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Why Is Counterfeiting Getting Worse?

Earlier this week, the US Department of Justice issued a statement detailing the sentence handed down to a chip counterfeiter. Stephanie McCloskey, 39, will serve 38 months in federal prison for her role in a scheme by VisionTech Components LLC of Clearwater, Florida, to import fake chips from China into the US, some with military markings. The parts were sold to a variety of customers including defense contractors and the military.

McCloskey pled guilty in November 2010 to a federal charge of conspiracy to traffic in counterfeit goods and to commit mail fraud, and cooperated with authorities. She was sentenced by the US District Court for the District of Columbia in the first ever federal prosecution of a case involving the trafficking of counterfeit components.

McCloskey is being held up as an example to other would-be counterfeiters that the feds are watching and if caught will pay a steep price. The Department of Justice's Task Force on Intellectual Property was created last year specifically to prosecute such cases. That's because it will be a national security nightmare if just one counterfeit part ended up, for example, in a naval air defense system and caused a catastrophic failure.

That the government is on the case doesn't mean everyone else can relax. On the contrary, counterfeiting is on the rise and it is getting harder to detect. Counterfeit computer hardware, including chips, was one of the top commodities seized in 2010 by the US Immigration and Customs Enforcement agency (ICE). Seizures in this category were up five-fold over 2009, ICE reported.

The reason for the increase is that there's a lot of money to be made. Many obsolete components are in demand by the military because they need to repair very old equipment, such as 1908s-vintage fighter jets. But the parts are no longer manufactured, and only a few authorized distributors stock the vintage components. In some cases, the only place to buy these chips is from independent distributors or brokers who don't have formal sourcing relationships with the original component manufacturer. They buy them over the Internet from sources they don't know and who can't validate their authenticity.

While the vast majority of independents are legitimate, the system itself has weaknesses that invite abuse. Counterfeiters buy used parts for pennies in the street markets of Shenzhen and other Chinese cities, re-mark them, fix broken leads and buff them up, then ship them to brokers in the West who unknowingly — and in some cases, like VisionTech, knowingly — sell them to other brokers or to OEMs for multiples of what they paid.

Getting counterfeits into the US depends in part on how good the paperwork and the fake parts look when they are inspected at the border — or how well they are hidden. In June, for example, nearly $1 million worth of counterfeit {complink 4761|SanDisk Corp.} portable memory chips were discovered and seized by federal agents at the Port of Long Beach/Los Angeles, according to the Los Angeles Times. Agents from US Customs and Border Protection (CBP) found the chips hidden inside 1,932 karaoke machines shipped from China.

Until the good guys start winning and have a system to detect and deter counterfeiters, it's up to the customer to catch the fakes. Many defense contractors have put in place strict regimen for inspecting, testing, and reporting counterfeits. All companies need to be inspecting, testing, and reporting. All companies need to be vigilant.

33 comments on “Why Is Counterfeiting Getting Worse?

  1. tioluwa
    October 28, 2011

    The war against counterfeiting is one that in my opinion, cannot be totally won. As long as there is high demand for anything, there will be counterfeit of it.

    Like you said, its up to the consumers to stand up against it. the makers and sellers of counterfeit stuff will only stay in business as long as they are able to sell it, but if it can be detected more easily by authorities, then their market dries out.

    I think amongst other things, the most volnurable goods need to be identified, and their import and export subjected to strict regulations, including registered distributors, and contractors. This cannot solve it, but it will help.

     

  2. Houngbo_Hospice
    October 28, 2011

    “All companies need to be inspecting, testing, and reporting.”

    That costs a lost of money and I don't think that you can check every individual component in hundreds of packages. But I do agree that the  McCloskey case will set a precedent and importers will be more cautious about how they choose their components suppliers.

  3. Clairvoyant
    October 28, 2011

    Agreed, Tioluwa. As long as counterfeiters are able to get away with it, there will always be couterfiets in the marketplace.

  4. Ms. Daisy
    October 28, 2011

    TiOluwa, thanks for the suggestions, but monitoring counterfeiters is an elusive chase. They are always a step ahead, and it is expensive. The consumers just have to be vigilant.

