The real deal: fighting the counterfeiter

The Drinks Report examines the issue of counterfeit packaging in the alcohol industry and asks a brand protection expert how the fight is being taken to the criminals

Richard Burhouse Payne Security

The Drinks Report examines the issue of counterfeit packaging in the alcohol industry and asks a brand protection expert how the fight is being taken to the criminals. James Graham talks to Richard Burhouse, business development manager with global security, brand protection, document authentication and personal ID company Payne Security.

There is a great deal about anti-counterfeiting measures developed for the global alcohol industry that necessarily has to be left unsaid. Overt and covert measures are developed as rapidly as the counterfeiters are evolving their criminal activities.

What can be said is that counterfeiting is not a victimless crime. A fraudulently produced package means loss of revenue and brand confidence for brand owners, a loss of income for legitimate packaging companies and a loss of tax and excise revenue for tax authorities. There are also legitimate concerns about the contents of such counterfeited packaging: at best the contents might be a cheaper, lower quality version of the original contents. At worst, chemically altered products can have fatal repercussions.

While no figure exists for the exact amount of money lost to counterfeit or passed-off alcoholic packaging products worldwide, conservative estimates suggest it could be as much as US$700 million, though the total is likely to be much higher.

“We work to further brand protection. Counterfeiting is a growing problem. People outside the industry would be surprised at the lengths criminals will go to pass off goods." Burhouse says. “They play by different rules from other criminals; they take the money and instead of running, they keep working until they are detected.”

Counterfeiting is a recidivist crime; it is not a criminal act that can be committed accidently. The skills have to be taught from an experienced forger and it is a skill that, once acquired, can be exploited for some time or until exposure or capture.

Physical aspects of protection can include tear tapes, seals, special inks, holograms and special label printing developed by Payne Security.

Customer base
The company has a drinks industry customer base that ranges from a number of the world's leading companies to independent wine and spirit producers. The company employs a mix of physical and intelligence methods to combat counterfeiters. They will sit down with brand owners and works out how to defeat the counterfeiters in individual cases.

Brand owners all face different problems with protecting their products so the protection offered cannot be a ‘one size fits all’ solution, said Burhouse.
He says: “One of directions we can go in is consumer authentication methods such as holograms and tear tapes while another might be investigating supply chain security to discover weaknesses.”

In western Europe and North America, drinks industry supply chains enjoy high levels of security, such as track and trace and RFID methods, that can reassure brand owners. However, elsewhere in the world, security in the supply chain can be compromised more easily.

Burhouse says: “Counterfeiters often look for the weakest link in the supply chain to introduce their products. Particularly vulnerable are areas, such as Asia, far from the source of original product where it is easier to pass off such illegal products.”

Anti-counterfeiting is often tackled by brand owners after the event, observes Burhouse. When a company detects such activity, they approach Payne Security to detect and stop such behaviour. It is rare, he reveals, for a company to future-proof their products in consultation with Payne Security.

Grey market
In mid-December, 2009 a man was arrested in India for selling cheap Indian-made alcohol in genuine premium whisky bottles. He was caught when trying to sell a bottle for Rs 2,000 (£26.34) to a decoy customer.

He filled genuine bottles bought from ‘rag pickers’ (rubbish dump scavengers) with cheaper whisky to sell them in the open market and at banquet halls. The police recovered 48 premium brands bottles from his home: wrappers, labels, stickers, corks, tags and packing cases of various brands along with a sealing machine and two packing machines were also seized from him.

This was a small-scale, domestic crime but one that aptly sums up the complexities of fight against the counterfeiters. The pertinent detail is how this counterfeiting is being undertaken many miles from source, with the bottles being introduced at a weak point in the supply chain.

Bona fide products can also be sold in the ‘wrong’ location.

Burhouse says: “One of the criminalities we fight is selling in the grey market; the diversion of genuine products to markets where they should not be sold. This hurts the brand owner when a genuine product is brought into the territory of a sole agent and undercuts the legal price that agent is permitted and the product’s supply chain. The brand owner’s property can be damaged by cheapening its value while the genuine agent loses income.

“The issue is that in these cases the product is genuine. If the country where the grey product is sold has a tax payment stamp, then this will be the counterfeit item which we would detect.”

Complicity
Customers who acquire counterfeit packaged products can be unwitting victims or complicit in knowing the false nature of the product. Consumers can be sold these items by counterfeiters in locations where it is obvious there is something illegal about the product: high end brands on market stalls, for instance, or leading brands at unusual discounts. They can also be bought in genuine outlets, at genuine prices.

Retailers, themselves, can source these products as a way of improving their margins and undercutting rivals or can be misled as to their origin; this leads to grey market activities. The supply chain itself can be compromised, such as the case of the Indian counterfeiter mentioned above.

It is a truism that what one person can make, another can make a copy of. The battle against counterfeiting in the drinks business by the likes of Payne Security will continue.

1 December 2009