Blurred Lines: How Cargo Theft, Diversion, and Counterfeiting Interact to Endanger Pharmaceutical Supply Chains

The 1949 noir film The Third Man, a classic about the seedy criminal underbelly of once-glamorous Vienna in the immediate aftermath of World War II, centers around a crime that’s all too familiar to those working in product protection at a pharmaceutical company. Harry Lime, played by Orson Welles, has been stealing penicillin (a new, scarce, and expensive product only available in military hospitals in shortage-ravaged Austria) and selling a diluted version of the pilfered drug on the black market, with predictable and unfortunate results for patients unlucky enough to have purchased the tainted medicine. Here, in a 70-year-old movie, we have the template for many modern-day theft, counterfeit, and diversion incidents: criminals stealing high-priced pharmaceuticals, tampering with the original product, and diverting them from legitimate markets to satisfy black market demand.

In 2014 and 2015, a pattern of criminal activity that Welles’ Harry Lime would immediately recognize began to emerge in Italy, with a transnational twist. Organized criminal groups stole various oncology and biologic drugs using a wide range of methods, including hijackings of cargo trucks and sophisticated thefts from pharmaceutical warehouses. The groups then “laundered” the stolen drugs through fake wholesalers in a handful of East European countries before selling them back into legitimate supply chains in Finland, Germany, and the United Kingdom. In some cases, criminal groups stole legitimate product and placed them in counterfeit packaging while placing counterfeit drugs in the legitimate original packaging, doubling their profit.

A similar case emerged in the last months of 2017, this time in Bulgaria. The incident, though reported at the time as a €40 million “theft” from warehouses in the country, actually involved a series of thefts and illegal re-export of pharmaceuticals over a longer period of time. A criminal group took advantage of extremely low drug prices in Bulgaria to make a profit by illegally funneling them to wealthier European countries. Crooked pharmacists sold products back to distributors, who then sold exported them from Bulgaria, with the criminal group likely acting as a go-between. 

Cases such as these blur the line between cargo theft, counterfeiting, and diversion, and each of the instances above could plausibly be described as all three types of incidents. Rather than thinking of these risks as distinct and separate, pharmaceutical companies would benefit by thinking of them as interrelated, with similar risk factors driving all three. Stolen pharmaceuticals can re-enter legitimate supply chains or be tampered with and comingled with counterfeit drugs; similarly, criminals can take advantage of cracks in legal or quasi-legal parallel trade arrangements to funnel counterfeit drugs into legitimate sales channels.

Pharmaceutical can take a number of steps to proactively respond to the hybrid risks of counterfeiting, theft, and diversion. Understanding areas where price differentials, or rapid changes in prices, intersect with organized criminal groups, open trading environments, and scarcity can help companies narrow down where they should focus their efforts. Pharmaceutical companies often go to great lengths to assess their API and third-party manufacturing sites but pay less attention to distributors, who are often the weak link for theft and diversion schemes. Identifying every business partner involved in supply and distribution chains in those countries – and thoroughly vetting them with audits and other assessments – can further reduce the risk. As pharmaceutical firms expand into countries in Asia, Eastern Europe, and South America where they are less familiar with the local operating environment, this vetting is even more crucial.