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Counterfeiting, Piracy & Smuggling -Growing Threat to National Security
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 2
Agenda► Menace of Counterfeiting, Piracy & Smuggling
► Terrorism’s links with Counterfeiting, Piracy & Smuggling
► Framework for Preventing Financing of Terrorism
► The Road Ahead
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 3
Agenda► Menace of Counterfeiting, Piracy & Smuggling
► Terrorism’s links with Counterfeiting, Piracy & Smuggling
► Framework for Preventing Financing of Terrorism
► The Road Ahead
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 4
Source: FICCI CASCADE Report 2013, Havocscope, Pollinger, Harvard University 2008, Union des Fabricants
MENACE of COUNTERFEITING, PIRACY & SMUGGLING
0
50
100
150
200
250
Valu
ein
$B
illio
n
Pharma. Drugs
Electronics
Purses
Foods
Auto Parts
Toys
Batteries
Clothing
Size of counterfeiting invarious goods - worldwide
IncreasedInternatnl.
Trade
Advances inTechnology
EmergingMarkets
EmergingProducts
DemandSide
Factors drivinggrowth in
Counterfeiting,Piracy andSmuggling
Type of losses
Economic lossto industry
Economic lossto government
Indirect loss –Financing ofcrime / terror
Economic /health loss to
citizens
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 5
Agenda► Menace of Counterfeiting, Piracy & Smuggling
► Terrorism’s links with Counterfeiting, Piracy & Smuggling
► Framework for Preventing Financing of Terrorism
► The Road Ahead
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 6
Source: Indian Express, Wall Street Journal, Washington Post, Euromonitor, BSA
Cigarette smugglingconnected to major
terror groupsRecent law enforcement
investigations have directlylinked those involved in illicittobacco trade to infamous
terrorist organizations such asHezbollah, Hamas and Al
Qaeda
Pirated CDs funded 2004Madrid train bombings
According to Police Commissioner of NewYork, the Madrid train bombing incident wasfunded through the sale of pirated CDs.Chechen rebels have also known to financethrough pirated CDs
IN THE NEWS
Fake German brakepads financed HezbollahInterpol seized US$1.2 million worthof counterfeit German brake pads in2004 that were revealed to be usedto support the Lebanese terrororganization Hezbollah
Strong links betweenterrorists and drug, armsand migrant smuggling
Colombia, Kenya, Kyrgyzstan, Myanmarand Turkey among others, reported
direct links between terrorism & illegaldrug trade, arms trafficking & migrant
smuggling
Counterfeitingentrenched in AlQaeda recruits
Al Qaeda training manualsrecovered in 2002 reveal thatthe organization recommendsthe sale of fake goods as ameans of fundraising for cells
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 7
PERPETRATORS of COUNTERFEITING, PIRACY & SMUGGLING
Source: Pollinger, Harvard University 2008, Union des Fabricants
Perpetrators of Counterfeiting,Piracy and Smuggling
Ø Small-scale businesses haveadopted it as a primary business,investing heavily in technology andcapital infrastructure
Ø Organized Gangs involved in drugsand arms smuggling have beenincreasingly involved in counterfeitingand piracy both to make profits and tolaunder money
Ø Terrorist organizations, due todecentralization post cold war, havebegun to see these activities as anexcellent source of local funding
Incentives for TerroristOrganizations in Counterfeiting,
Piracy and Smuggling
Ø Counterfeiting can be used as bothsource of funding and means ofattack
Ø Enormous Profit Potential: Can bringin huge returns (~ 900% returns onpirated CDs)
Ø Low risk of prosecution: E.g., InFrance, convicted counterfeit retailersface 5 times lesser sentencescompared to drug dealers
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 8
LINKS OF TERRORISMWITH COUNTERFEITING, PIRACY & SMUGGLING
LOGISTICALTerrorist
organizations useestablished
networks setup bycriminal groups
OPERATIONALNatural
relationshipbetween terror and
criminal groups,but likely to be
limited due to lackof trust
FINANCIALLocal Arms ofterror groups
receive financialassistance bybeing part of
criminal activities
IDEOLOGICALPolitically like-
minded criminalgroups merge with
terror groups
Smugglingpipelines arethe 2nd most
preferredmethod usedby terrorists toenter the US
