He found out it was no simple project. Slot machines are equipped with sophisticated electronic coin comparators. These measure everything about any coin that gets deposited, to make sure it’s a legitimate token. The comparators confirm the outside and inside diameter of the coin, the center of the coin, the magnetic image the coin throws, the number of serrations on the outside of the coin, the weight, and so on. A coin has something known as a “closed collar,” the raised outside border of the coin. For a counterfeit coin to pass muster, it has to have a closed collar that is just the right height. Hence, a counterfeit coin has to be exact. There are a lot of difficult-to-duplicate features.
So this guy got to work, acquiring equipment, and then modifying it for his precise needs. He made coins, tested them at Foxwoods, found they wouldn’t work, made changes, tested the new coins, and on and on. It took him more than a year before he had a counterfeit token that beat the machine. At that point, he became addicted. He made tens of thousands of tokens. To keep from arousing suspicion, he began playing at casinos in Atlantic City and Las Vegas. Different casinos had different tokens, and he had to replicate theirs. But he had become an expert. When he was caught at Caesar’s in Atlantic City in late 1996, he had 750 pounds of coins in the trunk of his car, one of the biggest cases on record of gambling token counterfeiting.
To prevent further counterfeiting, token manufacturers have been offering security alloys, which are metals with very limited availability and unique properties. The latest protection is a code engraved in the token. Slot machines are programmed to read the code, and if it’s not there, the token is rejected.
STICKER SHOCK
Underwriters Labs (UL) has faced one of the more unusual counterfeiting problems. UL, a non-profit organization founded in 1894, doesn’t make any products, a fact which by itself, one would think, would make the company impervious to counterfeiting. What it does do is test and certify the safety of more than 14 billion electrical products a year, things like power supply cords, ceiling fans, night lights, transformers, switches, and surge suppressers. Its testing engineers simulate power surges. They bend wire to see if it breaks. They dunk products in water. If something survives a UL testing, it’s good. Once a product has been certified by the organization, it is allowed to display the UL provided tag. It’s often referred to as the “American Mark of Safety.”
Starting in the early 1990s, UL became aware of untested products bearing counterfeit UL tags that were coming into the United States, primarily from China. It first learned of the counterfeiting when it caught phony seals of approval on Christmas lights. Then they began showing up on other electrical goods. The products were not only inferior, but also dangerous. There were lights, fans, electric surge protectors, and other products that were improperly grounded or wired with incorrect polarity. There were dummy surge protectors that would overload if you turned on a computer, printer, and TV simultaneously. Plugs were so inferior that chunks of them would fall off when you pulled them out of a socket. Extension cords were liable to give a user a shock. Fans were at risk of catching fire. In one tragic case, a young girl was electrocuted by sucking on an incorrectly wired and falsely labeled Christmas candle.
Disturbed by the implications of this counterfeiting, UL in 1994 began using silver, tamper-evident holographic labels for all of its certified Christmas products, and has since required them on an array of electrical products coming out of China. In addition, it’s trained U.S. Customs inspectors to identify counterfeit labels and has put retailers on alert as well. One of the problems for U.S. Customs officials is that there is no legal requirement for electrical equipment to carry the UL labels, though if they do have the labels, it’s a crime for them to be counterfeit. The new label has been doing a good job in controlling the threat, though it hasn’t stopped altogether.
A DIFFERENT KIND OF DRUG PROBLEM
Remember that classic film The Third Man based on the haunting Graham Greene thriller? The movie is set in post-World War II Vienna, where Holly Martins, an American, goes in search of his old college buddy, Harry Lime. He discovers that Lime is dead, and hears disturbing stories of how he made a fortune trafficking in fraudulent drugs. One of his schemes was selling counterfeit penicillin. Martins has a hard time accepting some of the bad things he hears about him, until he visits a hospital and sees all the children whose health has been threatened by injections of Lime’s penicillin.
