4. Introduction to terrorism and
financing of terrorism
There is no common definition of terrorism,
which is globally accepted by all. Different countries and organizations
working to eradicate it have defined it differently. Terrorism is defined in
the Code of Federal Regulations as “the unlawful use of force or violence
against persons or property to intimidate or coerce a government, the civilian
population, or any segment thereof, in furtherance of political or social
objectives."1
According to
the Global Terrorism Index, India is the fourth most terrorism-afflicted
country in the world after Iraq, Pakistan and Afghanistan. There were 529
incidents of terrorism in India in 20112. The Global Terrorism Database (GTD)
has a specific definition of terrorism — “…covering
acts of intentional violence perpetrated by sub national non-state actors.” Furthermore,
the acts must satisfy two of the following three criteria:
► They must be
aimed at attaining a specific political, economic, religious or social goal.
► There must
be evidence of an intention to coerce, intimidate or convey a message to a
larger audience than the immediate victims.
► The acts
must be outside the context of legitimate warfare-related activities.
Some major terrorist attacks:
► September
2001: A series of coordinated attacks on the Twin towers of the World Trade
Centre
► July 2006:
Seven explosions in Mumbai trains
► August 2007:
Twin bomb blasts in Hyderabad
► 2008: Series
of bomb blasts in Jaipur, Bengaluru and Ahmedabad
► November
2008: Terrorist attack in Mumbai
► July 2013:
Explosion of nine bombs in Bodhgaya
4.1.
Overview of terrorist organizations
Before
delving into the details of financing of terrorism, let us understand the
various types of terrorist organizations and their need for funds. While
perpetrators of terrorism can be classified in several ways, for the purpose of
this section, we have classified them on basis of their affiliations,
geographical spread and operational goals. The various categories of terrorist
organizations overlap to describe a single terrorist organization and helps in
identifying the motivation factor of these groups.
Figure 1: Categories of terrorist
organizations
Non-state-supported terrorist groups: Such
groups operate independently and receive no significant support from any
government for intelligence, operations, and access to weapons, e.g., the
Naxalites.
State-supported terrorist groups: These
operate independently and receive the support of one or more government bodies
for intelligence, operations, protection and access to various types of
weapons.
International/Transnational terrorist groups: These have
operations across the borders of their countries. They partner and work in
collaboration with local/regional terrorist groups to share knowledge, plan and
carry out terrorist activities on foreign soil.
Domestic terrorist groups: Such groups promote violence
against the people and infrastructure in their own country. They may be
provided operational support and weapons by international terrorist bodies.
Regional terrorist groups: The operations and influence of
such groups are predominant in specific geographies. They may be regional
affiliates of international terrorist organizations or independent entities.
Ideological terrorist groups: These groups attempt to impose
their ideals on others. These ideals can be religious, political or dedicated
to a particular cause such as anti- globalism, animal rights, ecology, and so
on. Religious terrorist groups are motivated by religious ideologies and are
most common. These perpetrator groups are dedicated to a religious cause.
Terrorists associated with such organizations are trained, indoctrinated with
religious teaching and even encouraged to sacrifice themselves for a religious
cause. These perpetrators generally use terrorist tactics such as suicide
bombing.
Economic terrorist groups: These aim to disrupt the economic stability of a country or
region.
4.2. Need of
financing for terrorist organizations
No terrorist organization can work without
resources such as manpower, funds, intelligence, weapons and logistics.
Terrorist organizations need funds at each every step of their operations
The costs incurred by terrorist
organizations can be divided into direct and indirect costs. Direct costs
include those of materials used in attacks, such as bombs, vehicle, weapons and
communication equipment. Indirect costs include those of planning and executing
attacks and operational expenses for running such organizations .
4.3. Sources
of financing terrorism
Terrorist
organizations gather funds from illegal and legal sources to conduct their
activities.
4.3.1.
Legitimate sources of funds
Legitimate
sources of funds include state sponsorship, donation from individuals and
corporate organizations, religious financing, public charities and legal
businesses.
State-sponsored terrorist groups: These receive significant
funding from the state.
Ideological terrorist groups: These seek funding through
religious financing and donations. These donations are from people who share
the same ideology or religious beliefs as the groups. One of the methods to
collect funds is through international Non- Profit Organizations (NPOs) as a
front and then transferred from one country to another without any regulatory
issues being faced.3
Transnational terrorist groups: Such groups raise funds through
their legal businesses, e.g., shares in trading and real estate companies,
banks, venture capital firms, and import and export companies3. By conducting
their businesses, they generate funds and also transfer these from one location
to another in their networks.
4.3.2.
Illegitimate sources of funds
Illegitimate
sources of funds include smuggling of various goods and oil, counterfeiting,
piracy, trafficking in drugs, trading of gems and stones and arms and
ammunition, money laundering, kidnapping and extortion. Countries such as Iran,
Cambodia, China, Russia and Tanzania face a significant oil-smuggling problem.
Illegal diamond trade is another source for funding terrorist groups.3
Counterfeiting
and piracy seem to be funding terrorism directly and indirectly. Some
perpetrator groups manufacture and sell fake goods in the market and remit a
portion for financing their terrorist activities. Counterfeiting of drugs and
cigarettes are key sources of funding for extremist groups4. A terrorist
organization was engaged in various counterfeiting activities to generate
money, e.g., production of counterfeit commodities and sale of such products in
a free trade zone.
Smuggling
seems to be another key source of funding terrorism activities. Many terrorist
organizations are engaged in smuggling gold, oil, precious gems and stones,
music and film DVDs, narcotic drugs, computer parts, cigarettes and many other
items.
Counterfeiting, piracy and smuggling are
emerging as the likely sources for financing of international terrorist
organizations, non- state sponsored terrorist organisations and domestic
terrorist groups.
5. Menace of
counterfeiting, piracy and smuggling
As discussed
in earlier sections, there are numerous cases highlighting the involvement of
counterfeiting and smuggling activities in financing of terrorist operations.
It is therefore important to study these in detail and discover their linkages
with terrorist organizations and their sources of funding. In the following
sections, we try and understand the nexus between these and highlight the
continuum that has emerged between various criminal and terrorist activities.
5.1.
Counterfeiting and piracy
Counterfeiting
and piracy is a source of terrorism financing. This has been increasingly
reported all over the world over the past few years. Although it has not been
conclusively proven till date that an increase in counterfeiting leads to a
corresponding rise in terror activities, the quantum of counterfeit activities
found to be associated with terrorists is too large to ignore. In the current
scenario of varying patterns witnessed in the operations of terrorist groups,
and their changing organization structures, counterfeiting seems to have become
a lucrative and relatively simpler means for raising funds. In this context, it
is important to study counterfeiting in detail and its linkage with organized
crime and terrorism.
5.1.1.
Worldwide scale of counterfeiting and piracy
Counterfeiting is rapidly growing in scale.
It is a fast-growing industry that not only makes a huge impact on world trade,
but has much more sinister consequences, such as harmful effects on health and
links to financing of terrorism. The Frontier Economics study commissioned by
ICC BASCAP found that the total global economic value of counterfeit and
pirated products was as much as US$650 billion in 2008. This figure is expected
to more than double to US$1.7 trillion by 2015, due in part to rapid increases
in physical counterfeiting and piracy (measured by reported customs seizures
and increased worldwide access to high-speed internet and mobile technologies).
Counterfeiting has been defined
differently by different agencies engaged in combating terrorism. Some of the
definitions given below will help to set the context:
According to the Indian Penal
Code, a person is called a counterfeiter when he or she causes one thing to resemble
another, intending by means of their resemblance to practice deception or
knowing it to be likely that the deception will be practical.
According
to the trade-related aspects of Intellectual property rights (the TRIPS
agreement), “counterfeit trademark goods" shall mean any goods, including
packaging, bearing without authorization a trademark which is identical to the
trademark validly registered in respect of such goods, or which cannot be
distinguished in its essential aspects from such a trademark, and which thereby
infringes the rights of the owner of the trademark in question under the law of
the country of importation”
Counterfeiting in the US
U.S. Customs reported a 24%
increase in seizure of counterfeit goods from 2010 to 2011. These goods
represented more than US$1.1 billion in lost sales.
Counterfeiting in the European
Union
According
to statistics published by the European Commission in July 2012, more than
91,000 detention cases were registered by Customs in 2011 — an
increase of 15%, as compared to 2010. The value of the intercepted goods
represented nearly €1.3 billion, as compared to €1.1 billion in 2010.
The counterfeit
trade has been given a tremendous boost in the present eco-system, with the
breakdown of international borders, evolving technology (which is available to
the common man) and pervasive globalization. On the demand side, people’s
aspirations to own branded products at low costs have in some measure
contributed to the proliferation of the counterfeiting industry. International
Anti-Counterfeiting Coalition (IACC) professes that low risk of prosecution and
enormous profit potential has made criminal counterfeiting an attractive source
of funding for organized crime groups. There are connections between
intellectual property theft and terrorist groups and terrorists can use
intellectual property crimes as both source of funding and means of attack6.
For example, convicted counterfeit retailers in France face two-year prison
sentences and fines of €150,000, as opposed to the 10-year prison terms and
€7.5 million fines for drug dealers. Furthermore, profit margins are huge in
counterfeiting. Researchers have noted that counterfeited goods can bring
returns of as much as 900%. All these factors have contributed to a massive
explosion in counterfeiting7.
Counterfeiting
has managed to acquire a foothold in virtually all important sectors/domains.
According to FICCI’s CASCADE report, the counterfeit goods market can be
divided into two categories —deceptive and non-deceptive
counterfeiting. Deceptive counterfeiting refers to consumers’ purchase of
counterfeit products, believing they have purchased genuine articles, whereby
counterfeiters earn huge profits on account of the premiums charged for
low-cost alternatives. Non-deceptive counterfeiting refers to consumers
knowingly buying counterfeit products, looking for what they believe to be
bargains.9
The spread
of counterfeiting is far and wide, and ranges from counterfeit automobile and
aerospace parts to fake luxury items. As per Euromonitor International report
“Tobacco: Illicit trade in tobacco products 2012”, world’s illicit penetration
excluding China is around 11.5% which means an illicit market worth around US$
34 billion. Counterfeiting of illicit tobacco accounts for approximately 13%
which is worth US$ 4 billion. The adjoining table presents counterfeiting
figures in different sectors.
From the table, it
is evident that counterfeiting has managed to become a huge business in itself.
Reports compiled by agencies working on counterfeiting indicate that
penetration of counterfeiting is huge in some sectors. According to these
publications, almost 10% of all the drugs sold worldwide are fake, and this
number goes up to 25% in India. Similarly, the percentage of fake products is
alarmingly huge in the electronics and software industry, with one estimate
putting the number of fake software and music CDs to one in three of the total
number produced.