IRA floodedIreland withcounterfeitcigarettesfunding
US$100mover 5 years
Afghanterrorists
finance fromcredit cardsduplicates &counterfeitdesignergoods
Foreignterrorists
worked withsympathetic
Indiansmugglers for1993 Mumbai
blasts
Foreignterrorists
worked withsympathetic
Indiansmugglers for1993 Mumbai
blasts
Dubai basedsmugglers
operating inIndia provided
logistics for2008 Mumbai
attacks
S. Amer.traffickers aidHezbollah inlaundering
money citingUS and Israelas a common
enemy
Source: UNODC, Interpol, RAND Corp. India Today, Union des Fabricants
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 9
Direct involvement
OriginalGoods
Set upproductionunit to fake
originalgoods
CounterfeitGoods
Sellcounterfeit
goods
Proceeds ofcounterfeiting
throughvariousmodes
Terroristorganization
s
Criminalorganization
s
SleeperCells
Direct involvement for self financing
Indirect funding
Dire
ctfu
ndin
g
HOW COUNTERFEITING SUPPORTS TERRORISM
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 10
Agenda► Menace of Counterfeiting, Piracy & Smuggling
► Terrorism’s links with Counterfeiting, Piracy & Smuggling
► Framework for Preventing Financing of Terrorism
► The Road Ahead
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 11
DIMENSIONS OF REFORMS IN COUNTERING THE TERRORFINANCING THROUGH COUNTERFEITING, PIRACY ANDSMUGGLING
Governance Laws andRegulations
Technology CapacityBuilding
Whether adequate governance system inplace. What is the extent of coordinationbetween enforcement agencies and degree ofinternational collaboration ?
1
Outreach and span of laws to counter the saidactivities. Extent of enforcement and coverageof institutions ?
2
Are the technology solutions in place toidentify instances of counterfeiting andsmuggling? Are there integrated IT systems toprevent these acts ?
3
Is the govt and industry taking adequatecapacity building measures to contour thecurse of these activities involved in financingterrorism ?
4
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 12
2
GOVERNANCE
Governance
1
3
1
FIU develops financial intelligenceand provides assistance to EAs
Financial Institutions generateperiodic reports for FIU
Governance structure of regulatory andenforcement agencies
Overall evaluationNeedsimprovement
Progress being made On Track
FIU was setup in 2004 to monitorand analyze suspect transactionsFIU has linkages with other bodies -
regulators, banks, Enforcement Agenciesetc to generate and share financial
intelligence
India is member of1.Eurasian Group on Combating Money Laundering2.Terrorist Financing and the Asia/Pacific Group
India adheres to the Egmont principlesof free exchange of information
Collaboration with foreign FIUs onexchange of information
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 13
1
2
LAWS AND REGULATIONS
Laws & Regulations
Laws to combat financing ofterrorism
2
Enforcement and compliance reporting forthese acts needs improvement
Several acts are enacted coveringvarious sectors for preventing
counterfeiting, piracy and smuggling
Overall evaluation
Needsimprovement
Progress being made On Track
Laws to combat counterfeiting,piracy & smuggling
Prevention of Money LaunderingAct, amended in 2009 to enhance
countering of terror financing
Unlawful Activities Prevention Act(UAPA), amended in 2004, criminalised
financing of terrorism
Outreach of these acts to non-financial institutions needs
enhancement
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 14
1
TECHNOLOGY
Technology
3
Lack of coordination and collaborationamong industry players on R&D
of such technologiesAuthentication Packaging and
Track and Trace packaging. e.g.(RFID),holograms, etc
Lack of incentive by Government to investin development of such technologies
2Adoption of technology byGovernment
Adoption of technology byIndustry
3Technology to prevent proceedsgoing to terror financing
Overall evaluation
Needsimprovement
Progress being made On Track
Mandate by Govt necessary forTechnology to be effective
Amendment to Drugs andCosmetics Act, mandating Unique
2D Identifier Code on drugs
IT systems by Directorate of RevenueIntelligence (DRI) of CBEC to
analyse relevant data
FINnet by FIU
IT solutions being implemented inFinancial Institutions to identify
suspicious transactions
