Olive oil fraud, Fraud Magazine
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Fraudsters’ slick olive oil switch

Written by: Donn LeVie, Jr., CFE
Photography by: George Brainard
Date: November 1, 2017
Read Time: 13 mins

You’re in the grocery store, and you’re pleased with yourself. You’ve just chosen a beautiful bottle of extra-virgin olive oil labeled with a picture of verdant Italian olive groves. Unfortunately, the liquid in that bottle also contains soybean, corn, sunflower, cotton, hazelnut, peanut and palm oils. Olive oil fraud is rampant. Here’s how the oily criminals commit their crimes and how to prevent them.

When 62-year-old Luciano Sclafani, a Sicilian food importer, visited his local grocery store in Connecticut, what he saw on the shelves stopped him in his tracks. Next to a one-liter bottle of his company’s brand of extra virgin olive oil1 (EVOO), which sold for $25, was a competitor’s three-liter container selling for $9.99.

Sclafani suspected something wasn’t right, so he contacted the Connecticut Department of Consumer Protection. Food inspectors from the department discovered through laboratory testing that the competitor’s olive oil product also contained additional oils: peanut, soy and hazelnut, according to Connecticut Puts The Squeeze On Olive Oil Fraud, by Diane Orson, NPR’s Morning Edition, Dec. 18, 2008.

In 2007, U.S. Food and Drug Administration investigators and U.S. marshals confiscated more than 10,000 cases of olive oil in New York and New Jersey storage facilities. Analysis revealed that the bottles labeled as “extra virgin olive oil” contained mostly soybean and low-grade olive-pomace oil. The estimated value of the seized products was more than $700,000, according to the NPR story.

Not only are consumers duped into paying for low-quality counterfeit products, but they also might be at risk for allergic reactions to the undisclosed types of nuts used to adulterate the olive oil.

Source of wealth and health

In Homer’s “The Odyssey,” Odysseus transformed into a Greek god by covering his body in olive oil. Egyptian pharaohs presented olive oil offerings to the sun god, Ra. Romans and Greeks amassed huge fortunes trading in olive oil, according to the Ancient History Encyclopedia. The Bible contains dozens of references to olive oil. Olive oil seems to be an important socio-cultural thread spun into a fabric that helps tell the story of human history across time.

The powerful anti-oxidant and anti-inflammatory properties of true EVOO have been known for centuries to act as a balm against degenerative diseases. Olive oil purportedly lowers cholesterol; decreases risk of heart disease, high blood pressure and stroke; and smooths complexions, according to the California Olive Ranch. Counterfeit EVOO does none of these things.

Olive oil deception is a crime fraudsters commit against growers, consumers and even public well-being. As far back as 2400 BC, inspectors routinely visited olive growers and millers for evidence of deceptive practices.

The Romans stamped inscriptions on olive-oil filled amphora (tall clay jars with two handles and neck) that provided a complete record of the contents — from the locality where the olive oil was produced and producer name to the weight and quality of the oil when the amphora was sealed and the importing merchant’s name. The Roman bureaucratic system ensured that middlemen in the long supply chain weren’t doing their own olive oil “extraction” as the amphoras journeyed to storage warehouses in Rome from Spain and Africa, according to Trade Routes and Commercial Products of Roman Pompeii, Campus Pompeii, Sept. 29, 2015.

Food fraud a growing global concern

The two primary forms of food fraud involve the sale of food that’s unfit for human consumption or adulterated in some fashion and the deliberate false description or labeling of food. From adulterated raw materials to counterfeit labeling, food fraud costs consumers billions of dollars each year — and even deaths in some cases.

In 2008, several Chinese companies were adulterating milk supplies with a chemical called melamine because it artificially increased the apparent protein content. Melamine-adulterated milk was used in the manufacture of infant formula, which led to the hospitalization of 54,000 Chinese infants and the deaths of at least six, according to a Sept. 22, 2008, report on NBCnews.com.

The World Health Organization classified it as one of the largest food safety incidents in its history. Two executives from complicit companies were executed, three were given life prison sentences and seven local government officials were fired or forced to resign, according to a Jan. 23, 2009, news report on ChinaDaily.com.

Nearly 80 percent of EVOO found in American supermarkets is likely to be adulterated with cheaper olive oil...

Olive oil tops in food fraud schemes

The International Olive Council has created legal definitions for “virgin,” “extra virgin,” and “olive-pomace” oils, and those guidelines help in determining when olive oil products have been tainted.

