The true cost of fake goods

Counterfeiters aren't scrappy entrepreneurs. They're criminals whose nefarious deeds—selling everything from phony airbags and brake pads to Beats headphones and Botox—bankroll illicit activities. Besides ripping off American companies for hundreds of billions of dollars in intellectual property, fakes are often made with cheap, substandard, and dangerous components.

In 2008, Consumer Reports revealed the expansive nature of the problem, the sources of counterfeit goods, and why ridding the marketplace of them is such a challenge. In a recent follow-up, we found that little has changed and that counterfeits continue to cut across all industries.

"If you can make it, they'll fake it," says Bob Barcheisi, president of the International AntiCounterfeiting Coalition (IACC). The litany of fakes include cheap smart phone batteries and chargers that could overheat or catch fire; substandard appliances, extension cords, and holiday lights with phony "UL" (Underwriters Laboratories) marks, motorcycle helmets that won't provide adequate protection in a crash, knockoff brand-name prescription drugs like Cialis and Tamiflu, and substandard auto parts.

To learn more, read our story, "Counterfeit Goods: How to Tell the Real from the Rip-Off"

The FBI says phony cosmetics often contain things such as arsenic, beryllium, and cadmium (all known carcinogens) along with high levels of aluminum and dangerous levels of bacteria. Counterfeit perfumes and colognes have been found to contain urine.

The distribution of illicit auto parts is growing at an alarming rate, too, according to Bruce Foucart, director of the National Intellectual Property Rights Coordination Center, part of U.S. Customs and Immigration Enforcement. The parts are typically smuggled into the country and sold to independent stores, sometimes knowingly, sometimes not. "At best these parts will not perform as well as authentic ones. At worst, they can fail catastrophically with potentially fatal consequences."

How to protect yourself

You're unlikely to get burned by counterfeits if you stick with established stores, legitimate retailer websites, and authorized sellers. Otherwise, you could be playing with fire. Fakes are widely sold, especially around the holidays, at flea markets, on eBay, via marketplace merchants, at independent deep-discount and no-name stores (like some of those "electronics and luggage storefronts in New York City), purse parties, salons, swap meets, "copycat" websites that mimic those of well-known merchants, and rogue Internet pharmacies. Online pharmacies peddling inexpensive Rx drugs purportedly from Canada have been have revealed as fronts for rogue operations based in Russia, Asia, and the Middle East.

Last year, U.S. Immigration and Customs Enforcement's and Homeland Security Investigations teamed with industry and 24 law-enforcement agencies to shut 29,684 domain names that were illegally selling counterfeit merchandise online to unsuspecting consumers.

Consumers have the power to bring down the fraudsters. "If shoppers don't buy fakes, then counterfeit goods and the sellers behind them, won't prosper, " says Sandra Bell, deputy assistant commissioner for the Office of International Trade.

The problem, adds David Hirschmann, president of the U.S. Chamber of Commerce's Global Intellectual Property Center, is that too many consumers are blinded by unrealistically low prices. "We all like a deal, but when it's too good to be true, it's probably no bargain in the end," Hirschmann says. 

Where counterfeits come from

Counterfeiting is a global crime. While China has long been the major source of fakes, there are other offenders. On the plus side, China, Vietnam, other exporting countries with a burgeoning economy are doing more to bring fraudsters to justice, experts say, if for no reason other than to improve their image in the international business community. But there's still a long way to go. The list below is based on the retail value of counterfeit goods seized had they been the genuine article.

* Source: US Department of Homeland Security/Customs and Border Protection.

—Tod Marks