of the project;
- A visualisation and a final study report, both of which will be published and distributed throughout a number of official channels in order to spread knowledge relating to counterfeiting and criminal financing in the UK and beyond;
- A final cross-sector conference that will provide academics, practitioners and policy makers with the opportunity to exchange experience and better focus their work on dismantling criminal groups and criminal financing, while raising awareness in the public domain;
- Research dissemination in the media, academic publications (e.g. in peer-reviewed journals in criminology and geography) and papers at academic and non-academic conferences (e.g. on brand protection);
- A cross-disciplinary and cross-sector team dedicated to considering potential future research, knowledge exchange and impact in this area beyond the 12 month exploratory project.