U.S. Immigration and Customs Enforcement via AP
Counterfeit 3M masks confiscated at the Cincinnati Municipal/Lunken Field Airport in Cincinnati, Ohio, March 3, 2020
In early February, the Washington State Hospital Association and the University of Washington filed a breach of contract lawsuit against CJFS, a Texas company, over counterfeit 3M N95 face masks. In December 2020, during the initial pandemic surge, the two organizations paid $4 million for the products in separate transactions.
The university’s medical center noticed that the masks’ manufacture and expiration dates were identical and contacted CJFS, which confirmed the authenticity of a portion of the shipment and replaced the fakes. But the hospital association did not discover the deception until 3M issued an alert about counterfeit N95 masks in January 2021. By then, about two million masks had been distributed to some 40 hospitals statewide.
Under the COVID-19 Consumer Protection Act, passed as part of a 2020 COVID relief package, Congress authorized the Federal Trade Commission (FTC) to monitor and investigate pandemic-related fraud and issue emergency injunctions, freeze assets, and levy civil penalties. But at a recent Senate Commerce subcommittee hearing, Sen. Richard Blumenthal (D-CT) complained about a “glaring lack of enforcement” by the FTC.
COVID-19 scammers took advantage of a public-health emergency, as the scarce top-tier masks went from specialty items to necessary accessories. A substandard mask or counterfeit test kit puts individuals and the people they come in contact with at greater risk for the virus. Yet bogus face coverings are readily available, alongside quack “cures,” fake vaccines, and sketchy testing kits. For all practical purposes, fraudsters looking to make a quick buck with hard-to-detect counterfeits can reel in medical professionals right along with pandemic-weary consumers searching for deals on the higher-quality masks recommended by public-health officials.
“Here we are almost two years into a pandemic and I’m astounded that some of the challenges that exist are still out there,” says Teresa Murray, director of the U.S. Public Interest Research Group’s consumer watchdog office. “We shouldn’t have problems with counterfeit products being for sale in stores and online marketplaces.”
Before the pandemic hit, Customs and Border Protection agents seized 1,300 counterfeit masks. Since March 2020, that number has soared to more than 34 million face masks, and hundreds of thousands of testing kits, and that doesn’t come close to reaching all the fakes. The National Institute for Occupational Safety and Health found that 60 percent of the KN95 masks, a Chinese equivalent of the N95 respirator, sold in 2020 and 2021 did not meet U.S. safety standards.
The fake masks that make it into domestic stores and online marketplaces have official-looking company logos, serial numbers, or stamps. But the fakes that surfaced at American University in Washington this week had incorrect codes and numerous misspellings, a sure tip-off. At the end of 2020, nurses at the Jersey Shore University Medical Center in Neptune City, New Jersey, grew suspicious of their strange-smelling 3M masks and discovered that the serial numbers on the masks did not match the numbers on the shipping boxes. Consumers have also faced counterfeit issues involving still-scarce COVID-19 testing kits.
The fake masks that make it into domestic stores and online marketplaces have official-looking company logos, serial numbers, or stamps.
State attorneys general have investigated companies selling counterfeit PPE, including face masks. New York Attorney General Letitia James sued one Buffalo-area company for “repeated and widespread” violations, including selling fake masks and price-gouging. There is no single federal lead entity for COVID-19 fraud and counterfeiting: The FTC’s COVID-19 remit involves civil cases involving unfair or deceptive acts or practices, while the Justice Department has established a COVID-19 Fraud Enforcement Task Force, which features an alphabet soup of agencies, many with overlapping jurisdictions.
Samuel Levine, director of the FTC’s consumer protection bureau, testified at the February 1 Senate subcommittee hearing and noted that the agency has sent out letters of warning that forced 425 companies to remove deceptive claims, most of them in less than 48 hours. But Blumenthal challenged prioritizing warning letters over bringing civil lawsuits that carry heavier penalties. Under the consumer protection statute, Congress enhanced the FTC’s authority to issue emergency injunctions, freeze assets, and levy civil penalties up to $46,517 per violation. But the commission has only brought three civil lawsuits. (Appearing at the hearing in a personal capacity after reading his commission-sanctioned opening statement, Levine emphasized that the agency planned “to bring more cases.”)
