Counterfeiters go to great lengths to mask their true identities,  but the one thing that they can not fake is the money trail.

The money trail is the flaw in counterfeiters efforts to remain anonymous because it is very hard to fake the personal credentials with bank accounts.

Websites and online marketplaces offering counterfeits to consumers in the United States usually accept credit card payments. The payments are then funnelled to bank accounts outside the United States, often by way of financial institutions that have a physical presence in both the United States and China.

Following the money trail through Chinese Banks

There is much evidence supporting that the majority of counterfeit revenues end up in China. A professor at New York University, Damon McCoy, traced the moneys he paid using a Visa credit card in 300 different transactions when purchasing goods from counterfeit websites. According to Damon of New York University traced 300 different counterfeit transactions, 97% of which were traced back to three of the largest banks in China.

As things stood early last year, it seemed that Chinese banks were not interested in cooperating with American court orders to produce documents showing the flow of money from the sale of counterfeit goods.

Gucci America Inc v. Weixing Li which is currently before a District Court of New York (Manhattan) may have changed all of that.

In 2010, Gucci along with other Kering Group brands, sued a Chinese counterfeiters Weixing Li for $12 million for damages caused by the sale of fake handbags and wallets to U.S. consumers.   Gucci traced $530,000 in transfers from U.S.-based counterfeiters to Bank of China (BOC) accounts located in China.

in order to continue tracing the money trail, the judge ordered the Bank of China, which has 5 branches in the US with assets of about $65 billion, to hand over documents – including those located in China – relating to accounts belonging to the counterfeiters.

The order was originally made in 2010, but the BOC resisted claiming that it violated PRC bank secrecy (privacy) laws.  In 2015, the District Judge imposed a fine of $50,000 USD per day for every day the BOC failed to comply with the order.  Last January, after racking up over $1Million in fines, the BOC finally handed over the documents.

How this case will influence other US subpoena to foreign banks will depend on specific set of circumstances such as whether the transactions conducted were in USD, whether the foreign bank has any US interests and a myriad of other considerations but based on this outcome it is now possible to follow a money trail through Chinese banks and this significantly increases Chinese counterfeiters exposure to being caught, identified and sued.

Freezing illicit revenues

Under US law, a brand owner can obtain an injunction freezing funds held by counterfeiters deriving from transactions associated with counterfeiting.

In the Gucci  v Bank of China case, the court affirmed it’s authority to freeze funds held by counterfeiters outside the United States on the basis that it has personal jurisdiction over the counterfeiters, for example where they are

  • operating a website that sells counterfeits to US consumers within the courts jurisdiction (in this case New York);
  • selling and shipping the counterfeit goods to the jurisdiction; and
  • infringing the IP of an entity with significant ties to the jurisdiction.

The Fujian strategy

the Fujan strategy is one of the most effective anti-counterfeiting tools available.  In the The North Face Apparel Corp v Fujian Sharing Import & Export Ltd (No 10-Civ-1630 (SDNY)), an asset restraint was obtained and served on US-based process server PayPal. Over $2 million in assets was restrained and ultimately used to pay down the large judgments obtained.

To avoid the risk of losing large sums of money, counterfeiters have started to use less traceable methods of payment including payment processors and banks outside of the US.

Online marketplaces

Most major online marketplaces will cooperate with governmental authorities, private investigators and/or injured third parties in the investigation of any suspected criminal or civil wrongdoing. for example state that they may disclose the Member’s identity and contact information, if requested by a government or law enforcement body, an injured third party, or as a result of a subpoena or other legal action.

Payment gateways

Most payment gateweays such as Paypal and Western Union have Fraud Investigations Team (FIT) to promote safe use of their platforms; however, generally require a subpoena and court order to release records.

Paypal for example requires a fax and mailed copy of the subpoena before it will release any information.  Once Paypal recieve the mailed copy that will release all relevant account information including, names, addresses, phone numbers, email addresses, SSN (if available), IP addresses (at each login), attached financial accounts, complaints against, and complete transactional information.

Credit card companies

The International Anti-counterfeiting Coalition’s has a programme works with the major credit card companies to follow credit card transactions to put pressure on the banks where the card has been issued.

About brandsec

Brandsec is a corporate domain name management and brand protection company that look after many of Australia, New Zealand and Asia’s top publicly listed brands.  We provide monitoring and enforcement services, DNS, SSL Management, domain name brokerage and dispute management and brand security consultation services.

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Combating counterfeiting online: follow the money , Published in the World Trademark Review, Davis Wright Tremaine LLP

Follow the money – chasing international counterfeiters through the US legal systemGibson and Dunn



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