  5. Taimoor Zubar
    October 29, 2011

    I think if the quality assurance department in organizations (especially military organizations) is strong and there are quality checks in place for detecting counterfeit parts, counterfeiting may be reduced considerably. Also, if companies do come across any vendors who are supplying counterfeit goods, they should be reported and all supplies from them should be banned.

  6. DataCrunch
    October 29, 2011

    Though nothing is 100% full proof, companies have been attempting to crack down on counterfeiting by putting in place stricter policies and procedures when dealing with vendors and suppliers, and of course properly designed and implemented technology solutions across the entire supply chain are of great help.  Unfortunately counterfeiters have become extremely good at what they do and continue to perfect their thievery, so it is becoming harder for consumers to detect counterfeit products and/or components and seem to only get detected when the counterfeited items are of inferior quality.

  7. Backorder
    October 29, 2011

    I just hope VLSI ID and authentication technologies get approved an implemented well in time before a major disaster owing to supply chain fraud. Also, I hear about a botanical DNA marking process for chip authentication in the pipe.

  8. Himanshugupta
    October 29, 2011

    @TaimoorZ, i think you have very good idea. If we want to discourage counterfeit then we should keep a database of people and companies who have attempted such things in the past and blacklist them from doing business. We can treat them in the same category as we treat terrorist as fake parts can have dire consequences.

  9. Himanshugupta
    October 29, 2011

    @Backorder, VLSI ID and authentication technologies might prevent counterfeit parts to get mixed in the the authenticated parts but this is guaranted for the newly manufactured parts. The problem lies in the vintage or old parts which were manufactured by companies which might not exist today. The process to authenticate the parts is tedious and costly.

  10. itguyphil
    October 29, 2011

    Although that sounds like a noble idea, we must remember the mindset of the counterfeiter. They can just as easliy spin off another company and begin selling the same fakes. Their objective is to make $$$, not maintain a reputation.

  11. prabhakar_deosthali
    October 30, 2011

    All these suggestions of blacklisting the counterfeiters become ineffective because like virus these companies mutate and resurface in another form.

    100% diligence on the part of purchase and inward inspection dept is the only to fight this menace until we have a fool proof method of putting some kind of authenticity ID on each comopnent itself. Especially the people who are involved in military related purchase have to be doubly vigilant.

    Sometimes in the name of value engineering and saving cost , there is a temptation to use parts from unkown sources. Such temptations are like using the pirated software and inviting viruses in your PCs and laptops.

    We also cannot rule out insider support  to bring in the counterfeit parts for personal profit.

     

     

  12. Parser
    October 30, 2011

    On one side is a pressure to lower the production cost and suppliers want to sell with higher profit. The counterfeit devices are not to spec and may cause catastrophic failuers. This cycle will drive incoming inspection to higher costs and hopefully some solutions might be in place for detection. Nothing can be done with old parts but only investigation. 

  13. Anna Young
    October 30, 2011

    @ Ms.Daisy. I agree, combatting counterfeiters is a rigorous and expensive task. The techniques used to modify these items by the counterfeiters makes it almost impossible to detect. I am glad the government seems to be working hard to deter the counterfeiters with various deterrence measures. Like you said it is an elusive chase. The counterfeiters appears to be a step ahead of the game. And yes, I agree, consumers must also be on the look out.

  14. Kunmi
    October 30, 2011

    It is a dual responsibility. The consumers have to be very careful of falling into the hand of the counterfeit propagators and report when suspected and the manufacturers also have to design production balance in other not to give room for the expansion of counterfeit products. If the production is limited and the demand is high, the cost of the products will be increased and this will give room for counterfeit products to storm the market for buy one get one free, hence the unwanted worms in the market.

  15. JADEN
    October 30, 2011

    Counterfeiting has been around for nearly as long as hunans have traded things of value.  It is now a growing problem for many industries, but policies and procedures on supplies selection can give opportunities to significantly reduce the risk.

  16. Anne
    October 30, 2011

    Counterfeit goods are dangerous by  their very nature, they are not produced under safe manufacturing condition and they are not inspected by any regulatory authorities.  Therefore it is difficult for consumers to know what materials the goods actual contain.

