For the headquarters of a counterfeiting operation that had pulled in $1 million in five years, the house at 2685 Woodbridge Ave. was unremarkable: a two-story clapboard on a block of modest homes in suburban Edison, N.J. Only a black Lorex security camera perched above the front door suggested otherwise.
Outside, on a Monday morning in December 2014, more than a dozen agents waited in their vehicles. Operation Big MAC included representatives from the U.S. Department of Homeland Security, the New Jersey Department of the Treasury, the Edison police department, and other agencies. Even the obscure U.S. Postal Inspection Service, the law enforcement branch of the U.S. Postal Service, had gotten involved in the case, helping conduct surveillance on the home for months.
On cue, the agents raided the house. Inside they found Jorge Robles, Ana de la Mota, their daughter Rossy, and their inventory: some 2,000 pieces of knockoff makeup labeled as premium MAC-brand cosmetics. Agents also found shipping boxes and labels, along with 15 mobile phones and a dozen iPads and laptops. Seizure letters from U.S. Customs and Border Protection (CBP) were on a nightstand. In the basement, an investigator lifted a ceiling tile and pulled out a small purse. Inside was a rubber-banded wad of $22,000 in cash.
Cosmetics companies have been fighting counterfeiters for as long as they’ve been in business, but the scope of their efforts isn’t widely known. The Estée Lauder Cos., the $30 billion company that owns MAC, Clinique, and other brands, has waged an especially aggressive campaign. Since 2003 its global security team has been led by the former head of the U.S. Drug Enforcement Administration’s New York office, and it employs 42 full-time agents around the world. They infiltrate flea markets, make test purchases on EBay, and gather evidence for civil suits against counterfeiters. Increasingly, they’re coordinating with local and national governments. That includes pointing Chinese police to the country’s dingy fake-makeup factories and advising U.S. prosecutors on criminal investigations here—including the Robles case in New Jersey.
Global seizures of counterfeit perfume and cosmetics jumped 25 percent from 2011 to 2013, according to a recent report by the Organization for Economic Cooperation and Development, making them a growing sector of the $461 billion annual trade in pirated and counterfeit goods. In 2015 the Department of Homeland Security, whose purview includes customs and thus counterfeits, began Operation Plastic Beauty after helping to bust a scheme on Long Island, N.Y., to make ersatz Vaseline, ChapStick, and other personal-care products, then sell them in Chinese-made counterfeit packaging.
The National Intellectual Property Rights Coordination (IPR) Center, which is led by Homeland Security Investigations and coordinates 19 federal and four international agencies to combat piracy, recently began collecting statistics on injuries caused by counterfeit cosmetics, which appears to be the first database of its kind. The health risks are nasty. The products often come from moonshine-style operations, with mud-caked floors and open vats of dye, and can contain paint thinner, mercury, carcinogens, and dangerous levels of bacteria. Eye shadow made with arsenic can seal your eyelids shut.
Even so, counterfeit makeup appears to be selling in higher and higher volume. Last year governments made more than 1,500 seizures of fake Estée Lauder products, totaling more than 2.8 million items, most of them MAC makeup. Given standard customs interdiction rates, the trade could easily amount to more than 10 times that figure. And the reputational damage to Estée’s 29 brands—which had revenue of $11.2 billion in the year ended August 2016—concerns the company even more than lost sales.
Not so long ago, counterfeit goods took a simple and well-worn path. Take New York, for example, where Bruce Foucart, the former director of the IPR Center, started his career in 1990. Back then, shipping containers of bogus watches, sunglasses, and the like arrived in ports, and then pallets of contraband made their way to warehouses in Brooklyn or the Chinatown neighborhood in Manhattan. “A guy set up his tabletop in the Bowery and sold his stuff until it got seized,” Foucart said. “And then he went back, got another batch, and changed his location.” Cat and mouse.
Over the past decade, the market has atomized—in large part because of the rise of sourcing websites such as Alibaba, China’s sprawling online bazaar, where shoppers can buy everything from individual toilet seats to an entire 20-foot container of canned sardines. It’s also possible to buy counterfeit goods in bulk—including makeup. A recent search on Alibaba found more than 22,000 listings for lipstick, including many sellers openly hawking MAC knockoffs. One vendor, a Guangzhou manufacturer, even sells an entire MAC-themed pop-up mall kiosk for $500. The upshot is that becoming a dealer in the U.S. no longer requires having shady contacts in Asia or smuggling suitcases through airports: Anyone with a few thousand dollars can buy contraband wholesale online and resell items individually on EBay and Amazon.com, or through more traditional channels such as flea markets, beauty salons, and mall kiosks.
Unlike buyers of, say, knockoff watches, who generally know they’re not getting a real Rolex for $50, the vast majority of people who purchase counterfeit makeup think they’re getting the real thing, Foucart said. Prices tend to be close to the genuine retail value. Shoppers often think they’ve found legit goods from a fire sale, he said, or from a company insider who’s reselling items first obtained at an employee discount.
The gels and powders of makeup itself are not difficult to fabricate, Estée Lauder says. And to criminals, the price-to-size ratio of cosmetics is more appealing than for bulky items such as Blu-ray players: The contents of a $21 vial of MAC-brand Liquidlast Liner measure only 0.084 ounce. Getting thousands of such items to the U.S. doesn’t require an entire shipping container. Foucart said criminals increasingly spurn freight in favor of FedEx, DHL, and other international couriers, preferring to spread a container-load of products across 100 large boxes. “You can fit so much through the mail,” Foucart said. “It’s less of a risk for the bad guys to lose product.”
At ports and airports, CBP agents inspect packages for tip-offs such as handwritten shipping labels—especially those marked as samples, because counterfeiters know commercial samples don’t require duty—and packages whose weight and size don’t align with their stated contents. If counterfeit products are inside, the agents impound the shipment and send a letter asking if the intended recipient wants to contest the seizure, which rarely happens. But the CBP has only so much manpower and time to identify and inspect suspicious packages. The result is that tracking a cosmetics counterfeiter in 2017 is often, to use the needle-in-a-haystack formulation, like finding a FedEx box in an airport hangar full of FedEx boxes.
That doesn’t mean it’s easy to become a mass distributor of Chinese counterfeit cosmetics. I know. I tried.
Last year, 83 percent of Homeland Security’s counterfeit seizures originated in mainland China or Hong Kong. Eager to infiltrate this underworld myself, I created an account on Alibaba. I queried sourcing agents in Taiwan, Zhejiang province, and Hong Kong, asking if they could replicate MAC’s iconic lipstick, which retails for $17. At first, they were eager to help. But when I asked for packaging identical to MAC’s signature all-black look, the suppliers became wary. “I am so sorry, we can’t produce without authorization,” wrote a vendor from the southeastern Chinese city of Jinhua. “Maybe you can design your own brand. :-)”
I had better luck on TradeKey, a marketplace with corporate offices in Saudi Arabia and Pakistan, which was the target of a 2011 civil suit by Cie Financiere Richemont SA, the owner of luxury brands Cartier and Alfred Dunhill. I posted a request for bids on 50,000 pieces of MAC Retro Matte Liquid Lipcolour, at $3 a pop. The real thing retails for $21.
Within 72 hours, I received e-mails from middlemen in Johannesburg, Mumbai, and Cameroon. There was little doubt, though, where the product would actually be manufactured: China. One afternoon, my phone buzzed. A man with a vaguely Eastern European accent who identified himself as “Mr. Andrei” wanted to help. I confirmed the size of my potential order and heard him lick his lips. He offered to send a sample.
Three days later a FedEx package arrived, bearing a tube of plum-colored High Drama lip gloss. The package had been sent from London in a MAC U.K. shopping bag. Mr. Andrei had promised that the product would be manufactured by an “official distributor” in Hungary, but the actual packaging read, “Fabrique en Italie.” From a phone number I traced to a Russian trading company, Mr. Andrei called me a half-dozen times a day for two weeks, pressing me to close the deal, before I backed out.
