VZCZCXRO9901
PP RUEHCN RUEHGH RUEHVC
DE RUEHHK #0465/01 0470922
ZNR UUUUU ZZH
P 160922Z FEB 07
FM AMCONSUL HONG KONG
TO RUCPDOC/USDOC WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 0551
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 HONG KONG 000465 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/TPP/MTA/IPC/FELSING 
STATE FOR EB/IPE 
STATE FOR EAP/CM 
STATE FOR INR/EAP 
NSC FOR DWILDER, KTONG 
DEPT PASS USTR FOR SMCCOY, ACELICO, RBAE 
DEPT PASS TO USPTO FOR TBROWNING 
 
E.O. 12958: N/A 
TAGS: CH ECON ETRD HK KIPR
SUBJECT: HONG KONG CUSTOMS INCREASES COUNTERFEIT RAIDS FOR 
CHINESE NEW YEAR 
 
¶1. (U) Summary:  Hong Kong Customs and Excise (CED) officers 
recently broke up a multi-million dollar counterfeit 
pharmaceutical ring and a separate triad syndicate that sold 
pirated optical disks.  In the first case from late January, 
CED officers arrested the 37-year old leader of the 
counterfeit drug smuggling operation and seized over 470,000 
fake tablets worth $HK19 million (approx. US$2.5 million). 
In the optical disk case, officers raided 20 sites across 
Hong Kong and arrested 14 people on organized crime and 
copyright violations charges.  These large-scale raids 
coincide with a noticeable increase in Customs enforcement 
and education activity in advance of the Chinese New Year 
celebrations, a time when residents and tourists visit street 
fairs and temporary markets that previously sold counterfeit 
goods.  In the past two months, CED officials have arrested 
wholesale operators for selling fake goods, increased patrols 
at street markets, and warned part-time retailers who open 
temporary stalls at New Year's markets of the penalties for 
selling infringing products.  END SUMMARY. 
 
¶2. (U) On January 26 2007, CED officers stopped an 
international syndicate of counterfeit drug smugglers, who 
targeted the American, European, Indian, and Australian 
markets.  Based on intelligence from the pharmaceutical 
industry, CED raided storage facilities across Hong Kong and 
seized 470,000 tablets of fake drugs with a street value of 
HK$19 million (approx. US$2.5 million).  The drugs were being 
marketed overseas to treat heart disease, avian influenza, 
impotence and weight gain.  Customs officials claim that the 
ring sent spam emails to customers and offered drugs at 
slightly under retail prices to convince buyers the 
medications were genuine.  Many of the drugs found had been 
packed for export with mailing labels already addressed. 
Hong Kong officials arrested the 37-year old head of the 
smuggling operation and plans more arrests in the near 
future.  CED stated that they would share information with 
foreign counterparts to facilitate investigations overseas. 
CED publicly noted that these counterfeit pharmaceuticals 
were primarily placebos with no active ingredients, but were 
extremely dangerous to people who depend on them to treat 
chronic illnesses. 
 
¶3. (U) On February 14 and 15, CED confiscated over 120,000 
pirated optical disks, a private car, a cross-border (Hong 
Kong-mainland) container truck, cash, and Hong Kong Jockey 
Club (HKJC) cash vouchers with a total estimated value of 
HK$3.9 million (US$500,000).  The operation included raids of 
20 different locations, including storage areas and retail 
outlets, and the arrest of 14 people.  CED stated the 
smuggling syndicate was controlled by the Triads, represented 
"the largest organized crime group engaged in pirated optical 
disks in Hong Kong," and used the Jockey Club and local 
restaurants for money laundering of illicit profits.  Press 
reports estimate that the group made more than HK$130 million 
(approx. $16.7 million) over a seven year period through 
smuggling, distribution, and money laundering.  CED charged 
all 14 with "conspiring to sell infringing copies of 
copyright works" under the Copyright and Crimes Ordinances, 
as well as "dealing with property known or believed to 
represent proceeds of indictable offenses" under the 
Organized and Serious Crimes Ordinance.  The use of organized 
crime laws is important as it allows CED to impound the 
property of those arrested. 
 
¶4. (U)  The above cases coincide with an increase in law 
enforcement activity against IPR violations in Hong Kong. 
Starting in December, CED stepped up patrols of Hong Kong's 
night markets and warehouses to stop the sale of smuggled 
counterfeit goods.  In one pre-Christmas raid of three 
warehouses, Customs officials seized HK$2.2 million (approx. 
US$300,000) worth of clothing, luggage, sneakers and watches 
and another HK$8.2 million (US1.1 million) worth of optical 
disks.  Customs officials note that sellers rarely advertise 
their goods by displaying them in public, but approach 
customers directly with pictures of the products they sell in 
storage facilities behind markets or retail shops.  Officials 
announced they also seized credit card payment machines in 
one of these facilities, noting that some counterfeit 
retailers have started to urge clients to pay with credit 
cards that enables them to sell more goods as well as steal 
credit card data.  In February, CED officials raided 
warehouses containing counterfeit paraphernalia of Disney and 
 
HONG KONG 00000465  002 OF 002 
 
 
Japanese cartoon characters.  CED anti-counterfeiting 
officials have stated publicly that they have stepped up 
patrols of Hong Kong's annual Chinese New Year markets and 
warned retailers that they will be prosecuted if they are 
caught selling fake goods.  It appears the high publicity 
surrounding these raids was designed to give retailers and 
consumers warning of the dangers of dealing in counterfeit 
goods. 
SAKAUE