Business chiefs demand action to tackle $600bn counterfeiting crisis

The group, which includes top executives from EMI, Vivendi, Microsoft, Nestlé, GlaxoSmithKline and General Electric, wants to convince governments that trade in fake and pirated goods is not a "victimless crime", but costs economies thousands of jobs, loses millions in tax revenues and funds organised crime and terrorist groups.

Eric Nicoli, the chairman of EMI and co-chairman of the new coalition, said: "We live in an age where virtually every sector in every country on the planet is contaminated by piracy and counterfeiting and this is having devastating effects on our businesses, the economy and wider society."

At the meeting at EMI's headquarters in London yesterday, leaders from the food and drink, pharmaceutical, textile, finance, television, film, music and software sectors agreed to lobby governments for greater resources to find and arrest counterfeiters.

They also want to increase public awareness of the economic and social harm caused by counterfeiting and piracy. While the health and safety dangers of fake medicines, foods and car parts are alarming, there is growing evidence that counterfeit trade channels funds to terrorist organisations. Interpol, for example, recently seized $1.2m of fake German brake pads and shock absorbers in Lebanon. Investigations later discovered that the profits from the sale of these goods were destined for supporters of Hizbollah, a Palestinian terrorist group. Ronald Noble, the secretary general of Interpol, said that what the crime unit knows so far of the global counterfeit trade is the "tip of the iceberg". Counterfeited goods have also gone hand-in-hand with drug trafficking, gun smuggling, credit card fraud and money laundering.

Among the attendees in London yesterday and signatories to the group Business Action to Stop Counterfeiting and Piracy (Bascap) were Steve Ballmer, the chief executive of Microsoft, Jean-Rene Fourtou, the chairman of Vivendi Universal, Peter Brabeck-Letmathe, the chairman of Nestlé, Bob Wright, the chairman of General Electric and chief executive of NBC Universal. "Round our table sit companies worth in excess of $1,000bn, employing nearly 1 million people, who service millions of customers. This gives us a power that few governments can ignore," Mr Nicoli said. He believes that not enough resources are being directed towards shutting down counterfeiters.

The music industry has long fought piracy of its material, but developments in technology have rapidly escalated the problem in recent years. Any basic computer can "burn" CDs and DVDs, and file sharing has become an easily accessible activity. Such is the extent of pirating that the International Federation of the Phonographic Industry (IFPI) says pirated material now accounts for one in every three CDs sold in the world.

High-profile legal action against companies such as Napster, which now has a legitimate business model for downloading music, and the development of other technology, such as Apple's paid-for iTunes service, means the music industry is now catching up with the criminals. The British Phonographic Industry has taken action again 88 internet users alleged to have undertaken illegal file-sharing and the IFPI recently reported that illegal file-sharing activity had stagnated during 2005. Legal downloads tripled to more than 180 million in the first half of the year.

Mr Nicoli said many lessons learned in the music industry would be shared with other business communities.

Much of the initial work of Bascap will be what Mr Nicoli described as a "stock-take" of the counterfeiting problem, to assess its scale and find which business sectors need urgent action that can be shared with governments and enforcement agencies. It will then develop strategies to tackle counterfeiting at source and encourage governments to increase funding to enforce intellectual property rights.

"Why have we suddenly decided to set up this initiative when pirating has been a problem for many years? Why now, you might ask," Mr Nicoli said yesterday. "The answer is that it is only in the past few years that technological advances and the moves towards globalisation have meant that any product in any sector can be made virtually anywhere and shipped to virtually anywhere."

Mr Brabeck-Letmathe, of Nestlé, said: "The fact that business leaders from so many sectors have united to combat counterfeiting and piracy gives an indication of the enormity of the issue facing the global economy."

Counterfeited goods are frequently traced back to the Far East and other developing Asian nations. But Bascap argues that developing countries are being hampered by the counterfeit business produced within their own borders. Tariq Rangoonwala, the chief executive of the US household goods business Home Products International, said: "Counterfeiting and piracy pose a massive problem for the economies of developing countries. It's very difficult to attract foreign investment when your markets are flooded with fake products."

Faking it - and coining it

Pharmaceuticals: The World Health Organisation estimates about 10 per cent of all medicines are fake, but in some developing countries as many as 60 per cent of medicines are counterfeit. At best the fakes are ineffective, at worst they can kill. Some of the most-copied drugs are anti-malaria treatments. The drug industry adds that medicines labelled for use in the developing world are sometimes illegally imported for sale at higher prices in the West.

Automotive: It is estimated that phoney car parts cost the global trade $12bn (£7bn) in lost sales. Many of the products are manufactured in illegal factories in the Far East. As with fake drugs, the danger is not just lost sales or breaches of intellectual property rights of manufacturers. The bigger concern is that counterfeit car parts rarely meet the safety standards demanded of legitimate goods.

Music: One in every three CDs is pirated, and illegal traffic in pirate music was worth $4.6bn last year. As well as pirated copies, illegal downloading has become huge. Illegal downloads are estimated to have cost the UK record industry £376m last year. After launching lawsuits against illegal file sharers, developing legitimate downloading services and higher seizures of CD and DVD copying equipment, the industry says piracy rates are stabilising.

Software: More than one-third of software in use around the world is reckoned to be unlicensed, counterfeit or pirated. The industry is thought to cost software companies $40bn a year, with infringements ranging from users copying programmes to give to their friends to the production of fake licences for to the resale of software. The Federation Against Software Theft believes illegal software use has lost the industry 40,000 jobs, and the Exchequer £2bn a year in tax revenues.

Luxury goods: Counterfeits make up about 10 per cent of the luxury goods trade. China is seen as the biggest culprit of counterfeit production, with EU figures showing Chinese fakes accounted for 60 per cent of the 92 million counterfeit goods seized at EU borders in 2003. Louis Vuitton is reported to have 40 full-time lawyers and 250 freelance investigators fighting counterfeit goods, and spends about £10m a year. The jeweller Cartier is thought to spend about £2m a year.