Money-laundering from online counterfeiting is a threat multiplier that expands kleptocracies, organized crime, and terrorism

I will focus my statement on the urgent need to sharpen our understanding of the interconnections between illicit commerce and money laundering across licit and illicit communities through a prism of convergence crime. Money laundering and trade-based money laundering are threat multipliers that help to finance greater harms that impact all Americans. The reality is that dirty money derived from illicit commerce remains the lifeblood of today’s kleptocrats, criminal organizations, and terrorist groups. Trade-based money laundering and other illicit financial vehicles and methods enable these bad actors to disguise and clean the dirty money. By purchasing trade goods licit and illicit, moving such merchandise across borders, falsifying its value, quality and quantity in misinvoicing or misrepresenting trade-related financial transactions. A snapshot of the current global illegal economy brings into clearer focus the magnitude of illicit trade, and why following the money and following the value are critical if you’re to successfully expose illicit activities, and to disrupt and dismantle the webs of corruption and criminality behind threat networks that are harming U.S. national security and our global interest.

Make no mistake, the global illegal economy is booming. According to a 2015 report from the World Economic Forum, the global value of illicit trade and transnational criminal activities is estimated between 8 to 15 percent of gross domestic product. In 2017, the World Bank projected the world at U.S. $80 trillion. Even if you take the conservative 8 percent estimate from the cited WEF report, it is fair to assume that today’s global illicit markets generate several trillion dollars in every year for numerous threat networks.

The types of criminal activities involved include the trafficking of narcotics, arms, human(s), counterfeit, and pirated goods; illegal tobacco and alcohol; illegally harvested timber, wildlife and fish; pillaged oil, diamonds, gold, and other natural resources and precious minerals; and other commodities that have value and are sold on our Main Street, on social media, marketplaces, and the Dark Web.

Let me break down some of these illicit trade numbers based on the data provided by various international organizations, including GFI. Every year at least $2.6 trillion gets laundered globally. Transnational crime generates between $1.6 trillion to $2.2 trillion. Bribery, up to a portion of $1 trillion. Narcotics trafficking generates between $750 billion to $1 trillion. And I will discuss counterfeit and pirated goods shortly, but other illicit activities generate tens of billions of dollars every year.

These are simply staggering amounts and are of great concern to the U.S. Department of Treasury and U.S. law enforcement agencies, as we heard earlier this week at a U.S. Senate hearing on illicit financing. Given that hundreds of billions of dollars in illegally concealed proceeds are moving through the international system and our economy across U.S. industries, the enforcement challenge is monumental. A few weeks ago, in the new report that I authored for the FACT Coalition, we examined how the trafficking and smuggling of counterfeit and pirated goods is a very profitable illegal activity for many of today’s criminals and illicit networks that rely on the secrecy provided by anonymous entities to launder their ill-gotten gains and escape detection.

Evidence-based research recently conducted by the OECD and the European Union IPO estimated the value of fakes worldwide at $509 billion in 2016, or up to 3.3 percent of world trade. Of this $509 billion in import fakes worldwide the top ten product categories in terms of values of fakes were electronics, jewelry, optical photographic and medical equipment, clothing and textiles, footwear, toys, foodstuff, handbags, perfumes, and cosmetics and watches. The joint analysis by the OECD and EU IPO showed that China is the top producer of counterfeit goods in nine out of 10 of these categories. While Hong Kong, Singapore and the UAE are global transit hubs for trade in counterfeits.

Brands suffering the most from counterfeiting were largely from the OECD and EU member states, although U.S. companies suffered the most at 20 percent. More alarming is that this illicit trade in counterfeit and pirated goods will more than double in five years’ time along, reaching close to U.S. $3 trillion by 2022. In the United States, the threats posed by counterfeiting internet pirates directly harm critical national industries, regional and local economies, and the reputational value of American companies and brands. It also puts the safety and health of all Americans in jeopardy and in danger when criminals inject opioids, counterfeit medicines, food, automotive and airplane parts, apparel, footwear, and fast-moving consumer goods into our distribution networks and supply chains, including pharmacies, workplaces, hospitals, schools, grocery stores, restaurants, and online marketplaces.

In addition to illicit trade activities, legitimate commerce and an enormous volume of trade flows also enable criminals to obscure individual transactions, to transport value across borders, and between exporting and importing jurisdiction, hiding illicit cash within seemingly legitimate uses. For example, at the licit-illicit continuum, according to the FBI, criminals will often dump imported goods bought with dirty money into a market at a discount to accelerate the money laundering process, putting legitimate merchants at a competitive disadvantage.

Let me just share a few cases where convergence, illicit commerce and money laundering, come together. Anonymous companies and money laundering, including trade-based money laundering, have helped criminals across the United States sell in recent years several billion dollars in fake and counterfeit luxury bags and apparel accessories, including those sportwear and gear from the NFL, NBA, Major League Baseball, branded as Nike, Adidas, Under Armour, and many others.

Criminals also imported and sold to American consumers through internet pharmacies counterfeit medicines from India and China worth hundreds of millions of dollars, including fake versions of medicines to fight breast cancer, cholesterol, high blood pressure, and other medications to cure other ailments and diseases. Criminals also sold knock-off parts to the Pentagon that have cost the U.S. military tens of millions of dollars and put our soldiers’ lives in greater risk and danger.

Some comments on free trade zones and online marketplaces. As consumer goods and fakes make their way from provenance jurisdictions to demand markets, overall trade can also get very complicated in transit, through the exploitation of free trade zones by criminals and corrupt actors. Free trade zones are useful under illicit proceeds, especially in the areas that have inadequate oversights and customs, weak anti-money-laundering, weak anti-corruption and illicit trade regulations enforcement – and weak anti-illicit trade regulations.

For example, as reported by the U.S. Department of State in last year’s Country Report on Terrorism, the free trade zones in Panama and the tri-border area of Argentina, Brazil, and Paraguay remain regional nodes for money laundering, including related to illegal tobacco and counterfeit trade, and are vulnerable to the exploitation by corrupt officials and sympathizers to terrorist groups.

Regarding online marketplace, as more shopping as moved to the internet criminals are profiting immensely from selling illicit commodities across global e-commerce platforms. As reported by cybersecurity ventures, estimates of the financial cost from cybercrime will double from $3 trillion in 2016 to 6 trillion (dollars) by 2021, especially as the world population grows exponentially and as tens of billions of people gain new access to the internet every day.

According to the Better Business Bureau in their report last week, a massive number of deceptive web sellers illegally use copyrighted pictures of brand-name goods to lure consumers to buy and then send fake items, low-quality substitutes, or dangerous and toxic products. Many unsuspecting consumers can also find themselves at risk from malware from accessing or using illicit devices to stream down pirated film and television content, defrauding the American industries of millions of dollars every year.

According to the Better Business Bureau in their report last week, a massive number of deceptive web sellers illegally use copyrighted pictures of brand-name goods to lure consumers to buy and then send fake items, low-quality substitutes, or dangerous and toxic products. Many unsuspecting consumers can also find themselves at risk from malware from accessing or using illicit devices to stream down pirated film and television content, defrauding the American industries of millions of dollars every year.