Billion-dollar IT counterfeiting ring exposed

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Using a sophisticated network of dozens of bogus companies and online accounts, a suspected fraudster allegedly sold fake Cisco products for several years, often to public‑sector customers. US authorities have now released details of the indictment – and interesting insights into the alleged counterfeiting schemes.

A suspected counterfeiter from the United States is now facing trial on a total of eleven charges. The man from the U.S. state of Florida, who was charged in July, is alleged to have distributed counterfeit IT hardware of the well-known U.S. manufacturer Cisco Systems for years, both in the U.S. and beyond. Authorities estimate the total value of the counterfeits he allegedly distributed at no less than one billion U.S. dollars. And the profit that the 38-year-old defendant and his suspected accomplices are believed to have made is estimated by the authorities to exceed 100 million U.S. dollars.

According to information released by the Department of Justice, the suspect allegedly imported tens of thousands of illegal goods from China and Hong Kong over several years. Presumably, these often included older network hardware of lower quality, some of which had also been sold and discarded. Before being imported, the counterfeits were apparently modified to look like new products of the U.S. company Cisco Systems, which were of enhanced quality. As alleged, the counterfeiters in China often used pirated Cisco software as well as further, often inferior components, for example to circumvent anti‑counterfeiting measures of Cisco Systems. Finally, the counterfeit goods were presumably also provided with new labels, documents, and new packaging in China.

In the U.S., the now‑indicted man then allegedly sold the counterfeit IT products through at least 19 bogus companies and 25 seller accounts on Amazon and eBay, as well as other entities (collectively referred to by the authorities as Pro Network Entities). With very low prices, often 60% to 80% below the original price, he is believed to have often also supplied public sector customers with counterfeit Cisco products, such as hospitals, schools, government institutions, and the military.

To conceal his illegal business, the defendant allegedly also used a bogus company in Bolivia. He is said to have employed this to run serial numbers of his counterfeit devices against the numbers recorded in the Cisco Smart Net warranty program – thus avoiding any telltale duplicate numbers that could have exposed his products as counterfeits.

According to the indictment, from 2014 to 2022, U.S. Customs and Border Protection (CBP) had already seized approximately 180 shipments of counterfeit products from China and Hong Kong. To avoid scrutiny of CBP investigators, the alleged counterfeiters are said to have split deliveries among multiple, smaller consignments and used at least two bogus shipping addresses in Ohio.

Between 2014 and 2019, the suspect had already received several letters from Cisco Systems, asking him to cease and desist trafficking of fakes, according to the indictment. He allegedly responded to two of those letters by having an attorney give forged documents to Cisco. Finally, U.S. authorities conducted a raid in July 2021 and seized about 1,200 counterfeit products, with a total estimated value of more than seven million U.S. dollars.

The case has also once more triggered questions regarding a potential involvement and responsibility of online marketplaces such as Amazon, which apparently had been used to sell the counterfeits. For example, the U.S. trade journal Loss Prevention Magazine asks to what extent Amazon knew about the illegal dealings. The magazine also asks, for instance, whether Amazon was paid to have the counterfeits listed higher than original products in the search result pages, or how much Amazon might have earned from the sale of the fakes.

Previously, IT company Cisco Systems had announced its intentions to intensify its fight against grey marketing and counterfeiting. The company had made this statement at its Cisco Partner Summit 2019, shortly after a new study had found that illegal trade in IT products is likely to grow further. Amazon, in turn, has just recently published its annual Brand Protection Report for 2021, saying that the online retail giant is investing hundreds of millions in brand protection.

Sources: US Department of Justice, Loss Prevention Magazine, TechTarget

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