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You are here: Home / Archives for counterfeit

14th October 2020 by foodfraudadvisors

Nutraceuticals; a growing risk

A nutraceutical is a food or food component that is designed to provide health benefits when ingested.  The term is derived from the words nutrition and pharmaceutical.  Nutraceuticals may claim to promote health, prevent and even treat disease.  Nutraceuticals are big business; their global sales volume is estimated to be more than $382 billion in 2019.  Demand for nutraceuticals is at an all time high and growing year on year as the idea of ‘nutrition for health’ becomes more popular.

Both consumers and businesses purchase nutraceuticals; consumers buy supplements to add to food or as stand-alone pills, powders and tonics.  Businesses purchase nutraceuticals to add to the food and beverage products that they manufacture.  Nutraceuticals are also used in personal care products like face creams and in animal feed.

Nutraceuticals are not regulated in the same way as pharmaceuticals, so their claimed benefits do not necessarily have to be proven.  In many countries, they are not covered by food laws either.  As a result, nutraceuticals receive minimal regulatory oversight in many countries, including the USA.

Nutraceuticals are big business with a large global market and fast-growing demand

Fraud in nutraceuticals

Nutraceuticals are a good target for food fraud because of their high prices and high demand.  They are manufactured from specialist agricultural commodities that are often only produced in one or two locations worldwide.  As a result their global supply chains can be complicated.

Fraud in pharmaceuticals can take the form of:

  • Adulteration or dilution
  • Counterfeiting
  • Diversion and grey market

Adulteration and dilution

Adulteration and dilution fraud occurs when the claimed active ingredient is not present in the quantities that are declared by the manufacturer.  Sometimes, the ‘correct’ ingredients are replaced with cheaper ingredients that do not have the functional properties of the genuine ingredients.

Adulteration fraud is thought to occur often in nutraceuticals.  A survey of raw botanical plant parts and powders in the USA found 53% of them contained plant material that did not match the label.   In a separate study, cranberry extracts were found to have been adulterated with cheaper and more abundant grape seed extracts.  A range of aloe vera products contained no evidence of aloe vera ingredients at all.

Adulteration also takes a more insidious form, when fraudsters add extra functional ingredients without declaring them on the label.  This can put consumers’ lives at risk.  The fraud is usually perpetrated to boost the efficacy of nutraceuticals that are claimed to be natural.  For example, grapefruit seed extract, a dietary supplement that is said to have natural antimicrobial properties has been found to contain undeclared added chemical biocides such as benzylkonium chloride, methyl paraben and triclosan.  The biocides are added to mimic or increase the antimicrobial properties of the grapefruit seed.

Adulteration with pharmaceutical drugs also occurs.  Supplements for body-building and weight loss have been spiked with drugs that enhance their effects.  In 2017, the US FDA warned consumers  that body building supplements sometimes contain undeclared and illegal selective androgen receptor modulators (SARMS), which mimic the effects of testosterone.  Liver injuries and other serious side-effects occurred in people who took the so-called ‘natural’ supplements.

A 2019 study conducted in The Netherlands found 64% of supplements contained pharmacologically active substances or plant toxins such as caffeine or ephedrine.

Counterfeiting

Counterfeiting is the copying of a product by an entity other than the brand owner, so that it appears exactly the same as the legitimate product.  Counterfeited supplements may be produced in unlicensed facilities under unhygienic conditions.  They may contain less of the functional ingredients than the authentic product, or perhaps none at all.

Diversion of nutraceuticals. 1. The manufacturer sells their product into multiple countries at different price points. 2. A wholesaler in a lower-price-tier country purchases bulk quantities. 3. The wholesaler diverts the product from authorised sales channels in their own country to sell the product into markets with higher prices.

Diversion and Grey Market Fraud

Diversion and grey market fraud occurs when goods are directed away from their expected supply chain, being sold to places unintended by the brand owner.  This can be profitable if, for example, a product is sold at a higher price in one country but a lower price in another.

Distributors or importers of a nutraceutical can participate in diversion if they purchase more than they expect to sell through legitimate channels, obtaining a bulk quantity discount in the process.  The excess stock can then be sold to discount outlets or individuals who sell it on the internet or other channels that have not been authorised by the brand owner.

Products that have been diverted may be expired (past ‘best before’) or may have been held in conditions such as hot warehouses that degrade the product, causing it to lose its potency.

 

Protection from fakes and diversions

Manufacturers can protect their brands from counterfeiting and grey market sales by adding anti-counterfeiting features to product packaging.  The features can be overt or convert. Often a combination of both overt and covert features is used.