That’s fiction, but there’s plenty of fact in it. It takes at least a decade and upward of $150 to $200 million to bring a new pharmaceutical to market. Counterfeiters, with the assistance of a chemist, can copy it in a matter of days, using equipment that costs a few thousand dollars. But they don’t trouble themselves worrying too much about the safety of their product. Counterfeits that hurt and kill are the dark side of fraud, and it’s the part that really disturbs me. Counterfeit drugs are a threat to public health. They’re very difficult to detect and control, and they’ve led to illnesses and death. In 1997, the World Health Organization estimated that more than five hundred people had died from fake medicines.
In the United States, dozens of deaths and hundreds of adverse reactions have been connected to a counterfeit intravenous antibiotic from China that is used to treat serious blood infections. There were 3,000 deaths in Nigeria in 1995 attributed to fake meningitis vaccines. Counterfeit antibiotics made from talcum powder and counterfeit eye drops made from contaminated water were discovered in Africa. Brazil has suffered deaths from bogus antibiotics and cancer treatments. In southern Vietnam, police raided a gang and found a thousand fake Viagra tablets.
Some counterfeiters ply their trade without even making a product. Criminals regularly go to wholesalers and buy expired aspirin and other ordinary over-the-counter medications that were going to be junked. They pay twenty cents on the bottle, and the wholesalers are happy to get it. The criminals then change the dates on the boxes and resell them to drugstores.
Crooks root through Dumpsters outside of hospitals and look for syringe bottles that have been discarded in hazardous materials bags. The thieves take them, refill them with sugar water, and sell them as medicine. The only way to tell is to turn the bottle over and look for two pinholes. A fraudulent one has to have a second pinhole in it made by the criminal when he inserted a needle to refill it.
DIFFICULT TO DIGEST
It’s not just drugs that can cause harm. So can foods and food supplements, drinks, vitamins, literally anything that you digest. A number of individuals were caught in 1999 for selling expired baby formula and nutritional products for invalids. They had obtained them under the false pretense that the products would be used for animal food. In 1995, two California men intended to distribute a half million cans of counterfeit Similac baby formula. Fortunately, the illegal operation was busted before most of the products were distributed, and there were only a few reports of illnesses. But there have been other instances where counterfeit formula has caused rashes and seizures. In Mexico, fake Tequila and other alcoholic beverages have caused illness and some deaths. “Collectors” pay for empty bottles outside stadiums, and then refill them with other liquids and pass them off as the real thing.
Anything you apply to your skin, if it’s counterfeit, puts you at risk. A phony version of a popular shampoo was found to contain bacteria that could cause infections. Another counterfeit brand has led to hair loss. Counterfeit cosmetics have been found to contain residue of industrial solvents and carcinogens. When you use them, you can suffer severe allergic reactions.
Counterfeit pesticides and fertilizers have decimated crops in developing countries, contributing to famine and death. A counterfeit chemical fungicide containing chalk was said to have been responsible for destroying two-thirds of the coffee crop in Kenya and Zaire. In Kenya, criminals were caught with counterfeit “Super Doom” insecticide. They diluted the weed product with kerosene and other ingredients and resold it, considerably diminishing its effectiveness.
NUTS AN
D BOLTS—AND EVERYTHING IN BETWEEN
Counterfeiters are without scruples. They’ll put anyone at risk for profit (law enforcement agents once came across a shipment of counterfeit Cabbage Patch dolls that had been doused with kerosene to keep rats away while they were transported from overseas). Industrial valves have a long life cycle and are easy to recondition, and so they’ve been targets of counterfeiters for years. The FDA recalled $7 million of intra-aortic pumps used during open-heart surgery, after it discovered malfunctioning counterfeit parts in the devices. Sometimes, genuine used valves are improperly reconditioned so they can be resold as new. In one case, graphite seals that made the valves fire-safe were removed and not replaced.
