Special report: Faked in China: Inside the pirates' web
(Reuters) - Anybody could tell right away that the Louis Vuitton shoulder bag was fake because it was delivered in a recycled box that once shipped batteries. Warnings printed on the inside of the box read: "Danger Contains Sulfuric Acid" and "Poison - Causes Severe Burns" -- not the sort of messages that would normally accompany a product from one of the world's most iconic luxury brands.
But it sure looked real. It was dark brown, sported a braided strap with brass fittings and the Louis Vuitton monogram stamped all across the bag.
I had ordered the bag from a website called www.ericwhy.com for this special report, which explores the growing problem of counterfeit merchandise sold over the Internet. Reuters wanted to trace the problem from a consumer in Washington D.C. to the shadowy producers based in Guangzhou China, where my colleague Melanie Lee found the illicit workshops and markets.
Ericwhy, based in Guangzhou, calls its stuff "designer-inspired alternative to actual Louis Vuitton" in a disclaimer on its website. "We assume no civil or criminal liability for the actions of those who buy our products." Yet, U.S. law enforcement officials say this website and many others that offer a dazzling array of goods online -- clothes, electronics, footwear, watches, medicines -- are outlaws, and they plan to go after them hard.
Counterfeit commerce over the Internet has soared in the past couple of years, turning what had been an irritant to businesses into a serious competitive threat, the officials say. The Organization for Economic Cooperation and Development estimates the amount of counterfeit goods and pirated copyrights in world trade grew from about $100 billion in 2001 to about $250 billion in 2007, the last year for which they have made an estimate.
While there are no separate estimates for how much of that is sold on the Internet, authorities say it is considerable. "The Internet has just completely changed the face of the problem, made it more complicated and more pervasive," says John Morton, assistant secretary in charge of U.S. Immigration and Customs Enforcement (ICE). "Whole industries now have been attacked, not from the street, but from the Internet."
Visitors to www.ericwhy.com can choose from more than 1,800 imitation Louis Vuitton bags, ranging from a pink shoulder tote and a tiger-colored "Whisper bag" to a simple bright red clutch. The one I ordered cost $122 with a $40 shipping fee, so by my definition it was not exactly cheap. But comparable bags sold at a local Louis Vuitton retail store were $1,000 or more.
I entered my Washington D.C. address and credit card information, and instantly got an email from my credit card company warning of possible fraud on my account. Soon, I received a second email, this one a receipt with a Worldwide Express Mail Service (EMS) tracking number so I could follow my package. The bag left Guangzhou, China on September 14 and arrived on my desk by the 20th.
It was wrapped in a yellow sheath with the Louis Vuitton logo and smelled strongly of leather. But in another sign something was not quite right, the English instructions that came with it read: "Louis Vuitton has created for you prestigious glazed leather" -- the sentence ending abruptly without the word "bag." Luxury brands hire him to gather information on the location of warehouses and factories, who then use that evidence to persuade Chinese police to conduct a raid.
The workshops take real luxury handbags and reverse engineer them. Everything from the metal fittings to the monogrammed leather of a Louis Vuitton bag is produced in China. After it is put together at one of the workshops in Shiling, the bag usually winds up in nearby Baiyun, by the old airport in northern Guangzhou.
SPILLING OUT OF STORES
The Guangzhou Baiyun World Leather market is the epicenter of the world's counterfeit trade when it comes to wholesaling fake leather goods and apparel, experts say. Counterfeit Louis Vuitton, Gucci, Prada, and Hermes handbags literally spill out of shops that occupy commercial space the size of five football fields. Smaller stores provide auxiliary products, such as counterfeit paper bags, receipts and catalogues for wholesalers.
Gina, who declined to give her surname, is one such wholesaler from Colonia, Uruguay. Tugging a large, gray Louis Vuitton suitcase through the narrow paths of the leather market with her 66-year-old mother in tow, she is looking for a shop that can make Louis Vuitton satchels out of "pleather" (synthetic leather). "Don't worry, she can manage, we are very used to this," Gina said as her arthritic mother slowly shuffles forward, carrying bags laden with fake scarves and leather goods, before they stop at a bag shop.
"I don't need real leather, just pleather. No need to be 5-As, just double A enough," Gina told the shopkeeper in heavily accented English. She has traveled halfway around the world to Baiyun to make a personal connection in the world's largest market for counterfeit leather goods. "I used to buy online from China, but after one bad experience, I said never again!" She said she wound up taking delivery of 800 bags in red instead of the black she ordered.
Gina was looking for a factory that can make 500 satchels, which she planned to ship to Argentina before bringing them into Uruguay where she has a beachfront store. It's less suspicious to bring it over the border than have it come directly from China. Clutching sheets of paper with information about the bags she wants made, Gina, with her streaked blond hair, tanned skin and branded accessories, looked more like a Hollywood fashonista than somebody's idea of a pirate.
"I've been in this business for eight years now," she said. "It's a good business." Indeed, while criminal syndicates are getting increasingly involved in the counterfeit trade, both in the United States and China, authorities say, it is ordinary folks like Gina and the shopkeepers she deals with who are the face of the counterfeit business in China.
HALF-HEARTED ENFORCEMENT
Guangzhou authorities occasionally raid the Baiyun market, including the day Reuters journalists visited there. Shops, tipped to the impending raid, dutifully closed their doors, though customers only had to knock to be let in surreptitiously. "They are raiding now. I don't know when it will end. It's because of the Asian Games," said one shopkeeper. Guangzhou is hosting the games in November.
After a few minutes, the raid apparently ends with no arrests made. Shop owners slide off their stools, fling open their glass doors and stand outside beaming and beckoning at customers again. They don't cater to tourists, but sell in bulk to wholesalers such as Gina. Each shop claimed to have a factory backing it.
In the 2009 budget year, U.S. Customs agents and other officials made 14,481 seizures valued at $260.7 million dollars. When the final tally for 2010 budget year is in, the figures will be much higher, Halverson said, noting that in just one operation U.S. agents in Baltimore working with London police seized eight containers of counterfeit shoes and handbags.