Overt brand protection features are obvious to the consumers.  They include holograms, tamper-evident labels, seals and stickers.  Overt brand protection features are used to provide consumers with a sense of safety and trust in the brand. Unfortunately, counterfeiters can easily copy overt features.

QR codes and bar codes can be added to packages so that purchasers can check the authenticity of the product.  However, barcodes and QR codes can be copied by counterfeiters.  Unless the QR or bar code is unique to a single batch or single product, then anyone who checks a counterfeit product that carries a copied bar code or QR code will be fooled into thinking it is legitimate.

Covert brand protection features are designed to be invisible.  They often require special scanners for reading and verification.  They can include fluorescing inks that can be read only under invisible wavelengths of light.  Chemically unique inks can be customised for a single manufacturer so that they are difficult for counterfeiters to reverse engineer.  These are called ‘taggant inks’.

Covert features are most useful for brand owners when they need to investigate a problem with product; they reveal whether the problematic product is genuine or not. They can also be used to find counterfeit products in authorised sales outlets and trace products that have been diverted.

Unique, serialised product identification codes provide an extra layer of protection.  Each product or product batch carries a different code.  The codes can be scanned by distributors, retailers and consumers to provide assurance that the product is authentic.

Protection from counterfeits and diversions using digital authentication. The product is marked with a unique code that can be scanned by distributors, retailers and consumers.  The code is checked against digital product information to check its authenticity.

Digital authentication as a protection against nutraceutical fraud. The product is marked with a unique code that can be scanned by distributors, retailers and consumers. The code is checked against digital product information to check its authenticity.

 

When the unique identifier is scanned, the brand owner can find out where the product is geographically located.  If that does not match the expected location of that product within the authorised supply chain that could signal diversion.  Likewise, if a single ‘unique’ barcode or QR code is scanned by multiple consumers that would indicate fakes in the market; counterfeiters have copied one code and applied it to whole batches of product.

One company to have benefitted from such a system is Windmill, a well-known Dutch brand of potato starch.  The company claims that its products were affected ‘up to 50%’ by counterfeits and look-alikes in overseas markets until it implemented digital security features including a unique ID code on each pack.  The code allows the purchaser to confirm authenticity, while the act of checking provides the brand owner with “valuable data… which can be used to make the entire supply chain more transparent and to generate crucial market insights.”

Nutraceuticals are high value products with complex global supply chains, making them an attractive target for food fraud.  Brand owners have been caught manufacturing and supplying products that contain less than the amount of functional ingredients.  Other brands have been found to contain undeclared pharmacological components, which can be dangerous. Diversion and counterfeiting of legitimate product also affects nutraceuticals.  With growing global demand for nutraceuticals, consumers and businesses alike need to be on the look out for food fraud in this sector.

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Filed Under: Food Fraud Tagged With: counterfeit, nutraceuticals, supplements

23rd August 2017 by foodfraudadvisors

Food Fraud; the faces behind the crimes

In our previous look at the motivations behind food fraud we discovered that it takes many forms.  From spices that contain illegal colourants, such as lead chromate in turmeric, to ‘organic’ grains that are shipped with forged documents, the types of frauds that are perpetrated with food are many and varied.

Consumers have been victims of food fraud for as long as trade itself; medieval bread was adulterated with chalk, ancient Roman wine was sweetened with lead, Americans were unwittingly fed illegal horsemeat in the 1800s and more recently, baby formula and pet food have had their apparent protein content illegally enhanced with the addition of melamine. It is easy to understand why a miller in the middle ages might have diluted his flour with chalk or an ancient winemaker might have added honey or water to his wine; the ‘enhancements’ were done to increase profits or to otherwise help their businesses, for example by being able to meet demand when materials were in short supply.

The motivation for financial gain experienced by the millers and wine-sellers of ancient times remains today and is the defining characteristic of the crimes that we now refer to as food fraud.  Michigan State University’s Food Fraud Initiative recently defined it as follows: “Food fraud is deception, using food, for economic gain” (2016).  Other crimes that involve tampering with food, say for the purposes of extortion or to cause harm to consumers, are specifically excluded from this definition.  Adulteration of food with the intention of causing harm is now widely called an issue of ‘food defense’.

It has been said that there are large networks of organised criminals working together to manufacture and supply fraudulent foods.  While that is certainly the case for some types of food fraud, that is by no means the only type of food fraud perpetrator.  There are many different people involved with food fraud and each has his or her own motivations.

Ms Natalie Crayton owns an artisan sea salt business in Scotland.  Artisan salt typically sells in retail stores for three to five times the price of ‘ordinary’ table salt.  In May of 2017, Ms Crayton’s business, Hebridean Sea Salt, was accused by local authorities of deceiving consumers by claiming that the salt was hand-produced from the waters of the Hebrides.  Investigations commenced after authorities were tipped off by a former employee.  Investors alleged that more than 80% of the product did not originate in the Hebrides but was imported from elsewhere.  Ms Crayton claimed that the foreign salt crystals were used to ‘seed’ the Hebridean water to create the product, a practice which is legitimate, but usually achieved with very much lower percentages of added seed crystal.

