Under the spotlight25 November 2020
There has been a surge in illicit products linked to Covid-19 as counterfeiters seek to capitalise on the fears of the public. Irenie Forshaw talks to Jay Kennedy, assistant professor at Michigan State University’s centre for anti-counterfeiting and product protection, and Géraldine Lissalde- Bonnet, director of public policy at GS1, about how packaging can protect brands and consumers, and the role of unique device identification systems in the fight against fraud.
Trying to figure out whether a highly sought-after N95 face mask is real or fake is no easy task. Some of the tell-tale signs – like ear loops instead of headbands, or a misspelled brand name – are obvious. After that, though, things start to get a little murky. If the approval code is missing, it’s a counterfeit. But even if the code is there, it may well be fake.
Since the outbreak of the pandemic, there has been an explosion in the trade of substandard face masks, hand sanitisers, disinfectants and medicines. Fraudsters have taken advantage of the opportunity to exploit the global anxiety surrounding Covid-19 – sometimes with devastating consequences. In response, officials have launched enquiries and set up task forces, but the complex network of cross-border crime is difficult to disrupt. The world’s largest manufacturer of N95 face masks, 3M, has taken matters into its own hands, filing 18 law suits for suspected cases of product fraud, counterfeiting and price gouging. In one high-profile case, 3M alleged that New Jersey-based Performance Supply had attempted to sell $45m worth of N95 respirators to New York City officials at 500% of the recommended retail price.
Meanwhile, in China, the chairman of a Beijing-based pharmaceutical chain was recently sentenced to 15 years in prison for selling fake 3M masks. In total, 3M has investigated more than 4,000 reports of fraud connected to Covid-19 since March 2020.
From bad to worse
Jay Kennedy, an assistant professor at Michigan State University’s School of Criminal Justice, is not surprised by the rapid acceleration in the trade of counterfeit goods linked to Covid-19. After all, he explains, the durable products needed to fight the virus were already prime markets for fraud. This made it easy for counterfeiters to pivot and scale up activity because they had already recreated the wheel, so to speak, and were equipped to get the products out. Moreover, frightened people across the world have been making decisions on what to buy based on sparse information – it’s still unclear exactly how the virus works. “In this grey area,” Kennedy says, “counterfeiters thrive because they can create the narrative.”
As countries locked down, larger numbers of people than ever before flocked to e-commerce, an arena in which counterfeiters prosper as they already have a pre-established online infrastructure. Criminals also benefit from the fact that Covid-19 has impacted the supply chain in ways not all consumers understand. “We have this general idea that if you can’t get [the product] in store, you can go online and it will be there because you get the entire commercial power of the world together,” explains Kennedy. “Counterfeiters play on that, when in reality the global supply chain, especially for things like PPE, may be very limited.”
While an extremely cheap price is often a red flag that the product may not be real, fake goods are increasingly being priced very close to, or even above, their originals in order to appear legitimate. Instead, one of the biggest clues to counterfeit products, says Kennedy, is the way they’re marketed to consumers. Fraudsters use targeted adverts, directing people to non-public domains to avoid detection. That plays into the overlap between counterfeiting and financial fraud. Most criminals, Kennedy explains, tend to be generalists, which means they will take advantage of whichever schemes will net them the most profit. As a result, consumers that are exposed to counterfeit products through these methods are also at risk of information theft.
But what are the consequences of counterfeiting? The primary danger, explains Kennedy, is the harm to human life and health. N95 respirators, which are mainly used by healthcare professionals, filter at least 95% of airborne particles. Substandard versions of the masks put users at higher risk of infection. As for brand owners, it’s more than loss of revenue; fraud can irrevocably damage reputations.
Reports of fraud connected to Covid-19 investigated by 3M since March 2020.
International trade in counterfeit pharmaceuticals.
OECD and EUIPO report
Now more than ever, then, companies need to have a brand protection strategy in place. Within this, packaging plays a crucial role in the fight back against fraud. “For the most part, we’re really trusting when the packaging looks authentic,” says Kennedy. “It’s a very low bar to meet.” Counterfeiters invest a lot of time and money in finding innovative ways to recreate packaging in order to make their products look as legitimate as possible. In turn, brands regularly update their packaging design. It is particularly difficult for consumers to identify whether a product is real because security features are often hidden to avoid detection by counterfeiters. Even when the features are overt – like specific ink colours or logo positions – typical purchasers are unlikely to know what to look for.
