Chapter Three — Why Is Counterfeiting Dangerous?

From Transaction Losses to Threats to National Security

A counterfeit part on a shop shelf seems too small to constitute a social or security issue. A package of medicine, an invoice, an academic qualification, an identity card, or an electronic component likewise appears, at first, to be just an object: something someone buys, accepts, or sets aside.

But a counterfeit does not stay where it is sold or presented.

The part is installed. The medicine is taken. The qualification becomes the basis for hiring. A guarantee reassures a buyer about a transaction. An identity document is used to cross a border, open an account, or obtain a permit. An electronic component enters a communications network, and a digital certificate makes access to a system appear legitimate. The product may also change hands several times, with each subsequent buyer basing some of their trust on the previous buyer's decision.

Counterfeiting issues only a receipt at the point of sale. The real bill usually arrives later.

This gap between deception and its visible consequences is what takes the danger beyond the price of a bad product. The loss may be financial, but it can also reach the human body, road safety, institutional credibility, border security, organizational decisions, information confidentiality, or the operational capacity of strategic infrastructure.

Sometimes counterfeiting merely makes something look genuine. Sometimes it creates a way in.

A Classification of the Harms Caused by Counterfeiting

The harms can be considered in ten main groups:

Direct transaction losses: money is paid, but the promised value is not delivered.
Shifting the cost of insecurity: the counterfeiter removes quality and accountability costs from their own books and passes them to others.
Harm to health, safety, and the environment: the difference between genuine and counterfeit emerges in the body, on the road, in a factory, or in nature.
Compromising decision security: forged documents, qualifications, or data distort subsequent decisions that would otherwise be legitimate.
Falsifying identity and access: a false or manipulated identity bypasses physical, administrative, and digital boundaries.
Threats to national security and terrorist financing: some forms of counterfeiting can provide funding, identity cover, or a lawful appearance for security-related activities.
Espionage, infiltration, and sabotage in strategic supply chains: a counterfeit component, software product, certificate, or supplier may become a means of covert access or operational disruption.
Supporting organized crime and money laundering: counterfeiting provides revenue, documents, and infrastructure for other crimes.
Eroding public trust: genuine products also fall under the shadow of doubt cast by counterfeits.
The harm of delay: the later detection comes, the further the damage spreads and the harder it becomes to remedy.

There are no sealed walls between these categories. A forged passport may simultaneously conceal a person's real identity, enable border crossing, facilitate opening an account, and provide cover for moving money. An illegitimate electronic component may initially look like a procurement or quality problem, yet the nature of the threat can change entirely once it is installed in a communications network or defense system.

Counterfeiting usually produces a chain of harms, not a single loss.

1. Direct Transaction Losses: When Price and Value Part Company

The most obvious harm is what the buyer sees first: they have paid for the genuine article but received an item of lower or no value. They have bought medicine without the promised composition. A part is supplied under a reputable manufacturer's name, but without that manufacturer's quality, durability, or testing behind it. A certificate or guarantee with no real issuer may also be accepted.

Sometimes this loss can be measured by the price difference, but the purchase price is only the first figure in the file. Expert assessment, repairs, replacement parts, repeat treatment, downtime, complaints, travel, proof of the transaction, and lost time are added to the same purchase.

A counterfeit may be cheap. Its consequences need not be.

The 2025 joint report by the Organisation for Economic Co-operation and Development and the European Union Intellectual Property Office estimated cross-border trade in counterfeit and intellectual-property-infringing goods in 2021 at approximately $467 billion, equivalent to as much as 2.3 percent of global imports. Their estimated share of imports into the European Union was as high as 4.7 percent.[1] The report brings together an intergovernmental economic organization and the EU's specialist intellectual property body, drawing on customs seizure data and econometric modeling.

The $467 billion figure is not a direct count of all counterfeiting worldwide. The report estimates cross-border trade, so domestic counterfeiting, undetected goods, and many forms of document, identity, and data falsification fall outside its view. This limitation does not diminish the report's importance, but it prevents us from repeating the number as a definitive measure of all counterfeiting in the world.

