David M. Luna, President and CEO
Luna Global Networks & Convergence Strategies LLC
Chair (Departing) OECD Task Force on Countering Illicit Trade
Brand Protection Congress
November 21, 2017
It is an honor to be here with you this morning in lovely Munich to provide one of the Keynotes at the 2017 Brand Protection Congress. It is an equal pleasure to serve as a Chairman of the two-day Conference.
Let me join our organizers, WorldBI, in welcoming you to Munich.
The risks and threats that will be discussed this week across our BPC program are very real, perniciously harmful, and are increasing significantly around the world in a manner that imperils security across sectors, markets, industries, supply chains, and communities.
Over the past two decades I have worked around the globe to advance the rule of law and strengthen international cooperation to combat transnational crime, corruption, terrorism, illicit trade, and other converging threats to global security.
No matter in which country I am visiting, and at many meetings in which I participate, among the questions that I am regularly asked by people is: How can one make progress on fighting corruption and illicit trade to level the playing field for all businesses against criminal entrepreneurs? What are some of the innovative ways to build strong public-private partnerships to safeguard brand integrity and our global supply chains to combat diversion, counterfeiting, and smuggling of our products?
Frankly, these are not easy questions to answer, nor are there any easy solutions.
However, what I do always sense from people is a willingness to learn from other another, to impart lessons learned and best practices, and their keen interest in finding new ways to share information and market intelligence so that collectively we can work together across borders.
These are central themes that I want you to think about more as well this week: furthering a discourse on how we can work better together to build greater partnerships, protect our innovations, and safeguard the integrity of our brands, markets, and supply chains.
How do we encourage governments to promote greater transparency, to invest in their governance systems, and to develop win-win initiatives with the private sector that advance a common agenda on economic growth, innovation, and shared prosperity?
Because in today’s rapidly moving inter-dependent world, which at times can be turbulent, there is no doubt that markets from Munich, Frankfurt, and London to New York and Hong Kong will continue to face many challenging storms.
In globalized communities, it will require market stakeholders to unite to more forcefully counter the continued exploitation wrought by bad actors and illicit networks.
Make no mistake: Illicit trade is fueling greater insecurity and instability around the world.
It is enabling violent trafficking gangs to expand their operations, terrorist groups to finance their attacks against our communities, or rogue regimes to underwrite their nuclear programs.
These illicit actors and networks continue their criminality through arbitraging or exploiting the weaknesses in our tax regimes, borders, customs, law enforcement, and other institutions.
They not only increase the costs of doing business but also expose greater risks to companies’ market reputational value and the integrity of their brands.
No one alone can navigate and solve the multitude of geopolitical risks, security threats, and market shocks that confronts our world.
It takes a network of networks to do so.
Converging Threats to Global Brands
Now let me outline why I believe that the global illicit economy is one of the most daunting challenges we face today.
Ladies and Gentlemen: The global illicit economy is experiencing a boom across a wide spectrum of activities and growing at an alarming rate every year: trafficking in narcotics, humans, counterfeits and pirated goods, endangered wildlife, illegal tobacco and alcohol products; sports betting, bribery, and money laundering, to name just a small cross-section.
Numerous international organizations generally have estimated such global illicit economy, and various forms of “convergence crime”, to account for 8 to 15 percent of world GDP, or several trillions of dollars to include corrupt proceeds and illicit financial flows.
During my years of helping lead the OECD Task Force on Countering Illicit Trade (TFCIT), the OECD released numerous important reports that further illuminated the breath and scale of illicit trade and the involvement of converging criminal networks.
In one of the OECD reports, “Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact”, the OECD and European Union Intellectual Property Office (EU IPO) estimated the value of imported fakes worldwide at $US 461 billion in 2013, or up to 2.5% of global trade in goods.
With a specific focus on the EU, the report found that up to 5 percent of goods imported into the European Union are fakes, with US, Italian, and French brands hit the hardest.
It is expected that the total trade in counterfeit and pirated goods will double to $US 991 billion by 2022.
Moreover, it is estimated that the total economic and social costs due to counterfeiting and piracy worldwide stood at $US 737 billion to $US 898 billion in 2013 and is expected to rise to $US 1.54 trillion to $US1.87 trillion by 2022, suggesting an approximate increase of 108 percent.
It is also expected that the total employment losses globally due to counterfeiting and piracy will rise from 2 to 2.6 million jobs in 2013 to 4.2 to 5.4 million jobs in 2022.
The destabilizing effects and corruptive influence of transnational organized crime can wreak tremendous harms to the integrity of brands, and have detrimental financial impacts on many of today’s companies around the world.
With these staggering numbers, it is no wonder that it is becoming harder for many legitimate businesses to compete against imported fake products and on-line piracy.
Thus, it is becoming clearer that illicit trade results in lost profits for companies, job displacements for workers, business closures, and economic hardships for governments when less revenue is brought into the treasuries to fund public services.
But economic loss and impacts are not the only harms that result from illicit trade.
