Not only has the Covid-19 pandemic exposed deficiencies in social and health systems, disrupted supply chains and killed at least 38,000 people in Southeast Asia, it has also shed light on the growing problem of illicit trafficking in the region.
Smuggling, counterfeiting and related illegal activities steal $ 2.2 trillion from the global economy annually, with counterfeit trade accounting for $ 461 billion. In Asean, the market for counterfeit goods was $ 35.9 billion in 2018, according to a paper released by the EU-Asean Business Council (EU-ABC).
"It is estimated that Asean's counterfeit market accounts for nearly 10% of the international trade in these goods," said Chris Humphrey, executive director of EU-ABC. "There is no doubt that this illicit industry will grow if not controlled at a time when we are facing an unprecedented health and economic crisis.
"Counterfeiters and smugglers are known to exploit systemic weaknesses, and Asean leaders need to recognize the urgency to coordinate and work together to tackle this cross-border problem."
A report published by the Organization for Economic Co-operation and Development (OECD) entitled "Illegal Trade in Times of Crisis" provides information on the effects of the Covid crisis on the illegal trade landscape, with possible long-term effects.
In the short term, unsatisfied demand for pharmaceuticals and personal protective equipment resulted in counterfeit and substandard pharmaceuticals, counterfeit face masks, and test kits entering the legitimate supply chain, endangering public health and safety.
When the World Health Organization (WHO) declared the coronavirus a pandemic, Operation Pangea, Interpol's global pharmaceutical crime division, made 121 arrests in 90 countries in one week in March 2020. The "week of action" resulted in the closure of more than 2,500 web links, including websites, social media pages, online marketplaces and online advertisements for illicit drugs totaling $ 14 million.
Workforce shortages, lockdowns and shifts in priorities in government agencies, particularly in the customs and law enforcement sectors, and global transport restrictions also affect trade patterns. This will drive illicit trafficking into areas like free trade zones (FTZ), the report warned.
Criminal networks are also targeting online channels as more and more people stay at home. E-commerce has become the main platform for counterfeit products, including Covid-19-related drugs, face masks, and other goods.
"The illegal trade in pharmaceutical ingredients, drugs and diagnostics poses a threat to the life and well-being of patients and must be prevented. Criminals can benefit from the Covid crisis," commented Dr. Patrick Kos, Head of Legal and Compliance at Roche Pharma Asia Pacific.
He called for the fight against counterfeiting and supply chains, stricter laws and enforcement measures, as well as public education and training for local officials.
The effects of Covid such as unemployment and reduced purchasing power will be felt in the medium and long term. Combined with booming e-commerce channels and ineffectively enforced customs procedures, they offer criminals the perfect opportunity to take advantage of the disrupted supply chain.
The socio-economic impact poses a threefold threat: crowding out legitimate economic activities, depriving governments of revenue from investing in public services, and hampering progress towards achieving the United Nations Sustainable Development Goals (SDGs), the report said.
HOTBED BY FAKES
Asean has long been a major global counterfeit hub thanks to its proximity to China, the largest manufacturer and consumer of counterfeit and legitimate products.
Rapid urbanization and growing prosperity in Southeast Asia have increased illicit trafficking, affecting biodiversity and wildlife and human lives, and causing financial losses to governments and legitimate businesses.
Although almost all industries are affected, the region is a hotbed of the illicit trade in tobacco, alcohol, toys and games, auto parts, and pharmaceuticals. Copyright piracy in relation to movies, music and other media is also a persistent problem.
Counterfeiters pose both monetary and reputational threats to well-known brands, said Robin Smith, vice president and general counsel of Lego Group in Asia Pacific and China.
Asean's young demographic and growing household incomes have resulted in increased demand for toys and games in the area. The sector saw average annual sales growth of 10% in the region.
This increased demand coupled with the expansion of e-commerce channels has resulted in more counterfeit toys in the market. Poor quality imitations are often sold without necessary safety testing and labeling and can be harmful to children.
According to Smith, while the pandemic has increased the demand for toys and games as families spend more time at home, it has also increased the risks.
"Our research shows that children want more playtime for the family and that parents see play as an important part of the entertainment of the whole family during the Covid-19 pandemic," he said.
"Unfortunately, this increased demand has also resulted in inferior toys being traded illegally, which can pose risks to a child's health and development due to the poor quality and safety standards of the goods sold."
Although the Asean states, apart from Indonesia, have signed the WHO Convention on Tobacco Control, they are not parties to the protocol on international cooperation and the exchange of information between organizations and customs offices.
The illicit tobacco trade results in significant tax revenue losses in a region where over 20% of the adult population are smokers.
During the enforcement of the Movement Control Ordinance in Malaysia, the country lost approximately 1 billion ringgits to unpaid taxes.
Illegal alcohol is another nuisance as unlicensed distillers package products to look like established brands or fill fake liquids in original bottles. Such operations damage the brand's reputation and create tax shortages and also cost lives.
A WHO report predicts that by 2025, Asean will be the region with the highest consumption of unregistered alcohol at 4.5 to 6.2 liters per capita per year.
A ban on the sale and distribution of alcohol during the pandemic has exacerbated this problem by incentivizing illegal suppliers to enter the market to meet the new demand.
Counterfeit products are also a major concern of the automotive industry, a major economic factor in Asean, especially in Thailand. Counterfeit brake pads and air bags, which are vital to the safety of the vehicle, are abundant and difficult to tell apart by simply looking at their external appearance.
