Organized Crime/Terrorism & Counterfeiting – Examples

Low risk of prosecution and enormous profit potential have made criminal counterfeiting an attractive enterprise for organized crime groups. Congress recognized organize crime’s increasing role in the theft of intellectual property when it made trademark counterfeiting and copyright piracy predicate acts under the federal RICO statute (see 18 U.S.C. § 1961). Recently, ties have been established between counterfeiting and terrorist organizations who use the sale of fake goods to raise and launder money. Consider these facts about the presence of organized criminal and terrorist groups in the underground counterfeiting and piracy markets:

(1) Operation Green Quest — a multi-agency task force established by the Treasury Department and aimed at identifying, disrupting and dismantling the terrorist financial infrastructure and sources of funding — has specifically recognized counterfeit merchandise schemes as a source of terrorist funding. Green Quest, Finding the Missing Piece of the Terrorist Puzzle, available at http://www.customs.ustreas.gov/xp/cgov/enforcement/investigative_priorities/greenquest. xml.

(2) In February 2003, federal prosecutors in Brooklyn, NY charged six men with importing up to 35 million counterfeit cigarettes from China into the United States. The men were accused of importing the fake cigarettes, then selling them through a tax free business located at an upstate New York Indian reservation and also through the website http://www.smokecheap.com. The cigarettes were allegedly imported into the United States in 5 separate shipments through New Jersey ports over a two tear period. The charging documents stated that the counterfeiters hid the cigarettes in shipping containers behind kitchen pots. According to the prosecutors, the men were under investigation in Europe for cigarette smuggling. Two of the defendants were also charged with importing counterfeit batteries from China via Lithuania. William Glaberson, 6 Are Charged With Selling Millions of Counterfeit Marlboros, The New York Times, February 21, 2003, at sec. B, pg. 3; John Marzulli, Fake Marlboro Men Busted in Smuggling Ring, Daily News (New York), February 21, 2003, at 37.

(3) On February 28, 2003, Mohamad Hammoud was sentenced to 155 years in prison for helping to lead a cigarette smuggling operation that sent money to Hezbollah. Ringleader Gets Maximum Sentence in Scheme to Help Hezbollah, available at http://www.foxnews.com/story/0,2933,79909,00.html.

(4) In the Philippines, underground CD production lines are often heavily secured sites equipped with hidden cameras for early detection and surveillance purposes. Syndicates move the equipment in piece by piece to avoid detection. Dave L. Llorito, Loose Rules Make CD Pirates Feel at Home Here, The Manila Times (January 2, 2003)(a three part article); Lax Rules Give CD Pirates a New Home in the Philippines, The Straits Times (January 6, 2003).

(5) There have been recent media accounts reporting a link between the terrorist organization Al Qaeda and the trafficking of counterfeit goods. An investigation, involving several countries, into a shipment of fake goods from Dubai to Copenhagen, Denmark, suggest that Al Qaeda itself may be funding itself by trafficking in counterfeit goods. Danish customs, using sophisticated risk analysis software, examined one of the containers on board and discovered that it contained over one thousand crates full of counterfeit shampoos, creams, cologne and perfume. The goods were ultimately bound for the United Kingdom. The United Kingdom later revealed that the sender of the counterfeit goods was a member of Al Qaeda. This connection was later confirmed by the European Commission’s Customs Coordination Office. The intelligence services of three countries — Denmark, the United Kingdom and the United States — were, according to the same report, involved in investigating the matter. — Al-Qa’idah Trading in Fake Branded Goods, BBC Monitoring Reports (September 11, 2002); Lenore Taylor, Big Business Targets Terrorist Pirates, Australian Financial Review, January 29, 2003, at 9.

(6) On January 16, 2003 William Haskell Farmer entered a guilty plea to trafficking in a massive counterfeit clothing operation. (The guilty plea was conditional upon an appeal to the United States Court of Appeals for the Fourth Circuit). According to the United States prosecutor, the scheme involved approximately $7 million in knock off T- shirts and sweat shirts. Farmer sold the shirts to 191 stores throughout the country. United States Customs agents seized over 300,000 fake items from the Farmer’s home and warehouse (the house was a two-story home with a swimming pool and two car garage). Farmer agreed to forfeit over $500,000 in cash and cashier’s checks, eight vehicles, (including two Mercedes Benzs and a 1998 Corvette), and two cargo trailers. The cash had been seized in 1998 when Farmer’s home was searched. The majority of the money was in $50 and $100 bills. There was $6,000 worth of change in the garage. Clif LeBlanc, Huge Fake Clothing Ring Cracked, Upstate Man Pleads Guilty to Running $7 Million Scam, The State (South Carolina), January 18, 2003, at A1; South Carolina Man Pleads Guilty to Trafficking Clothing with Counterfeit Trademarks, Department of Justice Press Release, January 16, 2003, available at http://www.cybercrime.gov/farmerPlea.htm.

