Countering Corruption in Intellectual Property Cases

CFEs Equipped to Deal with IPR Infringement in China

By Todd C. Lowe, CFE, CAMS;Benjamin Simar

JanFeb-countering-corruption-china-rightsRegaining rights to stolen intellectual property can be a perpetual nightmare for companies operating in china and other countries with similar governmental and law enforcement structures. The common raids-based approach to recovery can fail because of corruption and double-dealing. However, many companies are now using the more effective intelligence-based approach, which requires the skills of a CFE.

Mr. Xu, a consultant with an intellectual property (IP) protection firm in China, passed a crumpled sheet of paper across the desk to Mr. Smith, the security manger for a large, international cosmetics company manufacturing in China. The company was beginning to sell its products in the country for the first time. The words were in Chinese – a language Smith couldn’t read – on a barely legible carbon copy. However, Smith did notice the red stamp in the bottom right corner – the infamous “chop” without which nothing is considered official in China. The stamp had been placed on the paper by the local police bureau that had conducted a raid, with Xu’s help, on a factory that had been producing knock-off items infringing on IP belonging to Smith’s employer. Smith had employed Xu’s services to identify the counterfeiters and orchestrate the raid in conjunction with the local police.

“As you can see from this police seizure report,” Xu said, as he pointed to the crumpled paper, “we were able to capture more than 10,000 units of the counterfeit lipstick in that raid.”

“I suppose now that this counterfeit factory is out of business you have other prospects lined up that are producing the same product with our name on it?” Smith asked. Xu smiled and produced a list of nearly 20 company names and addresses. “Which one would you like us to hit next?” Xu asked. “We have a lot of work to do.”

Though this is a fictitious case, it shows a normal scenario for companies who use the common raid-based approach to IP protection in many developing parts of the world. However, it’s not a holistic, long-lasting solution for companies plagued with counterfeits in the market.


International companies with operations in the People’s Republic of China and other developing countries are in constant battles to protect their intellectual property rights (IPR). According to the

“U. S. Customs and Border Protection and U.S. Immigration and Customs Enforcement’s 2009 Annual Report on Counterfeit Goods Seized,” mainland China was the origin of 79 percent of all of the goods seized in the United States by the two agencies in the fiscal year 2009.

Hong Kong S.A.R., a special administrative region under China, ranked second on the list with 10 percent of the goods seized during the same time period coming from there.

India ranked third, accounting for 1 percent of the goods seized.

In total, greater China (including Hong Kong and Taiwan) was the origin of nearly 90 percent of the counterfeit goods seized in the United States with a value amounting to US$233,997,415.1 

Chinese IPR infringement, however, is not solely a Chinese export-related problem. According to the Massachusetts Institute of Technology Center for International Studies and an intellectual property rights report for the Asia Business Council, counterfeit items in circulation in China account for up to 8 percent of the country’s gross domestic product, and counterfeit items make up approximately 15 percent to 20 percent of all items made in China.





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