Who's investigating fake Chinese goods? Fake investigators

Officially, Flaming Lee hunted counterfeiters for Swiss power technology giant ABB Asea Brown Boveri Ltd. Unofficially, she herself sold counterfeit ABB circuit breakers for export — the very things ABB was paying her to track down.

Some of the cases documented by the AP involved potentially dangerous products: counterfeit auto parts, pharmaceuticals, personal care products and electrical components.

Using previously undisclosed records from court cases in China and internal corporate investigations, as well as interviews with people directly involved in events, the AP documented multiple forms of wrongdoing:

— Western firms paid investigators who were themselves manufacturing or selling counterfeit versions of their clients' own goods.

ABB believed it was a victim of all three varieties of fraud, according to court documents, as well as interviews with people involved in the lawsuit and an internal investigation.

[...] the momentum of reform that has led to the creation of dedicated intellectual property courts, new laws and a crackdown on local corruption has yet to reach the front lines of the fight against fakes.

More than 15 investigators, lawyers and law enforcement officials all described a broken system, beset by endemic and underreported fraud, made worse by Western companies that have a poor command over how to successfully fight fraud.

ABB was exceptional in that instead of remaining silent, it took its fight to court in China and sued its investigations firm, China United Intellectual Property Protection Center, commonly referred to by its acronym CUIPPC.

ABB was ordered to pay overdue investigation fees of more than $500,000, despite China United's questionable billing patterns, including a $5,000 charge for a raid that uncovered $1 worth of fakes.

Like ABB, most brands privately hire investigators, either directly or through a law firm, to root out counterfeiters and assist Chinese authorities in running raids against them.

In response to questions from the AP, Shanghai's Public Security Bureau took the unusual step of warning foreign companies to be more watchful.

[...] we very much hope that brand owners will pay attention and devote more manpower and material resources to ensure that the fight against counterfeiting is healthy and orderly.

A spokeswoman for the State Administration for Industry and Commerce, which helps oversee intellectual property enforcement across China, said that the agency "has investigated and punished a large number of regulation violators," but declined to elaborate.

The company calculated that sales of counterfeit ABB low-voltage circuit breakers — the very product Lee was peddling — topped 2 billion yuan ($314 million), according to ABB's court filings.

Corporate filings show that it used to be a state-owned company, supervised by the research and consulting arm of China's State Council, or cabinet.

In court filings, ABB said it heard that China United had been falsifying cases for another client, Panasonic, cooperating with a counterfeiter to manufacture fakes, which it then arranged to have seized and billed as a successful raid.

[...] the head of China United's Shanghai office blocked ABB's independent investigator from raiding the Wenzhou firm and repeatedly threatened the man, who was subsequently attacked, ABB said in court documents.

ABB believed China United was protecting Wenzhou Fulemu, whose counterfeit ABB products were then marketed for export by the head of China United's Dubai office, Flaming Lee, with the knowledge of the company's top management.

Beijing Municipal No. 2 Intermediate People's Court gave ABB such short notice of the hearing date it could not secure a visa for a key foreign witness, so his testimony was thrown out.

China United chairman Li Changxu, is staging a quiet comeback, once again attracting a Fortune 500 clientele and advertising accolades from the Chinese government.