Case Study: How Security Labels May Have Stopped Babichenko Fraud Ring

Counterfeiting is a vicious cycle. When someone imitates your product, you lose profit and consumers handle false—and potentially dangerous—goods, which causes lost trust in your brand. On and on it goes, with no one emerging unscathed.

But what would it mean if consumers lost trust in you?

Well, let’s just say it wouldn’t be good.

Consumers who feel they can no longer trust a brand often look for other alternatives—meaning that your profit is not only being siphoned by criminals, but also takes a hit from consumers who choose to shop elsewhere.

And—as if that’s not bad enough!—counterfeit goods are commonly made with cheap, imitation parts with none of the quality your customers have come to expect from you. Instead, these “knock-off” parts present a very real danger to consumers. Faulty technology, below-standard construction and ingestion of tampered medicines or food can cause bodily harm.

That’s exactly what happened when an Idaho family built an empire from counterfeit tech.

Meet the Babichenko family

Located in Boise, Idaho, the Babichenko family fleeced hundreds of people into purchasing falsified technology products from big-name brands such as Apple and Samsung. Using a series of fraudulent companies, the family established a counterfeit operation that sold more than $41 million in mobile phones and accessories in its lifetime through online retailers like Amazon and eBay.

How they did it

 "At trial, the evidence showed that over the course of 10 years, the convicted defendants participated in a conspiracy that violated intellectual property rights and endangered the safety of the public.”

– Josh Hurwit, U.S. Attorney for Idaho

Between 2008 and 2018, the family purchased fake cell phones and parts in bulk from counterfeiters in China. Once they received the parts, the falsified goods were assembled in Idaho and packaged as genuine Apple and Samsung products before they were listed online. Unsuspecting consumers from around the world, hungry for deals on expensive tech, purchased these counterfeit mobile phones from trusted online retailers. 

If you’ve visited this blog before, you’ll know that this is yet another case of counterfeiting centered around imitation labeling and packaging. Labeling continues to be a key area targeted by criminals; if they can look enough like your brand, they can fool businesses and consumers alike into thinking they’re the real deal. The best way to go head-to-head with these fraudsters is to develop security labels to keep your brand under lock and key… But, more on that later.

Knowingly or not, about 80% of consumers have handled fake or falsified goods. 

The problem

Okay, this title might be a little misleading. The problem is that they’re counterfeiting Apple and Samsung in the first place. 

But what made this case even more concerning was that the products the Babichenkos purchased from China weren’t made with the same careful attention to quality and detail as Apple and Samsung’s genuine product. 

So, because the Babichenkos' customers thought they had purchased real product, they had no idea that using the devices could be potentially harmful to themselves.  

“The evidence showed that some of the products the convicted defendants sold were not just counterfeit, they were actually dangerous and capable of causing burns, fires or electrocution.”

– Josh Hurwit, U.S. Attorney for Idaho

Shielding brands and protecting the public

In August of 2018, U.S. federal agents raided several of the Babichenkos’ properties in search of counterfeit goods. 

But this wasn’t the first time the family had been confronted about their crimes. They had received warnings in the past from the likes of Amazon, eBay, Apple and Samsung. Instead of heeding these warnings, the Babichenkos hid their scheme by lying to online retailers or, if their accounts were closed, by selling under a different business name. 

By the time the FBI searched their properties, the Babichenkos had been running their operation for nearly 10 years. The raid included the suspect’s homes, several business addresses and multiple warehouses. Overall, the government found more than 100,000 pieces of evidence—including about 60 pallets of counterfeit mobile phones and accessories. 

“These individuals scammed the public into buying fake electronic goods, endangering people with counterfeit products while diminishing trust in respected brands.”

– Robert Hammer, Special Agent in Charge (SAC) 

Overall, more than $2 million was seized from the Babichenkos' bank accounts in addition to $53,380 in cash. Residential properties in Idaho and Brazil as well as vehicles and other items were also seized.

Aftermath

Convicting the Babichenkos was no easy task. 

The original trial concluded in 2021, resulting in a hung jury. It wasn’t until August 2022, after the second trial, that prosecutors secured convictions on all seven of the defendants. In total, 24 convictions were handed to the Babichenkos for counterfeiting trademarked goods, conspiracy to commit wire fraud, wire and mail fraud. 

