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Counterfeit Airbags, Counterfeit Booze, Counterfeit... Prunes?

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The global market in fakes has been pegged at $650 billion annually. Can it ever be stopped?

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The Epicenter of Global Counterfeiting

Today, some economists believe 8% of China's GDP comes from the sales of counterfeit goods. An astoundingly realistic level of fakery is proudly displayed in everything from automobiles, to theme parks (there is an exact replica of Disneyland (NYSE:DIS) outside Beijing where management insists its "Minnie Mouse" is not a mouse at all, but a "cat with very large ears"), to Apple (NASDAQ:AAPL) computers (they've even managed to produce a knock-off Steve Jobs). One can find fake Nike (NYSE:NKE) shoes and ersatz Duracell (NYSE:PG) batteries, as well as imitation US silver dollars and even bogus fossils.

Take a look at the following description of -- amazingly enough -- bogus Chinese tea:

Of the Moyune district teas there are eight varieties; they are much prized in the American markets, but not so much so in England. Among the most important curiosities in the collection are the counterfeit teas of Canton. These are made of any refuse, such as moistened tea-leaves from the pot, beat up with gum and rice-water in a mortar, coloured with Prussian blue and gypsum, and curled, twisted, or granulated so ingeniously as to counterfeit the most costly varieties.

If you think counterfeiting in China is a relatively recent phenomenon, consider that the above passage is excerpted from a debriefing report from the Juries to Her Majesty's Commissioners after the Exhibition of the Works of Industry of All Nations, which took place in London -- in 1851.

In March 2011, I spoke with James T. Hayes, Jr., Special Agent-in-Charge of the New York Customs Enforcement Homeland Security Investigations office, whose team recently broke up an international counterfeiting ring which allegedly shipped almost 40,000 bottles of fake brand-name perfumes into the US from Guangdong Province, China.

"Sometimes people will ask why Homeland Security is involved in something like counterfeit perfume," Hayes told me. "But it's important to point out that criminal organizations, terrorist organizations, need to get their financing from somewhere. And contrary to what a lot of people may hear and read, a lot of these groups are not state-sponsored. There's no endless pot of money provided by the government, so trafficking in counterfeit products is a wonderful way to create one. Here you have products that would fetch $60-$70 a bottle on the legitimate market, the counterfeits sell for a third of that, and they're producing them for a tenth of that."

The money -- as well as all those involved -- can be extremely difficult to track. However, Hayes said that, in this case -- which resulted in a two-count indictment being handed down yesterday by a federal grand jury against Chinese nationals Shaoxia Huang, Shaoxiong Zhou, and Shaowu Zhou -- luck was on the Department's side.

"Let's face it -- it's not easy to get your primary culprits out of a place like China if they don't want to leave," he explained. "This time, we found out our suspects were headed to Las Vegas for a trade show where we had set up a buy. In reality, we were buying their arrest."
No positions in stocks mentioned.
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