Detecting counterfeit pharmaceutical drugs. A multi-stakeholder forensic accounting strategy
| Published date | 07 October 2019 |
| DOI | https://doi.org/10.1108/JFC-06-2018-0057 |
| Pages | 1027-1047 |
| Date | 07 October 2019 |
| Author | Dominic Peltier-Rivest,Carl Pacini |
Detecting counterfeit
pharmaceutical drugs
A multi-stakeholder forensic
accounting strategy
Dominic Peltier-Rivest
School of Business, Concordia University, Montreal, Canada, and
Carl Pacini
College of Business, University of South Florida –Saint Petersburg,
Saint Petersburg, Florida, USA
Abstract
Purpose –This paper aims to analyzedrug counterfeiting, explains its risk factors and operatingand legal
environments reviews recentlegal cases and develops a multi-stakeholder prevention strategy that includes
forensicaccounting methods.
Design/methodology/approach –This is a theoretical study based on legal casestudies and the best
forensicaccounting strategies.
Findings –Pharmaceutical drug counterfeiting is a fast-growing fraud that so far has attracted little
attention from forensicaccountants. A recent estimate projects that criminalscollect around $75bn annually
in illicit salesfrom counterfeit drugs (Bairu, 2015). Pharmaceuticalcounterfeiting also leads to the loss of lives
when criminals use lethal chemicals in the manufacturing of fake medicines (Liang, 2006a;Brown, 2005).
Because the detectionof drug counterfeiting is extremely difficult after fake medicineshave been ingested by
patients, the strategy developed in this paper is based on early discovery by using reliable tracking
technologies and inventory management controls in the supply chain, conducting effective regulatory and
legitimatecustoms inspections, and increasing consumerawareness of basic forensic accountingtools.
Research limitations/implications –This paper extends previous research by integrating various
factors intoa single multi-stakeholder prevention framework.
Practical implications –The paper presents a synthesized, comprehensive view of the drug fraud
epidemic and analyzes concretesteps that can be taken to protect the pharmaceutical supply chain to reduce
the loss of lives and monetary injuries.
Originality/value –No previous research has analyzed this issue from a multi-stakeholder point of view
and used forensic accountingtools to complement a prevention strategy. The drug counterfeiting prevention
strategy developed in this paperaddresses the supply side, the regulatory enforcement side and the demand
side.
Keywords Fake medicine, Drug fraud, Drug counterfeiting, Tracking technology, Customs border,
Forensic accounting
Paper type Research paper
Introduction
A quiet, but growing, fraud epidemic can be found in counterfeit pharmaceuticals. It is a
global problem one not limited to sub-Saharan Africa or developing countries but
increasingly affectingdeveloped nations such as the US and Canada. Producing illicit drugs
such as heroin and cocaine is a cumbersome, expensive and risky undertaking. Conversely,
counterfeit legal drugs are cheap to produce, highly profitable and relatively low risk
Detecting
counterfeit
pharmaceutical
drugs
1027
Journalof Financial Crime
Vol.26 No. 4, 2019
pp. 1027-1047
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-06-2018-0057
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
(Capell et al., 2001)[1]. Fakes can be madefor less than a penny a pill and sold for around 30
cents (Capell et al.,2001). Recent studies suggest the problem of weakened, adulterated and
fake drugs entails fivetypes of harm (Bairu, 2015;Liang, 2006a).
First, if the fake drug contains the wrong pharmaceutical, the patient may receive no
treatment[2]. Second, the counterfeitmay deliver the wrong dose. Third, the fake drug may
have no active ingredients or actually contain harmful ingredients[3]. Counterfeiters have
used colored dye, powdered cement, toxic yellow road paint, floor wax and boric acid –
resulting in death for some people (Liang, 2006a;Brown, 2005). Fourth, the proliferation of
counterfeit medicines may erode public confidence in healthcare delivery systems. Finally,
the loss of profits to patent holders, manufacturers, wholesalers, and drug retailers may
misallocate economic resources (Bunker, 2007). The counterfeiter’s goal is, obviously, to
collect the brandedprice for what is essentially a worthless good (Cahoy,2008).
Although determininga precise estimate of revenues from the sale of counterfeitdrugs is
not possible, one projection indicates that criminals generate about $75bn in illegal sales
annually (Bairu, 2015). Of the more than 11,700 incidents[4] in 2014 that helped generate
illegal revenues, the highestincidence rates were in China, India, Pakistan, the US and Japan
(Bairu, 2015). Pharmaceutical counterfeiting also costs lives. For example, fake tuberculosis
and malaria drugs alone kill an estimated 700,000 people a year (Anonymous, 2010).
Stemming the flow of fake drugs is a complex challenge, but one to which forensic
accountants can makea contribution.
The purposes of this paper are to define and analyze drug counterfeiting, explain the
relevant operating and legal environments, present the risk factors surrounding drug
counterfeiting, review various counterfeiting cases, and propose a multi-stakeholder
prevention strategy to reduce and detect drug counterfeiting. This article integrates the
numerous dimensions of one of today’s most serious fraud problems to assist auditors,
regulators, law enforcement, pharmaceutical industry executives and doctors and patients.
It facilitates the role forensic accountants can play in performing counterfeit drug risk
analysis, providing litigation support services in enforcement actions and implementing
prevention measures.
The remainder of this paper is organized as follows. The second section discusses the
concept of “drug counterfeiting.”The third section discusses the operating and legal
environments and discusses risk factors for consumers and manufacturers. The fourth
section reviews several pharmaceutical counterfeiting cases. The fifth section presents a
multi-stakeholder preventionstrategy to combat counterfeiting. The final section concludes
this paper.
The concept of “drug counterfeiting”
As noted above, trafficking in counterfeit drugs or medicines is a rapidly growing criminal
activity on a global scale. Secular criminalgangs and terrorist organizations engage in drug
counterfeiting[5]. The term “drug or pharmaceutical counterfeit”has not been consistently
defined (Liberman, 2012). The term“counterfeit drug”is often taken to entail a medicine not
produced by the authorized manufacturer (Bunker, 2007). It is useful and more precise to
apply the term “counterfeit drug”only to intentional acts of deception (Cahoy, 2008). In
reality, the words “pharmaceutical counterfeiting”or “counterfeit drugs[6]”involve three
illegal activities:counterfeiting, tampering and diversion.
The World Health Organization’s (WHO) definition of counterfeit medicine includes
those drugs that are deliberately mislabeled as to their identity and/or source, including
products, which may contain correct or incorrect ingredients, no active ingredients,
insufficient active ingredients or fake packaging (WHO, 2016). The intellectual property
JFC
26,4
1028
To continue reading
Request your trial