Local, natural sea salt, from the waters of the Scottish Hebrides…. perhaps

What is to be gained by swapping out some of the locally made salt with imported salt?  Of course that depends on the cost of production of the local salt versus the cost of the imported salt.  Alibaba is currently listing wholesale food grade sea salt at US$45 and $1000 per tonne, roughly equivalent to £0.03 to £0.77 per kg.  If an artisan producer who makes local salt at a cost of £3 per kg with a gross margin of two percent replaces just thirty percent of local salt with imported salt their gross profit could increase from around two pence per kilogram to almost seventy pence per kilogram, an increase of more than three thousand percent.  Under that scenario there are significant financial gains to be made from substituting components.  On the other hand, there is also plenty to lose.

Since the investigation into the Hebridean Sea Salt company began, it has ceased operation and its products are no longer available in the market.  The brand has been severely damaged and may never recover.  Ms Clayton may be able to defend her actions in court, or may be able to prove that allegations about the concentration of imported salt in the finished products are false.  But, whether or not the claims are upheld, her business faces financial ruin.

Like Ms Clayton, the vice president of Creation Foods, Kefir Sadiklar faces an uncertain future.  He and his family-run company were charged by the Canadian Food Inspection Agency over their supply of falsely described ‘kosher’ cheddar cheese to Jewish summer camps in 2015.  It is alleged that the company forged documents to make it appear that the cheese was kosher and put the forged documents inside boxes of non-kosher cheese.  When the boxes of cheese arrived at one of the summer camps, an employee noticed that some of the boxes bore the COR symbol, a kosher certification trademark, and some did not.  The employee requested clarification from Creation Foods, wanting to be sure that the cheese was fit to use at the camp.  According to information provided to investigators by the Kashruth Council of Canada, owner of the trademark, Sadiklar provided two certificates.  The first was for the wrong food while the second, supplied a few hours later appeared to be correct.  However, the employee must have remained suspicious, because he sent the second certificate to Kashruth Council, who noticed that it appeared to be a forgery: a single digit in the product code on the certificate had been altered to match the product code on the box of cheese.  The council contacted the police who passed the case to the food inspection agency, which is responsible for enforcing food label laws in Canada.  The resulting prosecution is the first of its type in Canada.

Creation Foods is a manufacturer of bakery products, and also acts as a distributor for products made by other businesses, including the cheese it supplied to the summer camps.  Creation Foods was certified by the Kashruth Council in 2011 and permitted to use the council’s COR symbol on some of its food products.  However, it appears to have a history of using the symbol on non-kosher products and was told to ‘cease and desist’ by the council in 2012 and again in 2013.  In 2013 the council issued an alert to businesses that had purchased cakes made by Creation Foods, claiming that the cakes were not kosher despite bearing a COR symbol on the pack and warning purchasers that Creation Food’s use of the symbol was unauthorised.

The allegations about Sadiklar and Creation Foods are damning; they imply a willingness by the company to mislead its customers on a number of occasions over a period of years.  Interestingly, the price difference between the non-kosher and kosher versions of the brand of cheese involved is said to be just two to three percent.  Does food fraud that increases profits by such a small margin generate enough extra income to justify the risks?  Perhaps.  When very large volumes of food are involved, even tiny increases in margins can make a significant difference to a company’s bottom line, but in this case large volumes are not likely to be a factor.  We do not know if Sadiklar’s motivation was to generate a little more profit from the summer camp order or whether there were other forces at play… perhaps Creation Foods was holding too much stock of non-kosher cheese that was nearing its expiry date, or perhaps they had run out of kosher cheese and risked upsetting their customer by failing to fulfil the order on time. Or perhaps the risk of facing any repercussions seemed so low that even a small monetary gain could somehow feel justified.  Sadiklar and Creation Foods denies any wrongdoing so we may never know.

On a more positive note, although the fraud that is alleged to have occurred with this incident was easy to perpetrate, it was also relatively easy to detect: the customer noticed an anomaly with the kosher symbol on the boxes, requested clarification from the supplier and then, when that did not appear quite right, attempted to verify the authenticity of the certification directly with the issuing authority.  That is an excellent way to verify the authenticity of certified materials; by contacting the certifier, especially if the certification body is well-respected or are themselves accredited.

