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Investigating Fake Goods: A Story of Lies, Greed & Betrayal

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The woman called herself Flaming Lee, an English name she picked when she was 10 years old, long before she got into the dirty business of counterfeit goods. Her job as a private investigator sometimes took her to client meetings at Dubai’s seven-star Burj Al Arab hotel. Otherwise, she lived in apparent simplicity.

There were few signs of the deception that shaped her life. Officially, Flaming Lee hunted counterfeiters for Swiss power technology giant ABB Asea Brown Boveri Ltd. Unofficially, she herself sold counterfeit ABB circuit breakers for export — the very things ABB was paying her to track down.

It was a classic form of double-dealing in China’s murky anti-counterfeiting industry, which is itself plagued with fraud, an Associated Press investigation has found. Some of the cases documented by the AP involved potentially dangerous products: counterfeit auto parts, pharmaceuticals, personal care products and electrical components.

Investigative fraud is a problem few are willing to discuss publicly. Using previously undisclosed records from court cases in China and internal corporate investigations, as well as interviews with people directly involved in events, the AP documented multiple forms of wrongdoing:

  • Western firms paid investigators who were themselves manufacturing or selling counterfeit versions of their clients’ own goods.
  • Investigators doctored documents, fabricating raids that never took place.
  • Investigators colluded with factories to make counterfeit goods they could “seize” and present to their Western bosses for payment.

ABB believed it was a victim of all three varieties of fraud, according to court documents, as well as interviews with people involved in the lawsuit and an internal investigation.

As counterfeiting has flourished in China over decades, a lucrative, parallel industry has blossomed to fight it. Counterfeiting today is a multibillion-dollar business in China, which produces nearly nine of every 10 fake items seized at U.S. borders.

Chinese authorities have been getting better at fining counterfeiters and sending them to jail. But the momentum of reform that has led to the creation of dedicated intellectual property courts, new laws and a crackdown on local corruption has yet to reach the front lines of the fight against fakes. Here, private investigators operate with limited oversight, and powerful vested interests have little motivation to wipe out an illegal but highly profitable industry.

More than 15 investigators, lawyers and law enforcement officials all described a broken system, beset by endemic and underreported fraud, made worse by Western companies that have a poor command over how to successfully fight fraud.

“They think they’re spending $10 million a year trying to combat something. That $10 million is going down the drainpipe,” said Kevyn Kennedy, the founder of CBI Consulting, who has run investigations for over two decades. “A lot of times the counterfeiter will turn into the investigator’s informant: ‘Don’t get me. I know these other guys down the road.’ It’s a protection racket.”

The story of ABB’s battle against counterfeits in China shows how one corporation was undermined by the very firm it hired to fight for it — and then let down by the legal system it turned to for help.

ABB was exceptional in that instead of remaining silent, it took its fight to court in China and sued its investigations firm, China United Intellectual Property Protection Center, commonly referred to by its acronym CUIPPC. ABB lost its case in Beijing, despite the fact that Flaming Lee, a key China United employee, was herself convicted in Dubai of selling counterfeit ABB products. ABB was ordered to pay overdue investigation fees of more than $500,000, despite China United’s questionable billing patterns, including a $5,000 charge for a raid that uncovered $1 worth of fakes.

ABB, a $40 billion corporation whose products range from simple circuit breakers to sophisticated industrial robotics and automation, declined to comment for this story. But in Chinese court filings, it said that what it found was “astounding.” The very firm it had entrusted with all its brand protection work in China “directly participated in infringing acts against the ABB trademark.”

China United countered, in court documents, that Lee had acted without the management’s knowledge. China United’s chairman and its deputy general manager, reached on their mobile phones, declined to comment.

Like ABB, most brands privately hire investigators, either directly or through a law firm, to root out counterfeiters and assist Chinese authorities in running raids against them. Much of the work is then further subcontracted to shifting bands of poorly paid freelance informants on the ground.

Contracts are typically structured on a commission basis. More seizures mean higher fees — and sometimes rewards for in-house staff — creating powerful incentives to cheat. In response to questions from the AP, Shanghai’s Public Security Bureau took the unusual step of warning foreign companies to be more watchful.

“Those outsourcing companies are a mixed bunch, with good and bad, which is not conducive to anti-counterfeiting work,” the Public Security Bureau wrote. “Therefore, we very much hope that brand owners will pay attention and devote more manpower and material resources to ensure that the fight against counterfeiting is healthy and orderly.”

