By Dave Johnson
Previous ROAPE contributors have highlighted that today’s global economy is characterized by a significant and rising level of fraud. In the UK for instance, the cost of economic fraud in 2016 rose above £1 billion for the first time in five years. Fraud and anti-fraud measures are thus timely research topics, with this blog based on desk research on anti-fraud measures in India, Pakistan and Sri Lanka.
Earlier research from Nataliya Mykhalchenko on the dynamics of anti-fraud initiatives in Africa identified some of the key measures taken to combat this phenomenon. Usually, they take the form of arrests; seizure and elimination of products; awareness raising and sensitization campaigns; wide applications of anti-fraud technology; task force formation of various state and non-state actors; and cross-border partnerships that are usually led by states in the Global North. These mechanisms were all found in the countries studied in this research too.
However, two things were striking from my own research. First, in all sampled countries, government reports, news articles and corporate investigations highlighted that instances of fraud have increased since the liberalisation of their respective economies. In the words of one Indian think tank, a liberal economy has become the driver for a “parallel economy” (FICCI-CASCADE, 2012). In response to this dynamic, the Indian Central Bureau of Investigation was forced to establish a separate Economic Offences Wing in 1994 due to an “increased work load relating to Securities Scam cases and [a] rise in economic offences with the liberalization of [the] Indian economy” (CBI, 2005; emphasis added). The relationship between neoliberal economic policies and a rise in fraud cases is echoed by a recent working paper by the Indian Institute of Management, which reports that “although banking frauds in India have often been treated as cost of doing business, post-liberalisation the frequency, complexity and cost of banking frauds have increased manifold resulting in a very serious cause of concern for regulators, such as the Reserve Bank of India” (Singh et al, 2016: 3; emphasis added).
This concern has manifested itself through the proliferation of state and non-state anti-fraud actors, and the prevalence of an entire anti-fraud industry. However, as Mykhalchenko has noted, many of these anti-fraud initiatives “may be only addressing the symptoms rather than the root causes” of fraud, i.e. are emphasising for instance technological fixes rather than changes to the deeper power structure in the (political) economy of concern. The link between the liberalisation of economies and the rise in fraud identified at the level of analysis in official reports is thus regularly ignored or marginalised at the level of actual response to fraud (i.e. policy and programme).
Furthermore, the well-financed and more prevalent measures are, perhaps unsurprisingly, mainly focused on financial frauds: those affecting core business interests, profits, intellectual property rights and domestic revenues. In awareness raising campaigns by the likes of Indian think-tank FICCI-CASCADE, the impact of counterfeit and substandard goods were framed around a breakdown on Indian tax revenues – in 2012 this was estimated to stand at around US $582 million. Thus, even when discussing counterfeit goods in which consumers are the main victims, the impact of fraud is generally assessed mainly in aggregate monetary terms and framed around revenue loss for the powerful, i.e. states, businesses, and copy rights holders; only after this (if at all) losses experienced by (ordinary) consumers come into the equation. In other words, the wider social harm of consuming and using fraudulent goods (particularly by the subaltern classes) seems low on the official anti-fraud agenda. This discourse has been upheld when considering that fraudulent goods, services and practices in everyday life that directly affect wide sections of the population have until recently hardly been given priority of international aid organisations and donors, who instead have for years rather focused on political corruption (Whyte & Wiegratz, 2016).
The second, and interrelated, issue to highlight from my research is that the sale of substandard and counterfeit goods seems to disproportionately target and affect low-income households and consumers. This raises questions such as: How are low-income consumers affected by fraud? What anti-fraud initiatives are taken to combat this? And do they differ to those of financial frauds that affect rather large players? When investigating the prevalence of counterfeit goods, there is a link between a very high cost of living that the subaltern face and the potential for subsequent exploitation from fraudulent companies, distributors and merchants as people attempt to get by; hence buying the ‘cheapest’. There are also those consumers that willingly and knowingly purchase counterfeit goods in order to “keep up with the Jones’”; in effect keeping up with the norm of conspicuous consumption in (global/national) society but employing counterfeit goods as a replacement for ‘original’ goods. However, it is the former group that is more concerning here.
Echoing this sentiment, Sri Lanka’s Director of Consumer Affairs argued recently that the framing of counterfeit goods as a domestic problem for the economy and rights holders ignores that “it is a global problem fuelled by socio-economic variables such as poverty, ambivalent consumer attitudes towards…[intellectual property rights], the involvement of criminal networks and easy-access to [and affordability of] illegal goods”. This acknowledgement – of poverty as a driver of counterfeit goods and the link between fraud and the state of wider societal structures – is somewhat of an exception from any type of establishment spokesperson.
