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Back to Archives | Back to August 2008 Contents 

Pharmaceutical Counterfeiting: Understanding the Extent of a New Transnational Crime

By Thomas T. Kubic, Executive Director, Pharmaceutical Security Institute, Vienna, Virginia; and Former Deputy Assistant Director, Criminal Investigative Division, U.S. Federal Bureau of Investigation



he pervasive presence of counterfeit pharmaceuticals worldwide, especially in developing countries, causes serious harm to users, including injuries and deaths due to ineffective or toxic treatments. Self-administered by patients who are unaware of the danger, these medicines cause adverse reactions with potentially fatal results. As illustrated by the following cases, these incidents can occur in both developed and developing countries.

Investigators believe that sometime in March 2006 at a small store a few blocks east of downtown San Diego, California, a 21-year-old woman bought an ampoule of penicillin. Once home, she took the antibiotic, went into shock, and died a short time later.1

On July 5, 2007, Panamanian prosecutor Dimas Guevara said that tests show at least 94 people have died from taking medicine contaminated with diethylene glycol since the previous July and that 293 more deaths were under investigation.2

On July 6, 2007, Coroner Kerry Clarke issued his report confirming that the death of Marcia Ann Bergeron was due to metal poisoning after she ingested contaminated counterfeit pills purchased online. Clarke found high levels of metals in Bergeron’s liver, including 15 times the normal level of aluminum.3

Although a few well-publicized cases convey some sense of the counterfeiting problem, too often the availability of counterfeiting data is limited. At times, dubious, overly optimistic or pessimistic, highly questionable estimates are presented as fact. The Pharmaceutical Security Institute (PSI) believes that a consistent, systematic approach to the collection and analysis of counterfeiting incident data yields a more accurate assessment of the situation and fosters a clear understanding of this problem by law enforcement authorities.4

Over the years, policy makers at government agencies and international organizations have struggled to determine the precise extent and nature of this problem.5 In 2006, the World Health Organization (WHO) recognized this problem when it highlighted the importance of timely exchanges of information with the active participation of public and private stakeholders.6

Pharmaceutical companies face the dilemma of how to respond to well-organized criminal groups that manufacture, transport, and distribute counterfeit medicines indiscriminately. Several innovative multinational manufacturers took the lead by establishing PSI, the world’s only organization devoted exclusively to the collection and analysis of information on pharmaceutical crime. PSI collects data on such illicit activities as counterfeiting, illegal diversion, and theft. Multilingual analysts, in coordination with experienced investigators, manage a consistent flow of information, as data are collected, analyzed, and disseminated in support of individual inquiries. Strategic trend information, essential for gaining a full understanding of the nature of the counterfeiting threat posed by international criminal conspiracies, is regularly produced.

PSI supports all levels of law enforcement—state, national, and international—with timely information concerning pharmaceutical crime and facilitates transnational investigations. It serves as a single point of contact and support for the security directors from 26 major pharmaceutical manufacturers, whose operations span 160 countries.


Documenting the Problem


PSI inaugurated a unique incident-based reporting mechanism, the Counterfeiting Incident System (CIS), in 2002. The CIS includes pharmaceutical crime reports from open sources such as press releases, academic journals, media articles, and government warnings, as well as member company reports. For example, a member may learn of the discovery of a counterfeit medicine following a government inspection. This member, using the Web-based system, submits critical data needed for analysts to positively identify this incident as either new or related to a previously submitted incident.

The data necessary for effective analysis include fields such as the date, time, and location of the incident. Information regarding the pharmaceutical’s characteristics, therapeutic category, quantity involved, and information concerning the individual suspects and the business responsible for counterfeiting are included.

In just a few years, the CIS has become a reliable source for counterfeiting information. A survey of European Union (EU) member states and stakeholders conducted in 2003 and 2004 disclosed that the CIS database was the best-known counterfeit medicine information system.7


Definitions


To understand PSI’s data collection and analytical methodologies, it is necessary to define its terms. PSI recognizes that many of these terms have an official, specific definition developed by either regulatory authorities or legislative bodies in many countries throughout the world.

Counterfeit Medicine: PSI’s definition of counterfeit medicines is built on the definition used by the WHO.8 Counterfeit medicines are products deliberately and fraudulently produced and/or mislabeled with respect to their identity and/or source to make them appear to be genuine. This definition applies to branded, generic, and over-the-counter products.