(7) Counterfeit operations in Paraguay tri-border region may have been used to raise money to support terrorist operations and groups. Feds Track Counterfeit Goods Sales, available at: http://abcnews.go.com/wire/US/ap20021024_151.html. (October 24, 2002); Kathleen Millar, Financing Terror, U.S. Customs Service Monthly Newsletter, November 2002, available at http://www.customs.gov/custoday/nov2002/index.htm; Larry Rother, South America Region Under Watch for Signs of Terrorists, The New York Times, December 15, 2002, at 32; Sebastian Junger, Terrorism’s New Geography, Vanity Fair, December 2002. The first article cited states:

“Federal authorities have several investigations under way examining evidence suggesting that Hezbollah, Hamas and other terror networks might be selling counterfeit products to pay for their worldwide activities. . . . FBI, Customs Service and other agencies are investigating the sale of stolen or counterfeit computer software, T-shirts and handbags that are suspected of benefiting terrorist networks. Officials said the schemes span the globe from Paraguay to Pakistan …. U.S. officials said there is particular concern that a region in South America famous for counterfeit products may have ties to terrorism. The region near the borders of Paraguay, Brazil and Argentina has a large Arab population. Law enforcement officials said they are investigating multimillion-dollar counterfeit software operations based in Ciudad Del Este, in eastern Paraguay, that are believed to have diverted money to Middle Eastern groups with ties to terrorism. Some of the suspects are of Lebanese origin and were arrested by Paraguayan authorities based on information from the U.S. government, the officials said.”

(8) A 52 year old woman was one of four people arrested in November 2001 after being suspected of operating a piracy ring that imported close to $100 million in fake software and computer products from Taiwan. The woman was recently sentenced to nine years in prison and ordered to pay $11 million in restitution to two software companies. Woman Must Pay $11m in Software, http://www.cnn.com/2002/TECH/biztech/11/25/counterfeit.software.ap/index.html, November 25, 2002.

(9) According to some media reports, the FBI had compiled strong evidence that the 1993 terrorists financed their activities with counterfeit textile sales from a store on Broadway. James Nurton, Why Counterfeiting is Not So Harmless, Managing Intellectual Property, September 2002, at 43; Feds Track Counterfeit Goods Sales, at http://abcnews.go.com/wire/US/ap20021024_151.html (October 24, 2002)(noting that testimony before a Senate Judiciary Committee in 1995 confirmed this fact). In 1996, Business Week reported that that the FBI had investigated the link between counterfeit merchandise sales in New York and the terrorists who bombed the World Trade Center in 1993. Willy Stern, Why Counterfeit Goods May Kill, Business Week, September 2, 1996, at 6.

(10) According to the private investigator conducting the search, a raid of a souvenir shop in mid-town Manhattan led to the seizure of a suitcase full of counterfeit watches and the discovery of flight manuals for Boeing 767s, some containing handwritten notes in Arabic. A similar raid on a counterfeit handbag shop in New York uncovered faxes relating to the purchase of bridge inspection equipment. Two weeks after the raid on the handbag shop, police in New Jersey were investigating an assault on a Lebanese member of an organized crime syndicate. During a search of the man’s apartment, authorities found fake drivers’ licenses and lists of suspected Al Qaeda terrorists – including the names of some workers in the handbag shop that had been raided. James Nurton, Why

Counterfeiting is Not So Harmless, Managing Intellectual Property, September 2002, at 43.

(11) Paramilitary groups in Northern Ireland funded their terrorist activities through the sale of pirate products, including the sale of the Lion King. — Kathleen Millar, Financing Terror, U.S. Customs Service Monthly Newsletter, November 2002, available at http://www.customs.gov/custoday/nov2002/index.htm; Nick Somerlad, Two Arrested After Police Find Explosives, Press Association, December 20, 2000.

(12) In July 2002, three individuals were arrested when police stumbled upon 5,000 fake Rolex watches and Mount Blanc pens and $1 million in cash during a raid of a Flushing (Queens), New York home in connection with a drug operation. Prosecutors stated that the defendants used the sale of counterfeit items to launder drug money. Scott Shifrel, 3 Charged in Money Laundering, Daily News (New York), July 11, 2002, at 4.

(13) Recovered Al Qaida terrorist training manuals revealed that the organization recommends the sale of fake goods as one means to raise funds to support terrorist operations. John von Radowitz, Fake Internet Goods ‘Linked to Terrorists’, Press Association, June 25, 2002. This same article noted that Hezbollah traffics in counterfeit pharmaceuticals. John von Radowitz, Fake Internet Goods ‘Linked to Terrorists’, Press Association, June 25, 2002.

(14) The Basque terrorist group ETA in southern Spain is involved in the sale of counterfeit clothes and handbags. John von Radowitz, Fake Internet Goods ‘Linked to Terrorists’, Press Association, June 25, 2002.

(14) Police in the Chinatown section of New York City uncovered a stash of fake watches, handbags, sunglasses and wallets worth over $125 million that were hidden in a building that contained secret tunnels, trapdoors and vaults. Ten people were arrested. – Erika Martinez & Marsha Kranes, Knockoffs Knocked Out, New York Post (May 10, 2002).

(15) In February 2002, John Sankus Jr., 28, of Philadelphia, was sentenced to 46 months in prison leading an international piracy ring responsible for copying and distributing software, games and movies. Sankus headed an international software piracy group called DrinkorDie , which was comprised of about sixty members from numerous countries including the United States, Australia, Norway, Finland and the UK. The group’s biggest claim to fame was distributing copies of Windows 95 two weeks before the official release of the operating system. Federal agents conducted raids at Duke University and MIT in connection with DrinkorDie’s activities. Some of the computers seized in the operation contained more than one terabyte of hacked software (which is equal to 700,000 floppy disks). – - Josh White, Pa. Man Admits Internet Conspiracy, Washington Post, at B02, (February 28, 2002).

(16) On December 14, 2001, Mark Dipadova (who used three aliases) was sentenced to 24 months in prison and three years of supervised release and ordered to pay over $135,000 in restitution for operating websites through which he sold counterfeit goods. Dipadova and his partner shipped over 10,000 packages, both domestically and internationally and had been sued civilly by trademark holders. At his sentencing hearing, Dipadova admitted to posting a link on one of his websites to an audio recording of a radio interview in which he stated that he was aware that his actions were illegal but that he refused to stop because he was making too much money. Defendant Who Operated Fakegifts.com Sentenced, Department of Justice Press release, December 17, 2001, available at http://www.cybercrime.gov/DipadovaSent.htm.

(17) In November 2001, US federal authorities made their largest seizure ever of counterfeit computer software in connection with the arrest of the individuals. The seizure of nearly 31,000 copies of phony software was valued at approximately $100 million (US). The software originated in Taiwan and was encased in counterfeit packaging (including holographs and registration codes) and also came with manuals. Federal authorities were alerted to the shipment when a member of a criminal syndicate operating between Taiwan and Los Angeles allegedly attempted to bribe an undercover agent who was posing as a U.S. Customs official. Seized in connection with the arrests were a forty foot shipping container containing counterfeit computer software and packaging material, two forty foot containers filled with 85,000 cartons of counterfeit cigarettes (i.e., 17 million cigarettes). A second search warrant executed in connection with the investigation resulted in the seizure of 21 cartons of counterfeit end user license agreements, manuals, bar codes, adhesive labels and registration cards. Taiwan Fears US Blacklist After Fake Software Haul, The Strait Times (Singapore), November 19, 2001, at A3; U. S Customs Seizes $100 Million in Pirated Computer Software, Biggest Case in U.S. History, Department of Justice Press Release, November 16, 2001, available at http://www.cybercrime.gov/operationwhitehorse.htm.

(18) The speed and brazenness of Italian counterfeiting groups was demonstrated the summer of 2001 when burglars broke into the headquarters of a prominent Italian luxury goods/apparel producer. An investigation of the incident revealed that the only items missing as a result of the break-in were samples of the designer’s 2002 men’s spring/summer collection. It is now assumed that counterfeiters stole the samples to copy them before the genuine products made it to market. The sale of fake leather goods alone in Italy is estimated at $1.4 billion. Robert Galbraith, Luxury Groups Battle a Wave of Counterfeit Goods, The International Herald Tribune, p. 12 (September 29, 2001).

(19) In November 2001, a Cocoa Florida businessman was convicted of conspiracy to distribute and possession of cocaine and crack cocaine, trafficking in counterfeit merchandise and carjacking. When he was arrested police seized $150,000 in cash and truckloads of counterfeit clothing. — John Tuohy, Testimony from Felons Help Convict Cocoa Man, Florida Today, (November 27, 2001).

(20) In 1996, the FBI confiscated 100,000 counterfeit 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 1996. The operation generated millions of dollars and was run by the followers of Sheik Omar Abdel Rahman – a blind cleric who was sentenced to 240 years in prison for plotting to bomb New York City landmarks. — John Mintz & Douglas Farah, Small Scams Probed for Terror Ties, Washington Post, August 12, 2002, at A1. Authorities seized three floors worth of illicit merchandise, stacked seven feet high.