Counterfeit Goods: Money Laundering in Plain Sight (Part 3 — Labor Exploitation & Human Trafficking

Topics: Corporate Legal, Fraud & Anti-Money Laundering (AML) Blogs, Government, Leadership

human trafficking

This is the third of a new five-part blog series, “Counterfeit Goods: Money Laundering in Plain Sight”, where we will examine how the production, distribution and sale of counterfeit goods enables bad actors to generate and launder illicit proceeds through front businesses. (You can read the first part and the second part of the series here.)

Given that counterfeit good production sites are not registered entities and therefore not regulated, it is equally as likely that the labor force leveraged to manufacture these goods are also not regulated.

The risk therefore becomes one of labor exploitation through unsafe working conditions. Often these facilities are “staffed” by migrant labor. More to the point, the migrant laborers employed in the production of counterfeit goods are often the victims of human trafficking.

Generally, human trafficking can be defined as the “recruitment, transportation, transfer, harboring, or receipt of persons by improper means (such as force, abduction, fraud, or coercion) for an improper purpose including forced labor or sexual exploitation.” Trafficking can be done through means such as force, coercion, abduction, fraud, and deception, though ultimately again the outcome is some form of exploitation. Human smuggling requires an element of transnationality as well as the consent of the person being moved or harbored. Often, human trafficking is viewed as a service for hire, where the smugglers are paid or promised compensation by the transportee.

However, often the transportee does not have sufficient funds to pay their transporter and instead winds up in a situation of debt bondage, changing the conditions of an otherwise consensual (though still generally illegal) human smuggling arrangement into exploitative human trafficking. There are no countries in the world that are completely free of human trafficking victims. The country where the victim is placed may determine the nature of the exploitation — sexual exploitation or labor exploitation — where the two are not mutually occurring.

Regulation of Working Conditions in Legitimate Production Chains

Optimistically, the legitimate production of goods and the underlying global supply chain are regulated for health and safety purposes, so that the underlying components of the goods and the staff manufacturing them are not exposed to potential injury. Basic ergonomics, lighting, and even appropriate ventilation are folded into production costs to ensure that employees are safe. If labor exploitation is leveraged to produce counterfeit goods, the victims of the exploitation are either severely underpaid or forced to work without payment and forced to work in terribly unsound conditions.

This is due to the source of the manufacturing, that being the same organized crime groups who may have initially trafficked the victims of exploitation or groups working on shared criminal enterprises. These groups have no regard for the safety of those victims. Globally, investigations have found victims of labor exploitation who have been exposed to dangerous chemicals, skin-absorbent toxins, and noxious fumes, all while working in unsafe and even physically abusive conditions. While plant inspections might detect these conditions, counterfeit goods “plants” are often not registered in the way that their legitimate counterparts are. Thus, they are not at all subject to inspection.

Nexus Point Between Human Trafficking and Counterfeit Goods

To that end, the nexus point between human trafficking and the sale of counterfeit goods is that both are corruption-enabled crimes. Therefore, it is very likely that in countries where there is a low Corruption Perceptions Index (CPI) score there is an increased incidence of both crimes. Law enforcement officers, prosecutors, judges, or even diplomats are often bribed to look the other way or even passively or actively participate in human trafficking. However, diplomats often enjoy immunity from criminal prosecution. There are of course checks and balances through various forms of inspection at either customs or various transit checkpoints; however, any effort to hamper the sale of counterfeit goods is often undermined through various forms of corruption.

Even when law enforcement or other interested parties have attempted to carry out raids on sellers of counterfeit goods, the inspectors themselves can be bribed. Intellectual property consultants have found instances where shop owners were tipped off about raids, and there have been instances where the investigators themselves stole and then tried to resell the very counterfeit goods they were tasked with confiscating.

Cross-Reference Using Resources

Specific to labor exploitation, the U.S. Department of Labor’s Bureau of International Labor Affairs (ILAB) maintains a “list of goods and their source countries which it has reason to believe are produced by child labor or forced labor in violation of international standards, as required under the Trafficking Victims Protection Reauthorization Act (TVPRA)” that allows users to cross-reference countries which are believed to utilize child and forced labor, as well as the goods produced by these means.

It is possible therefore that an interested party could mitigate the risk of purchasing or financing counterfeit goods or goods produced by labor exploitation by cross-referencing higher corruption-risk countries from the CPI against the nature of goods produced by exploitation from ILAB.


In the fourth part of this series, we will examine what financial institutions can do, including risk assessment and material-sourcing, to avoid common risks inherent with trade-related products and services.