In a light-filled warehouse in Brooklyn, New York, hundreds of workers are meticulously handcrafting police and military garments, cutting, stitching, and shaping shirts, backpacks, and body armor with Crye precision, a patented camouflage called multicam, then packing it into thousands of boxes ready to be sold, often on online marketplaces like Amazon. Amazon.com has perhaps tens of thousands, if not more, products that are available in authentic multicam and is presently being used by perhaps several dozen armed forces all around the globe. But in March, Crye filed a joint lawsuit with Amazon against counterfeiters. It's a problem, Crye says. Costs it millions of dollars annually, and that happens with alarming regularity. At what point of your job are you dealing with counterfeits? Um, unfortunately, it's almost every day. In 2020, Amazon launched a counterfeit crimes unit to

team up with brands and law enforcement on investigations like this. We're not going to stop until there are no counterfeits in the Amazon store. That is our mission. Amazon also has online tools like Brand Registry and Project Zero that give sellers some power to report and remove counterfeits. But retail experts say it's not enough. So even if that product is counterfeit or stolen, they make money every time there's a transaction on their website, so they're not really incentivized to pull this stuff down quickly. CNBC went to Virginia for an inside look at Amazon's counterfeit crimes unit, and asked the division head and Crye precision what it would really take to stop counterfeiters in their tracks. Counterfeits are a decades-old problem for all online marketplaces, including Amazon, which launched its third-party site in 2000. The explosion of digital commerce has dramatically

increased the amount of products that are offered to consumers for purchase, which therefore means there's quite a few more counterfeit products available for purchase. By 2016, sellers told CNBC. The problem was growing after Amazon's effort to openly court Chinese manufacturers. Sales from Chinese-based sellers on the site more than doubled in 2015. Absolutely. It got exponentially worse. There's zero doubt about that. I mean, that opened the floodgates. In the next few years, big brands like Birkenstock and Nike quit selling directly on Amazon, pointing to counterfeits and the Wild West nature of the marketplace. Then came the pandemic-fueled online shopping frenzy in the stock market. Amazon was doing better than ever, but more shoppers meant more incentive for bad actors, too. The pandemic obviously put the problem on steroids a bit because suddenly everybody was home.

A lot of folks were shopping from home. People were chasing goods that were elusive in some respects. So in June 2020, Amazon launched its Counterfeit Crimes Unit, or CCU, as a small team of 10 to 12 data analysts, investigators, and former federal prosecutors like CCU head Kebharu Smith. It was called upon from the highest levels of the company at the time, Jeff Bezos. In over four years, we pursued over 21,000 counterfeit bad actors through either civil suits or criminal referrals. Now, Smith's CCU team has about 35 people. We're all over the globe from Seattle to Milan, London team members in China in 2023. Amazon says it partnered with law enforcement around the world to seize 7 million counterfeit products and execute more than 50 raids, spending $1.2 billion and employing 15,000 people to make it happen.

In China, for example, last year alone, we had over 50 investigations that resulted in the detention and arrest of over 100 counterfeit bad actors. We also partnered with the City of London police in a raid action, where one of our team members was involved and embedded with the City of London police related to counterfeit toothbrush heads. Amazon also sues counterfeiters alongside brands like Yeti, Game Company, Dutch Blitz, and Crye. Shade is completely off from our standard that we are very strict about. So this pattern is on tens of thousands of soldiers. While counterfeits have always been a big problem for high-end brands, the rise of e-commerce has made smaller brands like Crye a target too. This was a counterfeit brand called LK tactical. They have an Amazon presence. Unfortunately, they were trying to bid on military contracts as well.

Genuine multicam. Black has a lot of black areas in it to conceal in dark environments, as you can kind of see right here on this small panel of it, but their pattern does not. It's actually got a lot more lighter areas in there, so it's going to be pretty ineffective for the wearer. Unlike counterfeits sold on street corners, online shoppers have less opportunity to verify authenticity before a purchase. Although there are some ways to check for red flags. Looking to see if how long the seller has been in business, how long they've been selling on a particular platform, do they have a lot of customer reviews? Things like that. Although, to complicate matters, illegitimate sellers sometimes buy a slew of fake positive reviews to appear legitimate, even for brands themselves. Like Crye, it can be hard to distinguish between a counterfeit online listing and one from its thousands.

of legitimate resellers. The colors are pretty close to our actual standards, so the brown is fairly close to the brown, the olive is very close to the olive. And they're using the exact same shapes as well. So that, you know, kind of throws us off. If all we have to go off of is just an image on the internet. When we see a shirt and pant set on Amazon in multicam for $40, we know almost for sure that that can't possibly be authentic multicam, because it would just simply be impossible to produce a garment in real multicam fabrics at those price points. Low-cost counterfeits hurt sales and put a brand's and Amazon's reputation at risk. Early on, Jeff Bezos understood the importance of consumer trust. And so, you know, I do think they've had an earnest disincentive for there to be counterfeit products on the platform from day one.