The menace of
piracy has also assumed significant proportions, and is causing significant
economic loss to the industry as well as the Government. As per the Motion
Pictures Distributors Association (MPDA), India is among the top nations in the
world in terms of video piracy. MPDA India estimates that the loss due to
piracy in 2012 was $1.1 billion, an increase of 15.79% from 2008. Further,
Business Software Alliance has estimated global software piracy rate to be 42%
in 2011, with the commercial value of software theft to be $63.4 billion. In
India, BSA estimates the software piracy rate as 63%, with the commercial value
of software theft as $2.9 billion. One of the estimates puts the number of
pirated software and music CDs to one in three of the total produced10
5.1.2.
Perpetrators of counterfeiting and piracy
Understanding
and analyzing the dimensions of counterfeiting and piracy would not be complete
without becoming aware of the details of agencies involved in counterfeiting.
Organized criminal
organizations engaged in illegal activities including drug trafficking, arms
smuggling, illegal employments, etc., have been found to be increasingly
involved in counterfeiting and piracy activities to make profits and also as a
means of laundering money. Innumerable instances have been reported by
agencies, which point to the involvement of such organizations. For example,
there have been instances where smuggled drugs and counterfeited goods were
caught on the same vessel11. Similarly, there have been incidents of
organizations using illegal immigrants and under-age employees to manufacture
counterfeit products. According to statistics released by the National Criminal
Intelligence Service, 26% of counterfeiters are also involved in more serious
criminal activities such trafficking in drugs and money laundering. Drug
traffickers employ similar operational mechanisms as counterfeiters. According
to experts, techniques (including false bottoms, transhipments, vague air
waybills, etc.) used by drug traffickers and counterfeiters to surreptitiously
cross borders are identical. Therefore, these are increasingly being carried
out together.
Perpetrators of
counterfeiting and piracy can be divided into various levels.
Terrorist
organizations have begun to see counterfeiting and piracy as an excellent source
of funding12. Terrorists are increasingly becoming engaged in counterfeiting
and piracy activities. Financing of terrorism assumed new dimensions with state
sponsorship drying up after the end of the cold war in the 1990s, and led to
increasing decentralization of the structures of terrorist organizations.
Criminal
organizations are increasingly finding
counterfeiting a lucrative business proposition due to the high profits
involved13 and because they already have existing networks for their other
activities such as drug smuggling and arms trafficking, which can also be used
to transfer counterfeit goods.
Apart from
criminals and terrorists, counterfeiting and piracy has extended its net to many
big and small-scale business organizations that have adopted it as their
primary business. Such organizations can be financially strong and invest
heavily in technology and capital infrastructure. There is large-scale
counterfeiting of goods including sports apparel and leather products that
requires huge capital expenditure in machinery and technology (€50,000−€100,000
for certain moulds and €300,000−€600,000 for certain plastics production
lines14). As per Union des Fabricants report, counterfeiters are adept in
adopting the latest technology and establishing global networks. Equipped with
modern technology to make fake products ranging from textiles to automotive
spare parts, these networks are a part of mass-production industries.
Individuals are also
involved in activities, in which a local counterfeiter can produce counterfeit
CDs of software using the simplest of devices, such as a computer and a CD
writer, to make quick money.
Although it is not
very apparent on the surface whether all other types of counterfeiters (other
than terrorists) have any links with terror financing, it increasingly becomes
clear in the following sections that there is a definite connection between
organized crime and terrorism, through which the proceeds of counterfeiting are
indirectly transferred to fund terrorist activities. Similarly, counterfeiters
can be a part of a nexus aiding terrorism, as is witnessed in the involvement
of members of the sleeper cells of terrorist organizations in small-scale
counterfeiting activities15.
5.2.
Smuggling
Smuggling is
defined as unlawful and secret import and export of goods, especially without
paying duties imposed by the law16.
The legal
definition of smuggling differs in each country and organization. The United
Nations Convention against Transnational Organized Crime defines each form of
smuggling separately. A closely related offense to smuggling is illegal trade.
Smuggling relates to transportation of legally permitted goods through a secret
unauthorized route to escape duties, and illegal trade refers to transportation
of illegal goods. While the two have identical objectives for the criminal,
consumer demand and costs differ due to the contrasting legality and
availability of these goods. However, it is often difficult to differentiate
these two offences due to inconsistent laws in various jurisdictions in the
trade route, and these are considered synonymous by many social scientists. The
Customs Act considers both these offences as smuggling.
5.2.1.
Worldwide scale of smuggling
Although several
studies have been conducted in this regard, it is difficult to measure the
actual flow of smuggling in various types of goods. However, a conservative
figure can be obtained, based on gathered anecdotal evidence and research conducted
by organizations such as UNODC, Global Financial Integrity and other similar
sources. The illicit global flow (due to smuggling) is estimated at around
US$650 billion17.
Recreational
drugs outstrip all other goods smuggled worldwide, closely followed by
smuggling and trafficking in humans, cigarettes and oil. The reasons for this
are based on the drivers of smuggling detailed below.
5.2.2.
Drivers of smuggling
In the economy,
smuggling is in competition with locally produced goods that can be legally
imported. It can be considered an import-substituting activity that diverts
resources from the Government to the illegal private sector. Selection of
smuggling over other money-driven crimes is influenced by the factors described
below.
As can be seen,
restriction of trade in any form generally spurs smuggling. This is generally
accentuated by corruption among various participants in the economy. The level
of self-regulation by industry participants is also a deciding factor for
smuggling. Industries in which brand equity and reputation are valued take
effective measures to counter smuggling of goods by improving their
distribution systems and promoting original brands for consumers.
According to
FICCI’s CASCADE report, smuggling is directly linked to various types of
crime, such as evasion of tax and import duties, bribery and corruption of
public officials, and money laundering. Some researchers have also pointed out
that the level of smuggling is correlated with the level of corruption in
partner countries.
5.2.3.
Mechanisms of smuggling
While the most
common method of smuggling may be conducted by concealing smuggled goods or
transporting them through a relatively unprotected border area, criminal
organizations utilize optimal methods to transport different types of goods.
The various illegal methods are categorized below:
Mode of smuggling
|
Definition
|
Contraband
|
Concealment
of goods or persons and avoidance of official customs controls, which may
include use of mules
|
Re-labeling/ Reclassification
|
Camouflage
of high-tariff products as low-tariff ones to reduce tax liability or change
the name of the country of origin to take advantage of favorable economic
relations with a country
|
Underreporting
|
Intentional
marked down invoicing of goods by importer or reduced recording of quantity,
possibly in collusion with customs authorities
|
Falsification
|
Tampering
with documents relating to goods or faking passports to smuggle migrants
|
Short-landing transit Goods
|
Grey
channel leakage of transit goods or bonded imports not meant for consumption
in the domestic market
|
The particular
method chosen may also depend on the existing network of a smuggling
organization and its complicity with the local law enforcement authorities.
5.2.4.
Perpetrators of smuggling
As in the
case of counterfeiters, smugglers can be classified as follows:
► Terrorist
organizations
► Criminal
organizations
► Businesses
(large and small)
► Individuals
Terrorist
organizations undertake smuggling activities to finance their operations20. They
smuggle goods such as recreational drugs, cigarettes and oil. Terrorists are
also known to directly deal in arms smuggling to augment their resources and
strengthen like-minded organizations. Their links with smuggling activities are
on the rise due to the favorable risk-return characteristics of these
activities.
Criminal
organizations: Large and sophisticated criminal organizations engage in smuggling
to generate increased profits. This is structured into separate wings such as
counter-intelligence, bribes and money-laundering.
Businesses
(large and small): Local businesses or groups
smuggle raw materials for final goods21
Individuals:
Small groups
or individuals only engage in smuggling for their own consumption and are most
likely to smuggle drugs or human beings.
While
organized criminals are present across the entire spectrum of products, other
perpetrators are likely to be selective in the nature of the goods they
smuggle. However, much of the available data is anecdotal rather than
quantitative due to the highly clandestine nature of this topic.
5.3.
Growth-related factors and impact of counterfeiting, piracy and smuggling
Due to easy
and widespread access to technological advances, there are virtually no
products that cannot be counterfeited or smuggled. It is easy to duplicate
labels, packaging, documentation, authentication devices and/or symbols/marks/
logos with speed, accuracy and relative anonymity.
According to
FICCI’s CASCADE report, some of the factors driving counterfeiting,
piracy and smuggling include:
► Technological
advances: New
technologies benefit original manufacturers and counterfeiters alike.
Technological development enables counterfeiters to produce fakes relatively
cheaply and easily. Distribution of fakes is becoming increasingly
sophisticated through international networks
► Increased
international trade: International trade, including trade in counterfeited goods, has
increased substantially. Resource-related constraints imposed by the Customs
departments of many countries leads to reduced surveillance and increased
smuggling in them.
► Emerging
markets: Free
markets and enforcement agencies/institutions are not growing in tandem. This
is leading to increased counterfeiting and smuggling in free markets.
► Emerging
products: The share
of manufactured and processed products increasing in international trade
provides an opening for counterfeiting.
► Demand side: The
drivers of known consumer demand for counterfeit goods include low prices,
acceptable perceived quality, ability to conceal status, no health or safety
concerns, personal budget constraints, a low regard for intellectual property
rights, and low risk of discovery and prosecution.
► High
profitability: Large potential market size, genuine brand power, moderate need
for investments and technology requirements, unproblematic distribution and
sales, the ability to conceal operations, low risk of discovery, weak
enforcement and penalties leads to high profitability for counterfeiters.
► Risk-to-reward
balance: Till date,
anti-counterfeiting laws are non-existent or penalties imposed by most
governments have been vague or not tough enough to act as a deterrent to
counterfeiting and smuggling.
The impact
of counterfeiting, piracy and smuggling is seen across several segments.
► Government
Loss of taxes (direct and
indirect)
Anti-counterfeiting and
anti-smuggling measures such as police raids, customs seizure and mass public
awareness campaigns
Public welfare costs including
monetary compensation and health care-related ones
Legislative costs
► Original
right holder
Loss of sale and profitability
Loss of brand value
Infringement of copyright
Special advertising campaigns
Increased packaging costs
Reputational risk
Consumer patronage
► Economy
Reduced GDP
Increase in black money
Increased criminal activity and terrorism
Reduced employment and deteriorating working conditions
Degradation of environment
Reduced expenditure on research and development
► Consumers
Defrauding of consumers
Health care costs
Country focus: India — illicit
trade dominated by home-produced DNP22
|
Illicit
trade in cigarettes in India includes duty-not-paid (DNP) smuggled branded
cigarettes and counterfeit goods. According to Euromonitor International
data, India is the world’s sixth-largest market for illicit cigarettes, which
has grown by 50% over 2006−2011, to account for 17% of the market. An
independent study conducted by the Tobacco Institute of India in 2008
revealed that 16% of the domestic market was captured by domestic DNP
products, placing the proportion of smuggled cigarettes in the country at 1%
of the domestic market.