But the role of the government itself, particularly on the local level, is not always clear. The same people tasked with fighting counterfeiters — not just investigators but also local officials — sometimes protect them, according to investigators, lawyers, and company employees interviewed by AP.

Wang Hai, founder of Beijing Dahai Business Consultancy, said he once was barred from raiding a company that made counterfeit windows, even though he had a police escort. “The government has a list of protected companies,” Wang said. “They were on that list.”

Wang said he has seen golden government plaques posted at company gates, shiny markers of official untouchability. He pulled out a photo of one on his mobile phone. The red letters spelled out “key protected enterprise.”

A spokeswoman for the State Administration for Industry and Commerce, which helps oversee intellectual property enforcement across China, said that the agency “has investigated and punished a large number of regulation violators,” but declined to elaborate.

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“VERY GOOD FOR ME”

Flaming Lee’s employer, China United, was no fly-by-night operation. Its roots reached to the highest levels of the Chinese government and it boasted a client list stocked with Fortune 500 companies.

China United seemed like a solid partner back in 1996, when ABB made the agency responsible for all its anti-counterfeiting work in the country. By 2009, China was ABB’s largest market, accounting for sales of $4.3 billion. But as the market leader for circuit breakers, ABB was plagued by counterfeiting. The company calculated that sales of counterfeit ABB low-voltage circuit breakers — the very product Lee was peddling — topped 2 billion yuan ($314 million), according to ABB’s court filings.

Founded in 1994, China United was one of the country’s first professional investigations companies and grew to become one of the largest. Corporate filings show that it used to be a state-owned company, supervised by the research and consulting arm of China’s State Council, or cabinet. China United’s principals were members of a host of international intellectual property associations.

As ABB’s sole agent, China United handled everything: It hired investigators, ran cases, and filed complaints and lawsuits with authorities. All ABB asked for in return was an invoice and an investigation report, court filings show.

Like many other Western firms, ABB paid China United based on the number of anti-counterfeiting cases it handled. By that measure, the company’s performance was stellar. It provided ABB with a steady stream of successful raids all along the counterfeit supply chain, reporting actions against factories, packagers, warehouses, shops and exporters. China United charged $5,000 to $15,000 per case, court documents show.

But nine years into their partnership, ABB began to doubt that its money was being put to good use. In court filings, ABB said it heard that China United had been falsifying cases for another client, Panasonic, cooperating with a counterfeiter to manufacture fakes, which it then arranged to have seized and billed as a successful raid. Panasonic declined to comment for this article and the allegations were not substantiated in court.

Then, in early 2009, a whistleblower reported that China United was doing the same thing to ABB. The company was conspiring with a plant in Wenzhou, China, called Wenzhou Fulemu Electric Co., to manufacture fakes it could seize and bill to ABB, the informer said, according to allegations in court filings.

Alarmed, ABB began investigating its own investigators. But the head of China United’s Shanghai office blocked ABB’s independent investigator from raiding the Wenzhou firm and repeatedly threatened the man, who was subsequently attacked, ABB said in court documents.

“The investigator was brutally assaulted and badly beaten up,” said one person involved in the case who was not authorized to discuss it publicly. “Broken bones. He went to the hospital.”

China United denied having anything to do with the attack or the obstruction of the raid. It said in court documents that the firm had “faithfully carried out its duties as agreed.”

After an investigation that took over a year, ABB came to a startlingly different conclusion: China United was double-crossing the company and had faked anti-counterfeiting cases. ABB believed China United was protecting Wenzhou Fulemu, whose counterfeit ABB products were then marketed for export by the head of China United’s Dubai office, Flaming Lee, with the knowledge of the company’s top management.

In August 2009, Lee —whose real name is Li Yue — bragged about her position to an undercover investigator in a secretly recorded video reviewed by the AP.

China United, she said, did all of ABB’s anti-counterfeiting work in China. That meant she could sell as many fakes as she wanted and no one would catch her.

“That’s very good for you,” said the investigator.

“Ha, ha, ha, very good for me, ha, ha, ha,” she responded. “But of course my boss also knows…”

Dubai police arrested Lee three months later for counterfeiting ABB products. In May 2010, a Dubai court found her guilty and fined her for selling counterfeit goods, according to a copy of the verdict.

Lee did not respond to requests for comment via her blog or LinkedIn account.

Wenzhou Fulemu went out of business and its legal representative could not be reached for comment.

ABB went back and examined dozens of China United’s cases and said it found evidence of “systematic and large scale falsification.”

