Illicit trade is not just a tax problem, consumers suffer

Fake protective equipment and counterfeit medicines are putting patients’ lives at risk, warns Luca Bertoletti.
Counterfeit Italian bags for sales | Source: Adobe Stock

By Luca Bertoletti

Luca Bertoletti is Senior European Affairs Manager at the Consumer Choice Center

09 Oct 2020

Illicit trade is a severe and growing threat to society. Through smuggling and counterfeit products, governments and legal businesses are being undermined. But most importantly consumers are being exposed to poorly made, potentially dangerous and unregulated products. The current pandemic has illustrated how fake protective equipment and illegal medicines can put patients’ lives in danger.

According to the United Nations Office on Drugs and Crime, illicit trade by transnational organised crime is worth $870bn. This equals the gross domestic product of the Netherlands and comes close to the GDP of Indonesia, a country of 270 million people.

Fashion items and electronics are among the most counterfeited products worldwide. Counterfeit materials don't just harm legal manufacturers and retailers, but also consumers who are exposed to increased risks from faulty and toxic products. In January 2020, shipping containers filled with counterfeit lithium batteries sent a cargo ship up in flames. These batteries were on their way to be sold in Europe. One can only imagine how big the tragedy would have been if this had happened on a commercial plane.

The counterfeit trade in goods endangers consumers and diminishes public health. According to the World Health Organization, substandard and fake antimalarial medicines alone cause more than 100,000 deaths a year in Sub-Saharan Africa. Pneumonia, that goes untreated because of counterfeit or illicit ineffective drugs, may take the lives of 150,000 children worldwide every year. That’s roughly equivalent to the total number of deaths in airplane crashes from the 1920s until today.

Illicit trade not only threatens our health, it also imposes a serious threat to the rule of law and public safety. Links between illicit trade and organised crime are well established, from human trafficking networks and tobacco smuggling, to fuel theft by drug cartels and mafia's involvement in the trade of counterfeit goods. International terrorist groups often use the revenue potential of illicit trade to fill their bank accounts, allowing them to continue bringing instability and misery to entire regions.

These malignancies weaken law enforcement and destabilise communities and economies. Perhaps, most frightening are the links to terrorist financing that heighten threats to national and global security.

According to research from BRIK, organised crime accounts for more than 1.5 percent of the world’s GDP. Illicit trade endangers the stability of democratic countries and the private sector, which needs to find ways to safeguard its supply chains.

"Counterfeit materials don't just harm legal manufacturers and retailers, but also consumers who are exposed to increased risks from faulty and toxic products"

Ultimately, the risk is exceptionally high for consumers. States should have moderate tax policies to ensure that tax regimes do not create demand for more harmful illicit alternatives. In the light of the current pandemic, many politicians are suggesting increasing indirect taxes, in order to pay for the massive spending governments are committed to. This might backfire and actually reduce the taxable share of the economy due to an increase in black market activities.

It is important that governments support and not block initiatives from the private sector to make brands harder to fake. Branding and brand promotion should be encouraged as the most trusted way of presenting quality and confidence to consumers. Recent proposals to limit and ban branding and advertising in certain product categories, such as infant formula, do the opposite and enable illicit trade.

These are just some examples of what consumers demand. We need a joint approach from international organisations, governments, and the private sector to develop smart regulations that help distinguish between illegal products and legitimate ones, while at the same time protecting consumer choice.