A similar case of forged documents resulted in five years jail for the men involved.  Mahmudur Rohman and Kamal Rahman were convicted by a British court for conspiracy to commit fraud after Leicestershire food safety inspectors discovered that ‘lamb’ meat they supplied was actually turkey.  The tests were conducted as part of a local testing protocol that was implemented after the European horse meat scandal of 2013.

Investigators from the trading standards office revealed that not only was the ‘lamb’ made from an entirely different animal, but the halal certificates it had been supplied with were forged.  The company is estimated to have made profits of £300K – £400K during the period in which the frauds were occurring.

Meat seems like an ‘easy target’ for food fraud; it is not easy for customers and consumers to tell the difference between meat species, especially after it has been cooked in dishes like curries.  Energy drinks on the other hand are not often featured in news items about food fraud.  Meet Walid Jamil who, along with ten others, is being sued by an American energy drink company, Living Essentials, owner of the 5-hour Energy beverage brand.  Living Essentials claims Jamil and his associates manufactured and sold counterfeit copies of 5-hour Energy.  Jamil has a history of food fraud, having been implicated in an earlier scam in which counterfeit Pillsbury products as well as the sweeteners Equal, Splenda and Truvia were manufactured in a facility in Michigan.  No criminal or civil charges were placed against Jamil or his colleagues after that bust, so it’s little wonder that he was willing to get involved with the energy drinks scheme.

It was a big operation: the energy drink counterfeiters were manufacturing replica bottles bearing high quality labels and shrink sleeves in a warehouse in California that operated 24 hours per day and made about 1.5 million bottles a month, according to Geoffrey Potter, the lead counsel for Living Essentials. The drinks were placed into legitimate distribution channels in the guise of diverted product or returns.  Sales of the genuine drink were affected and a sales rep for Living Essentials became suspicious about the source of product in a certain retail outlet.  He sent a sample to the company’s headquarters for analysis which sparked a recall and investigation.  Potter reports that when investigators found the fraudsters there was so much money changing hands that “they had to use shopping bags to pass it out.”

How did the perpetrators make so much money?  The significantly lower operating costs incurred by a clandestine operation compared to legitimate beverage manufacturing might surprise consumers.  Clandestine manufacturing operations cut corners in every area: cleaning and sanitation, pest control services, facility maintenance, food safety systems, record-keeping, audit fees, labour costs – including through the use of illegal workers – unsafe and unhygienic equipment, substandard ingredients, non-food-grade packaging, untreated water, illegal waste disposal, substandard transport and storage conditions, failure to pay business registration fees, trademark registrations and by avoiding advertising costs.  The result is an unsafe product, unsafe work environments and loss of government revenue as well as damage to the brand owners.

Compared to Living Essentials, the fraudsters who produced fake 5-hour Energy could make product and get it to the market much more cheaply.  Worse still, although it is often said that consumers can spot ‘fake’ foods because their prices are too good to be true, counterfeiters can and do sell their products at the same price points as their legitimate counterparts.  In doing so they stand to make significant profits.  However, as we have seen, the perpetrators also have a lot to lose.  Civil penalties of $20 million were delivered in the 5-hour Energy case.  The price of food fraud can include loss of businesses and livelihood, high profile prosecutions, unwanted media attention, court appearances, jail time as well as million dollar penalties and fines.  New cases are uncovered every day by sharp-eyed customers, food inspectors and by insiders who want to do the right thing.  For those involved with food fraud, it’s only a matter of time before their crimes catch up with them.

Update: Creation Foods Company was fined CAD25,000, having pleaded guilty to the charges.

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Filed Under: Food Fraud Tagged With: authenticity, cheese, counterfeit, criminal, detection, economically motivated adulteration, fine, food fraud, halal, impact of food fraud, kosher, prosecution

9th May 2016 by foodfraudadvisors

A serial (cereal) offender is behind bars in Italy

News from Malta today tells the story of a serial food fraudster who has been detained over the export of counterfeit organic grains and oil seeds.  Malta Today reports that 350 000 tons of corn, soybeans, wheat, rapeseed (canola) and sunflower seeds worth €126 million and sold as organic over a period of six or more years probably weren’t organic at all.  Italian investigators found that the grains were grown in Moldova, Ukraine and Kazakhstan, certified as organic or bio by untrustworthy regulators in those countries and purchased by a Maltese company which then exported them to Italy.

The man behind the Maltese company is awaiting trial. Previously, he has been arrested over a shipment of GMO corn in 2014, implicated in counterfeit organic food scandals in 2011 and was tried for falsification of an invoice in 2010. Could we call him a cereal (serial) offender?

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Filed Under: Food Fraud, Impact of Food Fraud, Regulatory, Supply Chain Tagged With: counterfeit, criminal investigation, economically motivated adulteration, EMA, food fraud, GMO, organic food

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