Bolstered by the Internet, fraudsters selling fake beauty products are doing brisk business—putting the health of consumers, and the reputation of brands, at risk. Writer Lauren McKeon investigates the murky world of criminal copycats
Last summer, online contest junkie Margaux Wosk posted an excited Instagram of her recent winnings: “Omg thanks @buytopia for the makeup and goodies!!” A doe-eyed, 26-year-old Surrey, B.C.-based visual artist, Wosk will happily splurge on the beauty brands she loves, like Urban Decay, NYX and Shu Uemura. But she’s even happier when she gets a good deal, and this was an enviable haul: a prize pack from Buytopia, the popular Canadian discount site, that included pearl earrings, a beaded bracelet and four M.A.C eyeshadow pans.
Her excitement quickly fizzled upon closer inspection. The shadow colours were pretty—a jewel-toned violet and blue, plus a lime and forest green—but something about them didn’t look right. And besides, Wosk had never heard of M.A.C selling its products through discount sites. Uneasily, she began to wonder if they were fakes. A quick Google search pulled up thousands of articles and YouTube videos on how to spot bogus M.A.C.
Wosk went through the list of telltale signs: is “net wt.” spelled without a space? Check. Is the text on the package thick? Check. When you scratch the package with your nail, does a mark remain? Check. Are the package folds soft, not crisp? Check. Does the shadow crumble? Check. A trip to her local M.A.C counter confirmed it: Wosk had been sent counterfeits.
The experience left her surprised and angry—but also enlightened. Her research revealed it wasn’t just M.A.C that faces a problem with imposter products, but all major cosmetic brands. The stuff is everywhere online. “So many people,” she says, “are being duped into putting their money into garbage.”
It’s difficult to determine the exact scope of the counterfeit black market in Canada—it’s not as if the perpetrators are reporting their sales. “Nobody has a real number,” says Lorne Lipkus, a founding partner of the Toronto law firm Kestenberg Siegal Lipkus LLP, which specializes in anti-counterfeiting and anti-piracy enforcement. Yet it’s clear the problem is Everest-size. Some studies, he adds, estimate counterfeit products (not just cosmetics) account for five to seven percent of the global economy—and that number seems to be trending upward. In Canada, for instance, the value of fake goods seized by the RCMP was $38 million in 2012, nearly five times the amount seized in 2005. And this past March, a study by the European Observatory on Infringements of Intellectual Property Rights reported that counterfeit wares accounted for 7.8 percent of total sales in the cosmetics and personal-care sector throughout the European Union.
To help unite the Canadian beauty industry in confronting this issue, the Canadian Cosmetic, Toiletry and Fragrance Association (CCTFA) is preparing to launch an anti-counterfeit network for members. It will act as an information pool, where beauty brands can share strategies such as how to identify counterfeits and pursue the culprits. “There’s increasing interest among our member companies in tackling the counterfeit problem,” says Darren Praznik, CEO and president of the CCTFA, “because it’s very disruptive to their brands and poses a risk to their consumers.”
Ideally, adds Lipkus, who will participate in this new CCTFA network, the Canadian government will also step up and, possibly in conjunction with industry associations, launch consumer-education campaigns. And there is some optimism that the tide could turn against counterfeiters. In December 2014, the federal government passed Bill C-8, the Combating Counterfeit Products Act—its first real effort to curb this crime specifically at the border. Many in the industry, including Lipkus, say the legislation is far from perfect, but agree it’s better than the limited measures we had in place before.
“All major brands have a problem with counterfeits,” says Lipkus. When I speak with him, he’s surrounded by evidence for a case: $7-million worth of phony luxury goods—including 13,000 wannabe Louis Vuitton, Gucci, Coach and Michael Kors purses and wallets, bundled into sealed plastic bags. Lipkus made his first bust in 1985, and today works with more than 75 top brands, including popular beauty companies, to stamp out counterfeiting. It’s not an easy job, especially as fraudsters abandon flea markets and migrate to the wild, wild west of the Internet, where there are innumerably more buyers to fool. As a result, fake cosmetics have flourished, which is bad news for everybody but the counterfeiters: not only are consumers getting ripped off, they’re also using potentially dangerous mystery products; plus, brands are bleeding business, both to counterfeit sales and damaged reputations.
The Internet has, unsurprisingly, created a worldwide infrastructure for sellers to hawk huge quantities of counterfeit cosmetics, concluded a 2011 report by OpSec Security, an international anti-counterfeiting and brand protection firm. Knock-offs are funnelled through both business-to-business (B2B) and business-to-consumer (B2C) platforms, such as Alibaba, eBay and Amazon. The report, which took a 24-hour snapshot of online activity, revealed the staggering breadth of fake listings. Focusing on six product types, including perfume, mascara and nail polish, OpSec found more than 275,000 listings in the B2B category—with, on average, 250,000 units available per listing. One seller in China was advertising six million bottles of Moschino perfume. Another was promoting 10 million bottles of Garnier Fructis shampoo. Luxury or drugstore brand, it was all there. In the B2C category, the situation was comparably dismal. OpSec discovered more than 46,500 listings, totalling 4.85 million products. Most were offered at a discount of 30 to 40 percent below retail price. Total estimated value: $60 million.
In some cases, online sellers were offering to make packaging and customized products in bulk—a sort of build-your-own-fake option. Others acted as suppliers, middlemen under the guise of distributors. Still more were colluding to move fake product from seller to seller, obscuring the trail before it ultimately reached consumers. And that was just in one day.