The estimate's real significance lies elsewhere: counterfeiting is not a scattering of violations in a few marginal markets. It uses the same supply chains, transport, warehouses, postal services, and e-commerce on which the formal economy depends every day.

2. Shifting the Cost of Insecurity: A Bill Written in Someone Else's Name

An honest manufacturer pays for raw materials, design, testing, quality control, authorizations, packaging, taxes, after-sales service, and accountability. A formal seller also pays for reliable sourcing, proper storage, invoicing, warranties, and professional credibility.

The counterfeiter eliminates much of that spending while borrowing the appearance of the result.

Their quality-control costs are low, not because they have found a better production method, but because they have transferred the cost of failure to the buyer, patient, original manufacturer, insurer, government, or society. If the part breaks, the vehicle owner pays for repairs. If the medicine fails, the patient and healthcare system bear the cost of further treatment. If a product bearing a reputable brand's name causes harm, that brand must spend time and money responding and rebuilding its reputation.

The fraudster profits from someone else's name and sends the bill to that same name.

This mechanism corrupts competition from within. An honest company must balance maintaining quality against reducing prices, while the fraudster can dispense with quality and still benefit from the original product's appearance and reputation. If the market cannot distinguish the two, honesty becomes more expensive and the profits of fraud more attractive.

An Iranian study by Gholamhossein Khorshidi, Bahman Hajipour, and Mehdi Jafarzadeh Kenari examined consumer behavior in four categories of counterfeit goods: sports shoes, perfume and cologne, sunglasses, and automotive spare parts. The quantitative part of this mixed-methods study used data from 1,600 consumers and found that individual, social, product, and purchasing-situation characteristics affect attitudes toward counterfeit goods and continued purchasing.[2] The study does not estimate the size of Iran's entire counterfeit market. Its value lies in showing that fraudulent manufacturers do not create that market alone: purchasing behavior is part of the chain too.

Prevention that looks only at the workshop and overlooks market habits leaves half the problem untouched.

3. Harm to Health, Safety, and the Environment: When the Real Test Comes Too Late

Some products can be assessed to a degree before purchase. Color, stitching, or visible quality may tell us something about their value. Medicines, brakes, batteries, electrical cables, safety equipment, chemicals, and industrial parts are less forthcoming. Much of their quality is hidden where buyers cannot see it: chemical composition, alloy, tolerances, heat resistance, storage conditions, purity, or performance under pressure.

The truth about these products emerges in use: medicine in the body, brakes on the road, cable under electrical current, and an industrial part under load.

The problem is that the real test may come at the very moment when returning the product is no longer an option.

In its 2024 fact sheet, the World Health Organization states that at least one in ten medicines in low- and middle-income countries is substandard or falsified, and that around $30.5 billion is spent on such medical products annually. They may be ineffective, contain the wrong dose, or be contaminated, leading to treatment failure, antimicrobial resistance, direct harm, and declining trust in healthcare systems.[3]

The figure needs careful reading. The “one in ten” estimate combines substandard and falsified products. Not every case results from deliberate deception; some may arise from weak manufacturing or quality control. Both are dangerous to health, but their causes and the responses they require differ.

The OECD and EUIPO's 2022 report, Dangerous Fakes, does not confine the risk to medicines. This joint research examines products such as food, cosmetics, toys, automotive parts, batteries, chemicals, and pesticides for harm to health, safety, and the environment.[4] Its data were collected from customs seizures and enforcement information from several countries and institutions, so it maps detected goods rather than all goods in the market.

In the same report, online sales accounted for approximately 60 percent of global seizures of dangerous counterfeit goods destined for the EU, although their share of total seizure value was much lower. The distinction matters: online sales do not always move enormous consignments; they also deliver risk to consumers' homes in small, scattered packages.

The online market increases the distance between seller and consequence. The photograph looks good, the description sounds confident, the price is tempting, and the product may arrive from somewhere whose seller the buyer can no longer find. The counterfeiter exploits not only sales technology but also disappearing responsibility.

Harm in this field is not always reversible. The price of ineffective medicine may be refunded, but lost treatment time cannot be returned. A defective part may be tested after an accident, but the laboratory cannot turn back the moment of the crash.

