Letting the air out of international airbag schemes

By Bill Killian
May 16, 2013
Arrests raise specter of unsafe airbags flooding U.S. market

Abstract: jifa-2013-1Theft of intellectual property in the U.S. is a significant public-safety problem, especially in the automobile industry. In September 2010, six boxes labeled “bearing parts” originating from Guangzhou Auto Parts located in Guangyhon City, China were intercepted. Federal agents quickly determined that the “bearing parts” were in fact counterfeit airbags for automobiles. The investigation led to the discovery that these counterfeit airbags were being made in China, and the manufacturer himself, Dai Zhensong, was a Chinese citizen. Of the 10 counterfeit airbags that were tested, four did not deploy; two propelled shards of plastic or metal; and two exploded. Equally troubling was the discovery that there are hundreds of thousands, maybe even millions of these airbags available in the international market. Counterfeit airbags are produced for nearly every automobile manufacturer. A lot of these counterfeit products are being manufactured and distributed from countries like China, where international entanglements can disrupt, delay or even prevent prosecution.

At a recent event, Deputy Attorney General James M. Cole raised the warning flag about the potentially fatal consequences intellectual-property crime can have on all Americans.

Referring to American products as the envy of the world, Cole rightfully stated, “Our innovations benefit consumers who want the latest, most exciting — and safest — new products; and they help to keep our economy strong. But our cutting-edge products also make our companies — their research and their products — an ideal target for intellectual property crime.”

“Imitation may be the highest form of flattery, but American industry is not looking to be flattered by thieves engaged in illicit competition. Industry seeks a fair and level marketplace where American innovation can thrive.”

“Rather than take the time to develop their own ideas, all too often competitors try to steal proprietary designs, systems, processes and formulas from American manufacturers who invest years of hard work and millions of dollars in the research and development necessary to create smarter cars, better computer technologies and more sophisticated military equipment.”

Intellectual property crime is a significant public-safety issue, especially in the automobile industry. According to one study,1 Americans spend nearly 20 hours per week in their cars. While driving, the occupants probably don’t spend too much time thinking about whether the safety features in their automobiles will work if needed. Maybe after reading this article, they will think twice.

Lead to harm or death

As the U.S. Attorney in the Eastern District of Tennessee, I had the opportunity to see firsthand how intellectual-property crimes could easily lead to serious bodily harm and even death if not for the aggressive action of the law-enforcement community and acumen of their legal partners in the U.S. Department of Justice.

In September 2010, six boxes labeled “bearing parts” originating from Guangzhou Auto Parts located in Guangyhon City, China were intercepted by the U. S. Department of Immigration and Customs Enforcement Homeland Security Investigations (HSI) through Customs and Border Protection (CBP) in Cincinnati.

The HSI agents quickly determined that the “bearing parts” were in fact counterfeit airbags for automobiles. The boxes were being shipped to an individual in Chattanooga whose name had appeared on a recent Suspicious Activity Report — a collaborative effort led by the U.S. Department of Justice in partnership with the U.S. Department of Homeland Security, the Federal Bureau of Investigation, and state, local, tribal and territorial law-enforcement partners.

These lists are reviewed by law enforcement on a regular basis for evidence of illegal activity, including but not limited to drug transactions and financial fraud.

As part of their investigation, CBP and HSI agents discovered that the individual who was to take custody of the counterfeit airbags had been depositing large amounts of cash into a bank with no apparent legitimate source of employment. He also had purchased numerous pieces of real estate, including an apartment complex.

Arrangements were made for the shipment to be delivered as scheduled in Chattanooga, but it would be monitored by HSI agents. The subsequent delivery led to a search warrant being executed at the individual’s place of business, also in Chattanooga.

The investigation led to the discovery that not only were these counterfeit airbags being made in China, but the manufacturer himself, Dai Zhensong, was a Chinese citizen. Law enforcement made arrangements to meet Zhensong in Chattanooga under the ruse that he was coming to the U.S. to increase his market share.

After flying into Atlanta, Zhensong drove to Chattanooga, where he immediately was arrested by federal law-enforcement officers.

Zhensong was marketing counterfeit airbags worth millions of dollars in the U.S. The Chattanooga case led to prosecutions against others distributing counterfeit airbags in Charlotte, N.C. and Yakima, Wash. There are also multiple jurisdictions with pending federal investigations involving counterfeit airbags.

“Equally troubling was the discovery that there are hundreds of thousands, maybe even millions of these airbags available in the international market. Counterfeit airbags are produced for nearly every automobile manufacturer.”Because the investigation uncovered that some of these counterfeit airbags already had been sold in the marketplace, it was imperative to bring in the U. S. Department of Transportation and National Highway Traffic Safety Administration (NHTSA)2 to find out how exactly the airbags worked — or if they worked at all.

