Who are the real fashion victims?

When you buy a fake Burberry scarf or a copy of a Gucci bag, it may seem like a harmless misdemeanour. But the counterfeiters' profits often fund crime of a rather more sinister nature, says James Sherwood

Like ladies of the night, luxury- goods labels tend to congregate around one street. In one London thoroughfare, you can purchase Dior's denim logo purse, Puma trainers, Burberry bandanas, Calvin Klein underwear and Timberland boots. But the street in question isn't Sloane or Bond. It is Leather Lane market in the East End, and much of the "designer" booty is bootleg. Not the main retail hotspot for counterfeit fashion by any means, it is just one of many places in the capital where you can buy imitations of sought-after brands at a knockdown price.

Fashion fraud is seen by most as a victimless crime. In a recent Mori poll commissioned by the UK's Anti-Counterfeiting Group (ACG), a third of Brits said that they would "knowingly purchase counterfeit goods if the price and quality of goods was right". Nobody's fooled; where's the harm?

Counterfeiting and piracy is a global black economy. In the UK alone, it costs industry an estimated £10bn. According to a survey carried out in 2000 by the Global Anti-Counterfeiting Group, up to 11 per cent of clothing and footwear in circulation is fake. The annual reduction in GDP in Europe as a result of counterfeiting is estimated at €8bn, and £768m in the UK.

"Counterfeiting has been shown to be linked to organised crime and even terrorism, as profits are ploughed into other criminal activities," says Ruth Orchard, director general of the ACG. The perception that greedy luxury-goods groups are spoiling a "bit of fun" is grossly misguided, and the seriousness of the threat to luxury-goods houses is demonstrated by ACG's members: Louis Vuitton, Hermès, Chanel, Gucci, Rolex, Tommy Hilfiger, Timberland, Burberry, Nike, Puma and Adidas - to name but a few.

The merchants in Leather Lane, Chinese street-hawkers in New York's Canal Street, and North African peddlers of fake Prada, Vuitton and Gucci bags around the Ponte Vecchio in Florence may be in the relatively innocent frontline of the counterfeit trade, but Orchard believes that they are merely the tip of the iceberg. At the other end of the supply chain, she says, "the top fakers are highly organised, intelligent, well-advised and extremely powerful. Known criminals in the UK often cannot be touched because they run legitimate businesses to mask their counterfeiting and other criminal activities - and they kill people".

Orchard has information linking UK counterfeit crime to paramilitary groups in Northern Ireland. Northern Ireland, particularly Ulster, is one of the UK's counterfeit hotspots. "I'm hoping to go on a raid soon, to understand what happens, but not to the Irish border, thanks," says Orchard, "where the police need helicopter support." Counterfeiting appeals to organised-crime bodies - including Triads, the Russian mafia and Yardies - because it is a relatively low-risk activity. The foot-soldiers on the frontline may be prosecuted but the manufacturers, importers and distributors rarely get stung. "It will take something akin to doing Al Capone for tax evasion to crack them," says Orchard. "They run rings around the enforcers by switching countries, or even counties within the UK, as national cross-border co-operation is still in its infancy. They have existing criminal networks, some on a global scale, for smuggling the goods, evading the tax, hiding the funds and then using the profits for other serious crimes - drug-smuggling, gunrunning, people-trafficking."

Steve Gursky, senior partner of the New York-based Gursky & Partners, the legal representatives of Tommy Hilfiger, Nautica and Anne Klein, is more optimistic. "It is vital that we make wrongdoers pay. One of the goals of our anti-counterfeiting programme is to follow the channel of distribution. We find the products at retail. We go behind the supplier. Then we get to the maker. Nobody's in business to lose money, so if it's a choice between a free shot at a brand that doesn't litigate and one that does, they'll go for the easy target."

The luxury-goods brands that most aggressively pursue the counterfeiters know exactly what's at stake. Exclusivity is the designer brand's security blanket, and it must be protected at all costs. In 2001, when the Burberry check was enjoying its fashion moment, the company issued a statement in the UK fashion- trade journal Draper's Record: "We watch out for our trademarks. Anyone who uses our name, our equestrian-knight insignia, or checks identical or confusingly similar to our Burberry check, without our permission, is counterfeiting our trademarks and will hear from our lawyers."

True to their word, Burberry's lawyers and agents worldwide have taken the fight to the counterfeiters. In June, Trading Standards officers seized thousands of fake designer bags after being tipped off about a delivery in Bethnal Green, east London. Some 17,000 counterfeit "Burberry" and "Puma" bags, with an estimated street value of £160,000, were seized in a warehouse. Croydon Council reported a raid in April on a local retailer, in which illegal copies of Burberry-check handbags, purses and scarves were confiscated and destroyed. Trading Standards officers were "acting on a tip-off from an investigator working on behalf of Burberry".

It doesn't stop at the British Isles. Worldwide, Cartier is currently involved in 2,500 legal proceedings, and devotes $3.8m annually to its crusade against the counterfeiters. Louis Vuitton has more than 1,000 active cases this year.