Southeast Asia is also being used for cheaper, outsourced manufacturing of pharmaceutical products from China and India, resulting in an increasing amount of substandard pharmaceuticals.
The global trade in counterfeit drugs is worth $ 4.5 billion. Counterfeit medicines are often improperly formulated and can contain harmful substances that pose a significant threat to people's lives.
According to the OECD, antibiotics are the most common class of counterfeit drugs, accounting for 35.4% of the value of all seized counterfeit drugs, followed by impotence pills for men (15.6%), pain relievers (10.4%) and malaria pills (8.9) %)%).
The UN Bureau on Drugs and Crime (UNODC) also estimates that 47% of the antimalarial drugs tested in Asean are counterfeit.
The illegal trade in pesticides is another growing problem. Illegal pesticides often contain banned or restricted chemicals and are often falsely declared to avoid international labeling requirements that ensure transportation safety. Their use seriously endangers the environment and sustainable agriculture and human lives.
The world has also seen a surge in illegal digital media, especially streaming entertainment content online, as people stuck at home spend more time in front of screens. Studies have estimated that over the past year movie piracy increased by 41% in the US, 43% in the UK and 63% in India.
As more and more business is done online, the presence of fraud and counterfeit goods also increases. This has ramifications for Asean, where the rapidly growing e-commerce market is expected to be worth $ 300 billion by 2025, according to a study by Google and Temasek.
Online fraud and trafficking are already costing the region an estimated $ 260 million a year. The worst hit countries are Indonesia, Vietnam, the Philippines and Thailand as they have a sizeable user base and little knowledge of fraud.
Unauthorized sellers, counterfeit goods, fraudulent domain name registrars, and false advertising are common illegal trading activities in e-commerce channels.
Ecommerce platform operators are often outside the jurisdiction of law enforcement, making them difficult to take action against. There is also no one-size-fits-all approach for all platforms to address the problem in the region.
Illegal traders are taking advantage of regional "systemic weaknesses" that governments must work together to address, says Chris Humphrey, executive director of the EU-Asean Business Council. SCOPE OF DELIVERY
USE LOOPHOLES
Free trade zones in Asean, now around 1,000, have been set up to facilitate the movement of goods. But loose oversight and regulations and limited taxes designed to help legitimate businesses also help crooks.
International criminal networks use reduced regulations to compile forgeries in different countries, forge documents to hide the content of shipments and the identity of manufacturers. Undervalued imported goods issued with false invoices and counterfeit retail licenses are distributed through approved supply chains.
Online advertising and e-commerce, along with a surge in small parcel delivery services and FTZs, have helped build a perfect, lower risk ecosystem and increase the profitability of counterfeit goods.
Permeable borders and discrepancies in excise tax policies make smuggling a widespread problem in the region. The most heavily smuggled goods are alcohol and tobacco, especially illegal "white" cigarettes – legally made cigarettes for which no taxes have been paid.
The underdeclaration of shipment values is also a major headache for governments, which rely on customs and excise taxes as a major source of income. However, tax collection is based on an ecosystem of transparent customs procedures, effective monitoring, reasonable and simple tax structures and a coherent long-term policy. Most Asean jurisdictions are inadequate in this regard.
As Asean navigates the new normal, it has the ability to apply lockdown lessons to create a resilient regulatory environment after the crisis.
Mr Humphrey urged Asean leaders "to recognize the urgency, coordinate and work together to tackle this cross-border problem".
The Transnational Alliance to Combat Illicit Trade (Tracit) shows five steps to solve the problem. These include strengthening law enforcement by improving government coordination, investing in funding and training officers to address new challenges and patterns, changing laws and setting new deterrent penalties, introducing a zero-tolerance regime, and passing laws against various forms illicit trade, e.g. illegal wildlife trade.
A strengthened customs environment could reduce trading costs by 0.5% to 1.1%. This can be achieved by empowering customs authorities, using extensive investigative techniques, digitizing key information and practices and imposing criminal sanctions.
The exchange of information and cross-border cooperation are also crucial to give authorities a comprehensive overview of the threat.
As online platforms become increasingly vulnerable to exploitation and abuse, from illicit digital trade to cybercrime and money laundering, a clean digital environment is also required.
This includes improving transparency in digital supply chains on online marketplaces and social media platforms as well as protection technologies such as web blocking, content filtering and risk assessment.
Both the OECD and the EU-ABC recommend "Know Your Business Customer" guidelines, which require more sophisticated registration and verification systems for domain names in order to hold registries and registrars accountable.
The e-commerce boom has also resulted in more illegal products being delivered through postal and courier services. For illegal traders, small packages offer a way to avoid detection and minimize risk.
Using technologies to improve targeting and forecasting capabilities, as well as analyzing data patterns by product category, industry and brand, can also help identify counterfeit goods.
"Asean’s investment in combating illicit trafficking will continue to be beneficial and important in creating a prosperous and safe Asean community for future generations," said Smith of Lego.
Public awareness of illegal trade is just as important. Everyone involved must be aware of the dangerous consequences for the economy, health, safety and the environment.
Creating online and offline campaigns, educating platform providers about how their infrastructure is being used, and integrating networks of non-governmental organizations and governments can all help raise public awareness.
A customs officer examines a consignment of smuggled erectile dysfunction drugs confiscated in Bangkok. Many men try to buy Kamagra made in India because they see it as a cheap alternative to Viagra, Cialis, or Levitra. Photo: Pawat Laupaisarntaksin