ABB said China United had fabricated government documents and targeted bit players to maximize fees. In some cases, China United didn’t report the names and addresses of counterfeiters, ABB said in court filings.

In December 2009, ABB sued China United for breach of contract in a Beijing court, seeking a refund of fees paid between 2007 and 2009 — a total of 5.7 million yuan ($900,000) — and an additional 1 million yuan ($157,000) in compensation. China United countered that it was not guilty of wrongdoing and that ABB owed it 3.4 million yuan ($540,000) in unpaid investigative fees.

China United dismissed ABB’s investigative findings as “groundless conjecture” in court documents and said all the cases it did for ABB were real. In defense of its reputation, China United told the court in Beijing that it had “received silk banners and trophies as gifts from its clients and has established a good reputation abroad.”

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A QUICK VERDICT

The trial did not go well for ABB.

Beijing Municipal No. 2 Intermediate People’s Court gave ABB such short notice of the hearing date it could not secure a visa for a key foreign witness, so his testimony was thrown out. Another witness feared for his safety and refused to appear in court, so his testimony was thrown out too. At the hearing, the chief judge walked out of the courtroom 10 minutes after ABB began delivering evidence, ABB said in court filings.

The three-judge panel decided the case with surprising alacrity. Despite the 1,500 pages of evidence ABB submitted, it took the judges just one working day to deliver their verdict.

Though the court acknowledged Flaming Lee sold fake ABB products while employed by China United, it ruled that “such acts were committed by her alone.” The court said ABB’s claims that China United was covering up for the Wenzhou firm were unsubstantiated, and dismissed its claim that China United had interfered with the work of an independent investigator and faked raids.

The court ordered ABB to pay China United 3.4 million yuan in investigation fees. The ruling was upheld on appeal.

China United’s legal victory, however, proved hollow. Its reputation had been damaged, and it disbanded after the lawsuit. But not for long.

China United chairman Li Changxu, is staging a quiet comeback, once again attracting a Fortune 500 clientele and advertising accolades from the Chinese government.

He and two partners from China United — Li Guorong and Fan Liming — bought stakes in a Shanghai intellectual property protection company called Sinofaith IP Group. Li Changxu registered a 7.9 million yuan ($1.2 million) investment in September 2013, making him the second-largest shareholder, records show. Public filings also show that Li Changxu is chairman of Sinofaith’s board.

None of the men responded to emails seeking responses to more than a dozen questions.

Sinofaith has attracted financing from a number of Chinese investment funds, including one that is owned by Beijing government entities. It has advertised a client list that includes GE, Toyota, 3M, Nike and Schneider Electric.

That was a surprise to GE, said spokesman Geoff Li.

“Normally if they want to put a company’s logo, they should let us know,” he said. GE and 3M said they had no plans to continue using the company. Nike said it has not been a client since 2013, and Toyota said it was no longer working with Sinofaith and had not authorized the firm to use its name. Schneider Electric said it dropped China United because of the ABB lawsuit.

Sinofaith did not respond to requests for comment. After AP began making inquiries, it removed all client names from its website.

 

This article has been written by Erika Kinetz, author at the Associated Press. see more.

Callum Connects

Norman Tien, Founder of Neuromath and Early Math Matters

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From a young age, Norman Tien, found his passion helping students as a math tutor and went on to translate that into a successful business.

What’s your story?
From the age of 14, I knew I would be in business for myself and started designing my company logo.

Growing up in a poor family, I worked part time while I was in school. That’s when I started tutoring and realised I had a gift to help students “see” mathematics. I delivered good results, and my students started to love math as well.

A turning point was when I was down with dengue fever and I realised I had to grow my business to the next level. I started a learning centre and that was the beginning of Neuromath. The initial years were tough as costs went up while my personal income took a dive. I almost gave up, but I pushed through.

Today, we have 3 specialty math enrichment centres managed and delivered by my dedicated team of teachers.

What excites you most about your industry?
“How to win” has always influenced how I position myself in the industry. I researched the psychology of learning, why some students are so naturally good at math, while others struggled. I managed to find the connection, and have always sought out niches to position myself so I can win.

In the beginning, I fused academic delivery with psychology to differentiate my services. Now I have a good team of teachers fully equipped with a psychological skillset.

In the next evolution of our business, we will incorporate technology into education in order to customise each student’s learning experience based on his or her needs.

What’s your connection to Asia?
I was born and educated in Singapore. One key driver why I started a business was, as a youth, I witnessed how my dad struggled daily as a taxi driver trying to make ends meet.