Growth
factors of illicit cigarette trade in India:
► Rise in
excise tax on cigarettes resulting in establishment of unlicensed but legal
cigarette factories that clear most of their products without paying tax
► Rise in Value Added Tax (VAT) up to 16%−18%, resulting in growth of
illicit trade in tobacco
► Rise in
the per stick cost of cigarettes manufactured by legitimate cigarette
manufacturers and availability of illegal cigarettes at the price of bidis
► Easy
availability of illicit brands in the market, retail outlets and hawkers due
to their low prices and high trade margins
|
6. Links
between counterfeiting, piracy, smuggling and financing of terrorism
Terrorist
activities have changed and evolved over the last two decades or so. And so
have the structures of terrorist organizations! Over the past few decades,
counterfeiting has seen huge changes and has emerged from its small-scale
industry origins to a huge network of “international entrepreneurs,” who are
engaged in mass production of counterfeit goods by leveraging technology,
intricate networks and huge financial strengths. Similarly, the outreach of
smuggling has gone beyond some precious articles to almost all products. More
decentralized structures began to evolve, in which the central units are
responsible for overall administration and management, and operational activities
are carried out by independent and frequently self-financed units with largely
locally recruited employees.
Similarly,
changing trends are being seen in organized criminal activities due to
increasing globalization and breaking up of international borders. Criminal
organisations have now acquired a more global character, are operationally
stronger and better networked, and are capable of executing large-based
international criminal activities.
The links
between counterfeiting, piracy and smuggling organizations and terrorist units
are in the following four modes:
Operational:
Although
research has established sharp similarities between terrorist and
counterfeiting, piracy and smuggling operations and their prevalence in India,
lack of long-term trust between different criminal groups means that this type
of cooperation is more the exception than the rule. It was observed that
foreign terror organizations worked with criminal organizations smuggling in
India in the Mumbai blasts in 199323.
Logistical: Along with
financial linkage, this is the most common way in which terrorist and
counterfeiting, piracy and smuggling organizations work together. Terrorist
organizations in India have been known to use the networks of the top smuggling
organizations. For example, it has been found that leveraging established
smuggling pipelines was the second most preferred method used by terrorists to
enter the US24.
Financial: Organizations
in counterfeiting, piracy and smuggling have been known to provide financial assistance
to terrorist organizations25. This is due to shared ideological links
elaborated below.
Ideological:
While the
goals of counterfeiting, piracy and smuggling and terrorist organizations
differ by definition, i.e., the counterfeiter or smuggler is more concerned
with personal profit than any set agenda, it is not unusual to see purely
criminal groups transform themselves by adopting political roles.
6.1.1.
Counterfeiting, piracy and terrorism
Perpetrators
defined in previous chapter can be linked to counterfeiting, based on numerous
reported incidents.
The study of
research papers and the views of experts indicate that there is high
probability the involvement of “criminal organizations” in manufacture of fake
drugs and counterfeiting of currency, which is a highly specialized trade and
therefore requires investment and technology beyond the scope of individuals.
Terrorist and
criminal organisations both seem to have links with counterfeiting and piracy,
although this is more so in the case of criminal organizations. Moreover,
although counterfeiting and piracy is perpetrated on a much larger scale by
criminal organizations as compared to terrorists, the proceeds only indirectly
finance terrorists due to their links with organized crime.
Case focus: Counterfeiting and Terrorism26
|
One recent
example of counterfeiting linked to terrorist organizations was the
Interpol-led Operation “Black Poseidon” in May 2012. The operation targeted
products being traded illicitly across Eastern Europe by transnational
organized crime groups. Counterfeit products included computers,
pharmaceuticals, agrochemicals, electronics, alcohol and cigarettes. The
operation led to the seizure of goods worth over €120 million and 1,400
persons under arrest or investigation
|
Similarly, from
various studies it is observed that individuals, who may not be involved in
large-scale counterfeiting and piracy, are engaging in small-scale
counterfeiting in FMCG goods, software piracy, etc. It is no coincidence that
members of sleeper cells are often involved in counterfeiting of such goods.
This highlights the fact that such counterfeiting and piracy activities are in
line with the capabilities of small individual members of sleeper cell groups,
which are largely self-financed and do not depend on core terror networks for
their financing needs.
Several
cases that directly link terrorist groups with counterfeiting and piracy
activities have been reported through various reports28. The following are some
of these:
► Interpol
seized US$1.2 million worth of counterfeit German brake pads in 2004. Later,
investigations revealed that these were to be used to support the Lebanese
terrorist organization Hezbollah.
► Based on
evidence with FBI, the terrorists who bombed the World Trade Center In 1993
used funds channelled from counterfeit textile sales in New York.
► It was found
that Chechen rebels were financing their operations by selling pirated CDs.
► According to
New York’s Police Commissioner, the Madrid train bombing incident was funded
through the sale of pirated CDs.
► According to
an interview, published in French daily Le Monde, of the head of a
French security agency, Afghan terrorist groups have been found to use the
proceeds of duplicates of credit cards and counterfeit designer products.
► A suspect,
Faruk Aksu, who is allegedly linked to several terrorist groups, was arrested
in Turkey with US$3.2 million fake US dollars, which he had obtained from Iraq.
These dollar notes used the paper used by the US Government and incorporated
all the security features of a real US dollar.
► Al Qaeda
training manuals recovered in 2002 reveal that the organization recommends the
sale of fake goods as a means of fundraising for cells.
The
following diagram represents the chain of events illustrating links between
counterfeiting and terrorist groups. As depicted in the diagram, the proceeds
from counterfeiting not only go directly to fund terrorist organizations (as
has been exemplified by numerous examples), but also help terrorist sleeper cells
engage in small-scale counterfeiting to finance themselves. Furthermore, a
significant chunk of counterfeiting activities is under the control of criminal
organizations, which indirectly fund terrorist operations through their links
with terrorists.
Figure 7: Link
between counterfeiting and terrorism
6.1.2. Smuggling and terrorism
Based on
numerous reported incidents, perpetrators of offences mentioned in previous
chapters can be linked to various smuggled products.
The obvious
attraction for terrorists is the relatively large value of these goods, another
reason for their linkage with smuggling organizations (and their networks) is
their ability to leverage these and thereby reduce their operational risks. Use
of illegal sources of funding to support local terrorist cells is a trend that
has been observed through increased tracking of donations and other legal
sources of income. Terrorist organizations have been quick to spot local
patterns of crime and have been obtaining finance from major sources of
smuggling, including drugs, cigarettes and oil. This has been confirmed by the
following reputed sources:
► The Drug
Enforcement Administration has linked 14 designated foreign terrorist
organizations as having ties with the drug trade. It was also found that these
foreign terrorist organizations are generating illicit proceeds through
international drug trafficking29.
► Leveraging
established smuggling pipelines is the second most preferred method used by
terrorists to enter the US30. This was revealed by senior US officials who
participated in interviews. Other methods terrorists use include fraudulent
documentation, corruption etc. They also depend on the support provided to them
by smuggling organizations.
► Colombia, Kenya, the
Kyrgyzstan, Myanmar and Turkey, among others, reported a direct link between
the illegal drug trade, trafficking in firearms, smuggling of migrants and
terrorism31. It was noted that terrorists trafficked in small arms and drugs by
corrupting public officials and using illegal migrants.
While drug trafficking was earlier the preferred mode of
financing for various terrorist organizations, cigarette smuggling seems to be
the fastest growing revenue stream in recent years32. Cases of illegal cigarette
sales, with ties to major terrorist groups, have been documented. The low risk
involved makes cigarette smuggling an attractive source of revenue for
terrorist organizations.
6.1.3. Crime
syndicates in India
In the
1970s, crime syndicates in India were involved in extortion, contract killing
and infiltrating Bollywood by distributing and pirating films. After
flourishing in these activities throughout the 1980s, their transformation into
criminal terrorist groups began with a series of bombing attacks in Mumbai in
1993, killing 257 people in response to the destruction of the Babri Mosque in
Uttar Pradesh. Investigations revealed that a major Mumbai-based criminal gang
was responsible for this terror attack. This act reflected the tactical
transformation of profit-minded criminal gangs to terrorist organizations with
ideological goals. Many such organizations shifted their base to the Middle
East and have been known to receive the clandestine backing of countries
opposed to India. The US Government has also identified many former
Mumbai-based crime syndicates that provide finance and share smuggling routes
with major terrorist organizations in India and worldwide.
The incident
mentioned above is a warning not only about the links that criminal organizations
can form with terrorist organizations, but also of the fact that it does not
take much to convert a purely criminal organization into terrorist one.
Criminal syndicates already have the operational expertise to transfer huge
amounts of money and buy weapons, as well as the necessary ammunition, to
engage in terrorist activity.
Therefore, it is evident that not only is
there the possibility of organized criminal organizations becoming terrorist
ones, but that counterfeiting, piracy and smuggling have evolved significantly,
leading to close interaction and links between these activities.
7. Framework
for preventing financing of terrorism
The current state of financing of
terrorism in today’s world can be studied from four different perspectives. We
shall look at the Indian and international scenarios to study the following
initiatives to prevent financing of terrorism.
Governance: The
Government has set to counter financing of terrorism and is facilitating the
operations of law enforcement agencies with financial intelligence reports.
Laws and
regulations: These form a part of the Government’s legal framework to counter
financing of terrorism through the implementation of Acts and Rules.
Technology: The
technological infrastructure set up by the Government captures information,
analyzes data and produces intelligence reports.
Capacity-building: This
includes infrastructure set up to train resources to identify cases of
terrorism financing and take the appropriate action through set procedures.
Each aspect
of the framework is discussed in detail in further sections.
7.1.
Governance
India, with
its rapidly growing economy and demography, faces risks relating to money
laundering and financing of terrorism. The country continues to be a target for
terrorist groups and has been the victim of numerous attacks. As mentioned in
earlier chapters, there are several sources of terrorist financing in the
country. India has successfully put in place a governance setup in the form of
the Financial Intelligence Unit (FIU) to combat money laundering and financing
of terrorism. The FIU is a specialized government agency that was created to
form a bridge between law enforcement agencies and the financial sector.
7.1.1.
Current status of India’s governance mechanism
In June 2010, India became a full member of
the Financial Action Task Force (FATF), the premier international body, which
is dedicated to anti-money laundering (AML) and counter financing of terrorism
(CFT). Recommendation 29 (earlier R 26) of FATF requires member countries to
establish FIU to serve as their national center for collection and analysis of
information about Suspicious Transaction Reports (STRs) and other relevant
information on money laundering, associated predicate offences and financing of
terrorism, and disseminate the analyzed results to relevant law enforcement
bodies. FIU India (FIU-IND) was established by the Government of India vide its Office
Memorandum dated 18 November 2004. It is an independent body that reports to
the Economic Intelligence Council (EIC) headed by the Finance Minister. FIU-IND
is headed by its Director, who is of the rank of Joint Secretary to the
Government. FIU-IND does not investigate cases; it collects, analyzes and
disseminates information to the concerned law enforcement agencies.
Role of FIU-IND in combating financing of terrorism and money
laundering34
|
A. Preventing
misuse of financial system: Regulators have issued detailed Know Your
Customer/Anti Money Laundering/Counter Financing of Terrorism guidelines,
covering the areas of acceptance and identification of customers, monitoring
of transactions and risk management.