Counterfeit products appear with a wide range of deficiencies. For example, counterfeit medicines have been found to contain less than or more than the required amount of active pharmaceutical ingredients (APIs) used in the authentic version. The product may even contain the correct amount of APIs but has been repackaged in counterfeit packaging to extend the expiration date.

Illegal Diversion: Genuine pharmaceutical products are said to be illegally diverted when they are approved and intended for sale in one country but are then illegally intercepted and sold in another country. These schemes are accomplished often through the use of false statements or declarations. In some circumstances, drug regulators in the second country have not approved the use of the diverted drug.

Genuine pharmaceuticals can also be illegally diverted within the same geographic area or within the same country or city. In this type of diversion, discounted medicines are taken from one intended group of consumers to another group buying medicines in an unregulated, open market. For example, in Latin America, a government might purchase drugs at discounted prices for use in state hospitals, but these drugs are then diverted to the street or open-air markets.

Pharmaceutical Theft: Pharmaceutical theft is defined as an illegal taking of medicines. Types of theft include burglary, robbery, or embezzlement of goods. Individuals responsible might be insiders such as employees or outsiders such as professional thieves. The theft can occur anywhere in the distribution chain: at the site of manufacture, the freight forwarder, distribution centers, warehouses, pharmacies, or hospitals. PSI data relate to major thefts, those greater than $100,000 in value, and thefts that involve organized criminal networks and/or schemes.

Incident: An incident is a discrete event triggered by the discovery of counterfeit, illegally diverted, or stolen pharmaceuticals. It must have adequate factual information such as a particular date, time, place, and type of pharmaceutical product involved for it to be considered a unique incident. Once identified, all incidents are assigned a tracking number—a critical step in linking incidents determined through subsequent investigation to be related.

Identifying incidents is a challenge, since PSI recognizes that counterfeiters and their allies know they are committing a crime and aggressively seek to avoid detection. They engage in elaborate conspiracies to disguise their activities, as the principals remain in the shadows. They establish fictitious businesses and front companies. They exploit weaknesses in border control whenever governments try to promote world commerce by reducing border inspections. They use false documents to obtain essential active pharmaceutical ingredients as well as manufacturing equipment to replicate the genuine manufacturer’s trademarks.

All of their actions tend to disguise the extent of the crime and make reporting difficult, but one thing is clear: their method of operation leads to the unequivocal conclusion that these subjects are well organized, transnational criminals who totally disregard the negative impact of their actions on countless numbers of critically ill individuals.


Key Findings


By December 31, 2006, PSI documented 1,371 incidents, the highest total in five years. Counterfeiting of pharmaceuticals continued as the most common type of crime identified by PSI, having taken place in 1,184 incidents, or 86 percent of the total. There were 133 incidents involving the illegal diversion of pharmaceuticals, and 54 major pharmaceutical thefts.

Efforts continued to collect data concerning incidents that took place in 2005 but had been unreported as of December 31 of that year. The updated incident data led to the revision of the 2005 incident total from 973 to 1,123. The two-year total, illustrated in table 1, equaled 2,494 incidents.

Furthermore, external research has corroborated this growing trend in pharmaceutical counterfeiting. A 2006 survey of EU member states and stakeholders reported that 60 percent stated that the incidence of counterfeit medicine cases would increase.9

PSI data on counterfeiting, illegal diversion, and theft incidents show a steady increase in incidents over the past five years and are graphically depicted in figure 1.


Where Does Counterfeiting Occur?


The 1,371 incidents documented in 2006 affected 100 countries, a decrease of one country from the 2005 total of 101. A country is included when it is the point of origin, seizure, or transit, or the intended destination, of counterfeit pharmaceuticals. Incidents can involve more than one country. For example, when a product is diverted from one country to another, two countries are affected. The 10 countries experiencing the highest number of counterfeit, illegally diverted, or stolen pharmaceutical incidents are listed in table 2.

China, for the third straight year, experienced the largest number of incidents. Although the rankings of the top 10 experienced only minor changes, almost every country experienced increases in 2006. Analysis disclosed many counterfeiting operations either based in or exporting counterfeits from countries located in Asia. Accounting for 58 percent of the recorded total, the top two countries exporting counterfeits were China and India. This finding is similar to reports from EU and U.S. customs agencies that identify China as the main source of contraband.10

When considering those countries where counterfeit pharmaceuticals have been seized or discovered, a slightly different picture emerges. Table 3 identifies the countries where counterfeit pharmaceuticals were most frequently seized or discovered.

It should be noted that the countries frequently linked to incidents are not necessarily those with weak enforcement and inspection programs. Rather, these countries are effectively identifying pharmaceutical crimes through law enforcement activity and inspections by drug regulators. Many countries with high incident totals are transparent in government operations, and their activities are known to the media and the public.


Types of Products Involved


The 1,371 incidents that took place in 2006 involved 560 different pharmaceutical products. The number of products found in a single incident ranged from one drug to 45 different drugs. The number of therapeutic categories found in a single incident ranged from one to 11. PSI found that counterfeit pharmaceuticals in every therapeutic category were manufactured by criminal organizations.

CIS data reveal that some incidents involved hundreds of thousands of dosages. In one incident, the minimum order accepted by the manufacturer was one million counterfeit tablets.

PSI noted three therapeutic categories had a significant percentage increase on a year-to-year basis. The respiratory therapeutic category led with the largest increase, at 127 percent. Alimentary medications were second, with an increase of 94 percent, and cardiovascular drugs increased by 62 percent. These increases are shown graphically in figure 2.

Government Response: Enforcement Actions


Arrests are viewed as a key measure of law enforcement agencies’ effectiveness in addressing crime. However, law enforcement practices with regard to arrests can differ significantly from country to country. In addition to identifying the involvement of law enforcement agencies in a particular incident, PSI has been collecting information concerning arrests as an indicator of governments’ commitment to address pharmaceutical crime.

In 2006, PSI documented the arrests of 755 persons involved in counterfeiting, diversion, or theft of pharmaceutical drugs worldwide. There were 10 percent fewer arrests during 2006 than in 2005. So even though international attention to, dialogue about, and discussion of this issue increased, there was no corresponding increase in arrests.

A substantial majority of arrests in 2006 (82 percent) were reported in matters concerning counterfeiting incidents. Most of the rest were for diversion (16 percent), and only 2 percent of arrests were for theft.

To the extent the information was available, PSI categorized the types of activity in which the subjects were engaged when they were arrested. This analysis was designed to identify potential weaknesses in the organization where successful law enforcement interventions could be made. Five categories were identified:

  • Point-of-sale arrests are made when individuals working in pharmacies, hospitals, and those primarily associated with Internet sites sell suspected counterfeit or illegally diverted product.

  • Transporting arrests take place when individuals are arrested at international borders and in airports while engaged in transporting counterfeit or diverted shipments.

  • Distributor arrests are made when wholesalers and individuals are arrested at warehouses where counterfeit or illegally diverted goods were being stored.

  • Manufacturer arrests take place when individuals are arrested at locations where equipment for manufacturing counterfeit pharmaceutical drugs or labels was present.

  • Theft arrests involve individuals connected to the stealing of pharmaceuticals; generally, these are major thefts valued at more than $100,000.

The chart in figure 3 details the arrest data by activity. The red columns represent 2005 totals, whereas the blue columns represent 2006.

In 2006, PSI documented a shift in law enforcement actions from arrests of distributors to arrests of manufacturers. Given that distributors made up the top arrestee category in 2005, source information gathered from those arrested might have led to the greater number of manufacturing arrests in 2006.

The arrest data indicate that law enforcement agencies have shifted their focus to the critical component of these organizations—manufacturer operations—in campaigns that are expected to become increasingly effective at reducing the quantity of counterfeit medicines on the market.

Arrests made during the transportation of counterfeit and illegally diverted pharmaceuticals increased in 2006. Although PSI had documented modest increases in the transportation category in previous years, the 2006 total nearly doubled over that of 2005. Some of the increase can be attributed to law enforcement actions in Brazil, which recorded 81 transportation arrests in a special highway enforcement program. Many arrested individuals were moving counterfeit product from Paraguay to Brazil.

Examining arrest activity by country provides substantial insight. Table 4 ranks the top 10 countries by recorded arrests in 2006.

Significantly, China leads all nations in number of arrests, as its law enforcement efforts appear to be focused intensely on counterfeit manufacturing operations.

The United States ranked eighth in pharmaceutical crime arrests. Given that it ranks third in overall incidents and fifth in counterfeit seizures/discoveries, the performance of U.S. investigative agencies, as measured by arrests, appears to be low. Several factors appear to have affected U.S. performance. First, counterfeit drugs are distributed by rogue Internet pharmacies that operate outside of the United States and the jurisdiction of the Food and Drug Administration’s Office of Criminal Investigations. Second, enforcement of the existing laws banning importation by individual customers has been limited, allowing a free flow of counterfeit, stolen, and illegally diverted drugs to reach unsuspecting U.S. consumers.