4. Compromising Decision Security: A Forged Document Is More Than a Sheet of Paper

The danger of some forgeries lies in the decision the document or data produce, rather than in a product's physical quality.

A forged certificate says a person has been trained. A false qualification claims competence. A forged guarantee presents an organization as having accepted an obligation it never undertook. An altered invoice changes the origin, price, or parties to a transaction. A forged identity document connects someone to an identity that is not theirs.

Once such a document is accepted, the error does not stop at that desk. The person is hired, an account opened, property transferred, a permit issued, or another document created on the strength of the first. What began as a forged document gradually accumulates layers of apparently legitimate decisions.

The Iranian study “Identifying New Methods of Combating Identity Document Forgery,” by Gholamhossein Biabani, Mehrab Shadi, and Alireza Abdollahi, examined the views of 80 officers with more than five years' experience in forgery and fraud. The authors emphasize that identity documents underpin the issuance of many other documents, and that forging them can facilitate the issuance of apparently valid subsequent documents and the commission of other crimes.[5] This is a limited specialist survey; its broader numerical claims should therefore not be generalized to the whole country without independent examination.

Since 2007, the United Nations Office on Drugs and Crime has also examined identity-related crime as a field of criminal justice policy in its own right, rather than merely as a means to commit other crimes. Its 2011 guide for legislators, prosecutors, and law-enforcement officers resulted from a multistakeholder group involving representatives of governments, international organizations, the private sector, and academia.[6]

A document is a shortcut to trust in an administrative system. A bank employee, human resources department, or licensing authority cannot investigate every applicant's life from the beginning: they rely on documents. Forgery exploits that necessity. It does more than alter writing; it falsifies a right of entry into a set of decisions and services.

5. Falsifying Identity and Access: When Names and Faces Become Keys

An identity document does more than explain who someone is. In practice, it allows them to cross a border, open an account, enter a building, obtain a SIM card, sign a contract, or access part of a system.

What has been falsified is not just a card or passport. It is the right to pass and the right to access.

Nor does the attack always involve making an entirely forged document. A genuine passport may have been stolen, its photograph altered, a blank document stolen, or someone else's identity used. The system appears to be dealing with a valid document, but the relationship between document and holder has been broken.

INTERPOL, the intergovernmental police cooperation organization, created its Stolen and Lost Travel Documents database for this very problem. Its official page states that criminals and terrorists use fraudulent travel documents to cross borders, and that officers in member countries can check documents against records of lost, stolen, revoked, and stolen blank documents.[7]

This warning does not mean that every forged document is connected to a terrorism case. Most cases may relate to unlawful migration, fraud, evading prosecution, or financial crime. A document's security significance lies in what it enables: it can take someone through a filter that would have been closed to their real identity.

In identity falsification, the paper or chip is not the ultimate target. The aim is to make the system trust someone it probably would not trust if their real identity were known.

6. National Security and Terrorist Financing: A Real Connection, but Not a Universal One

In discussing counterfeiting and terrorism, exaggeration is as dangerous as denial.

We cannot say that a terrorist group stands behind every counterfeit product. Much counterfeiting is carried out by individuals, local workshops, or networks motivated solely by profit. Equally, we cannot ignore that, in some cases, counterfeit currency, false identities, forged documents, and illicit trade can provide funding, movement of people, or a lawful cover for terrorist activities.

The Financial Action Task Force, or FATF, an intergovernmental policy-making body on money laundering and terrorist financing, has devoted a report to the ways proceeds of currency counterfeiting enter the financial system and how counterfeit money is used to finance terrorism and other crimes. The report also describes currency counterfeiting as a profitable crime that can threaten monetary stability and national economies.[8] Its subject is currency counterfeiting; its conclusions should not be generalized without evidence to every counterfeit product.

In discussing the tracing of terrorist finances, INTERPOL likewise emphasizes that any profitable crime can provide funding, and identifies illicit trade in commodities such as oil, charcoal, diamonds, and gold as potential sources of revenue.[9] That page does not address every form of counterfeiting, but it shows that criminal proceeds can move between different fields.

The connection between counterfeiting and terrorism may arise through at least three routes: generating or transferring funds, concealing people's identities and movements, and creating a lawful appearance for a company, transaction, or document that actually covers unlawful activity.

Evidence of one does not prove the other two. Professional prevention must examine money, identity, and operations separately, rather than label a case “terrorism” simply because a counterfeit product has been found.

Terrorism is not a word to insert into a text merely to frighten the reader. When it appears in an analysis, its financial, identity-related, or operational route must be explainable.

7. Espionage, Infiltration, and Sabotage: When a Product Becomes a Trojan Horse

Sometimes a counterfeit product is intended to do more than sell for less or break sooner. Its mission may be to enter a place the attacker cannot access through ordinary channels.

In communications and computer networks, a counterfeit component, software product, digital certificate, or supplier can provide cover for malicious functionality. The purchasing organization believes it has installed a legitimate product, but has actually introduced a means of unauthorized access, data extraction, eavesdropping, disruption, or covert control into its infrastructure.

The United States National Institute of Standards and Technology, or NIST, a technical agency within that country's Department of Commerce, includes in its SP 800-161 guidance cyber supply-chain risks involving products that may be counterfeit, contain hidden malicious functionality, or be vulnerable because of poor manufacturing and development practices. A team of NIST specialists and technical consultants produced the document, primarily to support risk management in US organizations and agencies. It is therefore not a worldwide law or standard.[10]

The guidance itself does not describe every counterfeit product as an espionage tool. From a security perspective, however, one can infer that deliberately introducing a component or software product with malicious functionality into a supply chain may serve espionage, eavesdropping, or sabotage. This is an inference from the document's technical scenarios, not a claim about all counterfeit components.

In defense equipment, even a part that is merely poor in quality or recycled can have security consequences. In a report on the US Department of Defense supply chain, the Government Accountability Office, GAO, stated that suspected counterfeit parts can delay missions and endanger personnel. The report drew on a government and industry alert system for fiscal years 2011 to 2015 and discussions with selected defense organizations and contractors.[11]

Not every counterfeit component is an espionage device. Many are simply low-quality, used, or falsely marked parts. But if a deliberately modified component enters a network, critical infrastructure, or defense system, the issue goes beyond trademark infringement or procurement losses.

In that situation, counterfeiting resembles a Trojan horse: something enters under the name of a product, but its real mission begins after it passes through the gate.

8. Organized Crime, Money Laundering, and the Hidden Economy

Some crimes are possible without counterfeiting, but it makes them easier, less risky, and more profitable.

A false identity can conceal the real owner of an account, company, or transaction. Forged invoices and bills of lading can make a goods route appear lawful. Fabricated permits and certificates can bring a product into a market it could not otherwise enter. A shell company can also put distance between unlawful income and the appearance of a business activity.

Here, counterfeiting is not the building of crime itself. It is its doors, keys, and corridors.

The United Nations Interregional Crime and Justice Research Institute, UNICRI, headquartered in Turin, Italy, examined organized crime's role in counterfeiting in reports from 2007 and 2011. It describes counterfeiting as an important source of revenue and one of the routes used for money laundering.[12]

INTERPOL also treats trade in counterfeit and illicit goods as a transnational crime that may be linked to trafficking in people and drugs, corruption, bribery, and money laundering. This does not mean every seller of counterfeit goods belongs to a global network. It means criminal infrastructure—transport routes, warehouses, payments, intermediary companies, and online sales—can be shared across several illicit markets.[13]

In 2024, the heads of FATF, INTERPOL, and the United Nations Office on Drugs and Crime jointly warned that the enormous proceeds of transnational organized crime can facilitate conflict and finance terrorism. Their statement emphasized targeting criminal profits and financial networks, rather than merely seizing the final goods.[14]

This perspective takes counterfeiting prevention beyond examining a product's appearance. Sometimes the most important sign is not on the package: it is hidden in the invoice, bank account, intermediary company, transport route, or the business's real owner.

When counterfeiting connects to the hidden economy, it gives crime the appearance of ordinary commerce.

9. Eroding Public Trust: When the Genuine Article Is Punished Too

Every successful counterfeit has more than a direct victim. It also leaves a trace of doubt in the market.

