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Deadly Decoys - True Costs Of Counterfeit Goods

Posted By: Nancy Cogliandro, Marketing Director, PKB (Nancy, pacamor at msn dot com)   04/26/2011


Deadly Decoys - Counterfeit Goods


This weekend, CNBC ran a very interesting special about counterfeiting; where the money goes, who benefits from it, who suffers from it.  Worth watching.  This is a very important subject to many reputable domestic ball bearing manufacturers, which includes everyone at Pacamor Kubar Bearings (PKB).  It is worth sharing, not only the highlights, but also a link to the entire video with our customers, vendors, and other friends in the industry. 

The largest underground industry in the world, CNBC goes inside a global crime spree putting our economy and jobs at peril…and lives at risk.  “Counterfeit products can melt, blow up or even burst into flames.  Everyday items that look legit may actually be deadly decoys,” CNBC’s Carl Quintanilla introduces the special “Crime Inc: Counterfeit Goods” episode.  Link to video: http://video.cnbc.com/gallery/?video=1569041504

Whether or not you have time to watch the entire 43 minute show, please check out the segment on real risks to the Aerospace community and our US Military. 

Here is a transcript of the Aerospace and Military segment starting on 21:30:

Funding terrorism is just one way counterfeit products threaten national security.  The US Armed Forces also face a clear and present danger from counterfeits in the military supply chain.  When parts need to be military grade, even the smallest bolt can cause serious problems.

Walt Tomczykowski, Aerospace and Defense Advisor: “Counterfeit parts may look exactly the same but they won’t operate the same.  They might corrode faster.  They may stretch when used under certain conditions.”

The problem has become surprisingly widespread.  Two recent cases involve counterfeit memory chips at nuclear facilities.  And counterfeit computer parts intended for systems that would handle sensitive military intelligence.  Both times the substandard equipment was discovered before a serious incident occurred. 

In 2003, counterfeit o-rings and engine seals needed for aircraft, tanks and weapons were uncovered in military parts depots in Iraq.

Peter Outerbridge, Assistant US Attorney: “The materials in question were of critical importance because they had to withstand extreme tolerances both in terms of heat and pressure.  And it turned out that in many of the cases it was essentially windshield wiper rubber.”

The bogus parts were traced back to a civilian military supplier named Ralph Cooper.  Military investigators discovered that Cooper had contracted a company in Taiwan to make lookalike parts on the cheap.

Outerbridge: “The parts in question appear to have cost him no more than a dollar a piece to obtain.  He charged the Defense Department $54,000.  Obviously, the mark up on his end was astronomical.”

Cooper served less than three years in prison for dealing in counterfeit aircraft parts.   But scams like his continue to trouble the military.  With US Armed Forces heavily engaged around the world, the implications from counterfeit parts could be devastating. 

Tomczykowski advises: “If you’re not aware that counterfeit parts are out there, if you’re not doing incoming inspection, if you’re not testing, if you’re not going to known, trusted suppliers as much as you can,  then they can creep, just like a weed, into your systems.”




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Other snippets of useful information

According to a report from US Customs and Border Protection, 79% of counterfeit goods seized by authorities in 2009 came from China. The country that came in an extremely distant second place was India, with 9% of all counterfeit goods seized. The top item that was counterfeited in 2009 was footwear, which accounted for 38% of seized goods that infringed upon intellectual property rights.

Counterfeit tourniquets have been found in an Afghan army supply warehouse. Although it isn't known how they actually got there, the US provides a great deal of the Afghan military's equipment, making it a distinct possibility that the fake goods were purchased by the US military on the Afghan army's behalf. Understandably, officials are concerned that the fake tourniquets could one day make it into Defense Department supply channels and onto the battlefield. This would likely have fatal results - according to Colonel John Kragh of the US Army Institute of Surgical Research, the tourniquets were "fairly crude and could not possibly work."

Fake handbags, watches, shoes and perfumes. The business of Counterfeit Goods is the largest underground industry in the world. Hundreds of billions of dollars are generated while sapping the economy, putting lives in jeopardy, and funding organized crime in the process.

Consumer Electronics had a  2009 Domestic Seizure Value of $31.77 million which represented 12% of the total seizure for that year.

CNBC’s "Crime Inc.: Counterfeit Goods," takes viewers on a rare look inside a global crime spree, where the goods are produced and confiscated in a world of high-risk and high-reward.  Host Carl Quintanilla takes you on raids with the LAPD anti-counterfeiting unit, inspections at ports, and back-room factories where counterfeits are produced.  Meet a company whose whole brand was copied, and the story of a defense contractor who counterfeit defense parts that found their way into weapons depots in Iraq.  At around 7% of all global trade, Counterfeit Goods are a big business with low overhead. It makes too much money to go away any time soon.


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