Olive oil, which has the honor of being the most expensive edible oil, is among the most frequently adulterated food products with such additive oils as soybean, corn, sunflower, cotton, hazelnut, peanut, palm and many others. To mimic the fragrance of a first-press EVOO, sometimes drops of chlorophyll and beta-carotene are added to the bogus mixture. In 1981, more than 1,200 people died (600 in Spain alone) after ingesting industrial-grade oil adulterated with chemicals that an itinerant sold as olive oil. The condition became known as “Toxic Oil Syndrome” according to the National Center of Biotechnology Information.

Greater competition + higher prices + lack of controls = opportunity for fraud

Europe accounts for 70 percent of the world’s olive oil production. Spain is the largest producer (followed by Italy and Greece) with more than 300 million olive trees covering an area three times the size of California. According to the paper, The Global Market for Olive Oil: Actors, Trends, Policies, Prospects and Research Needs, by Giovanni Anania and Maria Rosaria Pupo D’Andrea, February 2008, non-EU countries, such as Tunisia, Syria, Morocco and Algeria are intensifying competitiveness by increasing domestic olive oil production. The high price of olive oil; the distinctive fragrance, taste and texture characteristics; and its reputation as a healthy source of dietary fats make olive oil a target for adulteration or deliberate mislabeling of less expensive classes of olive oil that are selling at premium prices.

Add to this mix increased global competitiveness, expanding markets, an absence of standardized and synchronized detection methods for identifying olive oil fraud, and significant weaknesses in supplier/distribution chains arise, which counterfeiters are ready to exploit.

Therefore, olive oil adulteration for financial gain has become one of the biggest sources of EU agricultural fraud. European researchers suggest that “common cultural, market, industry, and organizational features, practices and structures providing opportunities for fraud … are also evident at a higher level of generality within other food markets and systems,” according to the research paper, The Dynamics of Food Fraud, by Nicholas Lord, Cecilia Juliana Flores Elizondo and Jon Spencer, ResearchGate, October 2016.

Food fraud and organized crime

Olive oil fraud is big business to the Italian “Agromafia” (the Mafia is diversifying into food fraud) to the tune of $16 billion annually, and nearly 80 percent of EVOO found in American supermarkets is likely to be adulterated with cheaper olive oil as well as sunflower, soybean and other vegetable oils, according to the Jan. 3, 2016, “60 Minutes” story, Don’t Fall Victim to Olive Oil Fraud.

Recent fines handed down by Italian anti-trust regulators for tainted EVOO have exceeded $600,000 (550,000 euros) against the company, Deoleo, which owns the Bertolli, Sasso and Carapelli olive oil brands, according to the June 23, 2016, Olive Oil Times article, “ Italian Antitrust Authority Fines Lidl, Deoleo and Coricelli for Misleading Consumers,” by Ylenia Granitto. Lidl was fined $330,000 (300,000 euros) for improper labeling of its Primadonna brand olive oil.

Even “Food Network” star Rachel Ray was fooled into promoting fraudulent EVOO branded with her name on the bottles. (See the July 2010 University of California-Davis Olive Center Report, Tests Indicate that Imported ‘Extra Virgin’ Olive Oil Often Fails International and USDA Standards, by Frankel, Mailer, Shoemaker, Wang and Flynn.)

The fraud extends across the EU when criminal enterprises also receive substantial subsidies to support the olive oil industry. Author Tom Mueller writes in “Extra Virginity: The Sublime and Scandalous World of Olive Oil” (W.W. Norton & Co., 2012), that 95 percent of detected misappropriations of EU agricultural subsidies in 2007 occurred in Italy, with the majority in the olive oil sector.

Mueller writes of unethical though “legal fraud” allowed under Italian and EU law in which product labels either fail to identify all ingredients or intentionally mislabel the country of origin. He writes that Spanish olive oil might be bottled in Italy, but store shelves are lined with bottles of olive oil varieties adorned with colorful labels showing the Italian flag or the Leaning Tower of Pisa — and stamped as a “Product of Italy.”

Many of the actors, criminal enterprises and companies complicit in olive oil fraud are well known to Italian and EU investigators. However, many of them are immune from prosecution because of strong political connections, rampant bribery, non-comprehensive controls and/or insufficient enforcement plus a weak political will to confront olive oil fraud — all at the expense of consumers, according to The Internationalisation of Corruption: Scale, Impact, and Countermeasures, by Clare Fletcher and Daniela Herrmann, 2016, Routledge (pages 108-110).

