Illicit Trade’s Deadly Margins
Diethylene glycol, or DEG, is a colourless, odourless organic compound with a sweetish taste that can, in a very limited way, pass for glycerine, a common ingredient in food and pharmaceutical products. Its substantially lower price and its ability to masquerade as glycerine have not been lost on some. Indeed, in a drum with the proper (counterfeit) labels, or in an industrial process such as say, a pharmaceutical manufacturing line, DEG looks and acts like glycerine. In the last ten years, DEG has found its way into cough syrup in Panama, teething medication in Lagos, toothpaste in Spain and in other pharmaceutical and food products. But DEG is not just a cheap substitute for glycerine, it is poison. When ingested, it attacks the kidneys first, then the central nervous system. The result is often death. In fact, DEG is antifreeze.
Global revenues from all illicit trade combined have been estimated at USD 870 billion per year, or 1.5% of global GDP. Counterfeiting, a subset of illicit trade, produces revenues of several hundred billion euros per year as estimated in the OECD’s upcoming publication Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact. Meanwhile, the counterfeiting of prescription and, increasingly, over-the-counter remedies, is a rapidly growing, highly lucrative and, as we shall see, devastating specialisation.
Like the knockoffs they peddle, counterfeiters create elaborate parallel worlds that employ armies of technicians, skilled labourers and other workers, that implement sophisticated manufacturing operations and distribution chains, and that court investment and reward investors, often handsomely—at least for a time. But it remains a universe in the shadows, detached from the rule of law and relying on a whole constellation of criminal practices to function, including bribery, forging, money laundering, organized crime, environmental crime, intellectual property rights infringement, illicit labour practices, tax evasion and reckless endangerment of human life. The list goes on.
But antifreeze in cough syrup? Really?
The tragedy may have happened a decade ago, but the aftermath lives on. Only in part because now, ten years later, as this is being written, the trial in Panama is entering its eighth day. Understanding the sequence of events and actors involved gives us a glimpse into both the complexity of illicit trade and the challenges of eradicating it.
Before the DEG was unwittingly mixed into 260,000 bottles of cold medicine, before the widespread pain and suffering began that ended with over 300 reported deaths, 46 drums of poison labelled as medical-grade glycerine sat in a broker’s warehouse in Colón, