This Global Fraud Kills

Counterfeit Drugs Kill! This is the title to a bulletin prepared by the World Health Organization (WHO) and its creation, the International Medical Products Anti-Counterfeiting Taskforce (IMPACT). In February 2006, the WHO began IMPACT, comprised of all 193 WHO member states, to break down international barriers in the anti-counterfeiting drug traffic environment. The two groups describe fake drugs as those that "are deliberately and fraudulently mislabeled with respect to identity or source: their quality is unpredictable as they may contain the wrong amount of active ingredients, wrong ingredients or no active ingredients." Counterfeit drugs harm many unsuspecting victims. In some cases, they pay the ultimate price - their lives.

"We have seen that the threat from economically motivated adulteration, counterfeiting and cargo theft is real," said Margaret Hamburgh, M.D., commissioner of the U.S. Food and Drug Administration, during the first Partnership for Safe Medicines Interchange on Oct. 8, 2010, at the National Press Club in Washington, D.C. "And, unfortunately we know the results can be tragic. In Haiti, Panama and Nigeria, many children died due to cough syrup and teething medication poisoned with diethylene glycol." (Diethylene glycol is a colorless, sweet-tasting organic compound widely used as an industrial solvent.) These are not isolated incidents. Hamburgh spoke of others.  

• During a meningitis epidemic in Niger in 1995, more than 50,000 people were inoculated with fake vaccines; 2,500 died. The vaccines were received as a gift from another country.  
• Eighty-nine children died in Haiti in 1995, and 30 infants died in India in 1998 from consuming paracetamol — a cough syrup prepared with diethylene glycol.  
• In 2001, a Wellcome Trust study found that 38 percent of 104 anti-malarial drugs on sale in Southeast Asia pharmacies did not contain any active ingredients.  
• In 1999, at least 30 people died in Cambodia after taking counterfeit anti-malarial drugs prepared with sulphadoxine-pyrimethamine (an older, less-effective anti-malarial), which were sold as artesunate.  

Commissioner Hamburgh stated, "The issue of counterfeit drugs is one of both domestic and international concern. It is shocking to realize that, in some parts of the world, somewhere between 30 and 50 percent of drugs to treat serious diseases are actually counterfeit."

IMPACT reports that this is not as much of a problem for most industrialized countries. For example, the U.K. has had only 15 known cases since 2004, according to the country's Medicines and Healthcare products Regulatory Authority (MHRA). However, the latest case has been the most serious in the European Union, and it was part of a larger case successfully investigated in the U.S.

The "2010 ACFE Report to the Nations" states that tips have been consistently the most common way to detect frauds, and that is how this fraud was discovered. When a packager noticed that one number on a blister pack containing drugs was printed in reverse, he informed the supposed manufacturer, which subsequently alerted officers from the U.S. Immigration and Customs and Enforcement (ICE) Team. The ICE investigators learned that a Chinese national, Kevin Xu, was offering to supply counterfeit drugs and packaging.

Undercover ICE officers traveled to Bangkok to meet Xu. They subsequently arranged to meet him in Houston, Texas, where he gave one of the undercover officers a list of 25 prescription drugs that he could supply. He was arrested for conspiracy to traffic counterfeit drugs into the U.S. The investigation also revealed Xu had already supplied counterfeit drugs worth $232,568 to U.S. citizens via the Internet.

The District Court of Southern Texas indicted Xu, and he was found guilty and sentenced in January 2009 to 78 months in prison with no parole - the maximum penalty - and ordered to pay $1,286,060 in restitution.

Forensic examination evidence of Xu's computer, which revealed his global activities, was passed to the MHRA. The MHRA began a 3 ½-year investigation into the activities of a number of individuals supplying prescription drugs into the U.K., which led to five defendants tried on eight counts of conspiracy to defraud, trademark violations, Medicine Act offenses and Companies Act offenses. One of the five, Peter Gillespie, was convicted of all counts and sentenced on April 11 to an eight-year prison sentence. The other four were acquitted.

The MHRA investigation revealed that counterfeiters manufactured drugs in mainland China, shipped them to Singapore and then to Brussels, where they packed them into trucks and drove them to the U.K. The operation used a number of front companies to make the transactions appear legitimate. Only laboratory examinations could prove the drugs were fake. The counterfeiters imported into the U.K. more than two million doses of fake life-saving drugs with a value of nearly £5million or US$8.26 million. The MHRA seized more than half of these doses before the fraudsters distributed them to the public.

Investigators discovered a complex chain of companies that facilitated the transactions. They gathered evidence from 12 countries, interviewed more than 200 witnesses and produced 11,000 pages of evidence. Ninety-three witnesses gave evidence and testimonies at the trial.

One red flag was the circuitous route of the money to pay for the drugs: The drugs traveled via Singapore and Brussels, but the money flowed back through a series of companies in Holland, Luxembourg, Mauritius, Tunisia and China. This Byzantine "follow the money" investigative technique is a reminder to auditors and fraud examiners to always ask the question: Do these complicated activities make sound economic and commercial sense?

This case's results have led to new proposals within the European Union to tighten controls on manufacturing and the supply chain. Also, a U.K. proposal will require primary legislation to create a specific offense of manufacturing, supplying or handling counterfeit medicines.

COUNTERFEIT DRUG FRAUD EXPANDING

Why is this type of fraud expanding on such a global scale? IMPACT provides several reasons:  

1. Easy money is the main driver for drug counterfeiters. Costs to produce the fake drugs are low, especially when the counterfeiters don't have to conduct trial runs and can ignore quality assurance and safety standards. They produce fake drugs in small facilities and easily duplicate packaging techniques. The counterfeit drug industry is lucrative because the margins between the low cost of illegal production and the high sales prices of legal drugs allow criminals wide latitude in setting their profitable prices.  
2. Inadequate legislation, regulations and enforcement allow counterfeiters to enter supply chains with limited chances of being exposed and punished. Some nations like Argentina do not even list drug counterfeiting as a criminal offense. On the other hand, some nations hand out high prices for dereliction of duty in the drug business as shown by the execution of Xiaoyu Zheng, China's former director of the State Food and Drug Administration. Zheng took 6.49 million Yuan (US$840,000) in bribes from eight pharmaceutical companies between June 1997 and December 2006. At least 21 people died because of the bogus drugs he licensed.  
3. Stakeholders often do not cooperate. However, this is beginning to change because several organizations are forming to deal specifically with drug counterfeiting.  
4. Many individuals and groups are not aware of the problem or choose to overlook it. However, ignorance is no excuse for breaking the law or for aiding criminals who do. Health care professionals and patients should know that people who buy drugs outside the normal chains of supply, on the Internet or in back rooms often will become victims. If patients adversely react to drug treatments, they often will change the dosages, not their suppliers.  
5. Costs of medical products are high, so there is an incentive to look for different suppliers for cheaper prices. Patients go to the Internet and seek self-help remedies and medicines from often risky and unregulated marketplaces.  
6. Some countries lack the political will to pursue counterfeiters within their own borders because of the financial gains in the export business, which is especially true if a nation has a low regard for medical health value.  
7. Transactions involving many intermediaries from points of origin of drugs to patients only increase opportunities to enter into possible illegal drug distribution chains. "Like any chain," Hamburgh said, "the drug supply chain is only as strong as its weakest link, and the proliferation of additional handlers, suppliers and middlemen creates new entry points through which contaminated, adulterated and counterfeit product can infiltrate the drug supply." Next time you go to the doctor, ask if the free sample really is free and where it came from. There is no such thing as a free drug sample.  
8. Expansion and deregulation of trade can allow counterfeit drugs to enter supply chains.  

If the international community is going to tackle counterfeit drugs, all the stakeholders will have to collaborate. That includes government and international health officials and organizations, all components of drug supply chains, law enforcement personnel and, finally, patients.

During an IMPACT gathering in Rome in 2006, the group outlined the "Declaration of Rome," a strategy for combating counterfeiting drugs. IMPACT says it is working with Interpol, world customs organizations and a network of enforcement officers - the Permanent Forum on International Pharmaceutical Crime - to coordinate ideas and exchange information for an investigation and prosecution guide.

WHO says it knows that much more needs to be accomplished. IMPACT, it says, will provide principles and elements against counterfeit medical products for nations that lack needed legislation. Also, IMPACT says it will advocate for measures to ensure the reliability of supply chains, including the use of radio frequency identification technology, in which a scanner reads radio waves transmitted from a tag attached to a drug package. This would allow companies to trace where the drugs came from and where they've been.

Finally, all the players need to raise awareness of counterfeit drug fraud. All those who use the Internet as a health care provider and a dispenser of drugs and medical products must know the inherent dangers they face.

IMPACT is working on a web-based rapid alert system. The group's goal is to eradicate counterfeit medical products from the supply chain by 2015. Certainly a lofty goal, but until that happens, the next time you place a pill or tablet in your hand and right before you pick up a glass of water, ask yourself, "Do you feel lucky today?"

Tim Harvey, CFE, JP, is director of the ACFE's UK Operations, and a member of Transparency International and the British Society of Criminology.

Richard Hurley, Ph.D., J.D., CFE, CPA, is a professor in the University of Connecticut (Stamford) School of Business. 

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