Organized crime doesn’t commit all food fraud

The popular press emphasizes the transnational criminal element inserting itself into food networks in general — and the olive oil market specifically. However, outside of the major olive oil-producing/exporting EU countries, olive oil fraud (and other similar scams) is much better understood as an internal phenomenon within the food system in which legitimate workers and organizations become involved, according to Food Crime Annual Strategic Assessment: A 2016 Baseline.

Criminal opportunities arise under specific conditions (pressure, perceived opportunity and rationalization = the Fraud Triangle) as part of employee or organizational daily operations.

For example, abruptly changing market conditions might pressure a business to unload product inventory surpluses through intermediaries in an already saturated market. Any place in the supply or distribution chain that undergoes a process or price constriction because of external influences might lead to “slippery slope” fraud.

In 1978, Sociologist Edward Gross wrote in his paper, “Organizational crime: A theoretical perspective” (from “Studies in Symbolic Interaction,” Vol. 1, pages 55–85, JAI Press, edited by N. K. Denzin) that “all organizations are inherently criminogenic,” in which organizations — without intention — tempt fraud to achieve financial targets.

Such an instance of unpremeditated deception soon spirals out of control and creates aftershocks that eventually propagate upstream to business headquarters, which results in brand or reputation damage, shareholder anger, corporate bankruptcy or criminal prosecution.

Weak links in supply/distribution chains

At some point within the supply or distribution chain and other intermediaries, food fraud often reveals a related vulnerable financial weak link upon which fraud examiners can capitalize.

I recently interviewed Dr. John Spink, director of the Food Fraud Initiative at Michigan State University, about food companies’ vulnerabilities. He said that these organizations should take a proactive approach that “not only considers general insights but to make sure to consider their unique fraud opportunity. Overall, assessing food fraud is a fundamentally different process or methodology than considering other risks related to food quality, food safety or food defense.”

Food fraud might manifest as convoluted supply chains or distribution channels, complex or irregular vendor payment schedules or charges, and other insufficient internal controls. Even such vulnerabilities for food fraud could open the door to risks with food quality and food safety.

Fraud under the radar: altering ‘best before dates’

Here’s an example in which “best before dates” (BBD) at far downstream distribution points can be both weak links and beacons to fraud examiners.

Olive oil, unlike wine, doesn’t improve with age, according to the North American Olive Oil Association. In some EU countries, olive oil freshness is stated as “time of minimum durability” (TMD) — a minimum time within which the olive oil maintains its organoleptic properties (how olive oil characteristics stimulate the sense organs) as stated on the label.

Under proper storage conditions, regular olive oil can be stored up to two years, but once opened should be consumed in two to three months. Most olive oil containers on store shelves don’t list a “harvest date” (when the olives were picked) because the oil of some olives can remain fresh longer than others.

However, they might have BBD dates, which are determined by producers and bottlers as to how long olive oil freshness can be maintained under proper storage conditions. (Adulterated olive oils can be harmful long before an expiration date.) Unfortunately, no laws or best practices prevent bottling an oil a year after its production and placing a TMD of 18 months from that date. (See Olive oil harvest date vs best by date, May 17, 2016, the North American Olive Oil Association blog, “About Olive Oil.”)

Enter the broker

Consumer commodities with widespread distribution (such as olive oil) often rely on brokers who help facilitate product, information and financial transactions among businesses in ready-made markets. In the bulk olive oil realm, brokers usually arrange to sell only full containers (sometimes as large as ocean-going tankers), because they’re most commonly importing from overseas, according to The Dynamics of Food Fraud.

Brokers often dispose of overstock consignments to wholesale companies, which take the large volumes at discount. The wholesaler subdivides the consignment into smaller “chunks” for another discounted sale to distributors. They, in turn, break down those quantities into smaller units to sell (at yet another discount) to small grocery store chains with the share of profit shrinking at each level.

Once a product passes through various brokers and intermediaries, contractual controls to protect the product brand at the top of the distribution chain might not be in place at the distal end. Without some type of contractual or regulatory brand protections that ensure transparency as the product moves further downstream, the integrity of the product BBD increasingly becomes at risk for fraud, according to “The Dynamics of Food Fraud.”

