Counterfeiting of Goods
THE RISKS AND LINKS TO TERRORIST FUNDING
BY: JEFFREY A. WILLIAMS, CPP
President and Managing Director
Orion Support Incorporated (OSI)

In a statement before the House Committee on International Relations in U.S. Congress on July 16, 2003, Mr. Ronald K. Noble, Secretary General for Interpol sounded the alarm that Intellectual Property Crime (IPC) is becoming the preferred method of funding for a number of terrorist groups.

The International Anti-Counterfeiting Coalition (IACC) agrees that terrorist organizations are using the sale of fake goods to raise and launder money. They specifically state that, “Recovered al-Qaeda terrorist training manuals have revealed that the organization recommends the sale of fake goods as one means to raise funds to support terrorist operations," as it is a low risk, high profit crime.

In order to survive, a terrorist organization must first develop and maintain reliable and low key sources of funding. Behind the suicide bombers, hijackers and gunmen stand “criminal entrepreneurs and financiers in suits who understand the best way to bankroll Armageddon is through the capitalist system.”

Trade in counterfeit or pirated goods over the past 20 years has grown exponentially. In 1982, the counterfeiting industry drained an estimated $5.5 billion dollars from the global economy. In 1996, this figure jumped to an estimated $200 billion. Today, the International Trademark Association, the FBI, as well as U.S. Customs and Border Agents approximate the figure to range between $450 – 500 billion per year. According to Carrutu International PLC, a leading intellectual property rights investigative firm based in the U.K., the global counterfeit market accounts for 9 percent of world trade and likely will double in the next two to three years.

Mr. James Moody, former Chief of the Federal Bureau of Investigation’s Organized Crime Division declared in 2001 that counterfeiting would become “the crime of the 21st century.”

Carrutu International PLC has repeatedly warned that the innocent purchases from Internet sites and street markets of counterfeit products are, to some degree, funding terrorist organizations, including al-Qaeda and the Irish Republican Army. Mr. Noble (Interpol) agrees and further identifies Hezbollah, the Basque ETA, Islamic Jihad, and Hamas.

In general, al-Qaeda and other terrorist groups benefit from funds raised by sympathizers. Approximately 10% of spending goes for operational matters, while 90% is used to maintain the infrastructure of the network, including payments to other groups to support them.

One estimate is that over a ten year period, al-Qaeda received between $300 million and $500 million, averaging US$30 to US$50 million a year. The September 11 attacks have been estimated as costing less than US$500,000 to fund. Based on the aforementioned figures, one successful large scale illegal replicating operation counterfeiting fake CDs could potentially fund several 9/11s. And based on 10% of terrorist funding going towards operational activity, that’s $3 - $5 million dollars per year available to al-Qaeda for other 9/11s, Madrid train bombings, or operations towards greater lethality.

The FBI believes that the bombing of the World Trade Center in 1993 was partly financed by the sale of counterfeit clothing. In 1996, the FBI confiscated 100,000 T-shirts bearing fake and unauthorized Nike “swoosh” and/or Olympic logos that were intended to be sold at the 1996 summer Olympic Games in Atlanta. The operation generated millions of dollars and was run by the followers of Sheik Rahman, who was convicted of the World Trade Center bombing.

Tax Free Zones

According to the IACC in a report on Special 301 Recommendations to the U.S. Trade Representative in February, 2004, special economic (tax) free-trade zones around the world are increasingly being exploited by IPC criminals to move and produce counterfeit goods. These special economic (tax) free-trade zones are areas where too many governments take a hands-off approach to illegal conduct. The IACC cites a number of worldwide examples to include in the Philippines. They state that in a number of free-trade zones and “bonded warehouses” in the Philippines, underground CD production lines are often heavily secured sites equipped with hidden cameras for early detection and surveillance purposes. Additionally, it is suspected that large quantities of counterfeit cigarettes are moved through these free trade zones by organized crime.

Hezbollah

Interpol is aware of a number of cases of IPC-related activity and terrorist funding involving ethnic-Lebanese criminals sympathetic to Hezbollah, who produce counterfeit goods in Europe and send them to free-trade zones in South America. The goods are then smuggled into a third country, to avoid import duties, where they are sold via a network of sympathizers and militants originating in the Middle East. A portion of the money generated through this activity is believed to be remitted to Hezbollah.

In February, 2002, Fox News reported that Mohamad Hammoud was sentenced to 155 years in prison for helping to lead a cigarette smuggling operation out of North Carolina that funneled money to Hezbollah. Over the course of 18 months, he smuggled over 8 million dollars of counterfeit cigarettes which were manufactured in China for US $2.00 per carton, and sold for up to US $70 per carton in Michigan. In June 2002, Hammoud was additionally convicted for providing aid to a terrorist organization. The indictment papers, surrounding the case, stated that Hezbollah officials in Lebanon asked cell members to purchase equipment such as “computers, night vision equipment, mine-detection devices, global-positioning devices and advanced aircraft analysis” with the funding from Hammoud.

Al-Qaeda

Several counterfeiting cases that have been reported in the media where there were alleged connections to al-Qaeda include an investigation into a shipment of fake goods from Dubai to Copenhagen, Denmark. This transnational investigation involved agencies from three countries; Denmark, the United Kingdom and the United States and suggested that al-Qaeda may have indirectly obtained financing through the smuggled counterfeit goods. Danish customs intercepted a container, containing counterfeit shampoos, creams, cologne and perfume. The sender of the counterfeit goods was allegedly a member of al-Qaeda.