That said, I am very blessed to be in Singapore and to be given the right education. I see this as a very important factor to my success today.

Favourite city in Asia for business and why?
Singapore – well, for one, most of my businesses are here. Singapore is convenient for business and is very well governed. There are rules and systems that make the entire entrepreneurial journey more secure here. One big plus is the location: Singapore is a hub that allows us to connect to the world.

What’s the best piece of advice you ever received?
船到桥头自然直 –
There is a Chinese saying that when a boat goes near the pier, it will automatically align itself (with the current). It means we don’t have to worry too much, that things will take care of themselves.

A mentor once challenged me: “But who can guarantee you can even reach the pier?”

It is such a highly competitive world we are in, who can guarantee success? This is the ONE question that has been etched in my mind for decades. The Chinese saying always comes to mind when I am positioning, designing and strategizing for my business.

Who inspires you?
Mr. Lee Kuan Yew – The fact that he started ruling the country just like a startup. With limited resources, he was able to find a strong positioning to differentiate his country from the rest of the of Asia. With hardwork and proper planning, he transformed Singapore from a fishing village to a prominent financial hub in Asia.

Because Mr. Lee Kuan Yew positioned Singapore so well, government owned companies, such as Singapore Airlines, have emerged as the best in the world.

His story inspires me, spurs me to understand that success is not by chance but by design – every little step, all the strategies are all planned out. Not at all by chance.

What have you just learnt recently that blew you away?
My business coach, Marshall Thurber, shared with me the power of the “Trim Tab” – a small part of the rudder system in a ship. This Trim Tab, despite its small size, is able to influence the entire ship’s direction by turning it.

This metaphor helped me see that a man can influence the entire world if the right effort is applied. We are now living in an entirely new world, the way we commute with an app on the phone – that’s the power of the Trim Tab at work.

If you had your time again, what would you do differently?
I would embark on the same journey but I would seek a mentor at a very early age.

I have been through many hard knocks along the way, and I definitely could have shortened the learning curve if I had a mentor to advise me on the many aspects of entrepreneurship.

How do you unwind?
Driving down long highways helps me unwind, that’s when I let my mind relax and wander.

I love long distance driving and riding. My wife gave me a Harley Davidson Tourer for my 50th birthday and we intend to embark on riding holidays together in Asia.

Favourite Asian destination for relaxation? Why?
Hong Kong – I love the fast pace and the vibrance of the city. I love the cars there and it’s a very unique and exciting experience for me. And of course, I love the food there too!

Everyone in business should read this book:
One Minute Millionaire – this book highlights the mindset of an individual that is the key determinant for success in whatever we embark on. As long as we know we have a very strong reason why we need to do it, we can do it!

Shameless plug for your business:
I am the CEO and Founder of 2 Math enrichment brands:
Neuromath is a Specialist Math Learning Centre that helps students from Primary 1 to Junior College, empowering them with strategies, skills and a strong desire to learn and problem solve. We use technology to train students to avoid careless mistakes reclaiming 30 marks or more in Math exams and achieve their full potential in math.
www.neuromath.com.sg

Early Math Matters is a premier Mathematics and Cognitive Development enrichment centre for preschool children aged 3-6 years old. Through purposeful play and our renowned EMM approach, we help learners build a strong foundation for problem solving at an early age, and instil in them a passion & love for math that will stay with them for life.
www.earlymathmatters.com

We are actively seeking passionate teachers, entrepreneurs and investors who are keen to grow the education business with us.

How can people connect with you?
I speak regularly at workshops for schools, parents and platforms demonstrating the use of technology for peak performance in education.

Do contact me at
www.NormanTien.com

Alternatively, you can connect with me:
www.NormanTien.com/facebook
www.NormanTien.com/linkedin

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started,
built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Callum Connects

Mikyung Kim, TV Commercial Producer

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Mikyung Kim is a savvy producer who runs her own TV and print production business, based in Hong Kong.

What’s your story?
I am a TV commercial and print producer working with advertising agencies and brands to bring their communication needs to the screen. My background is in film production and I started my career in Hollywood working with Oscar winning directors Michel Gondry and Alejandro González Iñárritu. Before starting my own company last year to produce content directly with agencies and brands, I was with Ogilvy & Mather Hong Kong for nearly five years as the Senior Producer and Head of TV running the film production department.