Profit compression and BBD fraud

At the farthest ends of the distribution chain the profit point is highly compressed because the product volume is no longer present. As the profit becomes more elusive for these end-point buyers, some turn to altering the individual bottle BBDs so they can retain more product. The product then transitions from residual discounted stock to prime stock and commands a higher price, according to “The Dynamics of Food Fraud.”

Fraudulent companies work hard to alter BBDs. The operation requires an off-site location, chemicals to remove original BBDs from bottles or packaging, and expensive equipment and ink to print new dates on caps or bottles. The bottles also require repackaging to mimic the original packaging. Such operations are too expensive for the occasional bottle tampering fraud, so they are, in fact, a common, frequent, entrenched and overlooked practice in many similar EU food fraud operations, according to “The Dynamics of Food Fraud.”

Detecting fraudulent EVOO: lab results add to evidence file

Companies no longer have to use possibly inconclusive simple kitchen tests to detect counterfeit EVOO; they now can use laboratory biochemical and DNA analysis. A sophisticated elemental and molecular technique such as Low Field Nuclear Magnetic Resonance provides a rapid and reliable method for screening olive oil authenticity directly in the sealed bottles. This test shows promise as a quality control tool in the production chain and by dealers and consumers in distribution centers and grocery stores, according to the academic research paper, Non-Invasive Detection of Adulterated Olive Oil in Full Bottles Using Time-Domain NMR Relaxometry.

Another laboratory technique, UV-Vis spectrophotometry, provides an accurate, fast and inexpensive way to test for EVOO adulteration. The test involves analyzing EVOO at certain ultraviolet wavelengths to determine the presence of sunflower, corn and soybean oil additives in the mixture, according to Using UV-Vis Spectrophotometry to Detect Fake Olive Oil and Protect Brand Reputation, HunterLab.

Post-factum detection methods are useful for identifying tainted olive oil and similar food products. Such supportive empirical evidence can serve as another arrow in the quiver of the fraud examiner who suspects the presence of financial transgressions in related transactions.

Prevention is key to stem food fraud

The 2011 FDA Food Safety Modernization Act (FSMA) requires foreign and domestic food facilities to create and implement food safety plans. Each U.S. importer must develop a Foreign Supplier Verification Program (FSVP) to validate implementation. The first compliance date was May 30, according to a report, Supply chain risk management and FSMA FSVP compliance, SGS.

The report suggests the first step in assessing supply/distribution chains is to define the players, their processes and how they document those processes. While obtaining data and conducting onsite audits/inspections in global geographies can be a problem, initial participation by adopters of the FSVP rule report that technology has helped with collecting supplier data and mapping and continually managing the supply chain, according to “Supply chain risk management and FSMA FSVP compliance.”

An old saying in the supply/distribution chain profession warns that we can only see inflection points (a point in time in which a significant change in a process occurs) in the rear-view mirror. It’s never easy to predict when downstream inflection points are likely to occur and why they might invite criminogenic behavior.

fig1oliveoilfraud

 

Figure 1: Two places in the food supply/distribution chain where most fraud is likely to occur: 1) the adulteration of the product with inferior or dangerous additives, and 2) through product label manipulation (best before dates, ingredient omission, etc.).

Again, Dr. John Spink, director of the Food Fraud Initiative at Michigan State University, believes prevention is the best medicine.

“Overall, the focus should be on prevention,” Spink says. “Only after identifying and understanding the fraud opportunity can we logically select any countermeasure or control system. The focus should be on all types of fraud, not just adulterant substances … and the first step should not be to just start testing product.”

Caveat emptor

Without explicit legally binding warranties in place (such as “money-back guaranteed if not satisfied”), buyers enter into relationships with sellers in a condition known as “information asymmetry”: When the seller has more knowledge than the buyer about a product, the buyer should embrace the advice, caveat emptor — let the buyer beware.

Donn LeVie Jr., CFE, a Fraud Magazine staff writer, has been a presenter and career engagement/positioning strategist at ACFE Global Fraud Conferences since 2010. He’s the author of several award-winning career positioning/strategy books. Contact him at donnlevie@austin.rr.com or donnleviejrstrategies.com.

1 For an olive oil to be classified as “extra virgin,” it must meet a series of chemical requirements and be able to pass a panel test that demonstrates it possesses some detectable level of olive fruitiness and is free of the 16 taste flaws as identified by European Union publications and the International Olive Council Commission.

 

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