On October 16, Europol and EUIPO published a joint strategic analysis report on enablers and impact of intellectual property crime.
The mechanics of IP crime
The report broke down the various segments of the criminal process in order to better understand the full ecosystem of IP crime.
The analysis highlighted that criminal actors involved in the trade in counterfeit goods in the EU operate in a networked environment, where cooperation is fluid and resembles legitimate business structures.
IP criminals know how to exploit the weak links in global supply chains and to abuse differing legislative frameworks, especially when the process involves multiple jurisdictions, importers, retailers and distributors.
The acquisition phase
The infringement of IP rights is the first and most important stage of IP crime. It may involve counterfeiting or piracy, depending on the type of product or service in question. In this phase, IP rights are purposefully violated with the objective of gaining illicit proceeds. The IP may be infringed by producing, by stealing or by diverting from the legal chain.
Production and assembly
A range of counterfeit products, such as luxury goods, clothing, toys, and electronics, are produced with replicated brand logos. China, including Hong Kong, and Türkiye remain the main source regions for counterfeit commodities, as well as for raw materials.
Criminal networks involved in IP crime seek ways to enhance their operations by setting up laboratories, manufacturing facilities, and assembly points within the EU.
The transportation and distribution phase
Once the illicit goods are acquired or created, criminal networks distribute them through various channels, both in physical and in online spaces.
The marketing and retail phase
Online marketplaces and social media, both on the surface web and the dark web, continue to be fundamental to the trade in counterfeit goods such as pharmaceuticals, clothing, automotive spare parts, games and toys, and other luxury goods.
Platforms provide various degrees of anonymity and target large audiences, making it challenging to identify the criminal actors involved. As for piracy, file-sharing networks are key to the distribution of copyrighted content.
Retail distribution to customers often takes place through couriers or postal services.
The role of influencers
In the world of social commerce, influencers play a critical role in spreading adverts and promoting. Through their channels, influencers may direct customers to product listings on online stores that evade security protocols about counterfeit adverts.
They often endorse counterfeit goods alongside genuine brands. Social media influencers target high numbers of relatively young consumers, who are likely to purchase counterfeit products due to their trust in influencers combined with their low-risk awareness.
Dealing with profits: money-laundering
These illicit proceeds, once obtained, need to be laundered or reinvested in a criminal financial system, or in the further development of their criminal portfolio.
Money laundering and criminal finances are therefore a key step at the end of the criminal process, and may indeed trigger a new cycle of criminal activity.
Dealing with risks: the countermeasures phase
Criminal networks develop concealment strategies as part of their modus operandi to protect their trade and the identities of their members. Illicit goods, for example, can be concealed in shipping containers by covering them with non-infringing goods.
Networks basing their activities online hide their traces by employing multiple web services, e.g. domain registration and web hosting services, delivered by providers residing in different countries.
Encrypted instant messaging platforms are used by networks both to sell to customers and to communicate among their members.
Document and identity fraud, including the use of false identities or false addresses, is prevalent, for example in renting facilities under fake identities and registering website domains where illicit goods are to be sold.
The supportive criminal acts that facilitate IP crime
The most common IP crime enablers are document fraud, cyber-enabled crime and cybercrime, corruption, money laundering, and labour exploitation.
Document fraud
Document fraud is a critical enabler of IP crime, as criminal actors make use of a variety of fraudulent documents throughout the various steps of the criminal process.
In the acquisition phase, fake packaging, logos and certifications are used to imitate the genuine products.
In the transport, distribution and retail phase, criminals conceal the counterfeit goods’ origin or their own business activity by producing false documents including invoices and customs declarations.
The falsified documentation not only deceives suppliers, monitoring authorities, and distributors, but ultimately and most importantly end-consumers, who often unknowingly purchase counterfeit goods or medicines, putting their health and safety at risk.
Counterfeiters use false identities to rent production or storage facilities, or to register website domains where illicit goods are to be sold.
Online fraud
Criminal actors make customers believe they are on a legitimate web shop, when in fact while they are on a fake web shop that not only is going to deliver a counterfeit product to the victim but also steals their payment credentials. This data can then be further exploited in financial operations or sold on illegal credentials marketplaces.
Corruption
Corruption comprises a wide variety of illicit methods through which criminals co-opt others into the criminal process, targeting individuals in positions of power or those who are in possession of sensitive information, in order to obtain a specific power and/or information in exchange for money or other benefits.
Labour exploitation
Labour exploitation is a serious and organised crime area that is specifically related to the production phase of counterfeit products.
Most of the counterfeited items marketed in the EU are produced abroad. In many reported cases, the process involves labour-intensive work, unhygienic conditions, insufficient health and safety measures, and underpayment.
Cyber-enabled crimes and cybercrime
Cybercrime facilitates IP crime in many ways.
In the acquisition phase, cyber-enabled criminal activities such as phishing, social engineering, and malware attacks facilitate the theft or infringement of IP rights and data. Hacking techniques and tools for cyber-espionage are also used in the context of industrial and other business data theft, including trade secrets.
In the retail phase, cyber-enabled criminal activities facilitate the online advertising of fake goods. Cybersquatting is a common technique used by IP criminals in which domains identical or similar to those of well-known brands and trademarks are registered in order to trick buyers into believing that they are on the original online stores.
One of the main manifestations of distributed cyber-enabled crime is digital piracy, entailing the unauthorised reproduction and distribution of copyrighted digital content, i.e. films, music, e-books, software, through file sharing platforms, torrent networks, and dark web marketplaces. This includes the illegal streaming of internet protocol television (IPTV) content, which has become increasingly popular, especially during major sporting events. Digital piracy is a lucrative business. Pirate websites often generate significant revenue through advertising, affiliate marketing, and even direct sales of pirated content. These websites can attract millions of visitors, making them highly attractive to advertisers.
Money laundering
Money laundering is a pivotal activity for organised crime. Money laundering allows criminal actors and networks to clean their illicit profits and reintroduce them into the legitimate financial system, while disguising the origin of the funds.
As cryptocurrencies are more and more frequently encountered as a means of payment for counterfeit commodities, e.g. pharmaceuticals or doping substances or digital piracy, file sharing or IPTV, cryptocurrency exchanges are also used to launder IP crime profits.
As an alternative to laundering the proceeds, criminal networks may use the illicit funds to strengthen their criminal activity, such as by reinvesting it in raw materials or in their infrastructure.
Cyber-attacks
IP crime, particularly digital copyright piracy, can enable cyber-attacks. Digital piracy platforms are often used to distribute malicious software, such as viruses, spyware, and ransomware. Pirate websites are notorious for spreading malware, which can be hosted on a separate server, and which can infect users’ devices and compromise their personal information.
The abuse of technology
Organised crime makes excellent use of innovation.
Artificial-intelligence tools are being exploited by criminal networks, with AI revolutionising criminal operations, enhancing their efficiency, sophistication, and scalability, while enabling them to evade detection and attribution.
The impact of IP crime.
Intellectual property crime has substantial and wide-ranging consequences, both direct and indirect.
Economically the illicit sale of counterfeit products generates significant losses in terms of business profits.
IP rights infringement damages fair competition and creates market distortions, hampering investments in research and innovation, as well as distorting the job market.
Studio dal Pozzo, law firm based in Milan, provides assistance to private individuals, organizations and businesses.