The more insistent question getting louder every day is when will the FTC confront the largest company hosting the deceptive third-party sellers profiting from counterfeits? “The sale of counterfeit products is strictly prohibited”—it’s right there on the Amazon site along with the empty threats about being kicked off the site, not getting payments, or risking destruction of inventory if caught selling fake goods. Yet these warnings have not stemmed the tide of counterfeits.
In his 2020 book Bezonomics, journalist Brian Dumaine called the online marketplace “a world rife with fake reviews, counterfeit products, and hijacked websites.” According to Dumaine, Amazon first admitted in 2018 that counterfeits are “a significant issue.” But by that time, the American Apparel & Footwear Association had recommended that Amazon be added to the government’s “Notorious Markets” list, for places where counterfeit goods proliferate. In 2020, the government did add five overseas Amazon domains operating in Canada, France, Germany, India, and the U.K. to the blacklist.
Amazon’s processes invite counterfeits. It intermingles its inventories at warehouses to quickly speed goods to people, meaning that consumers can buy real products on the website and end up with a fake. This harms smaller sellers by ruining the trust consumers might have in them, and it harms big brands, because Amazon implies a polluted marketplace with knockoffs of their goods unless the manufacturer sells directly to the site.
The House-passed COMPETES Act contains “SHOP SAFE” provisions that would hold e-commerce operators with annual sales of $500,000 or more liable for health and safety products sold by third parties on their sites.
Undeniably, a trillion-dollar company has the resources to do better than its current policy. But Amazon has reanimated Frankenstein’s monster in the e-commerce realm: It is either unable or unwilling to eliminate the problem; yet under the FTC’s unfair or deceptive acts or practices statute, known as UDAP, the agency does not have the authority to go after Amazon for hosting third-party sellers; it can only go after the third-party sellers themselves.
The FTC and officials in New York, California, and Washington state are considering wider antitrust violations, but Congress may catch up to Amazon before the courts do. The House-passed COMPETES Act contains “SHOP SAFE” provisions that would hold e-commerce operators with annual sales of $500,000 or more liable for health and safety products sold by third parties on their sites. The e-tailer would be obligated to demonstrate that it took certain steps to assure a particular seller is a legitimate merchant selling authentic products.
Ramping up COVID consumer protection enforcement appears to be high on Blumenthal’s to-do list as well. The former state attorney general and his Democratic Senate colleagues from Massachusetts, Ed Markey and Elizabeth Warren, sent a joint letter to Attorney General Merrick Garland specifically regarding face masks and requested that the Justice Department’s COVID-19 task force “redouble its efforts” to protect consumers against counterfeit masks being sold online and in stores.
That task force, however, has focused on CARES Act fraud involving economic impact payments, the Paycheck Protection Program, and pandemic unemployment assistance programs (totaling more than $600 million as of June 2020). Meanwhile, the FTC received a $30 million boost under the American Rescue Plan (ARPA). Most of that funding went to payroll, leaving about 15 percent of the funding, $4 million, for “processing and monitoring of consumer complaints” received through the FTC’s reporting tool, the Consumer Sentinel Network.
Combating fraud and counterfeiting is a whack-a-mole chore. For every firm or individual that gets a warning letter, there are dozens more moving in for their piece of the lucrative COVID con. Getting malefactors to shut down websites quickly has a certain appeal compared to lawsuits that demand greater staff time and monetary resources. But warning letters are not as effective a deterrent.
While Blumenthal tries to nudge the FTC and the Justice Department in ramping up their existing authority for counterfeit face mask enforcement, Sens. Chris Murphy (D-CT) and Mike Braun (R-IN) have proposed beefing up the Food and Drug Administration’s powers on the criminal side of the ledger. The Protecting Patients From Counterfeit Medical Devices Act would treat counterfeit medical devices, like masks and other PPE along with test kits and drugs, with stiffer penalties, including increasing prison sentences from three to ten years and criminalizing possession of devices with intent to sell.
For the moment, caveat emptor translates into every consumer for themselves. The FTC and the Justice Department have the tools and they also have a hierarchy of other priorities even during a public-health emergency that are likely to overshadow counterfeit mask profiteering. Without tougher sanctions and more high-profile prosecutions, COVID-19 scammers will carry on as long as the pandemic does.