I sent photos of the sample to Estée Lauder’s security team. Someone there told me the product appeared to be genuine. That’s common, apparently: A supplier will often send a bona fide sample before swapping in counterfeit goods for the final bulk order.
During the years of the Great Recession, Jorge Robles and Ana de la Mota started a small business in New Jersey, purchasing name-brand cosmetics at going-out-of-business sales and reselling them at a markup. By late 2009, they’d started to run out of fire sales. In search of supply, de la Mota typed “MAC cosmetics” into a search engine. She found a Chinese sourcing website and a husband-and-wife team in that country eager to do business.
Robles and de la Mota, then about 45 and 39, respectively, began ordering one 50-pound box of counterfeit MAC goods every week or so. Had the products been genuine, each would’ve had a retail value of roughly $10,000; they paid about a third of that and resold the items at half off retail. They peddled on Amazon under the handle “Baby Castle.” Their daughter Rossy, then about 17 years old, hosted sales parties with cocktails and free makeovers. The family also supplied wholesalers in the Bronx and Manhattan, who in turn distributed the makeup to hair salons and made cash deposits into the couple’s bank account, from $500 to several thousand dollars at a time. (De la Mota declined to comment for this story. Robles did not respond to a letter, and Rossy could not be reached for comment.)
The couple leased a Mercedes SUV, moved to a bigger house, and dined at the Cheesecake Factory. On social media, de la Mota posted photographs from fashionable vacations: the Pont des Arts in Paris, St. Mark’s Square in Venice, a helicopter tour of the Grand Canyon. The marriage was rocky—they twice split up, de la Mota later told investigators—but they kept getting back together. They were a great team. And the money was too good.
In the counterfeiting world, the family was relatively small-time. In December 2013, for example, nine members of a New York-based syndicate led by Ming Zheng, also known as “Uncle Mi,” pleaded guilty to importing counterfeit perfume, handbags, and footwear with a combined retail value of $300 million. But the family’s trafficking was substantial enough to occasionally get intercepted by U.S. authorities. From 2009 to 2014, CBP seized 16 packages headed their way, out of roughly 240 total shipments, according to DHS documents.
Over Skype, Robles and de la Mota asked their Chinese suppliers how to respond. They learned simple workarounds: Vary the spellings of their names, ship to different addresses, rent hard-to-trace post office boxes, and get family members involved. The couple began having packages sent to relatives in neighboring towns, as well as to Busanka, a Dominican restaurant in nearby Port Reading, N.J., that de la Mota’s brother-in-law owned.
But the couple didn’t cover their tracks well enough. In September 2013, DHS Special Agent Brad Greenberg was stationed in Newark and looking for a new case when he began flipping through Customs seizure records for his region. He noticed a pattern—letters had been sent to six addresses in a tight radius in New Jersey’s Middlesex County, alternately addressed to “Ana Rocio de la Mota,” “Rocio de la Mota,” “Ana Robles,” and “Ana de la Mota.”
Greenberg called the U.S. Postal Inspection Service for help. The little-known agency is actually the country’s oldest law enforcement branch. Benjamin Franklin founded its forerunner in 1772, and since then postal inspectors have investigated crimes as diverse as child pornography, extortion, post office robberies, and the 2001 anthrax attacks. Brian MacDonald, a rookie inspector, was interested. He and Greenberg set to work, running shipping addresses through proprietary databases to generate basic biographical details on the Robles family and a list of likely associates. Facebook and Instagram filled in the rest.
In February 2014, an undercover agent posing as a hair-salon owner met de la Mota at her home. For $500, the agent purchased 68 pieces of supposed MAC-brand eye shadow, lip gloss, and lipstick. De la Mota advised the agent to resell the makeup not too far below the suggested retail price, to avoid drawing attention. And if the agent wanted to buy in bulk—say, more than 1,000 pieces? De la Mota told her to talk to her husband.