B. Detection
and reporting of suspected cases of financing of terrorism: FIU-IND is
actively involved in sensitizing reporting agencies to report STRs related to
suspected cases of financing of terrorism and providing guidance on detection
and reporting of such transactions.
C. Information
exchange with domestic agencies on suspected cases of financing of terrorism:
FIU–IND not only collects and disseminates information on financing of
terrorism, but also supports intelligence agencies by providing information
specifically requested by them.
D. Exchange
of information with foreign FIUs on terrorism-financing cases: FIU-IND
became a member of the Egmont Group of FIUs in 2007 and currently has MOUs
with 19 countries for cooperation and exchange of information to combat
financing of terrorism.
E. Contribution
to global efforts to combat financing of terrorism: FIU-IND participates
in various international working groups such as the Egmont Group and the
Joint Working Group (Government of India) to combat financing of terrorism
F. Providing
input to strengthen legal and operational framework to combat financing of
terrorism: FIU-IND monitors the latest trends in financing of terrorism
and provides input for policy changes to strengthen CFT regime in India.
|
India is
also member of two FATF-style regional bodies, the Eurasian Group on Combating
Money Laundering and Terrorist Financing and the Asia/Pacific Group (APG) on
Money Laundering. The US has worked with India through FATF to help improve the
latter’s anti-money laundering initiatives and on combating financing of
terrorism in the country.
7.1.2.
Organizations involved in preventing financing of terrorism, counterfeiting,
piracy and smuggling
FIU–IND is the link between the financial
sector and law enforcement agencies. The input provided by FIU-IND is
continuously monitored by LEAs to refine the quality of reports. The landscape
of various agencies interacting with the FIU is depicted in the figure below.
► Regulators
FIU-IND has developed
relationships with regulators for better monitoring of the financial sector by
ensuring suitable modifications in KYC, CFT, AML circulars issued by the
regulators, regular interactions with industry associations, development of a
common understanding of PMLA obligations, identification of sector-specific
issues through analyses of Suspicious Transaction reports and provision of
training to regulators staff members. The steps taken by FIU-IND aided
effective monitoring of AML/CFT systems.
► Regulated bodies
According to Section 12 of
PMLA, every banking company, financial institution and intermediary needs to
furnish information on prescribed transactions to the Director of FIU-IND. It
also empowers the Director of FIU-IND to obtain records of any suspicious
transactions and enquire into cases of non-compliance with the provisions of
PMLA.
► Law enforcement agencies (LEAs)
FIU-IND supports law
enforcement agencies (LEAs) in combating money laundering and financing of
terrorism through timely dissemination of financial intelligence reports.
The police forces are empowered
to deal with counterfeiting matters and acts on complaints filed by
individuals. The police also provide assistance in civil raids on
counterfeiters.
Customs authorities are empowered to seize all goods that infringe
Intellectual Property at the point of entry.The Health
Department and the Drug Controller General of India are vested with powers to
raid and confiscate spurious drugs. The Food and Drugs Administration of each
state also is empowered to deal with counterfeiting issues and tackle the
menace.
► Foreign
collaborations
FIU-IND
actively contributes to international efforts to combat money laundering and
financing of terrorism. India adheres to the Egmont principles of free exchange
of information. All requests for information, including those for which no
information is available, receive a prompt response. India has seen increasing
exchange of information with foreign FIUs over the years.
7.1.3.
International leading practices and efforts
Money
laundering, financing of terrorism and smuggling are an increasing international
phenomenon. There have been efforts made by various international organizations
such as the UN and the EU, as well as by various countries, to curb such
crimes. Some of these efforts are detailed below.
► United
Nation (UN)
The
Anti-Money-Laundering Unit (AMLU) of the United Nations Office on Drugs and
Crime (UNODC) is responsible for implementing the Global Programme against
Money-Laundering (GPML), which was initiated in 1997 in response to the mandate
given by the 1988 Convention against “Illicit Traffic in Narcotic Drugs and
Psychotropic Substances.” The AMLU’s mandate was strengthened in 1998 by the
Political Declaration and Action Plan against Money-Laundering of the United
Nations General Assembly Special Session (UNGASS), which broadened its
jurisdiction beyond drug offences to all serious crime. GPML’s broad objective
is to strengthen the ability of member states to implement measures in
anti-money- laundering and countering the financing of terrorism (AML/CFT) and
assist them in detecting, seizing and confiscating illicit proceeds, as
required under UN-related instruments and global accepted standards, by
providing relevant and appropriate technical assistance on request from states.
► World Health
Organization (WHO)
WHO has set
up Framework Convention on Tobacco Control (FCTC) which includes almost all
countries of the world. FCTC wants to fight illicit trade of tobacco and
tobacco products to promote public health, to promote public revenues and to
fight organized crime. In November 2012, more than 140 parties of the WHO FCTC
adopted a new international treaty to reduce illicit trade by means of
technology measures, which attempt to track and trace legitimately manufactured
products and enable retailer and customer to distinguish between duty paid
pack, a smuggled pack, a cheap white and a counterfeit.
► European
Union (EU)
The Member
States of the European Union have identified the fight against financial crime
(money-laundering, corruption, counterfeiting of the euro and goods,
trafficking in high-value goods and serious economic crime) as a top priority.
EU members opted for cooperation between the FIUs of member states. They have
also adopted a framework on money laundering; identification, tracking,
freezing and confiscation of criminal assets and the proceeds of crime. A
second anti-money- laundering directive has been agreed on. This widens the
definition of criminal activity resulting in money laundering to include all
serious crimes, including offences related to terrorism.
► USA
The
Department of Treasury, Department of Justice, Department of Homeland Security,
Board of Governors of the Federal Reserve System and the United States Postal
Service are together responsible for checking the menace of money laundering
and financing of terrorism in the US and abroad. Treasury and the federal
functional regulators have greatly expanded the scope and reach of regulations
under the Bank Secrecy Act since the US Congress passed the USA Patriot Act.
► UK
The UK Home
Office is responsible for prevention of organized crimes, money laundering and
countering financing of terrorism in the UK. Serious Organized Crime Agency
(SOCA) is set up in UK to tackle serious organized crime including Class A
drugs, people smuggling and human trafficking, major gun crime, fraud, computer
crime and money laundering. UK Financial Intelligence Unit (UKFIU) is part of
SOCA that focuses on the proceeds of crime and financing of terrorism.
7.1.4.
Overall assessment of governance in India
India has
set up a Financial Intelligence Unit on the basis of FATF’s recommendations and
has been collaborating with foreign FIUs to combat financing of terrorism.
The country has taken many steps in this
respect but improvement is required in financial institutions, interactions
with law enforcement agencies, interactions with the regulators of financial
institutions, etc.
7.2. Laws
and regulations
7.2.1.
Laws/Acts to combat financing of terrorism
India plays
an increasingly important role in combating terrorism and financing of
terrorism in the world. The country’s AML/CFT regime is relatively young. The
Prevention of Money Laundering Act, 2002 (PMLA) came into force in 2005 and was
amended in 2009. The Unlawful Activities (Prevention) Act (UAPA), 1967 was
amended in 2004 to criminalize, inter alia, financing of terrorism. The UAPA
was further amended in December 2008 to broaden its scope and to bring
legislation more in line with the requirements of the United Nations Convention
for the Suppression of the Financing of Terrorism (FT Convention).
India has outlawed money laundering under
the Prevention of Money Laundering Act, 2002 (PMLA), as amended in 2005 and
2009, and the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act),
as amended in 2001. While ML provisions under the NDPS Act only relate to
predicate drug offences, the PMLA applies to a much broader range of predicate
offences, including those relating to narcotics. India has made a serious
effort to bring criminalization of money laundering in the PMLA in line with
FATF standards by expansion of the list of predicate offences under Schedule A
and B and addition of Schedule C (offences with cross-border implications)
since 1 June 2009.
7.2.2. Laws
to combat counterfeiting and piracy
The rising
spread of counterfeiting and piracy has led to various changes being made in
legislations and regulations to control the menace of counterfeiting and piracy
— both
domestic and international — in India. Other than Acts that
are directly aimed at controlling counterfeiting and piracy in the country,
acts that are targeted at preventing smuggling, etc., indirectly help agencies
counter counterfeiting by blocking the channels of movement for counterfeited
goods. Some Acts and legislations to prevent counterfeiting and piracy in
various fields are discussed below.
The Trademarks
Act of 1999 allows registration of trademarks and also provides for
statutory protection of registered trademarks. The Act provides for penalty
extending from six months to three years of imprisonment in addition to a fine
of minimum INR50, 000 for selling or applying false trademarks, trade
descriptions, etc.
The Dug
Controller General of India stipulated procedures in 2011 to counter the spread
of fake drugs in India and their export to other countries. In addition, an
amendment was required in rule 96 of the Drugs and Cosmetics Act, 1940, which
makes it mandatory for every drug manufactured in India to carry on its primary
label the Unique Identifier Code and 2D bar code by which a drug can be
verified by an SMS. The Drugs and Cosmetics Act, 1940 provides definitions of
“adulterated,” “spurious” or “misbranded” drugs and cosmetics. It empowers
certain government agencies to not only inspect but also seize and confiscate
any product that is found to be adulterated, spurious or misbranded. The Drugs
and Cosmetics (Amendment) Act, 2008 provided for a flexible procedure, heavier
penalties and longer prison terms for those convicted of offences relating to
counterfeiting of drugs
Similarly,
the Prevention of Food Adulteration Act, 1954 vested powers in the hands
of agencies to seize and confiscate adulterated or misbranded goods. It also
gave them the power to suspend the manufacturing licenses of those engaged in
such illegal and criminal activities.
Another
significant development with regard to the border enforcement of IPR with the
enactment of the Intellectual Property Right (Imported Goods) Enforcement
Rules, 2007 was adoption of TRIPS procedures and norms in Articles 51 to
60. The Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007
issued by the Central Board of Excise and Customs empowers Customs authorities
to seize counterfeit goods.
In addition to these Acts, various bodies
have also been constituted, sometimes as an initiative by the victim industry
to fight the spread of counterfeiting. For example, the Alliance against
Copyright Theft (the Bollywood-Hollywood anti-piracy coalition) was responsible
for 301 raids being carried out on suspected counterfeiters of hard goods
(DVDs) in Mumbai and 19 such raids were conducted across north India. This has
had a significant impact on counterfeited sales of DVDs, which has declined
significantly at the street level.
7.2.3. Laws
to combat smuggling
There are
many laws and regulations for combating smuggling. Some of the key laws and
regulations to are highlighted below:
The Customs
Act, 1962 defines
various acts that constitute smuggling into and outside the country and goods
covered under its ambit
The
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act
(COFEPOSA), 1974 allows preventive detention of currency smugglers and drug
traffickers
The
Narcotics Control Bureau was constituted as the enforcement body under The
Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances
Act, 1985 (Amended 1988) to tackle the menace of drug trafficking. The
minimum punishment under the Act is 10 years of rigorous imprisonment and a
fine of INR100, 000, while repeat offenders can be sentenced to death in
certain situations. Enforcement agencies are also empowered to trace and freeze
or seize any property acquired through funds generated by illicit drug
trafficking to prevent money laundering.