Conclusion


In summary, the challenge of counterfeiting is clearly evident from the PSI data. There have been documented increases in the number of incidents worldwide; there are more countries experiencing counterfeiting than ever before; and a wide variety of pharmaceutical products are now counterfeited, illegally diverted, and stolen. Many lifesaving medicines are being counterfeited.

In addition, PSI is confident that countries not reporting incidents have the same, if not greater, risk of pharmaceutical crime. Due to competing law enforcement priorities, the lack of funding, and/or inadequate regulatory structures, counterfeit illegal medicines and counterfeiting organizations often go undetected in such places.

In the United States, although there has been an active enforcement program at the federal level, more information needs to be shared with state and local law enforcement agencies, which are largely unfamiliar with the nature and extent of the counterfeit medicine problem. State and local agencies need to have a clearer understanding of the methods of operation of organized counterfeiting groups. A stronger commitment to public-private partnerships is one way to address pharmaceutical crime.

Clearly, law enforcement agencies around the world have a shared responsibility to protect the public health. By sharing information and initiating more investigations with drug regulatory authorities, law enforcement officials can contribute much to stemming this illegal trade.

For more information, the author can be reached via e-mail at tkubic@psi-inc.org.

The author acknowledges the research assistance provided by Sebastian J. Mollo, M.D., medical affairs consultant at PSI.

Notes:

1Allison Hoffman, “San Diego Couple Prosecuted for Selling Illicit Penicillin,” The Mercury News (San Jose, California), June 18, 2007.
2“94 Deaths in Panama from Tainted Medicine,” Associated Press, July 5, 2007, http://www.msnbc.msn.com/id/19611858/ (accessed June 13, 2008).
3Lindsay Kines, “Counterfeit Pills Killed B.C. Woman: Coroner,” CanWest News Service, July 6, 2007, http://canada.com/topics/news/national/story.html?id=95d20b51-ef24-4839-88f7-9e53c479372a&k=39706(accessed June 13, 2008).
4The Pharmaceutical Security Institute, Inc. (www.psi-inc.org), incorporated as a nonprofit association in 2001, is based in Vienna, Virginia. Its members include 26 research-based pharmaceutical manufacturers.
5The Organization for Economic Cooperation and Development (OECD) has been mandated by its member countries to carry out an examination of counterfeiting and piracy activities. Letter dated March 9, 2006, to PSI from the OECD.
6The WHO made a push to increase global cooperation through the creation of a global task force including all stakeholders at a February 2006 conference in Rome. See “Drug Safety: WHO Convenes Stakeholders to Find Global Solutions to Counterfeit Drugs,” Biotech Law Weekly, March 17, 2006.
7Jonathan Harper and Bertrand Gellie, Counterfeit Medicines: Survey Report (Strasbourg: Council of Europe, 2006), 53.
8World Health Organization, “Counterfeit Medicines,” Fact Sheet 275, November 2006, http://who.int/mediacentre/factsheets/fs275/en/print.html (accessed June 13, 2008).
9Harper and Gellie, “Counterfeit Medicines,” 23.
10China is a major source of the counterfeit products seized in the EU. See “Counterfeiting and Piracy: Frequently Asked Questions,” European Commission, October 11, 2005, http://europa.eu.int/rapid/pressReleasesAction.do?reference=MEMO/05/364&format=HTML&aged=0&language=EN&guiLanguage=fr (accessed June 13, 2008). U.S. Customs reported that in mid-2003 China accounted for 70 percent of the domestic value for all seizures of all kinds of infringing goods. See U.S.-China Business Council, “Intellectual Property Rights in China: Background and Figures,” July 7, 2005, http://www.uschina.org/info/china-briefing-book/ipr_backgrounder.html (accessed June 13, 2008). In August 2004, William H. Lash, U.S. assistant secretary of commerce for market access and compliance, said, “Throughout the world we have seen a rise in pirated materials that can be directly traced to Chinese production.” See Edward Lanfranco, “China Trade Problems in an Election Year,” Washington Times, August 13, 2004.


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From The Police Chief, vol. LXXV, no. 8, August 2008. Copyright held by the International Association of Chiefs of Police, 515 North Washington Street, Alexandria, VA 22314 USA.








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