  17. Eldredge
    October 31, 2011

    Yuor point is right on the money (so to speak) – the counterfeiters can keep chainging identity as necessary to stay in business.

  18. tioluwa
    October 31, 2011

    it's true that counterfeiters have a way of always being one step ahead. Well i guess its up to the suppliers and customers to work things out to save themselves.

    i think the VLSI ID, at Backorder mentioned or any other method that will provided a hard to fault chip authentication mechanism will really go a long way, especially for very sensitive chips.

  19. Barbara Jorgensen
    October 31, 2011

    “Now that the government is on it, it doesn't mean everyone else can relax.” All too true. The fact is, while the government does position itself as the guardian of American innovation, it hasn't gotten serious about chips until it became a problem for the DOD. I don't mean to be overly cynical, but the governmetn has been far more worried about music and software piracy than it has been about chips for as long as I can remember. Maybe it is becuase the electroncis supply chian doesn't lobby as hard (or with as much $$$) as the gaming and music and movie industry. The industry has largely been left on its own unitl now, and we can only hope this prosecution becomes the rule rtaher than the excpetion.

  20. electronics862
    October 31, 2011

    Thanks for the post Bruce. Counterfeiting leads to dangerous results. If we lost the control over the quality of products they may die in days where they expected to live for years. It is very difficult for customers to trust companies  and it is very bad for companies to do business.

  21. al.caughey
    November 1, 2011

    “Counterfeiting has been around for nearly as long as hunans have traded things of value…”

     

    If we stop trading with the hunans then the problem should be solved… 🙂

     

    (If only it was that simple)

  22. bolaji ojo
    November 1, 2011

    @al.caughey, Counterfeiters know stopping them won't be easy and they also know sometime the “good folks” may not even try. Nothing is easy in the world of electronics. That doesn't stop us from wishing they were, though.

  23. Adeniji Kayode
    November 4, 2011

    @Tioluwa, I agree with you on that. As long as we keep having originals, there will always be counterfeits too due to many reasons.

    1.the price of the original

    2. availability of the original

    Sometimes, consumers don,t have a choice but to buy what they can get and it most times come in attractive packages-slash in price.

  24. Adeniji Kayode
    November 4, 2011

    @Anne, I agree with you on that. Sometimes also, Consumers are even ignorrant of what the original name or brand looks like, so they are easily deceived.

  25. Adeniji Kayode
    November 4, 2011

    @Kunmi, I support your idea on that, the  other side of the task is with the consumers, theyn have to learn to say NO to counterfeits, It just that sometimes consumers don,t have a choice or sometimes will have to make a choice for the counterfeits due to one constrain or the other.

  26. Adeniji Kayode
    November 4, 2011

    It just a surprise that while the law is catching up with some counterfeiters ,alot are still rushing in to making counterfeit goods.There might be need for the government to examine why its such an attractive aspect of our society.

  27. itguyphil
    November 20, 2011

    The bad is always attractive. Especially if it is a way to make a quick buck. Alot of people like shortcuts in life.

  28. Adeniji Kayode
    November 21, 2011

    @Pocharle. You are right, but if we are to pick blame, who is to be blame?

  29. itguyphil
    November 21, 2011

    The little devil talking into the ears of the counterfeiters.

  30. Kunmi
    November 24, 2011

    Yes you are right. But jumping on the cheap stuff can be painful at times because you may end up with disapointment in such a product. Quality product may be expensive but it is always durable.

  31. Kunmi
    November 24, 2011

    Yes you are right. But jumping on the cheap stuff can be painful at times because you may end up with disapointment in such a product. Quality product may be expensive but it is always durable.

  32. Damilare
    November 30, 2011

    i wonder what motivates counterfeiters and the manufacturing companys that makes these counterfeits.

  33. Damilare
    November 30, 2011

    Its a good thing the US immigration and the customs enforcement agency  are at alert and were able to seize as many as they can when they discover counterfeit products.But the wide range and high demand for many product and components play a part in the high rise in counterfeiting.

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