For brand owners, packaging can be used to track where their products are in the distribution chain using traceability systems, which rely on unique serialised barcodes or radio-frequency identification tags. In the US, the Drug Supply Chain Security Act is currently being implemented by the Food and Drug Administration (FDA), requiring manufacturers, repackagers, wholesale distributors and dispensers to provide tracing information and ensure there is a system in place for handling suspect products. The OECD and EUIPO reports that there has been more than $4bn worth of international trade in counterfeit pharmaceuticals. “The ultimate goal is: what can we do to put light in these dark places within the supply chain?” explains Kennedy. “Because it’s in those dark places where counterfeiters are able to intermingle illegitimate with legitimate goods.”
Géraldine Lissalde-Bonnet, director of public policy at GS1, is only too aware of the issues at stake. Her job involves monitoring regulatory developments that relate to the identification and labelling of pharmaceutical and medical device products. GS1 acts as an adviser to the industry, ensuring new requirements are implemented with the same set of standards. The company generates unique, global barcodes to encourage a more transparent supply chain and reduce the risk of fraudulent activity. “We’re always one step ahead,” she says, “and they’re super creative, using technology that is more and more advanced.” In recent years, regulators like the FDA and the European Commission have come together to develop unique device identification (UDI) regulations. The goal is to create a single, globally harmonised system for identifying medical devices throughout the supply chain.
GS1 is an accredited issuing agency in the US, EU, China and Saudi Arabia, providing a global framework to ensure consistent UDI implementation. “Using the same system for different national requirements really helps to ensure the efficiency and security of the production system, because you don’t have to jump from one system of identification to another,” says Lissalde-Bonnet. “You can expect your supply to chain to be really integrated.”
Another important benefit of UDI, she adds, is the potential to link a medical device to a specific patient using electronic medical records. This system makes the product recall process faster and more effective, and also improves the quality of data available because companies are required to submit their information to a regulated database. “In doing so, manufacturers have to make sure they have a system in place to ensure that everything related to the identification of the device is correct,” she explains. “That’s really important when you think about the traceability of your product.”
“We’re always one step ahead, and they’re super creative, using technology that is more and more advanced.”
However, the rapid demand for certain products following the outbreak of Covid-19 meant that some countries took the decision to give more flexibility to manufacturers with regards to the labelling of their products. “That was a mistake,” says Lissalde-Bonnet, “because, ultimately, it’s opening the doors to more fakes.” Still, she believes the pandemic has shone a light on how crucial transparency in the supply chain is for ensuring the authenticity of products. Brands already using UDIs, she says, will continue to do so because they will have seen the advantages. Although the FDA has delayed UDI enforcement until 2022, Lissalde-Bonnet is confident it will gradually get back on track as the crises abate. Nevertheless, she is keen to stress that packaging is just one element that should be used to prevent counterfeiting. Other key measures include raising public awareness of the risks and a solid framework of regulations. “It works better if everyone feels responsible,” she says. “The brand, the consumer and the regulators.”
The bigger picture
Kennedy agrees that packaging alone is not enough to crack down on fraudulent activity. “I don’t put faith in anti-counterfeiting technologies, mainly because we react much more slowly than the counterfeiters do,” he explains. “While technology plays a role, it cannot be the be-all and end-all.” Instead, he says, consumers have to take responsibility. After all, counterfeiters would not have a market if people were not buying their products. He concedes that this may not be a popular opinion as it could be construed as victim blaming, but ultimately, he says, it is down to the consumer to make the right choice. Of course, he adds, brand owners have a role to play in educating their customers about the risks of counterfeit goods – especially when launching a new product in a region where they know there will be high demand – but as long as consumers choose low prices and ease of access over security and legitimacy, counterfeiting will continue to flourish. As 3M’s battle has demonstrated, law enforcement agencies are central to the efforts to thwart counterfeiting. However, says Kennedy, it is also incumbent on e-commerce platforms to protect consumers. “Whenever a counterfeiter sells an item on their platform, they make a profit,” he explains. “So taking down fraudulent listings may be a good start, but at some point, we have got to ask the question – and this is a horrible question to ask – what’s the level of engagement that a platform is willing to undergo relative to the financial pain they are willing to endure?”
In the end, he says, it is only with collaboration between law enforcement, e-commerce, brands and consumers that manufacturers and regulators will stand a fighting chance of stopping device fraud. Enablers must take responsibility and fully disengage from activities that indirectly assist counterfeiters. “There’s a lot of work to be done, but I’m positive,” he says. “For the first time in the six or so years I’ve been in this space, it feels like we have all the parties that we need at the table interacting and looking to move forward together.”