Corrections or additions?
This article by Kathleen McGinn Spring was prepared for the January 22, 2003 edition of U.S. 1 Newspaper. All rights reserved.
When people think of counterfeiting, they think of T-shirts,"
says Michael Kessler, who has been investigating counterfeiting
for better than three decades. Faux Gucci bags and $50 Rolex watches
come quickly to mind too, at least for anyone who has spent any time
along Manhattan’s Canal Street, land of $7 Polo shirts, $10 DVDs of
movies still in first-run theaters, and $5 bottles of CK One cologne.
Eavesdropping on Connecticut matrons debating over whether the goods
look real enough to pass is great fun, but, insists Kessler, counterfeiting
is anything but an innocent, victimless crime.
In one scary scenario he asks just how funny it would be if individuals
with nefarious intent slipped poison into boxes of widely-distributed
grey market macaroni and cheese. It wouldn’t be hard to do, he says.
Kessler shares his experiences with every type of counterfeiting when
he speaks on "International Product Distribution: Security, Counterfeiting,
and Diverson" on Tuesday, January 28, at noon at a meeting of
the International Trade Network at the Nassau Club. Cost: $35. Call
Kessler is founder of Kessler International (www.investigation.com),
a Manhattan-based forensic accounting, corporate investigation, and
computer forensic firm. A graduate of St. John’s University, he got
his first look at white collar fraud when he went to work as an auditor
for Blue Cross/Blue Shield in the early-1970s. Fraud in heathcare
was rampant, he says, featuring nursing home scandals and doctors
putting in claims for performing abortions on girls who were not pregnant.
Fraud is still a major problem in healthcare, as it is in nearly every
Former chief of investigations for the New York State Department of
Tax and Finance, Kessler has tracked down fraud in scores of settings.
As a public servant he directed a number of high profile cases, including
the untangling of Leona Helmsley’s accounting irregularities. As president
of Kessler International, which he founded in 1988 and has expanded
across the country and to London and Hong Kong, he has added to his
areas of expertise.
A look at even a partial list of his firm’s specialties suggests the
breadth of possibilities for white collar criminals. The firm’s specialties
include money laundering, trademark investigation, royalty auditing,
anti-counterfeit, product tampering, tracing hostile contact, cyber
evidence, construction review, internal inquiries, and anti-terrorism.
No aspect of business is safe from white collar criminals, and no
industry escapes counterfeiting. While the Guccis of the world are
infuriated to see knock-offs of their handbags being sold on the street
for peanuts, "it is more serious in pharmaceuticals," says
Kessler. Right now, pharmaceutical counterfeiting is rampant. The
most common perpetrator, he says, is the generic drug manufacturer
experiencing a cash flow crunch. It slaps a name brand label on a
bottle, and passes it off as the real thing. And where are these fake
drugs sold? "Your drug store," says Kessler.
Health and beauty aids are commonly counterfeited too. There may not
be a single active ingredient in that bottle of shampoo you just brought
home, and the perfume you gave Aunt Louise for Christmas may have
been sitting in the hold of a ship doing a round-trip grey market
trip to South America for so long that its scent may have completely
Grey market transactions are interesting. They work like this, explains
Kessler. "A company sells the same product at wholesale for different
prices in different countries," he says. "A bottle of shampoo
might sell for $1 in the United States, but for 50 cents in South
America." Knowing this, individuals operating on the grey market
may buy the shampoo in the United States, ship it to South America,
and then ship it back to the United States. Or they might simply buy
it in South America and ship it to the United States. There are numerous
permutations on the scheme. Shipping might add 10 cents a bottle,
but that still brings it in under the United States wholesale price.
This transaction, per se, is not illegal, says Kessler. However, it
is impossible to carry out the scheme without breaking some laws.
For starters, the contracts signed with the manufacturer would state
that the product is going to be sold in South America. Often, shipping
documents would be falsified, and in most cases taxes would not be
paid, and there is a good chance money would be laundered.