Greenberg drove the samples to Estée Lauder’s headquarters in midtown Manhattan. There he met with the company’s security and trademark protection team, which Lew Rice heads. A former top DEA agent, Rice had battled cocaine cowboys in Miami and worked undercover to take down Frank Lucas, the Harlem drug lord Denzel Washington portrayed in the movie American Gangster. Tony Dandridge, a former New York City Police Department detective on Rice’s team, examined the products, and a company representative signed an affidavit declaring them counterfeit.
Dubbing the case Operation Big MAC, Greenberg and rookie inspector MacDonald initiated surveillance on the family’s home. For months, two to four vehicles at a time would park nearby, watching business associates pick up inventory. Agents also tailed the couple as they drove around town. They went to school, the gym, and restaurants, but never seemed to hold 9-to-5 jobs. And yet over four years, investigators tallied $629,000 in cash deposits to the couple’s bank account, plus an additional $100,000 in Amazon sales. Their cash sales likely stretched into the tens—perhaps hundreds—of thousands of dollars, as well. They wired about a third of the revenue, about $300,000, back to their Chinese manufacturer.
Big Beauty is reluctant to talk about its counterfeiting problems, preferring not to advertise that its brands have been hijacked. Several cosmetics companies, including Avon Products Inc. and L’Oréal SA, declined to speak on the record. They can even be reticent with law enforcement. Many high-end makeup products come with anticounterfeiting measures—holograms, watermarks, and radio-frequency identification, or RFID, chips—and in some cases companies have refused to tell the government how they work, fearing the details could enter the public record at trial and then be circumvented. Such features are a big investment: The market for cosmetic and pharmaceutical anticounterfeit packaging totaled $35.7 billion in 2014, according to a study by Allied Market Research.
The promise of free trade has been a double disappointment for cosmetics brands. China produces most of the world’s counterfeit makeup, but its emerging middle class is lukewarm on Western beauty products. Unlike carrying a Louis Vuitton handbag, wearing high-end lipstick doesn’t project a brand name, making it less valuable to conspicuous consumers and limiting price premiums, said Tom Doctoroff, the Asia chief executive officer for ad company J. Walter Thompson Worldwide and the author of the 2012 book What Chinese Want: Culture, Communism, and the Modern Chinese Consumer. South Korean and local “mass premium” brands, meanwhile, are gaining market share. Chinese consumers often shop on the gray market—arbitrageurs reselling legitimate items on e-commerce portals such as Taobao and Tmall. Cosmetics companies dislike the practice, but it’s legal, and their sometimes ham-fisted attempts to combat it can backfire. In November 2014, four women of Chinese descent filed a class-action lawsuit against Sephora, accusing the retailer of banning people with Asian names from an online sale on the assumption that they were resellers. (Sephora said at the time that the allegations had no merit.)
EBay Inc., whose website is a main distribution channel for counterfeits in the U.S., has a mixed record on education and enforcement. The e-commerce site’s “verified rights owner program” lets 40,000 corporate partners flag knockoffs. Ryan Moore, an EBay spokesman, said that less than 0.025 percent of the company’s listings in 2014 were identified as potentially counterfeit. EBay, he said, is “an internet industry leader” in intellectual property enforcement.
That’s not so, said Angie Willis, a nurse in Indiana who began reselling MAC products on EBay 16 years ago after she became disabled. She bought large containers of pigment—loose, colored powder for $18.50—repackaging them into 5-gram sample jars she sold for $2.50, or sometimes more if the color was a limited edition. (U.S. Food and Drug Administration regulations require that cosmetics be sold in their original container with ingredient labeling, and EBay eventually removed Willis’s listings.) She said she netted thousands of dollars a week, but by the late 2000s the proliferation of knockoff MAC products on EBay was stunting her sales. Willis wrote a buying guide on the site—“MAC COSMETICS—HOW TO SPOT FAKES by EXPERIENCED SELLER”—that garnered more than 1,200 likes. She updated it for years, until the counterfeits got too good for even her to spot. Willis still clicks on the “report item” button when she sees an obvious fake, but she said she typically waits months for EBay to take action, if it does at all. “I wouldn’t buy too much of anything on EBay when it comes to cosmetics,” she said.