When forged qualifications become common, genuine qualifications require more proof too. When authenticity labels are imitated, real labels lose some of their reassuring power. When a counterfeit bearing a brand's name causes harm, consumers cannot always distinguish the original manufacturer from the party misusing its name.

The imitation casts a shadow over the original as well.

In a market affected by counterfeiting, people spend more than money. They also spend more attention, time, and peace of mind. They must ask more questions, compare sellers, inspect packaging repeatedly, and remain anxious after buying. This cost does not appear on an invoice, but it is part of market life.

Low trust makes transactions expensive. Every contract needs more evidence, every document needs repeated verification, and every honest seller must devote some energy to proving they are unlike the fraudsters.

In this sense, counterfeiting is a hidden tax on trust: a tax the government does not collect, but society pays.

The right response is not absolute suspicion. A society that trusts no document, seller, medicine, package, or authenticity mark has not become secure. It has merely lost the ability to make ordinary decisions. Prevention should reduce the cost of healthy trust, not turn everyone into a full-time detective.

10. The Harm of Delay: When Detection Comes After the Damage

In many fields, detecting a counterfeit is not the end of the problem. Sometimes it is merely the moment when we discover how long the damage has been spreading.

The falsified medicine may already have been taken. The unsafe part may have traveled thousands of kilometers. A forged document may have underpinned several further documents. A fabricated identity may have been used for numerous accounts and contracts. A compromised component or altered software may also have been active within a network for a long time.

Late detection is like an alarm sounding after the incident: still necessary, but unable to turn back time.

The longer the gap between deception and detection, the more decisions depend on it. The first buyer sells the product on, an organization acts on the document, or a system generates new data from a false record. Counterfeiting gradually becomes part of the system's memory rather than an isolated point.

The harm therefore depends not only on the value of the transaction, but also on how long the deception remains hidden.

A low-value counterfeit detected quickly may cause limited harm. The same counterfeit, if it becomes a foundational document, primary identifier, or infrastructure component, can compromise subsequent layers too.

Prevention is not a promise to eliminate all counterfeiting. Its realistic task is to reduce opportunities for deception, increase the likelihood of early detection, and limit the damage.

Not All Counterfeits Carry the Same Weight

Counterfeiting a low-value decorative item does not carry the same weight as counterfeiting medicine, brakes, a medical qualification, a passport, a defense component, or a network access certificate. The word is shared, but the target and the consequences of use determine the level of risk.

To assess that risk, we must ask what is vulnerable to counterfeiting, what decision the deception produces, how reversible the harm is, how many people or institutions may be involved, and how difficult or delayed detection may be.

We must also ask what the attacker wants. Financial profit? Crossing a border? Access to data? Operational disruption? Concealing the origin of money? Or a combination?

A counterfeit toy may be inexpensive, but if it contains a toxic substance or dangerous component, its risk is not low. A certificate may be only a sheet of paper, but if it underpins the assignment of sensitive responsibilities, the paper's physical value bears no relation to the risk. An electronic component may also be cheap, yet its position in a system can cause damage many times its price.

A target's value is not the same as its price.

Why Is Prevention Necessary?

Counterfeiting does not eliminate the cost of security. It merely changes who pays.

The fraudster does not pay for quality control, but the patient pays for repeat treatment. The forger does not work to build credibility, but the legitimate institution must pay to restore trust. An unidentifiable seller is not accountable, but the formal market comes under the pressure of doubt. A forged document is created in minutes, yet correcting decisions based on it may take years.

At the security level, the problem becomes more serious. A false identity may bypass a border, counterfeit money or illicit income may be transferred to another activity, and a counterfeit component or certificate may gain entry where direct access was impossible.

Preventing counterfeiting is therefore more than defending a particular brand or technical tool. It defends bodily health, transaction security, document credibility, fair competition, borders, information, infrastructure, and the ability to trust.

The harm cannot be measured only by asking, “How much money was lost?” We must ask which decision was distorted, which trust was damaged, which responsibility was left unclaimed, which other crime became possible, and how late detection arrived.

The danger is not simply that the imitation resembles the original.

The deeper danger is that it can borrow the original's credibility to enter a body, market, office, border, or infrastructure—and produce a real decision before anyone notices.