But is anyone really hurt? Sure, says Kessler. The company’s salespeople,
attempting to make a living through selling a product to customers
in the United States for $1 are competing against grey market types
offering it for 50 cents. The company — and its shareholders —
lose money because product in countries where the market could bear
a $1 price is fetching half that amount. Consumers, too, are hurt
upon occasion. Grey market operators, whose reputation is not on the
line, do not worry about how the product is stored and transported.
Kessler speaks of shipments of grey market croutons that were held
in storage so long that their boxes filled with worms, repulsing cooks
across the nation, and badly damaging the manufacturer’s reputation.
While grey marketing is a grey area in terms of the law, counterfeiting
is always a crime, and it can have serious consequences. "Lots
of toys are being counterfeited," says Kessler. He also sees counterfeiting
of software, airplane parts, electronics, and brake parts. Consequences
can be serious. In one of his cases, he discovered that steroids,
intended for use only under a doctor’s supervision, were being marketed
to beauty salons in poor, African American neighborhoods as skin lighteners.
Many of these counterfeit pharmaceuticals contained industrial bleach
used primarily as a film developer. Undercover investigators learned
that women using the products thought they were achieving a glow.
Possibly, but they were also setting themselves up for a variety of
side effects, including convulsions, liver and kidney damage, and
But how about that poison mac and cheese scenario? How could that
happen? Simple repackaging, that’s how. In one of Kessler’s cases,
an enterprising criminal in Brooklyn bought restaurant-size boxes
of the sweetener Equal, repackaged it in smaller boxes, and sold it
— at a discount — to stores all over the country for sale
to consumers. "It would be hard to inject poison into Equal packets,"
Kessler concedes. But he says that doing so with something like a
box of macaroni and cheese would be quite easy.
While Kessler’s firm has racked up an impressive number of wins against
counterfeiters and grey market operators, he says bringing these white
collar criminals to justice is not easy. Tracking down these elusive,
chameleon-like traders is difficult, so difficult, he says, that government
agencies often are not interested in trying to do so. In a current
pharmaceutical case, he alleges that FDA inspectors are being paid
off, but even so, he is not able to interest the F.B.I. in going after
the counterfeiters. "Law enforcement is looking for a quick hit,"
he says, adding that it is easier to grab someone with a kilo of street
drugs than to track counterfeiters bringing in grey market goods from
The Internet makes the job even more difficult. The bar to entry into
the counterfeiting game has been lowered significantly now that everyone
has access to cyberspace. "You can get software for $39 that lets
you pull E-mail addressees off a company’s websites," Kessler
says. The Internet’s bulletin boards and chat rooms are full of tips
on how to do so. Trade in child pornography is vastly simplified too.
As for counterfeiting, given the Internet, says Kessler, "you
as a novice could easily set up a business. You could buy all you
want without contacts. You could E-mail, use wire transfers, and drop
shipping." Everything the would-be counterfeiter needs to know
is posted on cyber bulletin boards.
Given the multitude of ever-shifting counterfeiting schemes, how does
Kessler suggest that a company protect itself?
was more product in a country than there were people." A tip off.
of your product. If they dip below your wholesale, it is a good bet
that the product did not get on the shelves through legal channels.
by retailers for your product. If you sell chocolate and it is covered
with a white film, chances are that it was stored at temperatures
where it was allowed to melt a bit and re-form. This could be a tip-off
that a grey marketer gave your chocolate bunnies a round-trip ticket
to another country.
Act at the first sign that something does not look right. "Trust
your gut," says Kessler.
that Kessler relishes. "I love my work," he says. "I don’t
have to watch all of those TV shows." There is plenty of action
in tracking down the bad guys in real lif
Corrections or additions?
This page is published by PrincetonInfo.com
— the web site for U.S. 1 Newspaper in Princeton, New Jersey.