HONG KONG CUSTOMS INCREASES COUNTERFEIT RAIDS FOR

UNCLAS SECTION 01 OF 02 HONG KONG 000465

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E.O. 12958: N/A
TAGS: CH ECON ETRD HK KIPR
SUBJECT: HONG KONG CUSTOMS INCREASES COUNTERFEIT RAIDS FOR
CHINESE NEW YEAR


1. (U) Summary: Hong Kong Customs and Excise (CED) officers
recently broke up a multi-million dollar counterfeit
pharmaceutical ring and a separate triad syndicate that sold
pirated optical disks. In the first case from late January,
CED officers arrested the 37-year old leader of the
counterfeit drug smuggling operation and seized over 470,000
fake tablets worth $HK19 million (approx. US$2.5 million).
In the optical disk case, officers raided 20 sites across
Hong Kong and arrested 14 people on organized crime and
copyright violations charges. These large-scale raids
coincide with a noticeable increase in Customs enforcement
and education activity in advance of the Chinese New Year
celebrations, a time when residents and tourists visit street
fairs and temporary markets that previously sold counterfeit
goods. In the past two months, CED officials have arrested
wholesale operators for selling fake goods, increased patrols
at street markets, and warned part-time retailers who open
temporary stalls at New Year's markets of the penalties for
selling infringing products. END SUMMARY.


2. (U) On January 26 2007, CED officers stopped an
international syndicate of counterfeit drug smugglers, who
targeted the American, European, Indian, and Australian
markets. Based on intelligence from the pharmaceutical
industry, CED raided storage facilities across Hong Kong and
seized 470,000 tablets of fake drugs with a street value of
HK$19 million (approx. US$2.5 million). The drugs were being
marketed overseas to treat heart disease, avian influenza,
impotence and weight gain. Customs officials claim that the
ring sent spam emails to customers and offered drugs at
slightly under retail prices to convince buyers the
medications were genuine. Many of the drugs found had been
packed for export with mailing labels already addressed.
Hong Kong officials arrested the 37-year old head of the
smuggling operation and plans more arrests in the near
future. CED stated that they would share information with
foreign counterparts to facilitate investigations overseas.
CED publicly noted that these counterfeit pharmaceuticals
were primarily placebos with no active ingredients, but were
extremely dangerous to people who depend on them to treat
chronic illnesses.


3. (U) On February 14 and 15, CED confiscated over 120,000
pirated optical disks, a private car, a cross-border (Hong
Kong-mainland) container truck, cash, and Hong Kong Jockey
Club (HKJC) cash vouchers with a total estimated value of
HK$3.9 million (US$500,000). The operation included raids of
20 different locations, including storage areas and retail
outlets, and the arrest of 14 people. CED stated the
smuggling syndicate was controlled by the Triads, represented
"the largest organized crime group engaged in pirated optical
disks in Hong Kong," and used the Jockey Club and local
restaurants for money laundering of illicit profits. Press
reports estimate that the group made more than HK$130 million
(approx. $16.7 million) over a seven year period through
smuggling, distribution, and money laundering. CED charged
all 14 with "conspiring to sell infringing copies of
copyright works" under the Copyright and Crimes Ordinances,
as well as "dealing with property known or believed to
represent proceeds of indictable offenses" under the
Organized and Serious Crimes Ordinance. The use of organized
crime laws is important as it allows CED to impound the
property of those arrested.


4. (U) The above cases coincide with an increase in law
enforcement activity against IPR violations in Hong Kong.
Starting in December, CED stepped up patrols of Hong Kong's
night markets and warehouses to stop the sale of smuggled
counterfeit goods. In one pre-Christmas raid of three
warehouses, Customs officials seized HK$2.2 million (approx.
US$300,000) worth of clothing, luggage, sneakers and watches
and another HK$8.2 million (US1.1 million) worth of optical
disks. Customs officials note that sellers rarely advertise
their goods by displaying them in public, but approach
customers directly with pictures of the products they sell in
storage facilities behind markets or retail shops. Officials
announced they also seized credit card payment machines in
one of these facilities, noting that some counterfeit
retailers have started to urge clients to pay with credit
cards that enables them to sell more goods as well as steal
credit card data. In February, CED officials raided
warehouses containing counterfeit paraphernalia of Disney and

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Japanese cartoon characters. CED anti-counterfeiting
officials have stated publicly that they have stepped up
patrols of Hong Kong's annual Chinese New Year markets and
warned retailers that they will be prosecuted if they are
caught selling fake goods. It appears the high publicity
surrounding these raids was designed to give retailers and
consumers warning of the dangers of dealing in counterfeit
goods.
SAKAUE