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Counterfeit goods definition and meaning | AML glossary

What are counterfeit goods? Definition and AML compliance meaning.

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Counterfeit goods definition: What it means in AML compliance.

Counterfeit goods are unauthorised replicas of legitimate products, deliberately made to look identical to deceive consumers.

These range from fake designer handbags and watches to counterfeit pharmaceuticals, electronics, and even industrial components.

While knock-off fashion items might seem harmless, the broader impact of counterfeiting extends far beyond lost sales for luxury brands. It is a multi-billion-pound criminal enterprise that fuels organised crime, exploits workers, and poses significant risks to public health and safety.

At its core, counterfeiting is about deception. These products are often manufactured using substandard materials, bypass regulatory scrutiny, and, in some cases, are actively dangerous. Fake medicines can be laced with toxic substances, counterfeit electronics can cause fires, and fraudulent car parts can fail at critical moments.

Consumers might think they are getting a bargain, but in reality, they are being scammed and sometimes even put at risk.

Beyond individual harm, counterfeiting distorts legitimate markets, undercuts businesses that comply with regulations, and evades taxation. The proceeds rarely stay within the counterfeiting operation itself but are often funnelled into more serious crimes, including drug trafficking, human exploitation, and terrorism. This makes counterfeit goods a key concern not just for brand protection teams but for financial crime professionals tasked with stopping illicit money flows.

counterfeit goods definition

“In 2019, global illicit trade in counterfeit and pirated goods amounted to USD 464 billion, or 2.5% of world trade. In absolute terms, the value of trade in fakes is close to the entire GDP of advanced OECD countries such as Austria and Belgium.”

Organisation for Economic Co-operation and Development (OECD)

Counterfeit and pirated goods

The impact of counterfeit goods on AML compliance teams.

For AML teams, counterfeiting presents a direct financial crime risk. The manufacture and sale of fake goods generate vast amounts of illicit funds that need to be laundered before they can be reinvested in further criminal activity. Compliance teams in financial institutions, payment processors, and regulated businesses need to be alert to these risks, as failing to detect them can lead to regulatory breaches, financial penalties, and reputational damage.

One of the biggest red flags is unusual risk patterns, particularly for businesses dealing in high-risk industries. Shell companies set up as ‘wholesalers’ or ‘import/export’ firms can be used as fronts for counterfeit operations. Transactions that seem inconsistent with a company’s profile – such as unusually high payments to suppliers in known counterfeit hubs or frequent high-volume cash deposits – should prompt further scrutiny.

Another key area of focus is trade-based money laundering (TBML). Counterfeit goods are often moved through complex global supply chains, using fake invoices, undervaluation, and misclassification to disguise illicit funds. Compliance teams should be examining trade finance transactions closely, looking for discrepancies between declared goods and actual shipments, as well as identifying counterparties linked to known high-risk jurisdictions.

AML teams must also be wary of how counterfeit goods are sold. The rise of online marketplaces and social media has made it easier for criminals to distribute fakes while remaining anonymous. Payment fraud, fake reviews, and anonymous seller profiles all play a role in these schemes. Unusual payment flows – such as multiple small transactions processed through digital wallets or peer-to-peer platforms – may indicate efforts to disguise illegal earnings.

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