Deluxe

by Dana Thomas

  When it was time to leave, we had to run across the courtyard to the vans to shield ourselves from debris that the kids threw from the balconies. To the children, the cops are the bad guys. Many of the children in counterfeit workshops have been sold into labor by their families in the countryside. The children used to be picked up at the train station and taken to the factories, but the police started to stake out the stations and make arrests. Now factories hire agents, usually a man and woman who will pose as a married couple and go to the country in a truck to get one or two children. If the agents are stopped by police, the agents say that the children are theirs. Some families in the country sell their children because they believe that the children will have a better life in the city. But selling children has become a big business in China. The children work in factories or turn to prostitution and send their money home or bring it to their parents when they return home for the Chinese New Year. Most earn between $50 to $100 a month in factories.

  The children who work in counterfeit factories are usually housed by the owners; the kids in the raid I witnessed lived across the courtyard in slum dorms. When a counterfeit factory is raided and the owner arrested, the children are left not only out of work but also homeless. One investigator who often assists on raids in China was so moved by the plight of the child workers that he and a handful of colleagues founded a charity, which helps place the children from shut-down factories in schools and underwrites their education and living costs.

  Sometimes the cases are truly horrific. “I remember walking into an assembly plant in Thailand a couple years ago and seeing six or seven little children, all under ten years old, sitting on the floor assembling counterfeit leather handbags,” the investigator told me as we drove away from the raid. “The owners had broken the children’s legs and tied the lower leg to the thigh so the bones wouldn’t mend. He did it because the children said they wanted to go outside and play.”

  ONE DAY IN 2004, New York security expert Andrew Oberfeldt and lawyer Heather McDonald were participating in a raid in a counterfeit mall on Canal Street in downtown Manhattan, when they saw a petite blond woman sobbing hysterically. In a thick Texas drawl, she pleaded with McDonald: “This is my first time to New York and this is awful! I just want to take my things and go home.”

  McDonald asked the police what the Texan’s “things” were: “She had fifty-eight of the same bag,” McDonald says incredulously.

  McDonald said no, and the Texan left in a huff.

  Five minutes later she returned, tears gone.

  “I’m on the cell phone with my lawyer, and he says you can’t do this without my day in court, so I’ll take my bags and go,” she declared.

  “No,” McDonald responded. “I’ll take your bags and see you in court.”

  “Two weeks later we’re doing a raid at a nearby location,” McDonald recalled when we met in June 2005. “And who do we see? The same Texan. I told her, ‘I thought you said you were never coming back here.’ And you know what she said?”

  “What?” I asked.

  “‘Bite me!’”

  I laughed out loud.

  “I’m sure,” McDonald said, “that she was a purse-party lady.”

  Purse-party ladies are the drug dealers of the counterfeit trade: they buy from the wholesalers and sell to suburban users, folks with a craving for the goods but not enough dough for the genuine thing. Like teenagers gathering at a friend’s upper-middle-class home to buy a couple of joints with their allowance or babysitting money, suburban women converge in well-appointed living rooms for wine, hors d’oeuvres, gossip, and fake Vuitton or Gucci handbags. The women hosting these fetes will make a killing—they double their investment—and never declare it to the IRS. Take Virginia Topper, the wife of a lawyer in Long Island, New York. When she was busted in 2003, she had $60,000 in cash stashed in her underwear drawer and a Jaguar in the driveway. She was found guilty and sentenced to community service. “She was the ultimate Amway lady,” Oberfeldt laughed.

  Most purse-party ladies don’t see buying or selling fake handbags as a real crime. It seems so innocuous that churches, synagogues, and schools host purse parties to raise money for charities or in-house events. In a survey by the Anti-Counterfeiting Group, one-third of those questioned said they would knowingly buy counterfeit goods if the price and quality were right, and 29 percent said they saw no harm in the selling of fake goods unless the purchaser was at risk. “We’ll go on raids in Chinatown wholesalers and we’ll find five or six suburban women standing there—customers,” Oberfeldt tells me. “We’ll say to these women, ‘The dealers take you down dark corridors, through locked doors. The police say, “Open up!” The lights are turned out, and everyone is told to be quiet. At what point did you realize that something was amiss here?’”

  Some take it one step further, passing off fakes in stores as the real thing. Buckner had gotten a tip from an informant that the wife of a professional athlete sold fake luxury brand handbags in her northern California boutique for $1,800 a pop. Buckner had his operatives purchase a couple of bags, which he sent to the brands’ headquarters to be verified. Turned out the bags were, as Buckner put it, “grade AA counterfeit. It’s all counterfeit.”

  Back in 2003, Gucci discovered that Wal-Mart was selling counterfeit Gucci handbags and wallets as authentic in several of its stores around the United States. Gucci hired New York lawyer Steven Gursky, of the Gursky Group at Dreier LLP, to pursue Wal-Mart for “willful blindness,” a practice in which the store buyer does not ask the wholesaler or middleman the origin of fake goods and then sells them as the real thing. It happens all the time: Gursky has handled willful blindness cases against Wal-Mart, Costco, and others on behalf of Tommy Hilfiger, Calvin Klein, Diesel, and Nike, to name a few. Generally, middlemen sell anything and everything they can get their hands on. “We’ve had cases where the vendor last sold the retailer toasters and now it’s designer clothing,” says Gursky, “and the buyers don’t find this odd.”

  In the Gucci case, the middleman—actually a middlewoman—had attended the Las Vegas Off-Price Specialist Show, the largest American trade show devoted to selling odd lots of apparel and accessories at reduced prices, and picked up an order of Gucci handbags and wallets for a song. She testified later in the case that she believed the goods were authentic because she heard the people in the booth speaking Italian and assumed they were employees of Gucci. In fact, they were Israelis speaking Hebrew and had bought the wallets and purses at a factory in Romania. They were later arrested in Miami for selling other counterfeit goods. As they were already facing criminal and civil charges in Florida, Gucci decided to go after the middlewoman and Wal-Mart. Both settled on the eve of the trial in June 2005. “The sale of counterfeit merchandise by a reputable retailer is much more insidious than on Canal Street because often on Canal Street people assume what they are buying is fake,” said Gursky. “But when you walk through doors of a $200 billion retailer, you believe that what they are selling is real. And sometimes it’s not. The truth is, Wal-Mart is much more concerned about the buck than reputation—theirs as well as the trademark holder’s.”

  Most luxury companies now have lawyers on retainer who spend each day surfing the Web, looking for fakes for sale. Companies such as AAA Replicas (www.aaareplicas.com) make Vuitton and Hermès knockoffs to order for $200 to $400 apiece. Amazon.com and eBay are two favorite places for counterfeit wholesalers to dump their stock. Amazon and eBay themselves cannot be held liable because they simply host a transaction between buyer and seller. But luxury brands are hoping to change that by making the Web sites liable for enabling the business. In 2004, Tiffany sued eBay in New York’s federal court based on that principle, claiming that 80 percent of Tiffany products offered on the site were fakes. In 2006, LVMH filed a similar suit in Paris, stating that up to 90 percent of Vuitton and Dior items on eBay were counterfeit. By early 2007, both suits were still pending.

  Many of the street-level hawkers in Europe and
the United States—the guys you see with watches and bags spread out on blankets on street corners, or in trash bags slung on their backs on Riviera beaches—are Senegalese belonging to a two-million-strong Islamic sect called the Mouride brotherhood. They are illegal immigrants who sell Gucci watches and Vuitton baseball caps at a 400 percent markup, then send the cash—millions of dollars—back to Toube, their home base in Senegal and one of the fastest-growing cities in Africa. There, the money has contributed to constructing television and radio stations, a university, and one of the world’s largest mosques, with an eighty-seven-meter tower covered in $10 million worth of imported marble. Rarely are Mourides prosecuted for peddling counterfeit goods. Like purse-party ladies, Mourides are, in the minds of cops, small-time dealers.