Often, even legitimate sellers aren’t aware they’re peddling fakes. When I spoke to Wosk, she asked me, baffled: How could Buytopia knowingly distribute counterfeits? But the company claims it didn’t know. When I interview the Toronto-based director of operations, Fazal Khaishgi, it becomes clear how counterfeiters could slip through. Buytopia acts as a marketing conduit for deals, allowing customers to purchase discount products and coupons through its 5,000 partnered vendors. It requires samples from those companies, which it authenticates, but since the vendors do the actual shipping, Buytopia can’t control—and may never see—every item sent to customers. (Though it’s a different business model, the same can be said of eBay, which did not return Cosmetics’ requests for comment.)
"The challenge is definitely there. [Counterfeiters] try to trick the customers and trick us,” says Khaishgi. Buytopia then relies on user complaints, either through email or on its discussion boards, to detect possible imitations. If the site suspects something, it will email customers to ask about the product and offer refunds, plus remove the deal from the site (if it’s still up), as well as end its relationship with the vendor. Khaishgi says the site tries to move as quickly as possible against frauds, since Buytopia’s business relies heavily on repeat customers and word-of-mouth—unwittingly selling counterfeits is a death knell to both. (Perhaps Buytopia would, in the future, be better off if it checked a cosmetic brand’s authorized-sellers list before it entered into business with what-a-deal merchants.)
Traditional bricks-and-mortar chains have also been duped, most infamously in 2007 when fake Colgate toothpaste with the antifreeze ingredient diethylene glycol entered small-to medium-size discount stores in the U.S. and the Everything for a Dollar Store in Canada. In that case, which made headlines in The New York Times and other papers, the toothpaste was traced back to individuals and companies in New York, who had purchased it from distributors in China. In fact, most phony goods can be traced back to China, Hong Kong and Taiwan, but the line is shadowy—the culprits aren’t your typical small-time crooks.
Fake-cosmetic sellers have been linked to both organized crime and terrorist organizations. A 2014 United Nations report emphasized that the counterfeit black market was controlled by the same illegal organizations that exploited trade routes used to traffic drugs, weapons and humans. Some organizations, such as Interpol, believe counterfeit products are quickly becoming the preferred funding source for terrorists—not exactly the kind of people you’d want to trust with products you use on your body.
“It’s one thing to buy a knock-off Prada purse,” says Dr. Frances Jang, a dermatologist and co-owner of the Skinworks clinic in Vancouver, “but with cosmetics, you’re putting it onto the skin and it can absorb into your body.” She adds that past testing done on confiscated counterfeits has found dangerous levels of heavy metals, such as arsenic, cadmium and beryllium, all of which can be carcinogenic. Not only that, fake cosmetics are not likely to be made in sterile environments. Some consumers have even reported the gag-worthy presence of urine in sham perfumes. Others have made frantic trips to the ER after discovering their purportedly “hypoallergenic” product was, indeed, not. Counterfeits may look or feel like the real thing, warns Dr. Jang, but consumers have no way of knowing what they’re getting—never mind that the items are likely poor quality.
“These [fake] products, by definition, are not regulated,” says Praznik. “They don’t follow any rules.” Counterfeiters have little incentive to test a product for contaminants, or to worry about adding enough antimicrobial or preservative ingredients. “Why would they?” he asks. “As long as it looks good on a shelf and someone buys it, they don’t care.” The intent is not to build a brand following, but to fool somebody long enough to get their money, so counterfeiters will instead focus their resources on imitating packaging.
Although counterfeiting has become a significant issue for the beauty industry, “a lot of people don’t want to talk about it,” says Praznik. That’s true. Few brands want to draw attention to the problem beyond telling buyers how to report fakes. When contacted for this story, several popular beauty companies declined to comment. However, Urban Decay treasurer John Ferrari not only agrees to chat, but admits that “counterfeit products are a major concern.” He adds that the company’s corporate security team has taken a “very aggressive stance” to tackling counterfeits—but it’s a difficult issue to make real headway on.
Online, Urban Decay uses software to sweep sites such as eBay and Alibaba, delisting tens of thousands of bogus posts each week. Unfortunately, he says, the results are sometimes temporary—the online sellers are gone one week, but back the next. In real life, the company conducts criminal raids on manufacturers and distributors of counterfeits in the U.S. and has seized millions of dollars’ worth of fake merch, according to Ferrari. Urban Decay also works with U.S. Customs and Border Protection to intercept shipments, he adds, “but it most likely catches only a fraction of the amount shipped in.”
When asked which other companies are afflicted by counterfeits, Lipkus won’t name names. That’s partly because singling out one brand is unfair—they all face this problem—and partly because product sales take a dive when they’re associated with fakes. The brand name becomes muddied, which undermines the loyalty of consumers, making them more likely to defect to a competitor.
Certainly, Wosk has become more vigilant about online shopping. Since the fake M.A.C incident, she’s also spotted suspicious-looking Urban Decay palettes on Buytopia—and makeup discussion boards are rife with “buyer beware” stories. She’s creeped out when she thinks of what ingredients were in the fake M.A.C eyeshadows, which she never used. From now on, she plans to stick to stores like Sephora or Holt Renfrew to buy her cosmetics. She may pay more, but it’s worth it to know what she sees is what she’ll get.
This article was originally published in the Summer 2015 issue of Cosmetics magazine. For more, download our iPad edition.