The Counterfeit Revolution and the Global Rise of Authoritarianism

On a sunny day in the capital of the newly bankrupt Sri Lanka, university students were on the march against the regime thought to be behind rampant corruption. Some students’ t-shirts read bold signs, others sporting high fashion; one is adorned with BOSS. Another girl steps out from a supermarket; her t-shirt from ‘Ralph Lauren’. Wherever you turn up, people wear expensive brands, clutching Cartier bags. I asked a man selling BOSS t-shirts where he got his supplies? He confided unreservedly: the supply chain comes from the country’s main Pettah (Manning) market in Colombo. I then went to the Pettah market to witness the problem first-hand.

Counterfeit is an age-old illicit art spanning Renaissance art forgeries to fake Roman coins, and knock-off clothes. However, as observed in Sri Lanka, the counterfeiting exists on an industrial scale. This article analyses the key factors behind the industrial scale counterfeit production: a revolution in counterfeit. It investigates dark truths detrimental to liberal democracy and the rules-based order. The piece argues that the mass counterfeiting swarming unregulated markets is not an isolated phenomenon but an indication of the black hole, or the global illicit economy, which diverts an estimated $ 2.2 trillion from the world economy. The accelerating growth of the black hole over the world economy cannot be understood without analysing its context: modern geopolitics, the rise of authoritarianism, and democratic backsliding. This context creates never-before-seen trends in organised crime and, specifically, counterfeiting.

Geopolitics of Counterfeiting

Industrial-scale counterfeit production with fakes spreading worldwide requires logistics, organisational structures, power, money, influence, control, and supply chains to sustain an illicit business model. How can this happen? According to the Economic Intelligence Unit’s (EIU) World’s Democracy Index 2022, only 8% of the world population now live in a full democracy; the rest live in flawed democracies and hybrid regimes. Alarmingly, 36.9% of the world population live under authoritarian regimes. It is in this unique context of the rise of an authoritarian world that we can better understand the process of the counterfeiting revolution.

First, a black hole of illicit money grows over the world economy, compromising UN Sustainable Development Goals (SDGs). Second, transnational organised crime (TOC) fits into the business model of terrorist organisations, deepening the crime-terror alliance. Third, both these trends are consolidated with the rise of an authoritarian sphere of power. The first and second trends are nothing new, but the third step has repositioned (authoritarian) states vis-à-vis the illicit world. I argue, authoritarian regimes leverage their domain of power to intensify criminality, which is the status quo of authoritarianism with its inherent absence of the rule of law. How do we understand the empirical picture of this scenario where authoritarians and their allies consolidate or partake in global illicit flows – seen in the industrial-scale counterfeit production we witness today.

Counterfeit Revolution: Evidence   

Is there evidence to confirm if the rise of authoritarianism consolidating counterfeit flows, providing a domain for corrupt business to flourish?

China maintains the world’s most favourable regime-backed mass theft and piracy patronage. As seen by its Made in China 2025, and the Thousand Talents Plan, the Chinese Communist Party aims to dominate high-tech and other cutting-edge scientific advancements through outright theft and piracy of intellectual property, especially from the US. Unsurprisingly, China is now claimed to be the top global source of counterfeit. The US Customs and Border Protection counterfeit seizure statistics demonstrate China was the biggest counterfeit originator to the US in 2021. According to 2021 statistics, Hong Kong (hybrid regime), Turkey (hybrid regime), Philippines (flawed democracy), and Colombia (flawed democracy) are other considerable counterfeit originators in the supply chain to the US. Furthermore, counterfeit sale exceeds $43 billion annually in Russia, according to the World Trademark Review (WTR). This evidence indicates the observed association between authoritarian status and counterfeit prevalence.

Further investigating this association, we can see how counterfeit and organised crime are closely linked in a variety of criminal markets. Cartels have diversified their businesses from drugs, counterfeit, humans, organs, and timber to wildlife. Without reliable access to global illicit and licit supply chains, it is impossible to supply counterfeits and the slew of other illicit products on an industrial scale. This is where we see convergence between illicit markets and authoritarian states devoid of the rule of law. For example, Chinese traffickers are alleged to be collaborating with Mexican cartels to provide Fentanyl to the US. Fake Oxycodone pills laced with Fentanyl are widely circulating in Mexico, with Chinese groups revealed to be involved in organised crime there.

Is the Chinese Communist Party complicit in these acts, or are these just the actions of Chinese traffickers? John A. Cassara, a former U.S Treasury Special Agent who investigated transnational crime and money laundering, in a written testimony to the U.S. House Committee on Financial Services on March 23, 2023, states that the ‘business model of the Chinese Communist Party (CCP) is fuelling the Fentanyl crisis’. A recent US Senate Foreign Relations Committee briefing echoed similar concerns, extending Chinese involvement to money laundering. Authoritarianism is fundamentally criminal with its inherent absence of the rule of law. The link between authoritarianism and organised crime is the unavoidable result of the inherent criminality of authoritarianism.

Reverting specifically to counterfeiting, in Sri Lanka (flawed democracy), the industrial-scale counterfeit products in unregulated markets found during a visit to the Pettah market in Colombo revealed disturbing truths. The multi-storey shop of a key wholesaler in the market had thousands of counterfeits, said to come from China (authoritarian), India (flawed democracy), and Vietnam (authoritarian). As the trader confided to us, they were given three months to clear products and stop selling counterfeit. By May 2023, all common wholesalers and street vendors will no longer sell counterfeit apparel with brand logos. Further according to the vendor, politically powerful actors and businesses have seized the illicit monopoly, removing the ordinary petty players from selling some lucrative counterfeit brands. For example, a conglomerate run by a former politician with powerful political ties now owns the brands. This former politician is famously tied to many fraud allegations. Though, who will sell counterfeit after May 2023 is yet to be seen.  Despite efforts by international luxury brands to hired local lawyers to defend their brands, the industry has proven too compromised to effectively remove the counterfeiting.

 

Image Credits courtesy of Dr Chamila Liyanage

The views expressed in this article are those of the author and do not necessarily reflect the views of RUSI, Focused Conservation, or any other institution.