Counterfeit nuts and bolts caused parts of a building to collapse during an earthquake. In the early 1980s, a contractor building a Saturn plant in Tennessee died because a counterfeit bolt snapped. It looked like the real thing but was made of cheap metal, not the specified high-quality carbon steel. In 1992, a fire erupted on a Navy destroyer, killing two sailors, after a counterfeit bolt connecting a steam line broke in the ship’s engine room. One of the problems with small parts is that to determine if a bolt is inferior, you need to subject it to metallurgical tests, and analyzing a simple 40-cent bolt can cost two hundred dollars.
Every type of car and machine part is counterfeited—brakes, horns, oil filters, radiators, suspensions. Counterfeit brakes were found in Nigeria that were made from compressed grass that burst into flames when they were tested. In 1991, a woman and her child were killed in an auto accident in the United States that was precipitated by a counterfeit brake pad. The pad was made out of wood chips. The U.S. Department of Commerce estimates that 210,000 American workers could be added to the work rolls if the parts were made legally.
THE FRIGHTENING SKIES
Equally frightening is the number of counterfeit parts flooding the airline industry, a full 75 percent of which are used in critical applications. According to the Federal Aviation Authority (FAA), between 1973 and 1993 bogus parts played a role in at least 166 U.S.-based aircraft accidents or less serious incidents. The worst accident of all occurred in September 1989. The tail section of a turboprop plane tore loose, causing the plane to crash into the North Sea. All fifty-five people on board were killed. The cause was eventually traced to counterfeit bolts in the tail. It was never determined where they came from, because the repair station that installed them didn’t have a parts and supplier registration system.
In 1990, Bruce Rice, the president of Rice Aircraft, a Long Island airplane parts distributor, was jailed for four years for stripping and replacing used parts and falsifying documents to suggest that they were new. Between 1977 and 1988, Rice sold counterfeit rivets and fasteners to Grumman, Air France, the Israeli Government, United Airlines, and American Airlines, among others, posing a serious safety threat to thousands of aircraft. Fortunately, no accidents were known to have resulted from the phony parts.
A few years ago, a company in Southern California was caught selling counterfeit parts to McDonnell Douglas. They were small devices that keep an airplane’s landing gear from shaking, and were used on Douglas’s DC-9 commercial airplanes. In 1995, in a separate incident, six hundred light planes were grounded after a supply of parts for Textron’s Lycoming engines were discovered to be fake.
But there have been crashes involving Bell Helicopters in which the only thing truly Bell about the craft was the nameplate. The rest of it was rebuilt with scrap or counterfeit parts. In 1987, a traffic reporter riding in a helicopter was killed when the helicopter crashed while he was broadcasting live. It was determined that the accident was caused by a clutch made of counterfeit parts.
Who’s to blame? A lot of people. And it’s not enough just to make sure there’s good paperwork on a part. Forgers can forge the paperwork. One of the best safeguards is to know your supplier.
A few years ago, undercover Congressional investigators paid a visit to a Miami scrap yard. They came across some jet engine blades marked with a red tag saying they were “unserviceable.” But when the dealer saw they were interested in the blades, he removed the tag. He told them: “I know some of you boys rework these things, but that’s not my concern.” The blades sell for around $1,500 new. The investigators bought them for $1.30.
WHAT’S BEING DONE
Because of the sophistication and growth of counterfeit products, far more attention is being paid to preventing them, but a lot more needs to be done. Packaging is an essential ingredient in deterring counterfeiters, particularly in the pharmaceutical industry, where bottles are reused by counterfeiters. I do a fair amount of work with drug companies, and I find that the best security is to combine overt with covert security features, features you can see with features you can’t see.
The most common overt technique is the tamper seals common on over-the-counter medications. These days, that technology is being combined more and more with holograms. They’re a very strong tool, and are widely used on closure seals and hang tags. They’re even increasingly put on packaging to make a product more visibly vibrant. If you go to the toothpaste aisle at the supermarket, you’ll notice that all the premium toothpastes have holographic packaging.