  Counterfeiting flourishes because it is a high-return, low-risk business: Counterfeiters can earn millions and are rarely caught. “The markup is like heroin,” says Oberfeldt. “Say I buy one ounce of heroin for $18,000. Diluted one to ten, I now have $180,000 worth. However, conspiracy to commit a crime and criminal possession of narcotics is an A–1 felony in New York. If I’m caught with any part of that ounce of heroin, I’m looking at eight to twenty-five years, and life if it’s a multiple offense. It’s mandatory sentencing. It’s almost like murder.

  “If I brought in $18,000 worth of handbags in from China”—which would retail for at least 10 times more—“you’d put me in jail overnight, maybe. And I’d call my lawyer and be out in the morning. Ninety-nine percent of the people caught in New York state selling counterfeit goods do not go to jail. The judges do not have the laws to sentence. The highest-level crime to be charged with in New York State is trademark counterfeiting, which is a C felony, like stealing a nice car. They never rat out their bosses. They just laugh at the cops.

  “If you sell that heroin,” he continues, “you’ll have the DEA, the FBI, New York State and city police, Customs, and the IRS all looking for you—and you’ll go to jail forever. If I sell counterfeit goods, all those people except the DEA could chase after me, but can’t do anything once they get me. So most don’t get involved.”

  Like the drug business, counterfeiting has become a professional racket run by organized crime. In New York in the 1980s until the mid-1990s, gangs—like a group of Asian American kids called the Born to Kill Gang—were in charge. “If we showed up to do a raid, women would take counterfeit watches, shove them up their shirts, and say, ‘I’m pregnant, don’t touch me!’” remembers Oberfeldt. “Once I saw a three-month-old baby in a milk crate that sat on top of a case of M-80 explosives. The gangs came after us with bats, they’d slash our tires, throw knives and significant explosives. It was terrorism. They tried to intimidate us. We videotaped them and locked them up and we got a lot of street cred when we manned up from ten to forty men and kept going.”

  Today Canal Street is run by grown-up gangs from China, like the Fukienese gang, as they are known in New York, whose members come from Fujian, a province along China’s southeastern coast just across the straits from Taiwan. They speak a Fujian dialect among themselves and run the north side of Canal Street, west of Broadway. And they freely let the police seize goods rather than get arrested for fighting back. The network is tight. Like in Santee Alley, they all have direct-connect Nextel radio: if a police car turns a corner, the message is relayed down six blocks instantly and everything is shut down. They use homeless people as lookouts, giving them walkie-talkies. Random killings don’t happen. “It’s bad for business,” notes Oberfeldt.

  But things can get dangerous. During a two-day sweep in November 2004, New York police arrested fifty-one members of two violent gangs and charged them with a host of crimes ranging from racketeering to trafficking in counterfeit goods. Police seized $150,000 in cash and $4 million in counterfeit merchandise carrying the names of Chanel, Gucci, and Coach. U.S. Attorney David N. Kelley told said the gangs “achieved their dominance through unflinching use of violence and fear.” During their reign, a man who was suspected of cooperating with police received “a beating with pipes until his bones snapped,” Kelley said. A rival gang member was shot in the head and survived only because the bullet miraculously shattered against his skulls.

  Buckner tells me that Los Angeles is less violent than New York, but dangerous nevertheless. When I visited his office in southern L.A., he showed me surveillance photos of a Hispanic vendor selling counterfeit merchandise in Santee Alley. The guy—a real muscled-up thug—had the number 18 tattooed on his fingers and his cheeks, signs that he is a member of the Eighteenth Street Gang, an L.A. gang that pays tribute to the Mexican mafia. Buckner has also seen guys with Hezbollah tattoos and pictures of Sheikh Nasrallah, the organization’s political leader. Are they actually members of Hezbollah? No one knows for sure. What Buckner does know is that he has to watch his back. “We’ve had our tires slashed, our car windows broken. We’ve had surveillance on our office and on us to find out what we are up to,” he said. “One of our men was driving a van in Santee Alley when gang members smashed the window and cut up his face.”

  To help crack down on the sale of counterfeit DVDs in Santee Alley, the Motion Picture Association of America donated ten cameras that were installed in and around the market in 2004, and the luxury companies profited from the initiative. That year alone, the Los Angeles Police Department seized $32 million worth of fake DVDs, watches, handbags, T-shirts, and more. “As we are a relatively new retail area, it’s been the lawless frontier out there,” admits the L.A. Fashion District’s Kent Smith.

