Counterfeit Goods: Money Laundering in Plain Sight (Part 2 — Fake Medicine)

Topics: Financial Crime, Financial Fraud & Anti-Money Laundering, Government


This is the second 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 of the series here.)

Part 2: Unsafe Components and Fake Medicines

Globally there are a wealth of regulations pertaining to the production of pharmaceutical goods, from the chemical components that are utilized to the working conditions in which they are produced. The companies that produce and manufacture goods arguably aim to achieve or exceed the compliance standards of those regulations. However, in the case of counterfeit goods, the manufacturers are either themselves criminals or at the very least in collusion with criminals.

It is very difficult, therefore, to imagine that those criminal organizations who favor profitability over most every other factor would put any consideration into an ethical or compliant production chain.

As the United Nations Office of Drugs and Crime (UNODC) reports, counterfeit goods including food, toys, and clothing have been found to contain toxic dyes or chemicals. Many states in the U.S. have gone to great lengths to either prohibit the use of high-risk chemicals, disclose known risks associated with them, and/or include strict provisions on how to dispose of them.

The costs of lawfully disposing of these toxic chemicals can be significant. Therefore, if counterfeit products include these harmful components, then the risk that these chemicals and/or their byproducts are being disposed of in an unsafe and non-compliant manner increases by an order of magnitude. According to the same UNODC report, enforcement agencies often do not even have a strong position from which to investigate the disposal of toxic chemicals given that counterfeit good producers do not register with state agencies.

Counterfeit Pharmaceuticals

Secondarily, though no less worrisome, is that a large market share of counterfeit goods that are produced are pharmaceuticals. The World Health Organization has previously estimated that up to 1% of all medicines available in the “developed world” are potentially counterfeit.

Counterfeit pharmaceuticals are copies of legitimate medication with effects ranging from being as effective as their legitimate counterparts to being fatal. One article found that in 2012, one-third of all of the malaria medication used in East Asia and Sub-Saharan Africa was fraudulent. All told, the adjusted figure for the potential existence of counterfeit pharmaceuticals falls  somewhere in the range of 10% to 30% worldwide. These pharmaceuticals can range from so-called lifestyle medications to simple analgesics and antibiotics. As noted previously, counterfeit pharmaceuticals may have an ineffective dose of the required medication, the chemical balances may decrease overall efficacy, the chemical components may contribute to the development of drug-resistant strains, or the components may be fatally toxic.

The end result is that as many as one million people are believed to die every year as a result of having consumed counterfeit pharmaceuticals. There are, however, no metrics in place to detect where or how any noxious components or byproducts created by those counterfeit pharmaceuticals are disposed of.

In the third part of this series, we will examine the nexus between counterfeit goods, labor exploitation and human trafficking.