But as counterfeits find their way into more and more categories online, they can cause true harm to customers too. Counterfeiters don't care if the product is safe. Now, a seller consultant, Rachel Greer, worked in Amazon's fraud and product safety departments from roughly 2007 to 2015. Around 2013, Greer recalls a case involving a knockoff Apple charger. There was a person who was electrocuted and ended up dying in the UK from a counterfeit charger. It was counterfeit. Had none of the protections in place like it just looked good from the outside, but the inside it would plug in, sure, but then it would zap you really hard because there was no insulation. For years, Amazon's maintained in multiple lawsuits that it's only the conduit between buyers and sellers and therefore not liable for products sold by third parties. But in a landmark ruling in July,

federal regulators determined Amazon can indeed be held responsible for recalls of defective goods. It could be something that is not, you know, was made with lead or, you know, if it's a toy, particularly an infant's toy, if it detaches or if it's got a battery that is, you know, is prone to catch fire or to overheat. Some of Crye's camouflage is sold legitimately on innocuous products on Amazon, from camping chairs to wallets to belt bags. But for Crye's biggest customer base military and police, the authenticity of the multicam pattern is essential for keeping them safe. These shapes and colors are tuned so a soldier hiding in grass but being viewed through night vision goggles will be concealed. This though, because it is knockoff. When viewed under night vision, it is glowing a solid white. So if a soldier was having this bag

on his back or carrying it, it can be seen from miles away. In another high-stakes example, Crye teamed up with the Office of the Inspector General to raid a counterfeiter operating right nearby in Brooklyn Navy Yard. The government agency who had purchased these was under the impression that the MultiCam products were flame resistant, which they were not. We were able to seize the counterfeit non-flame resistant materials, and in fact, the principles of that company are in jail as we speak. Cry says its partnership with Amazon CCU and law enforcement resulted in search warrants in Texas and California, and the seizure of several truckloads of counterfeit multicam goods. They've really given us the additional power to, at least insofar as the Amazon platform is concerned, make far more headway than we ever would have been able to do on our own. We cover the cost of the investigation, understanding

that they may not have those teams that can cover that for them. We cover that cost. We cover the cost of a lawsuit, understanding that they may not have the resources to hire an outside counsel, Smith says. The CCU also shares data about suspected counterfeit sellers with law enforcement and brands, citing several times when that's led to successful pursuits. In a prosecution in the District of New Jersey, where an individual was sentenced to six and a half years for selling counterfeit Cisco switches and servers, and was required to forfeit over $100 million in illicit proceeds. Amazon has also recently taken influencers to court over a new type of counterfeit scheme. Social media influencers, using what's known as generic link schemes, where they will promote a generic link and direct their followers to a page within an e-commerce store. And when that customer makes that purchase, they

receive a counterfeit luxury item, for example. Of course, plenty of cases don't get tackled directly by the CCU, so Amazon has rolled out other programs like Brand Registry, where sellers can enroll and, if approved, use tools to search for and report counterfeits through a direct portal. We can upload images of MultiCam as an example, and I guess it's some level of artificial intelligence are there and will cull what it perceives as potentially problematic products, and that our team can then review and validate the authenticity or not, of our brand. Registry tool also has our transparency tool, which allows brands to affix serialization to their products that can help our fulfillment centers and law enforcement identify authentic or inauthentic products. Sellers on brand registry can apply for an even more robust program launched in 2019 called Project Zero,

which auto scans billions of listings daily to detect counterfeits and let sellers remove listings on their own immediately without using Amazon as an intermediary. Tools like that aren't really available on very many other platforms that I'm aware of, and certainly weren't available on Amazon 5 or 10 years ago. It's undeniable that they've made progress. They've also gotten a lot bigger, and so their size still is an appealing target for fraudsters. Amazon can only pursue fraudsters if they know who they are, and online marketplaces can be an easy place to hide. It's very easy for a counterfeit network to set up a storefront on a marketplace, and so even a marketplace in good faith, that's trying to play whack-a-mole, is going backwards. Once somebody has set up that storefront and has probably started moving thousands of dollars' worth of counterfeit merchandise, that's.

Why Amazon has rolled out a series of more robust seller verification tools in recent years that involve things such as requiring identification through live interviews, also looking at information such as bank accounts and IP addresses to identify the actual seller who is setting up that account. Grier went through the verification when she set up a new Amazon account as a seller in 2021. I had to do a video interview with an Amazon employee, and I got a postcard in the mail with a code on it, and so they were able to prove that I am the person who is on my ID, and that I provided them an address that I had access to. And for new sellers of major brands like Hasbro and Cuisinart. Amazon will check invoices to prove items are legitimate, although the system is far from perfect. We've also identified bad actors who use fake and fictitious IDs to set up accounts to get past our

gates. We've identified schemes such as gating schemes, where bad actors will submit fake invoices as a way to get past our proactive tools. With the rise of overseas sellers, foreign shop names, and varying international regulations have made it harder to tell who you're buying from and who to contact in case of a problem. China historically does not have very good protections for intellectual property, certainly not the intellectual property held by non-Chinese individuals or companies, and as a consequence of that, really has become sort of a haven for this type of bad activity. In the US, there's a new piece of federal legislation designed to help the Inform act, which went into effect last year, requires online marketplaces like Amazon to get detailed information for high-volume third-party sellers or face penalties of more than $50,000 per violation. The measure was about creating some measure of

transparency, you know, shining sort of a light on the dark corners of the internet, because we knew that a lot of these high-volume sellers were moving either stolen or counterfeit products from behind a screen name and not much else. Last year, Amazon says it stopped more than 700,000 selling accounts from being created because of suspected ill intent. Still, solving counterfeits for good may simply not be possible at the sheer scale of a marketplace like Amazon. This is always going to be a problem that we have to fight. There's no doubt about it. Bad acting printers overseas can make multicam on its face look quite real and very hard to identify. So without Amazon having the same tools and experience that we have here, stuff is simply going to slip through. Plus, the sheer volume of products that Amazon sells creates what I'm sure is an almost impossible mountain to climb to ensure that this

Amazon Has A Counterfeit Problem — Here’s How It’s Fighting Back

Welcome to the official YouTube channel for CNBC. From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.

For real-time news updates from around the world, visit: http://www.cnbc.com

For CNBC's primetime TV lineup, visit http://tv.cnbc.com

For CNBC's International YouTube channel, visit: http://www.youtube.com/cnbcinternational

Amazon Has A Counterfeit Problem — Here’s How It’s Fighting Back

Scripts