Sentencing (Check back soon!)

For these convictions, the family members could face up to 10 years in prison and $5 million in fines.

The sentencing was originally scheduled for early November 2022, but was later moved to late January 2023—so we don’t yet know how much they will be fined or how long they will be imprisoned for these charges.  

You can thwart counterfeiters like the Babichenkos

The key takeaway of this case: Protecting your brand with security labels can stop counterfeiters from imitating your brand and harming the public. 

How security labels work:

1. Highly-detailed, unique combinations of anti-counterfeiting features make duplicating your labels impossible. 

Features like black-on-black printing and microfeatures can’t be replicated by copying or scanning your label. When viewed under a loupe (small magnifying glass), the micro-features on a fake label won’t show and the raised, embossed feel of black-on-black printing cannot be recreated.

2. Tamper-evident Labels make it easy for consumers to identify when a product isn’t legitimate. 

Anti-counterfeiting features are great behind the scenes. But the average consumer won’t know to look for the unique features of your legitimate labels. What they do notice, is leave-behind materials on products when your genuine labels are lifted or removed.

3. Traceability Labels allow you to follow your shipments throughout the fulfillment process. 

Every package has a planned shipment route. Sometimes, counterfeiters attempt to divert your genuine product or insert their fake product into your shipment process. Traceability Labels use specific serial numbers paired with QR or barcodes to create a two-factor authentication for your shipments that can be scanned and verified at each planned stop during shipping. That way, if anything gets diverted, you’ll know. 

About GBS

With more than 50 years of print experience, GBS is poised to help brands like yours secure their products from counterfeiting.

Our in-house label printing capabilities and strong network of business partners allow for endless brand protection possibilities. With the latest in print technology at our fingertips, we work with you to create highly-advanced, custom-designed Brand Protection Label Solutions to fit your exact needs.

Sources:

KTVB Staff. “Idaho Jury Convicts 5 Members of Family in Counterfeit Cell Phone Case.” Ktvb.com, 2 Aug. 2022, https://www.ktvb.com/article/news/crime/idaho-jury-convicts-5-in-counterfeit-cell-phone-case-babichenko/277-7b7eedea-86c4-439e-90df-3ea44ca6864e. 

KTVB, Associated Press. “FBI Raids in Ada County Net Arrests, Indictments.” Ktvb.com, 22 Aug. 2018, https://www.ktvb.com/article/news/fbi-raids-in-ada-county-net-arrests-indictments/277-586526568. 

RUSSELL, BETSY Z. “Five from Idaho Convicted in International Counterfeit Cellphone Scheme.” Idaho State Journal, 2 Aug. 2022, https://www.idahostatejournal.com/news/crimes_court/five-from-idaho-convicted-in-international-counterfeit-cellphone-scheme/article_374e8f34-e79e-5982-ae24-e2db88b30368.html. 

Sunderland, Nate. “One Charged in Idaho Fake Cellphone Case Has All Counts Dropped. Here's What Happened.” East Idaho News, 18 Aug. 2021, https://www.eastidahonews.com/2021/08/one-charged-in-idaho-fake-cellphone-case-has-all-counts-dropped-heres-what-happened/. 

Terhune, Katie. “Prosecutors to Retry 7 Members of Idaho Family Charged in Counterfeit Cellphone Conspiracy.” Ktvb.com, KTVB, 14 Sept. 2021, https://www.ktvb.com/article/news/crime/babichenko-trial-idaho-counterfeit-cellphone-case-hung-jury-retrial/277-da314201-f513-4a8f-838b-d641dd2e46af. 

The United States Attorney's Office, District of Idaho. “18CR00258.” The United States Department of Justice, 24 Aug. 2022, https://www.justice.gov/usao-id/victim-witness/18CR00258#:~:text=Pavel%20Babichenko%20%2D%20The%20Sentencing%2FForfeiture,before%20Judge%20B%20Lynn%20Winmill. 

The United States Attorney's Office, District of Idaho. “Five Defendants Convicted in Relation to Multi-Million Dollar Counterfeit Cellphone Scheme.” The United States Department of Justice, 2 Aug. 2022, https://www.justice.gov/usao-id/pr/five-defendants-convicted-relation-multi-million-dollar-counterfeit-cellphone-scheme.