  Some luxury corporations have decided to go after the counterfeiters more fiercely by pursuing big judgments; in January 2004, a New York judge ordered the thirteen Chinese and Vietnamese plaintiffs to each pay a record-breaking $18 million—totaling more than $500 million—to Cartier. The gang had a virtual monopoly on the counterfeit watch market in the United States and had been sending up to $100,000 a day back to their headquarters in Asia since 1988. Following the judgment, Cartier filed seizure orders on their houses, cars, and bank accounts. “We want to really hit them where it hurts: in the wallet,” a Richemont executive told me.

  Other countries are fighting the counterfeiting trade by targeting individual customers and retailers. In France, for example, tourists caught bringing counterfeit goods into France can receive a €300,000 fine (approximately $390,000) and up to three years in prison. And in Hong Kong, customs officials formed a task force of two hundred officers to stamp out counterfeiting and piracy on the retail level. In two years, the number of stores selling fake DVDs, software, and electronics in Hong Kong dropped from one thousand to one hundred. By 2004, there were only sixty. Counterfeit vendors in the Temple Street market in Hong Kong have been forced to move their bogus Vuittons and Guccis from the storefront tables to back rooms. Fake watch vendors closed up on Hong Kong’s busy Nathan Road. Today, a hustler may hit you up on the sidewalk, but he has to take you down back alleys and up dark stairwells into rooms with steel doors to sell you a very good fake Rolex for a mere $45.

  That’s all well and good, says Oberfeldt, but in his view the wrong tack. “The only way to stop counterfeiting,” he says, “is to get people to stop buying all this crap just to have these logos. We have to take it into our own hands.”

  CHAPTER TEN

  WHAT NOW?

  ���Luxury is the ease of a T-shirt in a very expensive dress. If you don’t have it, you are not a person used to luxury. You are just a rich person who can buy stuff.”

  —KARL LAGERFELD

  HANDEL LEE is the modern American dream. His grandfather, for whom he’s named, was a Chinese diplomat who worked as an adviser for the American ambassador in Beijing. Anticipating Mao’s communist revolution, Lee’s grandparents and his newlywed parents fled China in 1949. They lived in Japan for several years and eventually settled in Washington, D.C., where Lee’s father served as the deputy assistant secretary for science and technology for the Commerce Department and his mother worked as an artis
t. Lee was raised in the comfortable Washington suburb of Bethesda, Maryland, attended the University of Virginia, and earned his law degree at Georgetown. He joined the prestigious law firm Skadden, Arps in New York, and in 1991 was sent to Beijing to open its office there—“not long after June 4,” he points out, referring to the 1989 Tiananmen Square student protests two years earlier. “It was an interesting time, very quiet.” He soon became the go-to man for Americans who wanted to do business in China. When I went to Shanghai for the first time in April 2004, he was my go-to man, too.

  Lee invited me to lunch on the sunny rooftop terrace of M on the Bund, the trendy Western restaurant and preferred hangout for jet-set expats. When I arrived at one o’clock sharp, Lee stood to greet me, his manners as impeccable as his dark Armani suit. Lee is soft-spoken, straight-shooting, and seemingly honest: all things you do not associate with either lawyers or powerful businessmen. His strengths are knowledge—of the situations, the players, the hiccups—and patience. Both are as essential to doing business in China as air and water are to life.

  “When I first came here, I planned to stay two to three years,” he told me as we tucked into mesclun salads with smoked duck breast. “But every day you see something new and you hear something new—a new thought.” In 1995, Lee had a new thought of his own: to open a gallery dedicated to contemporary art. “There was fresh new artistic expression that no one had seen in China, and the only places you could catch it was at art happenings, in underground art villages or in artists’ studios,” he said. “China has been an amazing civilization for five thousand years but that’s because of its culture, not its military power. During the last sixty years, the most dynamic artists left or weren’t allowed to show their work, and that was a tragedy.”