It has direct impacts on our communities when we realize that close to 25 million people are trafficked or in modern slavery; or when communities are increasingly harmed every day from counterfeit medicines, tainted or contaminated food stuff, or when defective automotive and other illicit consumer products kill tens of thousands of people every year, if not more.
Companies must also address the diminished integrity and market reputation of their venerable brands that they have worked hard to build and innovate upon over many years.
Enforcement officials who confront these illicit networks realize best what we are dealing with – networks that obey no laws except the law of the strong. Webs of corruption and criminality that thrive upon impunity, coercion, and violence.
In essence: Many of today’s illicit threats are inter-connected and form a potent mix globally – each individually dangerous but whose sum represents a far greater threat across borders.
Simply put, illicit trade corrupts integrity across all facets of our daily lives, is an obstacle to our shared prosperity by siphoning revenue, capital, and human resources away from legitimate economic activity, and is a global security threat.
Protection of Intellectual Property Powers Economic Growth and Security
In conferences like ours here this week in Munich, people continue to express their concerns about needing stronger IP protections.
And we can certainly understand why.
The reality today is that every IP-protected product can be counterfeited.
The alarming rise in fake products are found in a range of industries, from luxury items (e.g. fashion apparel or deluxe watches), to intermediary products (such as machines, spare parts, or chemicals), to consumer goods that have an impact on personal health and safety such as pharmaceuticals, food and drink, medical equipment, or toys.
In the OECD-EUIPO report that I cited earlier, analysis shows that China is the top producer of counterfeit goods in nine out of ten product categories, while Hong Kong (China), Singapore, and the United Arab Emirates are global hubs for trade in counterfeit goods.
Free trade zones (FTZs) are also exploited on a daily basis by some to facilitate illicit activities that produce broader market reputational harm and put the physical security of many communities in danger. A net-centric alliance of illicit trade fusion centres can help elevate the fight against illicit trafficking across FTZs, and across borders, including in the UAE, Singapore, Panama, Hong Kong, and around the world.
Diversion, counterfeiting and smuggling of many of today’s leading brands are very lucrative for criminals: it is a low-risk, high reward business.
Protection of intellectual property is at the very heart of economic growth and innovation.
When innovators and creators know their creations are safe from theft, they are more inclined to bring new products and ideas to society that enrich and improve our lives.
Weak protection, on the other hand, makes it difficult for private companies to reap the benefits of their investments in R&D and thus reduces their incentive to make those investments.
IP theft also discourages foreign investors from transferring their most innovative technologies and makes mutually beneficial alliances with local innovators to improve and modify technology for local markets difficult, if not impossible.
In addition, domestic innovators suffer as much as their foreign counterparts from piracy and counterfeiting.
So we must protect our intellectual property rights to ensure that we continue to create new possibilities and spur new inventions which lead to innovations that not only create jobs but that can save lives. New medicines that can cure many ailments and diseases; processes and technologies that increase efficiency and modernization.
On cybercrime, Deputy Attorney General Rod Rosenstein, U.S. Department of Justice, recently underscored that the threat that “cybercriminals pose to public entities and private businesses is substantial”.
In fact, a recent report estimates that the financial costs from cybercrime will double annually from $US 3 trillion in 2015 to $US 6 trillion by 2021. In addition to dis-incentivizing innovation and economic damages, the impacts include reputational harm, stolen data, lost productivity, theft of intellectual property, and other costs.
In 2017, there were an estimated 3.8 billion Internet users (51 percent of the world’s population of 7 billion). Cybersecurity Ventures predicts that there will be 6 billion Internet users by 2022, and 7.5 billion Internet users by 2030.
When one couples these statistics with the fact that the global illegal economy is booming and that cybercrime is exploding, one has to truly be incredibly concerned about the massive threats in the future related to the cybercrime and intellectual property infringement nexus.
If we do not make cybersecurity, brand protection and IP rights priorities, we will, in essence, be ceding the future to bad actors who steal our products and innovations and whose business models destroy wealth and create insecurity.
Transformative Technologies and Brand Protection
With increasing threats across illicit markets including in cyber space, how do companies begin to counter such harms to protect the integrity of their brands and reputational market value?
A number of our speakers over the next few days will share with us how they are implementing their anti-illicit trade initiatives and the types of strategies that their companies have in place to protect their brands against criminal penetration and corruptive influences.
I firmly believe that corporate brand protection policies should be taken seriously at all levels of the company to safeguard the reputation of both the brand and the company, and to protect consuming customers.
In addition to building awareness of the economic costs and other harms related to illicit trade, counterfeiting, and smuggling, investing resources against brand infringement and countering illicit threats should be a higher priority.
One should always want to protect their reputation and revenue streams, and ensure continued consumer trust.
As mentioned, if there is money to be made, criminals will gravitate to all markets including cyberspace and on-line, digital markets, and misuse of social media networks. It is a fact that new technologies have also provided new opportunities for criminals to further exploit and profit from the internet and e-commerce through diversion and peddling and selling of counterfeited brands.