Using the Burberry check as a case study, we can map the pollution of a brand. The counterfeiters feed off a "healthy" label such as Burberry in much the same way as a virus. (Burberry's CEO, Rose Marie Bravo, masterminded the rebirth of Burberry. She revived the tired house with stylish images of Kate Moss wearing a Burberry bikini, photographed by Mario Testino. Licenses that arguably diluted the brand were bought back, productivity was reined in and controlled from Burberry's London design studio. A brand was reborn.)

Celebrities help to spread the virus: not so much fashion celebrities of Miss Moss's calibre, but Heat fodder such as Victoria Beckham, Daniella Westbrook and Jordan, who wear the genuine article but seem not to have embraced the maxim "less is more". These pin-ups of the counterfeit customer ensure that every shopping-centre and nightclub is awash with teenage girls upholstered in fake Burberry check, from headscarf to handbag to kitten-heels.

At present, Burberry check is second only to the Louis Vuitton "Murakami" handbag - with its distinctive multi-coloured "LV"s on a white leather background - as the faker's hottest property. The quality of fake Murakami bags is laughable, but its ubiquity inevitably pollutes the brand and can devalue the genuine article.

Luxury-goods consumers are not, by and large, put off purchasing new-season must-haves by the proliferation of fakes. The pleasure of knowing that your Prada purse is genuine far outweighs the pain of knowing that fakes exist. The lady with her £8,000 hand-stitched Hermès "Kelly" bag won't begrudge less wealthy sisters the knock-off.

"The real meaning or values of a brand are almost irrelevant to the copyists," says Eddie Prenderghast, founder and MD of the menswear company The Duffer of St George. The iconic zip-front hoodie with Duffer spelt across the chest was first introduced in 1994. The label was cool, credible and worn by an urban élite. "The first copies we saw were really crude, almost comical," he says. "It was almost as if the copyists didn't know that Duffer was a brand. Then, around 2000, we started seeing some really good knock-offs with all the tags, labels and care instructions in place. That's when we started injunctions against them.

"The problem is, you can serve an injunction on a market trader, he can give a fake name, and then he can disappear. Unless you're involved in heavy surveillance and willing to spend a fortune finding the source of the supply, then you're fighting a losing battle."

"It comes down to political will and money, in the end," says Ruth Orchard. "We are not winning yet. Counterfeiting and piracy are not yet nearly high enough on the Home Office agenda: UK, EU and global enforcement is not sufficiently funded or co-ordinated. The UK has one of the better legal systems, but there is still room for improvement. However, you can fiddle with the legislation all you want. HMG must fund the enforcement of the law properly - the actual fines and prison sentences that offenders receive are laughably small compared with drug-related or other offences."

The US law enforcement against counterfeiters is infinitely more strident than the UK's Last month, Levent Somnez, a student, was sentenced to 200 hours of community service for storing the largest haul of fake goods ever seized by Northamptonshire County Council (including copies based on Vuitton, Burberry, Nike, Versace, Moschino and Armani), which would have been worth £250,000 had the goods been legitimate. By contrast, in May, a South Carolina man was sentenced to seven years in prison and ordered to pay Nike $3.4m for trafficking in counterfeit clothing.

Indeed, sportswear labels such as Nike, Adidas, Reebok and Puma are more vulnerable than the luxury-goods labels, as they are mass-produced largely by independent manufacturers based in developing countries. In the developing world, there is now more fake than genuine "designer" gear in production, Nike, Adidas and Levi Strauss being the main victims. Companies such as Gucci, Dolce & Gabbana and Ferragamo own all their factories and can control "leakage" at source.

July saw the seizure of 25 truckloads of Nike and Adidas shoe parts from assembly shops in Ho Chi Minh City. Working on a tip-off by Nike, Vietnamese authorities uncovered a "leakage" scam: defective shoe parts were salvaged then illegally assembled for the export market. The main source countries for US imports of counterfeit goods are China, Hong Kong, Korea, Singapore and Taiwan; not coincidentally, these are the manufacturing bases for the world's top sportswear conglomerates.

Scams in the sportswear and designer- jeans sector are legion. Factories authorised to produce collections for Nike, Adidas, et al, produce extra units to be sold on the black market. When the only defining marker between a Nike white T-shirt or any other is a swoosh, then the counterfeiters have an easier time than, say, trying to fake an Yves Saint Laurent "Mombassa" bag.

"Probably the highest volume of counterfeit items produced are those where you can place a designers' name or logo on a 'blank' generic product," says Steve Gursky. "It does happen with jeans, although it happens more readily with T-shirts, sweatshirts, caps and scarves. Generally, purchasers of jeans are buying them for a fit. The fit is apparent by handling the jeans, so it's not that easy to fake."

Ruth Orchard disagrees. "Fake designer jeans that used to fall apart in the wash and were obviously fake can now be almost indistinguishable from the real thing. There's a story that fake jeans produced locally in Mexico are more desirable than the real thing, because the locals make them."

There is an argument that designers who indiscriminately use a scattergun technique to cover cheaply produced jeans, T-shirts and trainers with their logos to make big bucks are reaping what they sowed. But the fact remains that it is their name to exploit.

I suggest to Steve Gursky that the counterfeiters are as relentless as cockroaches. He says: "With cockroaches, if you don't set off a bomb in your house, it will be overrun with them. You won't get rid of every cockroach, but you try to eliminate as many as you can. You make them pay, and that's a potent message."