Researching the counterfeit alcohol market: Size, scope and organisation

Description

Our research into counterfeit alcohol funded by Alcohol Research UK is now underway. The aim of this research is to develop a greater and more detailed understanding of how counterfeit alcohol is distributed and who is consuming it.
One initial challenge to this research is estimating the size of the counterfeit alcohol phenomenon. In other words, how much counterfeit alcohol is there in the marketplace?

‘Known’ cases of counterfeit alcohol

To answer this we can look to seizure data, but this could be misleading. We do not know whether the seizures are the ‘tip of the iceberg’ or whether they reflect effective regulator and law enforcement action that has seized a high percentage of counterfeit alcohol entering the market.

For instance, in Operation OPSON V, a joint initiative of EUROPOL and INTERPOL that aims to identify and disrupt the networks of criminal enterprise involved in fake goods, 385,164 litres of counterfeit spirits were seized which was 27% of all goods seized in litres. This is an increase on OPSON IV where the percentage was 19%. Of course, this might not represent an 8% increase in counterfeit alcohol but reflect more effective enforcement and intelligence gathering.

Furthermore, for producers of major alcohol brands there is a motivation to keep the amount of counterfeit alcohol relatively quiet. They are liable to suffer reputational harm if their brand is seen to be named as counterfeited. This undermines consumer trust and confidence in the product.

So, unravelling the volume of counterfeit alcohol in the market is a thorny problem. But what can an understanding of the size of the counterfeit alcohol market actually tell us? Whether large or small, that the market exists is the primary issue, and understanding the dynamics of this is something to which criminology can make a significant contribution.

A criminological analysis of counterfeit alcohol distribution

A recently completed research project that we undertook with a regulator allowed us to provide a ‘crime script’ and ‘social network’ analysis of their case files. This work was innovative for two reasons:

1. the script analysis was able, by using real data, to consider the problems of counterfeit alcohol distribution and to provide an in depth analysis of who was needed to make the fraud realisable and how they actually did this;
2. the social network analysis considered the people, places and product and was able to identify the hidden actors in the fraud and this complemented the script analysis.

So what did we learn? Counterfeit alcohol is the presentation of sub-standard alcohol as a well known brand. This is achieved by putting it in bottles that are counterfeited and labelled to resemble the brand. The fraud is simply to pass the sub-standard alcohol off in the marketplace as something that it is not, and so to gain a financial advantage from a purchaser, be they end consumer or a retailer. This is the layering of counterfeit alcohol into the legitimate market. It requires resources in terms of knowledge, access to the market, storage and bottling facilities, logistical know-how and money to fund the counterfeiting operation. There is also a requirement to develop a distribution system that is effective in placing the counterfeit product into the market. This distribution system requires a high level of organisation and a developed network of actors to ensure market penetration.

We provided the regulator with key information that informed the utilisation of operational resources and informed who needed to be targeted in the investigation. So, a good outcome. But whilst providing insights into the organisation of an element of the distribution market had operational use, it still did not provide a means of estimating the volume of counterfeit product.

On-going, entrepreneurial behaviour

The enforcement staff in the regulatory agency had intelligence that suggested there was a consistent throughput of counterfeit alcohol in makeshift bottling plants. In a raid on such a plant there was evidence of 20,000 litres of bottled counterfeit alcohol, much of this had been exported to another jurisdiction. A crime script analysis of the makeshift bottling plant operation suggests a frequent use of the facilities which is further supported by the cross jurisdictional nature of the activity.

Our research on counterfeit alcohol distribution and the seizures of Operation OPSON suggests there is a vibrant market for counterfeit alcohol. Offenders need to be able to co-operate to organise the fraud to enable the infiltration of the counterfeit alcohol product(s) into the legitimate alcohol market.

But how does this help us to assess the size of the market? In some ways we know from this work that a market exists and that because of the organisation required to counterfeit alcohol it is unlikely to be a ‘one-off’ activity that is opportunist. It is more likely to be a crime that is repeated in order to gain the maximum advantage from the investment of resources and the organisation of the different actors within the different scripts. Counterfeit alcohol is a vibrant and buoyant market, the size of which is difficult to estimate, but the arguments above suggest that it is a substantial market.

So what do we need to do to find out more about this market?

Our research for Alcohol Research UK will explore the structure of the alcohol market and its operation, in addition to the types of products that are more likely to be counterfeited, and whether this in turn makes certain groups more vulnerable.

For instance, seizure and case file data indicate that cheap, odourless and colourless alcohols, such as vodka, are more readily counterfeited. On the one hand, there is a large demand in the market for these products. On the other hand, it’s more efficient, more cost-beneficial, and there is less risk of detection for those involved in the counterfeiting. So we need to explore the patterns of consumption and purchasing of different social groups to help us understand this and build a more detailed picture of how crimes are organised and resourced, and who is harmed.

We expect this research will provide regulators and law enforcement with a more detailed understanding of distribution and so enable them to target operational and investigative resources more effectively.