According to James Nurton, “Why Crime is Not So Harmless,” an intellectual property crimes search and seizure operation in early 2002 on a souvenir shop in mid-town Manhattan led to the seizure of a suitcase full of counterfeit watches and the discovery of a flight manual for Boeing 767s, some containing handwritten notes in Arabic. A similar raid shortly thereafter on a counterfeit handbag shop in New York uncovered faxes relating to the purchase of bridge inspection equipment. Two weeks after that raid, another raid revealed fake drivers’ licenses and lists of suspected al-Qaeda terrorists – including names of some workers in the handbag shop that had just been raided.

"Right now we're at the tip of the iceberg," Noble told The Associated Press in an interview at the First Global Congress on Combating Counterfeiting. "If law enforcement and governments focused more on terrorist funding from IPC, we'd find more evidence of it."

Potential Means for a Terrorist Attack

In addition to the concern about counterfeiting organizations financially supporting terrorist cells, say authorities; they also are worried about the use of counterfeit products as a potential means of attacking the United States or its Allies. An IACC White Paper published in January, 2005 advises that the potential exists that terrorists could use the commission of the crime itself as a means of attack. To gain an appreciation for the potential harm factor, one need only consider the possible use of counterfeit pharmaceuticals that, in place of proper ingredients, actually contain deadly chemicals, poisons or biological toxin.

With the increasing number of pharmaceuticals coming from sources that are often beyond the reach of U.S. regulators at both the federal and state levels, it would certainly not be difficult for determined terrorists to slip such deadly products into the stream of commerce. The World Health Organization (WHO) estimates that 50 to 60 percent of all drugs sold in parts of Africa and 25% or more of drugs sold in Mexico now are counterfeit. On average, WHO estimates that 10 percent of all medicines currently being sold worldwide are fakes.

In the event of such an attack, it could take days or perhaps weeks for the problems to come to light. Any efforts at containment would be severely complicated if the tainted drugs were distributed and sold over a wide geographic area. But even without deadly substances at their disposal and even without the expertise necessary to work with such poisons, terrorists could still pose a deadly threat. They could intentionally mislabel bottles with virtually indistinguishable counterfeit labels that contain erroneous information about the dosage or even type of drug contained therein. And the use of false bar codes or lot numbers would make the medicine difficult to track and its origins or source nearly impossible to trace. Indeed, the terrorists wouldn’t even need to enter the United States to carry out the attack. They could ship large quantities of tainted medicines into any country, delivering them via normal mail channels or package delivery companies.

Of course, this speculative analysis only covers the pharmaceutical industry. Food items and other consumables, as well as cosmetics and shampoo present other vulnerable medium and all new sets of issues and questions.

Future Trends

In a paper approved for publication by the U.S. National Foreign Intelligence Board, entitled “Global Trends 2015: A Dialogue about the Future with Nongovernmental Experts,” it is stated that between now and 2015; terrorist attacks will become increasingly sophisticated and designed to achieve mass casualties. And, they expect the trend toward greater lethality in terrorist attacks to continue.

Chemical and biological threats to the United States and its Allies will become more widespread; as such capabilities are easier to develop, hide and deploy than missiles armed with WMD. Earlier this year, it is alleged that the Philippine government seized Jemaah Islamiyah (JI) documents in Cotabato, Mindanao that dealt with chemical and biological warfare and there was evidence that experiments were taking place on farm animals in the area. The JI is an Indonesian terrorist group alleged to be aligned with al-Qaeda.

Global Trends 2015 goes on to state that the trend away from state-supported political terrorism and toward more diverse, free-wheeling, transnational networks—enabled by information technology—will continue. Some of the states that actively sponsor terrorism or terrorist groups today may decrease or even cease their support by 2015 as a result of regime changes, rapprochement with neighbors, or the conclusion that terrorism has become counterproductive.

States with poor governance, ethnic, cultural, or religious tensions; weak economies; and porous borders will be prime breeding grounds for transnational networks seeking safe havens for terrorism. It has already been established that some terrorist groups are receiving funding from IPC. Such sources of funding could originate from the manufacture or importation/distribution of counterfeit goods from those areas that offer the greatest degree of protection within those countries, such as special economic (tax) free zones where governments historically take a hands-off approach to illegal conduct such as Intellectual Property Crime.

Are we unwittingly supporting terrorist operations through the purchase of counterfeit goods, especially goods such as counterfeit CDs or DVDs, a local industry where many of those involved have strong ties to the Middle East and possibly interests inimical to those of the local and U.S. governments?

Sound incredible? So were the plans to fly commercial airliners into the Twin Towers in New York City that were seized in the Philippines in 1995 during an operation targeting Ramsey Yousef,…..until six years later!

Note. Jeffrey A. Williams, CPP, was the vice president of Pinkerton Asia Ltd. from 1992 until he retired in 2001. Jeffrey now enjoys a life as an independent consultant (in the Philippines,) with more than 15 years experience working investigative and security consulting matters, Philippines-wide. Prior to joining Pinkerton, Williams had a 23-year career with the U.S. Department of Defense as a special agent with the U.S. Air Force Office of Special Investigations. His last assignment was as the counterintelligence and security officer to the deputy commander in chief, U.S. Transportation Command. He runs his own investigative firm in the Philippines, Orion Support Incorporated (OSI), with website: www.osi-philippines.com, and can be contacted at jwilliams@osi.com.ph.