The real-world consumers of many counterfeit products, such as illicit alcohol, tobacco and pharmaceuticals are usually those with lower incomes. In Sri Lanka rural pharmacies “seeking quick profits” have been accused of perpetuating the availability of counterfeit medicines in these areas; and counterfeit alcohol in India has been deemed a business that thrives on poverty. One dynamic to this is that, according to Sayeed (2014), more than the concern for public safety, officials in India have been particularly alarmed about recent incidents stemming from counterfeit alcohol, tobacco and pharmaceuticals discrediting the image of India abroad. This is a common theme throughout the researched countries – that the image, of both country and rights holders (e.g. to attract tourism and foreign investment), is more of a priority (at least in official discourse) than public safety in the anti-fraud fight.
In 2013, the Pakistani media were tasked by the Anti-Counterfeit and Infringement Forum (ACIF) – a group of multinational and local corporates that have been hit by locally manufactured fake or counterfeit smuggled products – with doing more to raise awareness of the “menace of counterfeiting and piracy” for consumers and investors. Here, it was argued that “counterfeiting, piracy, substandard production and smuggling are barriers to innovation and economic progress of a country”, again not actually prioritising the wider detrimental social impact (e.g. deaths from alcohol, or adverse health impacts from pharmaceuticals). Private organisations are seen here to frame debate and coverage of counterfeit goods around the loss to the economy. Furthermore, intellectual property rights are the issue for multinationals and governments as it is simultaneously a barrier to investment and domestic economic growth. However, other evidence disputes this. In the US for example, testimony submitted to the US Senate Committee on Homeland Security and Governmental Affairs found that foreign direct investment to China was actually one reason for the proliferation of domestic counterfeiting and international export of counterfeit goods from China to the US (Chow, 2004).
I see here, two interrelated political-economic aspects of the prevalence of fraud and anti-fraud initiatives. First, the proliferation and normalisation of fraudulent activities that stems from liberalised economies (Wiegratz, 2015) has created a steep rise in initiatives that combat the concerns of major business actors that actually benefit from neoliberal policies. So, the concerns of the already powerful are tackled and underpinned by orthodox economic measures and framing that allow a prioritisation of anti-fraud measures that address these issues over the effect on the wider population (much the same as poverty reduction and inequality are subordinated to GDP growth). Second, this concern has led to a dynamic that sees low-income households disproportionately targeted and affected by sellers of counterfeit goods, while the initiatives, investments and research needed to understand who is affected by fraud, it seems, have not been forthcoming at an appropriate level. This seems driven by a lack of funding and commitment from governments and donors to address these types of fraud, reinforced by the prioritisation of financial frauds. The research reveals some of the unequal power relations between those producing counterfeit goods in a “parallel economy”, those leading the anti-fraud discourse and those who are (often unknowingly) on the receiving end of these goods.
Dave Johnson studies international development at the School of Politics and International Studies (POLIS), University of Leeds. His research on the political economy of anti-fraud measures in the Global South is informed by ongoing work into anti-fraud measures conducted with Jörg Wiegratz.
Featured Photograph: Counterfeit bags for sale in public.
CBI (2005) CBI Crime Manual – Chapter 4 (http://goo.gl/9JxzwM)
Chow, P (2004) Counterfeiting In China And Its Effect On U.S.
Manufacturing, HSGAC (https://goo.gl/49xNC2)
FICCI-CASCADE (2012) Socio-Economic impact of counterfeiting, smuggling and tax evasion in seven key Indian industry sectors – Executive Summary (http://goo.gl/Z4a9Ev)
Sayeed, A (2014) Know Your India: “Turn a New Page to Write Nationalism”, Delhi, Vij Books
Singh, C et al (2016) Working Paper 505: Frauds in the Indian Banking Industry, Indian Institute of Management, Bangalore (http://www.iimb.ernet.in/research/working-papers/frauds-indian-banking-industry)
Whyte, D & Wiegratz, J (2016) Neoliberalism, moral economy and fraud in Whyte, D & Wiegratz, J (Eds.) Neoliberalism and the Moral Economy of Fraud, London, Routledge.
Wiegratz, J (2015) ‘The New Normal: Moral Economies in the ‘Age of Fraud’.’ in Whyte, D (Ed.) How Corrupt is Britain?, London, Pluto