For example, reporting has shown how online pharmacies are a growing threat, as they provide criminals an opportunity to make online sales of counterfeit medicines to innocent consumers, without subjecting themselves to any enforcement risks.
Digital piracy is also on the rise where criminals are stealing and illegally reproducing and distributing copyrighted movies, software, video games, musical recordings, television and on-line programming, and other electronic media.
On-line sales of an array of other counterfeited products distributed through websites with global reach pose similar harms to consumers and businesses alike around the world. As the saying goes: “if you can make it, they can fake it”. And now, as more shopping has moved to the internet, criminals are profiting immensely on-line from illicit commodities as well.
For companies, ensuring their partners follow their brand guidelines is important across global supply chains – including affiliates, distributors, wholesalers, resellers, and franchisees.
Developing strong compliance, monitoring, and enforcement policies as part of brand protection strategies is also important, including policies to combat on-line criminal exploitation and digital piracy.
Anti-counterfeiting strategies and brand protection technologies can also be worthwhile investments – from coding and printing innovations to monitoring data across markets to verification, forensic markers, and track and trace tools that analyze transactions to surveillance solutions that help to pinpoint supply chain strengths, weakness, and vulnerabilities, criminal exploitation, and brand diversion in cyberspace or in retail stores.
Or as some brilliant researchers from the University of Lancaster (UK) presented at this summer’s The Royal Society’s Science Exhibition: quantum technology and atomic fingerprinting may one day help to significantly reduce or eradicate counterfeits.
Imagining and innovating a better world: Albert Einstein once said, “Imagination is more important than knowledge.”
Transformative technologies such as advanced analytics, network mapping, and data visualization are very powerful tools that can also help law enforcement communities and industries to identify emerging trends and patterns to anticipate threats, to target specific illicit hubs, and to investigate bad actors engaged in various cross-border trafficking crimes.
By smartly leveraging data, one can more strategically target the cross-border illicit activities of criminal and threat networks, and help to curtail the financing that enables these criminal regimes to exist.
I believe blockchain technology is potentially a game-changer across industries to more effectively counter illicit trade.
For example, for stopping fake medicines from entering global supply chains, net-centric computing will make it easier for all market stakeholders (manufacturers, suppliers, distributors, retailers, regulators, and consumers) by providing transparency to vouch for the provenance and authenticity of shipped goods throughout a pharmaceutical company’s distribution system, and make it more difficult for criminal to sell diverted medicines or counterfeited one.
As a recent report by the Coalition Against Illicit Trade (CAIT) noted, a “full digital footprint has a much greater positive impact because it creates conditions for continuous accountability, as each stakeholder in the supply chain provides [not only assurance] but also receives objective feedback on his performance.”
Fighting Back: Net-Centric Partnerships to Counter Illicit Markets
In closing, how can we harness our energies to more effectively counter today’s illicit threats?
I believe that we must fight back on all levels across global security landscapes and through more holistic, multi-dimensional, and coordinated courses of action.
International cooperation and responsibility-focused partnerships are critical.
We work too often in silos and can become myopic in examining market and security threats from looking at these only within one’s borders or a specific industry.
We must move towards more transnational approaches. We need to converge ourselves across borders, sectors, and industries.
More cross-border solutions and cross-industry partnerships are needed to not only target bad actors engaged in various illicit trade ecosystems but also their enablers and facilitators who help to divert, smuggle, and traffick counterfeit and pirated goods.
We must encourage our governmental partners to ensure that they enact, implement, and enforce effective laws that are needed to fight corruption, illicit trade, and related security crimes, and for them to share intelligence across jurisdictions to disrupt and dismantle illicit networks.
Marrying government-to-government efforts with public-private partnerships, pro-consumer actions, and increased citizen awareness is also vital.
The dangers of counterfeiting are often overlooked or over-shouted as consumer organizations often fight, rather than support, the multi-faceted anti-illicit trade efforts necessary to win this global fight.
More evidence-based research and innovative analytics, and strong enforcement results are needed to counter false narratives and to show publics all around the world that the harms and impacts of illicit trade are very real.
Responsible leaders and their constituencies need to understand that there is a real human tragedy behind illicit trade and its negative externalities: how IP crime destroys jobs, raises social and public safety costs, kills tens of thousands of people through deadly counterfeits, and how it fuels global insecurity and instability.
Finally, a strong enforcement and anti-illicit trade global campaign helps to safeguard our economies and brands alike and spurs new innovations that not only create jobs and save lives such as new medicines as mentioned earlier, but also leads to other revolutionary break-throughs.
I hope that we can learn from each other’s experiences and best practices this week.
There is something to be said about strength in numbers.
Because without collaborative responses, bad actors and illicit networks will continue to jump from weak spot to weak spot, seeking out and exploiting vulnerabilities to the detriment of critical stakeholders, and robbing businesses of their reputational market value.
In joining forces, we can mobilize to act collectively, strategically, and decisively to counter illicit trade globally, and chart brighter horizons for all communities.
Thank you for your kind attention.