What excites you most about your industry?
How it’s constantly evolving! Every day is different and it’s certainly never boring. I love that it’s a creative industry and that my job involves talking to people with creative minds on how we can bring a story on paper to life. It’s exciting that the advertising industry places high value on the creativity and effectiveness of content. I’ve produced a few commercials that creatively push the envelope with fun and sometimes wild ideas that have converted into positive brand awareness. Ever heard of KFC Finger Lickin’ Good…Nail Polish that yes, tastes like chicken? https://www.adweek.com/creativity/kfc-just-made-edible-finger-lickin-good-nail-polish-yeah-tastes-chicken-171245/

What’s your connection to Asia?
I was born in Seoul and raised in Hong Kong until graduating from high school at HKIS. I spent my university years in Boston at Emerson College and worked in Los Angeles at Anonymous Content and Partizan Entertainment. But on a brief visit back to Hong Kong in 2010, I decided to move back and continue my career here, and it was the best decision I ever made.

Favourite city in Asia for business and why?
Hong Kong is my home so it will always be my favourite city for business and for me personally. What I love about Hong Kong is that while I am based here, I can actually work with agencies and brands from anywhere in APAC. If I need to attend an important meeting, I can just hop on a quick flight easily. I spent most of 2017 working in Seoul with Korean agency Cheil and Samsung, and currently I am working with Japanese agency ADK and Toyota based in Singapore.

What’s the best piece of advice you ever received?
“Fake it until you become it,” from Amy Cuddy’s TED talk. Worth a watch. This helped me early in my career when I felt like I was under qualified for the job I was in. I learned to fake my confidence and fake a powerful body language until I truly felt that confidence became something real. It was nerve wracking at first but it worked and now I don’t have to fake it.

Who inspires you?
My friends. Noelle who worked part time jobs while being a full time student to pay her own tuition while we were in college together. Osti who is a lawyer focused on supporting developing nations and a board member of Redress, an environmental NGO working to reduce waste in the fashion industry. Vanessa who runs a real estate company, co-owns the gym Crossfit Asphodel, started a health foods business called Quo and NGO The Keep Moving Project to promote wellness in our community. Cathy who will be the first Asian woman to direct a big budget superhero film starring Margot Robbie with Warner Bros and DC. And too many more to name!

What have you just learnt recently that blew you away?
5.2 million plastic bottles are thrown away in Hong Kong every day. Plastic pollution is a major issue for the environment and we as responsible citizens can do our small part by reducing our consumption of unnecessary plastic. I do mine by having a water filter at home and carrying my own reusable water bottle with me everywhere I go. I love the brand Hydroflask because the stainless steel material keeps water hot or cold for hours, so I don’t feel tempted to buy a cold water at 7-11 on those hot, humid days we have here.

If you had your time again, what would you do differently?
About five years ago I purchased my very first stock and put one month’s salary into it, which at the time was a lot of money for me. Knowing how that stock has performed now, I would have put all my savings into it.

How do you unwind?
Exercise is essential in my daily life to help clear my head and de-stress. My go to is a workout at Crossfit Asphodel, running outdoors, yoga and hiking. But a glass of red wine and live music at Soiree in Soho on Sunday night works pretty well too!

Favourite Asian destination for relaxation? Why?
One of the best trips I ever took was to the island of Lombok in Indonesia. Two girl friends and I did a 3 day 2 night hiking and camping trip to summit the Mount Rinjani Volcano. It was physically challenging but mentally relaxing. There was no cellphone reception, no distractions, we had the company of nature and nights with skies full of shooting stars. It was pretty magical. We then went to the Gili Islands for a few days of scuba diving, yoga and sitting on the beach doing nothing but sipping on coconuts. That was pretty relaxing too.

Everyone in business should read this book:
“Nice Girls Don’t Get the Corner Office” by Lois P. Frankel and “Lean In” by Sheryl Sandberg. Essential reads for every working woman and/or man who wants to know how to support the working women in their life.

Shameless plug for your business:
I am a TV commercial and print producer that can plug into an existing advertising agency or brand team to produce their communication needs. Many advertising agencies these days are scaling down so they have creative directors and account services but may not have an in-house producer, so I can fill that gap by becoming a part of the existing agency team. For brands that want to produce content directly without involving an agency, I can also bridge the gap by bringing my production knowledge in-house and working as part of the marketing/brand team and liaising with the other departments in the company such as product team and ecomm.

How can people connect with you?
They can email me at [email protected]
or visit my website at mkimproducer.com

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started,
built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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