Proposed initiativesby NATGRID and NIA
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 15
1
CAPACITY BUILDING
Capacity building
Capacity building tocontrol Counterfeiting,Piracy & Smuggling
2Capacity building to prevent proceedsof counterfeiting to terror financing
4
3
India - founding member ofthe Global Counterterrorism forum
outsourced
INTERPOL and CBI– Joint capacity building exercise
International Cooperation
FIU conducts training forBanks, Financial Institutions
FIU supports professionals,industry associations in
capacity building
Overall evaluation
Needsimprovement
Progress being made On Track
Larger industry players are active,need to sensitize MSMEs
Need to train Police and otherEnforcement Agencies to take
additional responsibilities
Very few initiatives on training andawareness of citizens. e.g. “Jaago
Grahak jaago”
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 16
FINANCIAL INTELLIGENCE UNIT - INDIA
Reporting Entities FIU-IND
Law EnforcementAgencies
IntelligenceAgencies
Regulators
Foreign FIUs
CTR / STR Intelligence
Financial Intelligence Unit – India (FIU-IND) was set up in 2004 to “coordinate andstrengthen collection and sharing of financial intelligence through an effective national,regional and global network to combat money laundering, financing of terrorism andrelated crimes”
Collection of cashtransaction and
suspicious transaction reports
Analysis of Suspiciouscases related toterrorist financing
Exchange of informationwith
LEAs / IA / Foreign FIUs
► Collect information frombanks, financial institutions,intermediaries
► Analyze suspicioustransactions and comparewith watch lists containingnames of terrorists
► Detect relationships withexisting names / groups
► Create cases of financing ofterrorism
► Disseminate cases to LEAs/ Intelligence agencies andForeign FIUs to takeappropriate action
With adoption of advanced technology system as Project FINnet,FIU-IND can efficiently detect the cases of financing of terrorism
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 17
Agenda► Menace of Counterfeiting, Piracy & Smuggling
► Terrorism’s links with Counterfeiting, Piracy & Smuggling
► Framework for Preventing Financing of Terrorism
► The Road Ahead
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 18
FRAMEWORK TO EVALUATE THE CURRENT MATURITYLEVEL
Basic Intermediate Good Advanced
► No or very limitedagencies to deal withcounterfeiting, piracyand smuggling
► No or limited laws► Small penalties► Limited confiscation
according to the law
► Very limitedtechnology adoptionby industry and govt
► No means of goodsauthentication
► Citizens notsensitized
► Lack of awareness &training in industryand govt
► No separateagencies
► Uncoordinatedagencies placing lowpriority
► Laws in place butwith limited control
► Risk of convictionlower
► Limited or nogovernment support
► Low penetration andadoption oftechnology
► High level trainingto enforcementagencies
► Capacity notdiffused
► Prioritized actions► Time-bound
investigations► Engagement with
international bodies
► Confiscation ofassets
► Nationaljurisdictions
► Zero Piracy policy
► Industriesemploying advancedtechnical solutions
► Mature govt ITsystems
► Industry and govtwide efforts todevelop capacity
► Active engagementof citizens
► Collaborationbetween industryand government
► Formation ofNational agencies
► Laws to empowerseizure of assetsfrom other countries
► Non-conviction-based confiscation
► Harmonious effortby industry & govt
► Significantgovernmentcontribution to R&D
► Adoption ofinternational bestpractices
► Tie-ups - foreign anddomestic institutes
Gov
erna
nce
Law
and
Reg
ulat
ion
Tech
nolo
gyC
apac
itybu
ildin
gMaturity Levels
Counterfeiting, Piracy & Smuggling - Growing threat to national securityPage 19
Strengthen governance mechanism to prevent counterfeiting, piracyand smuggling and prevent its proceeds from financing terrorism
1
Strengthen technological collaboration between industry &Government on anti-counterfeiting and anti-piracy measures
2
Establish inter-agency coordination mechanism to coordinate effortsfor preventing counterfeiting, piracy and smuggling
3
Institute robust capacity-building mechanism to increase awarenessamong industry, consumers and enforcement agencies
4
PLAN FOR THE ROAD AHEAD…
THANK YOU