Even the luxury sector’s watchdog is in turmoil. In April, the International AntiCounterfeiting Coalition, a trade group in Washington, accepted Alibaba Group as a new member and announced that Jack Ma, the company’s founder, would address its spring conference. It was a bit like the Newspaper Association of America feting Craig Newmark, founder of classified-ad-killer Craigslist, for his contributions to print journalism.
IACC members mutinied. Designer Michael Kors quit the group, calling Alibaba “our most dangerous and damaging adversary.” When Gucci America and Tiffany Co. followed suit, the coalition suspended Alibaba’s membership. After the Associated Press reported that IACC President Bob Barchiesi hadn’t disclosed that he owned Alibaba stock, the trade group hired an independent firm to review its corporate governance measures.
Ma fired back at a June conference in Hangzhou, saying, “The problem is that the fake products today, they make better quality, better prices than the real products, the real names.”
By the fall of 2014, Operation Big MAC’s agents were closing in on Robles and de la Mota. The case would be brought in state court, and New Jersey prosecutors wanted to charge the family with money laundering in addition to counterfeiting. Greenberg and his team established a paper trail for $500,000 in illicit transfers, the threshold for a first-degree charge and a 10-year mandatory minimum, and then obtained search and arrest warrants. They raided the family’s home on Dec. 22, 2014.
The family couldn’t arrange bail. When the couple stopped answering e-mails, their Chinese supplier began calling the house. Besides Rossy, they had other children whom authorities hadn’t charged, and these children, on their own prerogative, told the supplier that their parents had been hospitalized after a car accident. With that ruse, Greenberg says, they hoped to string the supplier along and help their parents flip their Chinese contact in exchange for a lighter sentence.
Greenberg had the same goal. China’s Ministry of Public Security has, at best, a mixed track record with assisting counterfeiting investigations, so Homeland Security typically attempts to lure Chinese suppliers to American soil to make an arrest. But counterfeiters are wary of leaving the legal safety of the mainland. Soon, the couple’s source stopped calling their house. Greenberg suspects another American customer learned of the arrests and tipped off the supplier. The outcome was frustrating, he said—like collaring a street-level drug dealer while the kingpin slips away. In the past two years, Operation Plastic Beauty has seized more than $8 million of knockoff cosmetics and won 25 convictions. It’s not nothing, but the authorities know they could be doing more.
Robles pleaded guilty to second-degree counterfeiting, and a judge sentenced him to five years in state prison. De la Mota and her daughter pleaded guilty to third-degree counterfeiting and got probation and pretrial intervention, respectively. In May, I paid a visit to the family home. The security camera was still there. Everything else, including the Mercedes SUV, had been carted away by federal agents. De la Mota wasn’t home, and I left my card with a relative. When I returned an hour later, a modest sedan was parked in the driveway. I rang again, but no one answered the door.
I then made the 20-minute drive to Busanka, the restaurant de la Mota’s brother-in-law owns, where several packages had been delivered. Authorities had recently busted its proprietors, too. State auditors assisting Greenberg had learned that the owner, Henry de la Rosa, hadn’t been properly collecting sales tax. (In April 2016, de la Rosa was sentenced to three years’ probation and ordered to pay restitution of about $53,000.) When I arrived, the late-lunch crowd was sitting on stools emblazoned with Dominican flags and watching Spanish-language TV. De la Rosa was taking orders for carne de res frita and longaniza. He insisted to me that he hadn’t known what was in the packages and that he’d never handled them.
I asked him: What did he think of Robles and de la Mota? “They f—ed me real bad,” de la Rosa said. His cheeks were turning pink. To be specific, choosing among the 52 shades on MAC’s color palette for blush, they looked an awful lot like Pinch O’ Peach.
Article source: https://www.bloomberg.com/features/2017-counterfeit-makeup/