NHTSA tested airbags from several of the federal investigations and its results were not good.

Of the 10 counterfeit airbags that were tested, four did not deploy; two propelled shards of plastic or metal; and two exploded. The remaining two did deploy as intended. However, an 80-percent failure rate on a safety device that has been known to save passengers’ lives is a tragedy waiting to happen. NHTSA is continuing to test airbags from the various other ongoing investigations.

Bags for every car maker

Equally troubling was the discovery that there are hundreds of thousands, maybe even millions of these airbags available in the international market. Counterfeit airbags are produced for nearly every automobile manufacturer.

In August 2012 alone, there were nearly a half million airbags for sale from one automobile manufacturer on the Internet.

There are currently investigations concerning the existence and extent of injuries and deaths possibly caused by these and other defective and counterfeit airbags.

Although the public’s safety is the main concern regarding these types of intellectual property cases, the possible repercussions don’t stop there. For example, insurance claims for property damage and automobile vehicles are being paid out every day, including payments to repair shops for replacing deployed airbags.

If the adjuster on a collision claim paid the repair shop for a legitimate airbag replacement, and a counterfeit airbag was in fact installed, several hundred dollars in insurance-fraud monies were taken by the repair shop.

Insurance claims for personal-injury damages also could have been paid, when the injuries caused by the actual collision may have not been directly attributable to the collision itself.

The extent of these injuries could have been caused by a defective counterfeit airbag. Also, insurance companies could be insuring used vehicles that previously were involved in the accident where the airbag deployed and, in fact, a counterfeit bag was installed to replace it, thus increasing the risk for the insurers.

Unfortunately, the problem of counterfeit auto parts in the American marketplace is not limited to airbags. Seatbelts, vehicle-inspection machines and fire-retardant insulation also are popular counterfeit products.

And of course counterfeit goods go well beyond the automobile industry and are prevalent throughout all facets of the American economy, which makes for an enormous challenge for law-enforcement officials. And as federal, state and local officers change their tactics as technology and information sharing allow, criminals keep adapting as well.

One of the most recent strategies includes sending shipments through ports of entry in undistinguishable parts to be assembled later once all of the components are safely in the U.S.

Another challenge is that, as in the case against Zhensong, a lot of these counterfeit products are being manufactured and distributed from countries like China, where international entanglements can disrupt, delay or even prevent prosecution. In the Zhensong case, law-enforcement officers had to focus on the intermediate distributor, who eventually led to the manufacturer.

With his sentencing in February 2012, Zhensong became the first Chinese national prosecuted and convicted for manufacturing counterfeit goods in the U.S. He currently is serving more than three years in federal prison. After he completes his sentence, Zhensong will be deported to China.

The successful prosecution of Zhensong was made possible by the persistence, patience and perseverance demonstrated by federal officers like Immigration and Customs Enforcement Resident Agent in Charge Ron Appel and Special Agent Brenda Dickson. Equally important was the experience and legal acumen of Assistant U. S. Attorney John Maccoon, a 28-year veteran of the U. S. Attorney’s Office for the Eastern District of Tennessee.

Conclusion

The federal government has created the National Intellectual Property Rights Coordination Center (IPR). It is a cooperative effort of 21 federal law-enforcement agencies headquartered in Washington, D.C. to effectively handle these often complex and increasingly occurring cases. Its mission is to detect, intercept and further disrupt the counterfeit goods activity in the U.S. If you suspect a crime is being committed, they can be reached at the IPR Center Hotline at 1-866-IPR-2060 or 1-866-477-2060 or IPRCenter@dhs.gov.

The U.S. Attorney’s Office (www.justice.gov/usao) in your federal district also is available for you to report this criminal activity. Contact NHTSA for consumer information about counterfeit airbags.

About the author: Bill Killian is the United States Attorney for the Eastern District of Tennessee. Before his appointment, he was certified by the National Board of Trial Advocacy and the Tennessee Commission on Specialization as a Criminal and Civil Trial Advocate.

Endnotes:

[1] https://www.cbsoutdoor.com/Tools/Resources/Documents/Arbitron2009_InCarStudy.pdf

[2] The U.S. Department of Transportation (www.dot.gov) (855-368-4200); National Highway Traffic Safety Administration (www.nhtsa.gov) (888-327-4236); U.S. Immigration and Customs Enforcement (www.ice.gov)
(866-347-2423).

HTML Comment Box is loading comments...

Search

Use your browser's back button to return to your previous search.

Search our articles database

Author:

Subject:

Word search: