Strange Bedfellows Can Be Dangerous

The words “criminal” and “intellectual” may seem strange when put together—at least at first. But when it comes to intellectual property theft, criminals are hard at work.

But where there’s a possibility of a profit, there’s usually crime, and that is definitely the case with the trafficking in counterfeit goods. And according to the National Institute of Justice at the U.S. Department of Justice, “organized criminal entities [including] street gangs and international organized crime networks . . . are involved in a variety of illegal activities, such as gun violence, human trafficking, and intellectual property theft.” These are serious criminals.

The markups from counterfeiting such popular products as CDs and DVDs or even knockoff fashions—the things sold by street vendors, discount stores, and even higher-end merchants—are extremely high. And the penalties for this kind of crime are generally quite low—at least in comparison with the penalty a criminal could get from committing a more “traditional” crime. As a result, intellectual property theft has become attractive to gangs and organized crime. Cybercriminals are also hard at work stealing intellectual property, and economic espionage—the theft of economic secrets held by companies that can benefit another nation—is gaining in complexity and volume.

Many Americans would be distressed to learn that when they purchase a counterfeit or knockoff product, they are helping to fund local gangs, but that is often the case. According to a Los Angeles prosecutor, “Few [people] realize that the money a consumer pays for a counterfeit product may well be financing even more criminal activities—like street gangs.” More and more, gangs in the United States are counterfeiting products at inordinately low prices and wholesaling the products to street vendors. The gangs then use their income from the sale of these products to fund their other activities—everything from the drug traffic to prostitution. Havoc is wreaked on neighborhoods and people suffer as the gangs proliferate.

Los Angeles has been hit especially hard by gang crime related to the manufacture and sale of counterfeit goods. One officer told a Los Angeles TV station that gangs were “making more money selling pirated CDs and DVDs than they would selling narcotics.” An undercover officer said, “They’re using every single penny of that to fund their criminal activity.” A member of the Florencia gang in the city was found to be the owner of a lab where counterfeit videos were made. And a member of the East Coast Crips in the city co-owned a clothing store where counterfeit clothes were sold—as well as illegal drugs. The city has seen gang membership accelerate in recent years.

Gangs are increasingly moving into products more sophisticated than the fake watches, videos, and handbags one usually associates with fake products. According to one report, they’re involved in the manufacturing and distribution of everything from pharmaceuticals (a specialty), airplane parts, and even dog food. A study found that gangs in Los Angeles were responsible for $483 million in lost tax revenue and more than 100,000 lost jobs in that city alone.

Turf battles over lucrative locations for the sale of fake goods have resulted in gang warfare. That just adds to the misery that gangs inflict on their surroundings. The conflicts between competing gangs are worsened when organized crime groups decide to muscle in and take over the trade.

Organized crime, frequently in the form of gangs based abroad, has become a major place in the counterfeit goods trade. Italy’s Camorra, the largest organized crime group in that country, is reported to earn more than 10% of its $25 billion annual profit through the sale of counterfeit goods—luxury handbags, power tools, CDs, DVDs, and software—in North America and Europe. Camorra frequently collaborates with Chinese and Taiwanese gangs, especially in the trade in counterfeit goods.

More close at hand, Los Zetas, an organized crime group in Mexico that is responsible for mass murders, is heavily involved in intellectual property theft in the United States. And Mexico’s La Familia Morelia Michochana, known for its brutality, earns up to $2.4 million a day from the sale of counterfeit goods and may be operating in the United States, according to a Washington newspaper. It is increasingly specializing in the counterfeiting of software. It even stamps its disks with its own logo, which features its initials, “FMM.” President Obama recently listed intellectual property theft along with cybercrime, people smuggling and drugs-trafficking as crimes that can “not only erode U.S. competitiveness, but also endanger the public health and safety . . . .”

More and more often, cyber criminals are after not just credit card information or other personal information, but corporate information, which is much more valuable. According to one research firm, “proprietary intellectual property is generally considered twice as valuable as day-to-day financial and customer data.” That proprietary information is often in demand by foreign governments, which are willing to pay high prices for it. Foreign governments are widely suspected to be behind some cybercrime.

The role of gangs, organized crime groups, and other criminals in intellectual property theft is a growing phenomenon. People can help slow it by:

• Reporting gang crime
• Working to improve living conditions in areas where gangs proliferate
• Improving schools and recreation activities so gang members have alternatives to street crime
• Participating in “take back the streets” events
• Urging the stricter licensing of vendors
• Not buying goods that might be counterfeit
• Reporting any suspected intellectual property theft to the appropriate authorities
• Improving corporate security over its intellectual property