I like holograms, but the problem is that they’re normally not registered. Anyone can go to a company in Taiwan and get a hologram duplicated. Often, they’re silver foil with white screen printing on them. Counterfeit holograms are easy to slip through Customs. You can stuff enough fake holograms in a matchbox to put on ten thousand dollars or twenty thousand dollars worth of counterfeit packages.
So a hologram is fine if it’s in conjunction with another feature that you can’t see. For instance, you could use a hologram combined with a covert feature like machine-readable information encrypted on the hologram. Other covert features include putting a fluorescent dot on the label of the packaging that’s invisible to the naked eye and which can’t be removed even by washing—you use a reader light to pick it up. There are also special coatings like microthin metals that change when slit or punctured. There is reactive invisible ink or visible coloring-changing inks. There are reactive threads that are woven into fabrics and emit a fluorescent color when put under a hand-held ultraviolet reader. There are scratch and view labels that reveal the words “original.” And there is chemical tagging, for fuels, drugs, and pesticides. There’s even a “biocode technology” where marker chemicals can be added to capsules of drugs that can then be authenticated with test strips.
Another new technique is DNA (deoxyribonucleic acid) marking. Joe Barbera, the creator of “The Flintstones,” and “The Jetsons,” used to employ a DNA pen with ink that contained fragments of his own genetic code to authenticate his drawings. And now a company called DNA Technologies has come up with a means of mass-marking items with an ink containing DNA. The company marked millions of items of official merchandise at the Sydney Olympics, using an ink that contained DNA strands from an Australian athlete and a chemical that can be identified with an optical scanner. The company gets the DNA either from a blood sample or a swab of the mouth, and then makes copies of it that it mixes into the ink. The ink was put right on the souvenirs or on a tag attached to them. Among other things, DNA Technologies put a DNA tag on Mark McGuire’s seventieth homerun ball.
Holograms can be copied, but DNA is pretty much counterfeit-proof. The company estimates that there’s about one chance in a trillion that a counterfeiter could duplicate the DNA sample. Those aren’t the kind of odds that any sane criminal would take.
One shortcoming is there’s no hand-held device that can test for the DNA. Vendors can scan a shirt and pick up the chemical in the ink, but not the DNA. If something seems fishy, the product has to be sent to the company for further testing.
EVERYONE HAS TO GET INVOLVED
Fighting counterfeit goods is going to take a lot more dedication, and I don’t mean simply on the part of manufacturers. Stores have to do a better job of training their employees to
discriminate the real from the fake. Packaging with blurry lettering or misspellings—“certifidate” instead of “certificate” of authenticity—is a giveaway. Sometimes, counterfeiters will try to protect themselves by slightly altering a product name—for instance, “Yeal” locks that resemble and are packaged to look like “Yale” locks.
If the problem is ever going to be contained, the general public has to start to care. You can’t perpetuate a scam unless there’s an honest person willing to go along. Years ago, I was visiting New York with my family. My boys were young then. We had eaten lunch at Wolf’s Delicatessen, and while I was paying the check, my kids asked if they could wait outside. I said, fine, as long as they were close enough so I could see them through the windows. Almost immediately, some guy came up to them with a satchel. He swung it open and it was filled with watches. By the time I hurried out to them, they were already picking out famous designer watches at ludicrously low prices. I shooed the guy away, and I had to explain to my kids that the watches were counterfeit and the guy was a crook.
Adults know better, and ought to behave better. Do you really want to keep buying those fakes on the street corner and putting money in the pockets of criminals, or do you want to support legitimate business?
10
[EMPTY PROMISES]
Uniprime Capital Acceptance was a small automobile dealer based in Las Vegas. Its shares were publicly traded, but it hadn’t made much earth-shattering news in awhile, and its stock price reflected that. You could buy a share for less than a buck, and normal volume was a meager 20,000 shares a day. Then one day in the summer of 1999, it made a stunning announcement for any company, but particularly for a car dealer: it had come up with a cure for AIDS.
The Art of the Steal Page 19
