Fake and Adulterated Products from China: What Can You Do?

A couple Chinese “executives” were recently found guilty in Seattle Federal Court of having imported and distributed adulterated  and mislabeled honey into the United States. The honey contained “ciproflaxin, an antibiotic used to fight bacterial infections that can cause tendon damage and is barred from the food supply.”

The honey was also mislabeled as having come from “Russia, Ukraine and possibly Poland” even though it really came from China.

This all reminds me of a couple matters the international lawyers at my law firm worked on a few years ago. To camouflage the clients, I am going to slightly modify the facts, but I assure you that you will get the gist. Here are the stories:

Client 1, a Spanish company, is engaged in a profitable business shipping food product to China, where it is combined with other product, processed, and then shipped to the United States for sale. One day, around a dozen federal agents (from various agencies) show up, armed, and take all of the company computers. An investigation goes on for years and the company and many of its executives have to hire top flight white collar criminal attorneys to defend themselves. By the time the matter is resolved, the client has spent well over a million dollars defending itself. The charge was that the Spanish company knew one of its products was X, even though it had been labeled Y. The Feds eventually became convinced our Spain client did not know it was getting X product and the matter was closed. It helped tremendously that our client was able to show that the price it paid for product Y was actually a much higher price that it would have paid for product X.

Client 2 is in the high tech hardware business. It has more than 100 employees and has been in the business of producing and selling its own hardware and that of others for many years. One day, about twenty federal agents (from various agencies) show up, armed, and tell everyone to clear out. The agents spent the next 48 hours (non-stop) going through our client’s computers. We later learned that the Feds had been called to investigate our client for selling counterfeit product of a very well known hardware manufacturer. This powerful hardware manufacturer had reported our client as a counterfeiter and that was enough for the Feds. Our client immediately admitted it had, many years before, inadvertently sold less than ten counterfeit products, but as soon as it realized that the product (from China of course) was counterfeit, it ceased. It helped tremendously that our client was able to show that the price it paid for the less than ten counterfeit products was the price it would have paid for the real thing. Our client had to retain a bunch of white collar criminal lawyers for both the company and for a number of its executives. Fortunately, this investigation was nipped in the bud fairly early and the overall costs to my client were manageable.

The point of this post is that two innocent companies went through hell because they unknowingly received misleading product from their Chinese suppliers. Both of these companies had huge amounts of international and China experience before their problems arose and both these companies were and are very well run. What could they have done differently? I do not know.

What can companies do to prevent this same sort of thing from happening to them? I can call for increased due diligence, but that is about all.

What do you think?

For more on the really bad honey from China case, check out the following:

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