24/7 Wall St.

Amazon.com says it has a consumer fraud problem because sellers market fake goods on its site. Amazon says it polices the activity and has harsh penalties for those who break the rules. A careful, in-depth investigation, however, shows that these claims are half-truths and that Amazon has a bigger fraud problem than any retailer in the country. Further, Amazon does much too little to stop it, according to new and comprehensive research. Ironically, Amazon is among America’s most admired companies.

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The Amazon problem breaks into two parts. One is that Amazon itself sells counterfeit products. The other is that its third-pay retailers who market and sell products on Amazon are the biggest violators of Amazon’s rules. The most detailed description comes from the Counterfeit Report, which tracks fraudulent sales on Amazon, eBay and Alibaba. Its researchers claim that:

Amazon is the free-flowing conduit that enables Amazon, and facilitates “bad actors,” to flood the consumer market with an inexhaustible supply counterfeit, fraudulent, pirated and replica items. Simply, consumers are spending good money on bad products while Amazon takes a transaction fee for each item sold.

The Counterfeit Report’s accusations spread to what it can prove about very lax efforts to end the problem.

Amazon has admitted it has the problem and does have policies to limit them. They are together called the “Amazon Anti-Counterfeiting Policy.” Under the program, it examines products sold on the site. Those who violate the rules are thrown off the site. Amazon also may encourage criminal cases against the counterfeiters. And it has a program dubbed the “A-to-z Guarantee,” which in some cases reimburses buyers of counterfeit products listed on Amazon.

The Counterfeit Report claims Amazon’s efforts are half-hearted and do little to keep “bad actors” off the sites. As an example, Apple says:

Apple reported that 90% of Apple products it purchased directly from Amazon were counterfeit.” Apple continues to monitor the issue. Birkenstock, a shoe company, attacked Amazon as “an accomplice” of the fraudsters. The Recording Industry Association of America (RIAA) tested order orders with Amazon. It discovered 44 of the 194 top CD’s delivered were counterfeit. The Swiss watch operator Swatch which sells Longines, Omega and Blancpain stopped offering the products on Amazon. Amazon turned down the opportunity to honor a request to “proactively police its site for counterfeits and unauthorized retailers.

Among Amazon’s deepest problems is that two-thirds of products sold are via its third-party Market Place, which operates under Amazon rules, and which they regularly break, based on data from the Counterfeit Report. Over a million companies are part of this Market Place system. The Counterfeit Reports claims it “found over 89,800 counterfeit and fraudulent items on Amazon and removed 53,300 fakes on behalf of infringed brand owners.” The federal government also has gotten involved in the problem. The Counterfeit Report writes:

The GAO reported that about 50% of the items it purchased from e-commerce websites, including Amazon (AMZN), were counterfeit. The Federal Communications Commission (“FCC”) sent a letter to Amazon’s CEO, Jeff Bezos, telling him to knock off the counterfeit electronics.

The Counterfeit Report has been lauded by many mainstream media. Its reports have removed over 180 million counterfeit products from online markets that encompass Amazon, eBay, Walmart, Best Buy, Alibaba and DHgate. What does the Counterfeit Report believe will happen near term? Retailers will police Amazon’s pages, but the task is nearly impossible because Amazon is so big, a point 24/7 Wall St. has made before.