Immoral
Traffic (Prevention) Act, 1986: Originally, the Suppression of Immoral
Traffic in Women and Girls Act, 1956, this was re-enacted to rectify lacunae in
enforcement agencies and strengthen their operations.
The
Emigration Act, 1983 makes it mandatory for any agent intending to recruit Indian
citizens for employment outside India to obtain a certificate from the
Prosecutor-General of Emigrants and provides for imprisonment of up to two
years with fine up to INR2,000.
The
Extradition Act, 1962 provides for extradition of fugitive criminals under 18 specified
offences including smuggling.
The Wildlife
Protection Act, 1972 (Amended 2006) provides for the creation of the
National Wildlife Crime Bureau to monitor trade and gather intelligence on
criminal activities related to wildlife.
7.2.4.
International leading practices and efforts
► FATF
recommendations
There are 40
FATF recommendations pertaining to FIUs and reporting entities. FATF’s
recommendations focus on assessment of risks and application of a risk-based
approach, national co-operation and coordination, customer due diligence,
record-keeping, new technologies, reporting of suspicious transactions,
regulation and supervision of financial institutions and DNFBPs, etc.
► USA
The US has imposed several legislative and
regulatory standards to deter money laundering. The most significant out of
these include the Bank Secrecy Act, the Money Laundering Control Act of 1986,
the Anti-Drug Abuse Act of 1988, Section 2532 of the Crime Control Act of 1990,
Section 206 of the Federal Deposit Insurance Corporation Improvement Act of
1991, the Annunzio-Wylie Anti-Money Laundering Act, the Money Laundering
Suppression Act of 1994 and the Money Laundering and Financial Crimes Strategy
Act of 1998. The US Senate passed the Patriot Act after the 11 September attack
in New York. The official title of the US Patriot Act is “Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA PATRIOT) Act of 200130.” The purpose of the Act is to
deter and punish terrorist acts in the US and around the world, enhance law
enforcement investigatory tools, and others including the following:
► To strengthen US
measures to prevent, detect and prosecute international money laundering and
financing of terrorism
► To subject to
special scrutiny foreign jurisdictions and financial institutions, and classes
of international transactions or types of accounts that are susceptible to
criminal abuse
► To require all appropriate
elements of the financial services industry to report potential money
laundering
► UK
The following forms the current
legislative framework in the UK:
► Money Laundering
Regulations 2003: These set out the scope of the regulated sector and the
preventive measures that must be taken as well as the powers of the supervisor
over money service businesses and high-value dealers.
► The Proceeds of
Crime Act 2002, as amended by the Serious Organized Crime and Police Act 2005:
This sets out principal money laundering offences and reporting obligations.
► The Terrorism Act 2000: This
Act covers terrorism and financing of terrorism and makes temporary provision
for Northern Ireland on prosecution and punishment of certain offences,
preservation of peace and maintenance of law and order.
7.2.5. Overall assessment of
laws and regulations in India
Laws against financing of terrorism are relatively new in India
and there is a need for further amendments made to the Bill. Its association
with the FATF has helped India improve the legal scenario in the country with
respect to countering financing of terrorism.
7.3.
Technology
Advances
made in technology, particularly in Information and Communication Technology
(ICT), have enabled the Government and industry to devise several mechanisms to
prevent, detect and deter counterfeiting, piracy and smuggling. This section
explores advances made in India as well as leading international technological
practices to aid prevention and detection of counterfeiting, piracy and
smuggling. It also assesses the current role of technology in preventing and
detecting how the proceeds of counterfeiting, piracy and smuggling are being
used to fund terrorism.
7.3.1.
Adoption of technology by industry to prevent and detect counterfeiting, piracy
and smuggling
The industry
bears the brunt of the menace of counterfeiting, piracy and smuggling, and
therefore, has always been at the forefront of technological measures to
prevent and detect such acts. According to the FICCI CASCADE Report 2013,
two primary types of technological measures are adopted by industry in their
fight against counterfeiting and piracy — authentication
packaging, and track and trace packaging. While authentication packaging can
help consumers or enforcement agencies to verify the authenticity of goods,
track and trace technology helps them in tracing movement of goods through
various stages of the supply chain. Some common technologies employed by
industry include radio frequency identification (RFID), holograms, non-clonal
identity, optical technology, smart cards, microscopic tags, plastic tags,
biotechnology, etc.
In India,
anti-counterfeiting / anti-piracy technology employed by industry varies from
sector to sector, and has evolved over a period of time. However, there is lack
of coordination and collaboration among industry players on research and
development of such technologies. The cost and effort of developing
anti-counterfeiting/ anti-piracy technologies is not recoverable from consumers
in the short run, and therefore, making it difficult for the industry to devote
sizeable part of their R&D budgets and efforts for development and
propagation of technologies.
7.3.2.
Adoption of technology by the Government to prevent and detect counterfeiting,
piracy and smuggling
It is
essential for the Central and state governments, as well as various government
agencies, to promote technologies and help in their implementation to prevent
and detect counterfeiting, piracy and smuggling in the country.
While the
industry has been developing several types of anti-counterfeiting / anti-piracy
technologies, the success of these is limited by the extent to which they are
mandated by government laws and regulations. For instance, the Drug Controller
General of India has proposed an amendment to the Drugs and Cosmetics Act, mandating
that every drug manufactured in the country should have a Unique Identifier
Code and 2D bar code on each pack, whereby their authenticity can be verified
through an SMS. There is a similar mandate for medicine packs manufactured in
India for export. However, such initiatives need to be implemented across more
industries, and law enforcement agencies must have adequate technical expertise
to identify fake goods by using advanced technology.
Government intelligence and law enforcement
agencies have also begun using technology to prevent and detect cases of
counterfeiting, piracy and smuggling. For instance, the Directorate of Revenue
Intelligence (DRI) of the Central Board of Excise and Customs has put in place
a system to analyze data from the Customs office and proactively identify
smuggled consignments. However, it is essential to integrate this with other
intelligence databases and also share information with Customs’ databases
maintained by international agencies to improve the efficiency of such systems.
7.3.3.
Adoption of technology to prevent and detect proceeds of counterfeiting, piracy
and smuggling and how this is used to finance terrorism
It is
becoming increasingly difficult to detect and prevent financing of terrorism
due to the evolving nature of this menace and the sophisticated measures
adopted by terrorist organizations to conceal their fund flows. Terrorist
organizations utilize the network of banks and other financial institutions to
disguise and transfer funds. Given the large number of transactions that take
place in the financial domain, it is extremely difficult to identify
transactions leading to financing of terrorism from normal ones. Therefore,
sophisticated IT solutions are required at the micro and macro levels to detect
such transactions and identify the perpetrators.
Proceeds
towards financing of terrorism, especially from counterfeiting, piracy and
smuggling activities, seem like normal business transactions, with regular
inflows and outflows, in the financial system. However, on deeper analysis,
patterns of transactions could be found, which indicate disproportionate fund
flows and specific measures taken by terrorist organizations to hide the trail
of such funds.
The growth
of information and communication technologies in the past few decades has
facilitated innovations that can be used by terrorists to solicit and receive
funds. These technologies can however also be used to counter financing of
terrorism due to their ability to record and detect financial activities. India
is facing the major challenge of tackling the threat posed by financing of
terrorism due to most terrorist organizations exploiting advances in technology
to raise and move funds.
One of the
major initiatives taken by the Government of India in this regard was the
establishment of the Financial Intelligence Unit (FIU), which has the mandate
to detect and prevent money laundering and counter financing of terrorism. The
FIU initiated its flagship Project FINnet, in 2006, which included deployment
of advanced technical solutions to build a financial intelligence network and
identify suspicious transactions that may be linked to financing of terrorism.
The RBI’s
KYC/AML/CFT guidelines require banks and financial institutions in India to
deploy Anti-Money Laundering (AML) IT systems to identify potential
transactions that may lead to financing of terrorism. Furthermore, under the
Prevention of Money Laundering Act (PMLA), India has brought Designated
Non-Financial Businesses and Professions (DNFBPs) under the purview of FIU
reporting, and these are now required to report any suspicious transactions
that may lead to financing of terrorism.
Another
initiative is being planned by the National Intelligence Grid (NATGRID), which
was set up as a nodal agency to analyze all the data accessed from various
systems and agencies to identify issues pertinent to national security.
Similarly, the National Investigation Agency (NIA) is in the process of setting
up an IT system to assist in analyzing various sources of data in order to
investigate cases of terrorism. These systems are expected to analyze “big
data” and have the potential of enabling a breakthrough in tackling the nexus
between counterfeiting, piracy, smuggling and financing of terrorism.
7.3.4.
International Leading Practice: Australian Transaction Reports and Analysis
Centre (AUSTRAC)
AUSTRAC is
the Australian financial intelligence unit that counters money laundering and
financing of terrorism. It has used technological advancement and innovation to
strengthen its capabilities to collect, analyze and disseminate information to
effectively fight financing of terrorism. Some of AUSTRAC’s technological
deployments include:
► Electronic
data delivery
AUSTRAC uses
an electronic data delivery solution that enables cash dealers to transmit
financial transaction reports through the internet, increase the timeliness of
receipts provided and easy retrieval of information.
► Advanced
database capabilities
AUSTRAC has
implemented a number of advanced capabilities in its database including:
► Improved
search capabilities through text-mining solutions with the integration of data
mining tools
► Document-linking
capabilities to integrate and enhance case management functionality
► Geo coding
functionality to enable searches, based on geographical information found in
addresses
► Data mining
Implementation
of its data mining function has greatly strengthened AUSTRAC’s ability to
analyze data, identify financial networks and locate reporting- and
compliance-related information to assist in its regulatory function. AUSTRAC
has increased its analytical and regulatory capabilities by implementing this
function.
7.3.5.
Overall assessment of progress made on adoption of technology adoption in India
It is evident that while the industry is
conducting research on and developing technological measures to prevent
counterfeiting and piracy, the Government also needs to increase its efforts in
this area. Although government agencies have recently made technological
advances in tracking proceeds of counterfeiting, piracy and smuggling leading
to finance terrorism, it is essential for them to coordinate their initiatives
to realize the full potential of these systems.
7.4.
Capacity-building
It is
essential that all involved participants are equipped with the requisite
training and skillsets to effectively implement anti-counterfeiting/piracy and
anti-smuggling initiatives to detect and prevent financing of terrorism in the
country. This section explores efforts being made in this area as well as in
leading training and capacity-building practices for industry players,
consumers and law enforcement agencies
7.4.1.
Capacity-building for controlling counterfeiting, piracy and smuggling
It is
essential to build awareness among consumers, industry and enforcement agencies
on available means for stopping counterfeiting, piracy and smuggling, and
sensitize them to the implications of this menace for India and industry. The
Government and industry have been running consumer-awareness programs such as
“Jaago Grahak Jaago,” which utilize various media including television, print,
art, etc., to increase consumers’ awareness of their rights.
The large
players in the industry are well aware of their intellectual property rights,
and are well staffed with legal professionals to protect their interests.
However, awareness needs to be built among small and medium enterprises, which
are often vulnerable to counterfeiting and piracy, and require support from the
Government and industry associations.
The
Government has taken some initiatives to train personnel of enforcement
agencies on laws, regulations and procedures for detecting and preventing
counterfeiting, piracy and smuggling. Specialized agencies such as the
Directorate of Revenue Intelligence (DRI), the Central Board of Excise and
Customs (CBEC) and the Narcotics Control Bureau (NCB) are actively involved in
handling smuggling and counterfeiting cases. However, it is important to ensure
that local police forces in each state are trained to handle such cases, such
that they can proactively identify these and provide additional capacity to
other enforcement agencies, when required.
7.4.2.
Capacity-building to prevent proceeds of counterfeiting, piracy and smuggling
towards financing of terrorism
Counterfeiters
and smugglers generally make use of banking and financial institutions to
transfer the proceeds of their activities to terrorist organizations. It is
therefore essential to create awareness among the employees of banks, financial
institutions, as well as intelligence and enforcement agencies, on
identification and prevention of suspicious transactions that may be related to
financing of terrorism.
The FIU-IND
conducts training programs and workshops on financing of terrorism, money
laundering, the Prevention of Money Laundering Act and other relevant topics.
It conducts training sessions for banks and financial institutions, in
collaboration with the RBI and the Indian Bankers’ Association (IBA), to build
their capabilities and help them identify suspicious transactions and report
these. The FIU has been supporting industry associations, professional bodies,
regulators and financial sector entities to conduct training programs. Furthermore,
it also provides technical assistance to banks on their anti-money laundering
initiatives and efforts to combat financing of terrorism.
7.4.3.
International cooperation
India is a
founding member of the Global Counterterrorism forum (GCTF). It is also a
member of the Financial Action Task Force (FATF), the Asia Pacific Group (APG),
the Eurasian Group (EAG) and the International Criminal Police Organization
(INTERPOL).
INTERPOL and
India’s Central Bureau of Investigation co-hosted a three-day training and
capacity-building seminar on fighting criminal networks behind illicit trade in
November 2012. The seminar showcased measures to combat illicit trade that
would indirectly assist enforcement agencies track funds flowing to terrorist
organizations. It was attended by enforcements agencies and representatives
from industries affected by illicit trade in garments, movies, tobacco and skin
care products, who shared their experiences with the other participants.
India has
participated in several courses held by the US Department of State’s
Anti-terrorism Assistance programme as well as other regional capacity-building
programs. In addition, the annual US-India Counterterrorism Joint Working Group
meet enabled the two countries to share their counterterrorism perspectives.
7.4.4.
International leading practice: Stopfakes.gov
The US
Government has launched a web portal, stopfakes.gov, to enable businesses and
consumers to file electronic complaints about counterfeit products and their
IPR-related trade problems. These are answered by a trade specialist within 10
days. The portal also has a helpline on which answers are provided by trade
specialists.
This
initiative is part of a large program, Strategy Targeting Organised Piracy
(STOP), which was implemented by the former US President George W Bush as a
strategic priority measure to combat counterfeiting, piracy and theft of IP.
The key objectives of this program include development of a global repository
of information, organization of education outreach events on intellectual
property for small and medium-sized businesses and education campaigns for
local and overseas businesses, and training of government officials, including
law enforcement and judicial officers, etc.
7.4.5.
International leading practice: Australia’s financial intelligence unit
AUSTRAC,
Australia’s financial intelligence unit has been actively contributing to
building capacity in law enforcement, revenue intelligence and national
security agencies and their international counterparts.
AUSTRAC
conducts the following eight international programs to provide technical
assistance to and build the capabilities of various stakeholders:
► PPATK–AUSTRAC
Partnership Program (with Indonesia)
► Jakarta
Centre for Law Enforcement Cooperation
► Combating
Corruption and Anti-Money Laundering Program (with the Philippines, Thailand,
Indonesia and Malaysia)
► Enhancing
Capacity to Regulate the Indonesian Alternative Remittance Sector Program
► Financial
Monitoring Unit of Pakistan Capacity Building Program
► Strengthening
AML/CTF Regulation in South Asia Program
► Pacific
Region FIU Capacity Building Program
► Strengthening
the Rule of Law in Africa Program
AUSTRAC has
also developed e-learning courses to provide training to regulated entities,
industry associations and the public on the topics of anti-money laundering
measures and countering financing of terrorism.
7.4.6.
Overall assessment of capacity-building
Looking at initiatives taken to build the
capabilities of financial institutions, intelligence and enforcement agencies,
it is evident that concerted efforts have been made to upgrade the capabilities
of personnel to detect money laundering and counter financing of terrorism.
However, many more training and awareness sessions need to be conducted for the
employees of financial institutions. There should be greater emphasis laid on
building the capabilities of intelligence and enforcement agencies, including
the Anti –Terrorist Squad, the Department of Revenue intelligence and National
Intelligence Agencies, at the Central and state levels through training
programs and online courses.
8. The road
ahead
The menace
of counterfeiting, piracy and smuggling has assumed enormous proportions across
the world, and is not only hurting industry and governments in terms of
economic loss, but these are also a major source of funding for terrorist
outfits and organized crime. Counterfeiters and smugglers are taking advantage
of gaps in legislation, governance and information capabilities in various
jurisdictions as an arbitrage opportunity. It is therefore essential that all
the countries should join hands and collaborate on creating a legal and
regulatory framework, which is supported by effective enforcement mechanisms to
prevent this menace.
The FICCI
CASCADE Report 2013 provides a future roadmap for strengthening the
anti-counterfeiting and anti-piracy framework in India, through proactive
actions by the Government and the Industry. Some of the key steps required in
India to stop counterfeiting, piracy and smuggling in India include:
Revision of legislation on
counterfeiting, piracy and smuggling to classify these beyond economic crimes
Establishment of an
inter-agency coordination mechanism to ensure that efforts made and
intelligence can be coordinated to proactively prevent counterfeiting, piracy
and smuggling
Establishment of a single
entity that is responsible for preventing the proceeds of counterfeiting,
piracy and smuggling from being channelled to finance terrorism
Strengthening of technological
collaboration between industry and the Government on anti-counterfeiting and
anti-piracy measures
Implementation of strong capacity-building and training mechanism to increase
awareness of the perils of counterfeiting, piracy and smuggling among industry
players, consumers and enforcement agencies
With this objective in mind, we propose a
framework with four different levels of maturity — basic,
intermediate, good and advanced — in the areas of laws and regulations,
governance, technology and capacity-building. The framework can be used to
evaluate the current level of maturity in the current setup for countering the
menace of counterfeiting, piracy and smuggling, and preventing financing of
terrorism through the proceeds of these. Based on this evaluation, the
Government can identify the steps required and set short-term, medium-term and
long-term goals identify to achieve this.
2. Documenting the consequences of counterfeiting, piracy and
smuggling in India
The economic and consumer
consequences of counterfeiting, piracy & smuggling are numerous and
significant. They are felt not just by brand owners and business, but by the
government, consumers and society at large. While the economic impacts are
difficult to quantify, a recent market study by FICCI looked at seven industry
sectors most impacted by counterfeiting, piracy & smuggling, and found
almost Rs 73,000 Crores in lost sales in 2012 across just these seven sectors.
The FICCI study showed that nearly 30% of the automobile components market in
India is counterfeit.
In addition to the
seven sectors studied in depth in the FICCI report, the paper also examined
pharmaceuticals and entertainment industries. In each case, it is clear that
counterfeiting , piracy & smuggling cause losses to original rights holders
in terms of reduced sales, lower profits, brand value, reputation impairment,
consumer distrust and many more.
Auto
components
The Indian automotive
industry is an integral part of the economy and has witnessed unprecedented
growth in recent years. This growth is owed to the increasing wealth of the
average customer in India, overall gross domestic product (GDP) growth, the
arrival of ultra-low cost cars, and the increasing maturity of Indian original equipment
manufacturers (OEMs). While the original manufacturer segment remains safe from
counterfeiters, the automotive aftermarket is often the target of illicit
activity. This market segment entails the manufacture, distribution and
retailing of components, parts and accessories that are used in the repair and
modification of motor vehicles.22 Duplicates are often used in the after-sale
market because of their low costs and visual similarity. In cases where manufacturers
outsource production of components, certain production overruns of legitimate
parts find
their way to the grey
market, being sold alongside counterfeit, recycled, or stolen goods. The mixed
sale of unauthorized “legitimate” goods and counterfeits makes it difficult to
control the market and differentiate legal from illegal items.The use of
counterfeit automotive parts has a severe human cost. Counterfeit items
adversely impact the functioning of vehicle safety devices; indeed, around 20%
of total road accidents in India is estimated to be directly or indirectly
attributed to the use of counterfeit automotive parts.25 In 2009, the use of
fake parts caused 25,400 deaths and more than 93,000 injuries. Moreover, there
are economic costs to consumers: studies show that the use of counterfeit parts
costs domestic end-users an additional 109 million litres of petrol and 8
million litres of diesel every year.
Alcohol
The alcohol industry
in India faces a double challenge: production of alcohol under non-standard
conditions with harmful health effects, and the smuggling of cheaper products
that are not subject to import/excise duties. According to a report on the
current patterns and trends of alcohol use, consumption of illicit alcohol from
2003 to 2005 caused more than 328 deaths in India.27
Local alcohol produced
illegally accounts for 50% of consumption in India. Consumers are susceptible
to buying counterfeit & smuggled alcohol products because this substandard
alcohol convincingly resembles mainstream brands, or in some cases are more
concerned with social status or public image than the authenticity of the
available product.
Computer
hardware
In India,
accessibility to computing resources is increasingly essential to the business
and individuals. Concurrently, due to problems of affordability and low
awareness of the risks of using counterfeit products, demand for and
availability of low-cost fake computer parts is increasing. The Alliance for
Grey Market and Counterfeit Abatement (AGMA) has found that about 10% of IT
products in the market are counterfeit.30 Globally, the annual size of this
market is estimated to be USD 100 billion, including
the rebranding and
refurbishing end of life products as originals. In India, desktop computers,
laptops and their components are all prone to grey market operations.
Fast moving
consumer goods (personal goods and packaged foods)
Fast moving consumer
goods (FMCG) refer to essential and non-essential items purchased by the
consumer at frequent intervals such as soap, detergents, cosmetics, and other
toiletries which have swift turnover and relatively low cost.31 The FMCG sector
is the fourth largest sector in the Indian economy and has consistently shown
high growth rates in the last ten years. In India, the FMCG marketplace also is
characterized as fragmented and unorganized, with significant levels of
unbranded and unpackaged products.32 Counterfeiters of FMCG take advantage of
this unorganized market and use advanced packaging technology
in order to imitate
the original products and replace them with inferior substitutes; alternatively,
the culprits sometimes pass off brands with similar-sounding names as
originals. Based on a study conducted by AC Nielsen, 30% of FMCG business is
lost to fake products, and 80% of the consumers who purchased these products
believed that they had bought originals.Part of the FMCG industry that is
vulnerable to counterfeiting is the packaged food sector. Counterfeiting in
this area is particularly dangerous because consumption of non-standard or low
quality edible food items may cause serious health ailments or be
life-threatening. Moreover, counterfeiting is prevalent in this sector because
it is relatively easy to do and requires small investments on the part of the
counterfeiters.
Mobile phones
Mobile phone sales
contribute sizeably to the Indian economy, benefitting from a total of 68
million mobile GSM users as of June 2012, according to the Cellular Operations
Association of India.34 In India, counterfeiting of mobile phones occurs often;
and while many consumers are unaware that they are buying fakes, there is also a
large base of customers who knowingly buy low-priced, counterfeit mobile
phones. The spread of counterfeit mobile phones does not only mean reduced
technical quality but also occasionally poses dangers to health and personal
safety. There have been cases of phone explosions due to the short circuiting
or overheating of counterfeit batteries, and fake phones are reported to emit
higher levels of radiation.
Since December 2009,
the Government of India has implemented a policy wherein all cellular operators
are to block mobile phones with fake or invalid International Mobile Equipment
Identity (IMEI) numbers from their networks, preventing people with unbranded
mobile phones from using these on any of the GSM networks in India. Nonetheless,
according to the recent FICCI study, some 21% of mobile phone sales in India
are unauthorized or counterfeit
Tobacco
India is the second
largest consumer of tobacco products and the third largest producer of tobacco
in the world. Taxes constitute the major component of the final retail price of
tobacco products which makes the industry a profitable enterprise for smugglers
and counterfeiters. Based on data collected by the Tobacco Institute of India
(TII), illegitimate trade in tobacco is at 16%.
Cigarettes, which
constitute 15% of the tobacco market in the country, are the target of
smugglers and counterfeiters because of the ease in tax evasion. Large
quantities of illegitimately traded cigarettes can be easily disposed of in a
relatively short period of time with very minimal traces. Smuggling and a Abuse
of trademarks can be the most common form of intellectual property
infringement in the
tobacco sector. Smuggled and Counterfeit tobacco products has far-reaching
economic effects including the loss of tax revenue to government, undermining
public health strategies, posing unfair competition to original manufacturers
and threatening public safety in the case that illegal profits support
organized crime networks.
Movie piracy
India’s Bollywood film
industry, the largest producer of films in the world, is severely threatened by
physical and online piracy. According to a 2008 report by the US India Business
Council and Ernst & Young, the Indian film industry lost US $959 million in
revenue and around 570,000 jobs due to piracy. Another report by the US-India
Business Council and the US Chamber of Commerce’s Global Intellectual Property
Centre reveals that losses to the industry from trade in illegal CDs, DVDs,
music downloads and cable television account for 38% of potential sales or
approximately US $4 billion. Furthermore, the annual International Data
Corporation (IDC) and Business Software Alliance global software piracy study
puts the rate of pirated software at 64%, representing a gross annual loss to
the software industry of US $27 billion.39
According to studies
commissioned by the Motion Picture Distributors’ Association (MPDA), the local
office of the Hollywood Motion Picture Association (MPA), India is the fourth
largest downloader of films after the US, the UK and Canada. In a report by
internet company Envisional, it was found that online piracy of film and
television content in India is carried out primarily through file-sharing
networks like BitTorrent and cyberlockers, or web-based file hosts such as
RapidShare or HotFile; video streaming websites were less popular.40 Illegal
camcording on the day of film release in multiplexes/theatres further adds to
the existing problem. Industry is now eagerly looking forward to effective
amendments in the existing Cinematograph bill that could potentially
address this issue.
Producers have taken
steps to prevent piracy including officially releasing movies online within
days of their DVD release, reducing the gap between the official release of the
films in cinemas and their subsequent release on legitimate DVDs, upgrading
conventional theatres with digital screens, and introducing Movie on Demand
channels which offers consumers an option to view movie at home at much lesser
cost. All these strategies are intended to reduce the opportunity for criminals
to flood the market with pirated products, and reduce the consumer incentive to
indulge in piracy. Numerous raids are being conducted, particularly targeting
the sources of the pirated films and not just the small retail stores where
fake DVDs are typically sold.
Producers are also
trying to raise awareness of the ill effects of piracy among their consumers in
the hope that if people realize the connection between pirated films and
organized crime, they will stop purchasing fake DVDs or downloading films
illegally.
Pharmaceuticals
India’s pharmaceutical industry is fourth in the world in terms
of production volume, and over 66% of its products are exported to highly
regulated markets. Exports are heavily regulated by the importing countries and
there is likewise a requirement for continuous monitoring of quality-related
aspects within India, including complaints of sub-standard or counterfeit
drugs.41 According to some studies, fake drugs make up 20% of the
pharmaceutical market in India. These products are no longer limited to
lifestyle drugs (i.e. Viagra), but now also include vital medication like cough
syrups, painkillers, and even vitamin supplements
Most cases of fake and
spurious drugs in the local market were found in Bihar, West Bengal, Uttar
Pradesh and Gujarat.42 The health ministry estimates that 5% of drugs in India
are counterfeit, while 0.3% are spurious. Further, distribution and sale of
counterfeit medicines often happen beyond jurisdictional borders, creating
greater obstacles to successful anti-counterfeiting enforcement. And though
guidelines have been produced by international bodies such as the WHO to help
mitigate the flow of illicit medicines, most developing countries in Asia do not
have adequate infrastructure or financial resources to implement
them. Therefore,
combating fake medicines requires increased collaboration at national,
regional, and international levels.
Impact of
counterfeiting, piracy and smuggling on government and other sectors
Counterfeiting, piracy
& smuggling cause losses to original right holders in terms of reduced
sales, lower profits, brand value, reputation impairment, and consumer
distrust. Furthermore, in an interlocked economy, losses to industry and consumers
have a spill-over effect on the government. The government faces severe
problems such as reduced tax collections, increased expenditure on public
welfare, insurance and health services cost, and loss of jobs as legitimate
companies lose business.
The loss of revenue to
the government also has a direct impact on welfare spending such as health
care, education, and public transport. Police and other enforcement
infrastructure are also hit by this resource crunch which exacerbates the
problem of grey market operations.
Counterfeiting, piracy
& smuggling damage legitimate businesses and they suffer reduced sales and
profits, loss of consumer trust in their products, and ultimately, fewer jobs.
Government also incurs additional costs for implementing anti-counterfeiting,
anti-smuggling measures and crime prevention, detection, regulation and
deterrence measures. Police raids, custom seizures, execution of mass public
awareness campaigns and other measures put a strain on limited government
resources. However, these
efforts to strengthen
IP enforcement regimes must be viewed as investments that pay tangible
dividends to economic development and society.Another victim of the rise in
counterfeiting is the environment. Counterfeiters rarely follow safety
standards or
guidelines for drawing
natural resources, quality of materials used or in disposing waste. There are
few global facilities for safe containment or destruction of seized goods or a
mechanism to hold the counterfeiter liable for costs of destruction.
3. A Roadmap for Moving
Forward
India has made
important efforts to improve its IP legal framework and enforcement system and
has taken several initiatives to modernize its IP administration. Some major
achievements include an increase in the level of computerization, providing
Internet connectivity among the various offices, creating an online facility
for filing and processing patent and trademark applications, and computerizing
intellectual property records to create databases.47
From a trademark
perspective, India recently acceded to the International Registration of
Trademarks, known as Madrid Protocol.48 And, the recent development of a
National IP Strategy Plan is a step toward acknowledgement of the importance of
enforcement.
It includes
provisions:
(1) stating that “strengthening of IP
protection regime will involve improvement in the institutions that grant IPRs
and in those that are responsible for its enforcement...”
(2) plans to increase the efficiency of the
Controller General of Patents Design and Trademarks; and
(3) a proposal to create a National
Intellectual Property Enforcement Taskforce.
However, the National
IP Strategy Plan spends little time on anti-counterfeiting mechanisms or
practical suggestions to
address the need for
greater enforcement.
Further, the Ministry
of Human Resource and Development recently issues an official notification
designating FICCI to Chair the Subcommittee under the Copyright Enforcement
Advisory Council (CEAC)) responsible for coordinating relevant stakeholders to
address the menace of piracy. This is a significant step in establishing a
centralized coordinating organization.
Despite the efforts to
create a strong legal framework, adequate enforcement of existing IP law
remains a serious challenge. Moreover, there has been little effect in terms of
practical actions. Further, organized government follow-up and focus on
enforcement has been minimal.
The following section
provides a practical assessment of the barriers to effective anti-counterfeit
and anti-piracy enforcement in India, and recommendations for removing these
barriers. These recommendations are based on a review of the current situation
in Indian and public documents and reports from and to the Indian government,
and best practices in place in other countries to deal with counterfeiting,
piracy and enforcement. They are also based on a recent study conducted by
BASCAP with rights holders in India. While many issues were raised in those
interviews, these recommendations represent the consolidated concerns of that
group. As noted earlier in this report, the recommendations are overwhelmingly
focused on the expressed need for improved
enforcement of existing IP laws in India.
Barriers and
recommendations
National
policy and infrastructure issues
1. Lack of
central coordination. As noted previously, the National IP Strategy does
not adequately address counterfeiting and piracy, and pays little attention to
enforcement of existing IP laws and regulations. This further exacerbates the
lack of any central coordination of India’s strategies and actions to stop the
growth of counterfeiting and piracy.
We strongly urge the
government to add language to the National IP Strategy Plan to strengthen the
recognition of the serious impacts of counterfeiting and piracy, and the need
for stronger enforcement to stop the trade in fake goods. Specifically, we
recommend an approach that
(1) provides more
improvements in critical intellectual property infrastructure including the
police and courts;
(2) bolsters
mechanisms for dealing with supply of counterfeit product both from imports, as
well as domestic production of counterfeits; and
(3) enhances legal mechanisms for enforcement
We urge the government to move forward with the establishment of a National
Intellectual Property Enforcement Task Force with the responsibilities outlined
in the National IP Strategy Plan. Among its
responsibilities, the
Task Force should:
• maintain database on
criminal enforcement measures instituted for trademark infringement and
copyright piracy. Besides this information on civil cases filed should also be
collated.
• be mandated to
deliberate upon operational issues of enforcement with the concerned Central
and State agencies
• to conduct periodic
industry wise infringement surveys
• coordinate capacity building programmes for the Central and
State enforcing agencies.”
2. Lack of prioritization by police authorities of commercial
crimes.
There are many importantchallenges on law enforcement’s time and
resources. Burdened with high crime levels and little financial resource with
which to manage existing challenges, police understandably focus limited
resources on serious violent crimes. Counterfeiting crimes are generally
perceived as causing little harm to the public as opposed to body crimes and a
“business problem,” so they receive lower or no priority. In these
circumstances, even when rights holders provide evidence and good information
to police officials, police may not have the resource to follow through.
3. Quality of
enforcement varies greatly from region to region. The
efficacy of good, strong laws varies greatly with location. It would be useful
to see a national level effort to create consistency in enforcement across the
country. In particular, leading that effort with the nation’s capital of Delhi
and the National Capital Region (NCR) would be invaluable.
4.
Underfunded resources for existing specialized IPR units within state police
forces and a lack
of dedicated
IPR enforcement units at the national level. While the system of
state nodal officers and specialized IP cells within state police to tackle
piracy have been important in the IPR enforcement effort, many of these lack
the resources to effectively combat the problem. The absence of a single nodal
agency or initiative at the national level to organize and prioritize these
resources would be invaluable.
5. Effective
IPR police enforcement units should be undertaking operations independently of
industry. The police “should be encouraged to take more suo
moto raids to deter physical piracy.”In order to better address
counterfeit issues, police should be self-initiating investigations of
trademark violations and conducting trademark actions independently instead of
waiting for rights holders to prepare and request for all actions.
6. The High
Court system is overburdened. The backlog of existing and new cases results in
lengthy delays between the time a case enters the court system and the time it
reaches a sentence. According to our survey of rights holders, it takes 2-3
years to issue a summons and 6-8 years to conclude a case. Other sources offer
that tribunal level cases may be pending for 7-10 years without resolution.
7. Reluctance
to apply strong penalties and deterrent-level sentencing. The
Trademark Act (1999) provides companies both civil and criminal remedies to
infringement, though a number of factors play into which avenue makes the most
sense in each case.52 Regardless of which remedy pursued, sources indicate that
while seeing some progress on levels of injunction, the courts need to
implement stronger penalties.
Recommendations:
In the short term
• Give political
priority to IPR crimes through a national declaration of their importance at
the highest levels of government.
• Provide additional
funding to existing IP cells at the state level.
• Expand the number
of individual dedicated IPR cells in police jurisdictions around the country.
• Work with provinces
to help prioritize enforcement related concerns among enforcement
infrastructure in individual jurisdictions.
• Increase existing
funding, bonus, and pay rewards systems to include an incentive rewarding
police officers for focus on economic crimes.
In the long term
• Ensure the joint
agency proposed in the National IPR plan includes a clear federallevel single
window system or agency for IPR that will be responsible for helping to address
resource mobilization, as well as coordination with state police forces and
IPR cells within
municipalities.
• Establish a
national and regularized system of education for police officials on the negative
impact of IPR crimes. Focus education resources on key municipalities such as
Delhi and NCR.
• Increase the number
of independent investigations by police and suo-moto raids.
• Ensure ease of
access to Registrar of Trademarks data (this may happen in the proposed
automation process of the Draft Strategy), as well as updated records.
• Establish
specialized IPR courts in every state in India and increase resources to enhance
IPR expertise of judicial benches and prosecutors to deal with these cases more
expeditiously.
• Consider
establishment of mediation centers or alternative dispute resolution to at least
deal with the backlog of trademark cases.
• Enhance automation
of IPR related judicial processes.
• Adopt statutory
damages in civil cases.
• Develop a national
level database to track IP criminal cases
Stopping the supply of counterfeit
products
In order to stop the
flow of counterfeits, it is important to look at all aspects of the supply
chain where counterfeit goods, from components and ingredients to fully
finished products, are introduced. A complete strategy for addressing
enforcement will necessarily look at raw material sourcing, production and
manufacturing and distribution channels in India, and consider imports,
domestic production and use and exports of counterfeits. Some of the issues to
be addressed in protecting the supply chain for legitimate products and cutting
off the supply of fakes include:
1. Resource
constraints limit the number of seizures to be conducted. Customs
officials already are well trained to identify counterfeit goods.
Unfortunately, India’s extensive land border presents a practical challenge to
managing all forms of cross-border trade, not just trade in counterfeit goods. Customs
officials indicate that budget challenges limit their ability to organize and
execute raids. Document forgery, non-mention of brand name and
misrepresentation or description of goods constitute major issues as these also
lower detection rates.
2. The
indemnity bond for Customs actions is bureaucratic and ineffective. Under the
2007 IPR (Imported Goods) Enforcement Rules, the brand owner can give notice to
Customs requesting suspension of clearance of goods suspected to be infringing
by putting up an indemnity bond to indemnify customs against all liability and
expenses.54 The rule requires owners to first file a bank guarantee within 3
days of each notification. This is an impractical procedure given that the
designated
party may not be
available to execute the process on a three day time table. Further, in
February 2011 Customs requested on open bank guarantee. This represents a
significant long term risk to trademark owners in that cases can go on for
years and block cash limits with bankers. Industry has suggested that a
practical solution to this problem might be a standing guarantee with finite
dates.
3. Seized
trademark goods sometimes find their way back into the supply chain. According
to Section 111 (d) of the Customs Act, “Confiscated goods will be either
destroyed or disposed of outside the normal channel of commerce with the
consent of the brand owner. The brand owner is also required to bear the costs
towards destruction, demurrage and detention charges incurred till the time of
destruction or disposal as the case may be.”55 Brand owners may provide this
service, but delay and manner of destruction of detained goods harms right
holders in terms of costs and stress on compliance.
4. Authorized
packaging materials find their way into counterfeit distribution channels. In certain counterfeit
areas, such as cosmetics, India maintains a thriving indigenous manufacturing
base. The challenge is complicated further by unsavory packaging facilities
that sell off genuine packaging materials to the counterfeiters who package
their fake goods in genuine packaging. Historically for example, fake cosmetics
were identified from the packaging material errors. But when the packaging
materials are genuine,
it becomes increasingly difficult to identify the fakes on packaging material
alone. Such cases have to be referred to labs for final verifications.
5. Organized
operations reuse rubbished materials Recycling laws may
exacerbate the challenges. Some companies identify very sophisticated
approaches to repackaging, whereby organized entities are paying rubbish
pickers for brand name packaging which are then refilled and shrink wrapped.
Well intentioned Indian laws around recycling may exacerbate and facilitate
this problem if counterfeiting issues are not considered in the recycling
discussion.
6. Lack of
well-known mark protection against trade names. While India’s
Trademark Act protects well-known marks against use as a trademark by another entity,
it does not prohibit use of a well-known mark as a trade name – such as BASCAP
Land Developers or BASCAP Telecom. A recent court decision interpreted the
relevant section of the Act [Section 29(5)] to mean that well-known trademark
is not infringed or diluted by use of a trade name in connection with goods
different from those covered by the well-known mark, suggesting infringement
occurs only when the goods are similar.56 While this decision is currently
under appeal, a recent filing suggests that this ruling ignores marketplace
realities of dilution. Rather than leaving it to court discretion, the statute
should hold liable any entity using a well-known mark, regardless of whether
the mark is used as a trademark or trade name, in order to protect the mark
owner’s enforcement rights
7.Laws
providing for the destruction of equipment or for penalties used in various
situations to infringe copyright should all be strengthened. This includes
relevant sections of the Trademark Act, the Law on Control of Printing Presses
and the Press & Registration News Act. The Copyright Act of
India takes great measures to allow for destruction of equipment. “Under
Section 66 of the Copyright Act, 1957, the court trying an offence may, whether
the alleged offender is convicted or not,
order that all copies
of the work or all plates in the possession of the alleged offender, which
appear to it to be infringing copies, or plates for the purpose of making
infringing copies, be delivered up to the owner of the copyright. Here “plate” includes
any stereotype or other plate, stone, block, mould, matrix, transfer, negative,
duplicating equipment or other device used or intended to be used for printing
or reproducing copies of any work, and any matrix or other appliance by which
sound recording for the acoustic presentation of the work are or are intended
to be made.”
Other laws provide for
similar destruction of equipment. For example, under Section 111 of the Trade
Marks Act, 1999, the court is empowered to direct forfeiture of goods with
which an offence has been committed to the Government. The Court could direct
such forfeited goods either be destroyed or otherwise be disposed of. This may
include equipments like dies, blocks, machine, plate
or other instrument
through which counterfeit, i. e., falsification of goods is carried out.
Similarly, the Law on Control of printing press could be enhanced so that
production of fake wrappers be declared a cognizable offence. Similarly, we
recommend the Press & Registration News Paper Act be strengthened Law to
give Police the powers to search and seize objectionable wrappers if there is
no proper documentation with Press.
Given the important
role manufacturing and equipment distribution could play in counterfeiting and given
the importance of removing the means of counterfeiting from the counterfeiters,
it would be useful to give further consideration to whether strengthening these
provisions could assist in anti-piracy efforts.
8. Continue
Madrid Protocol Implementation. Under Section 115(4)
of the Trademark Act, infringement of trademarks is a cognizable offence, and a
police officer not below the rank of DSP may search or seize without warrant,
after seeking the opinion of the Registrar of Trademarks on the facts. At
present, police refer this matter to the Trademark Register before taking
action. So, in reality, the action is only partly cognizable. We believe
further guidance is required in the form of regulations to encourage full
cognizability.
However, it should be noted that there is some disagreement among rightholders
as to whether or not the cognizability of the offense was a significant hurdle.
One mechanism for doing so may be through implementing regulations arising
around the Madrid Protocol.
Recommendations:
• Prioritize
trademark investigations and seizures amongst customs other border enforcement
functions.
• Allocate resources
to continue the high level of training of Indian customs officials on IPR
border enforcement, including ways to appropriately identify, seize, and
dispose of counterfeit products.
• Allocate budget
resources to Customs officials and facilities to conduct raids.
• Modify the customs
registration process to accept a standing bank guarantee as opposed to an open
guarantee.
• Link prioritization
of resources to key border states for counterfeit & smuggled goods such as
Uttar Pradesh, West Bengal, Bihar, and Maharashtra.
• Provide funding for
joint training efforts between Indian customs and key bordering countries
customs officials where appropriate. Similarly, considering joint actions key bordering
countries.
• Customs to focus
resources on additional review of parallel imports as a source of counterfeit
imports.
With respect to
domestic production of counterfeit goods
• Provide for
cancellation of trade license given to retailers by local administration if they
are found guilty of selling fake products
• Empower government
tax inspectors, including external and internal auditors, to check and account
for genuine product licenses inside organizations, whether public or private.
• Prioritize
counterfeit goods in health and safety inspections under such laws as the Drugs
and Cosmetics Act, and the Prevention of Food Adulteration Act.
• Amend India’s
Trademark Act to strengthen protection of well-known mark for both trademarks
and trade names.
• Considering
strengthening existing provisions that allow for the destruction of equipment
used in production of infringing counterfeit material.
• Continue Madrid Protocol implementation.
No comments:
Post a Comment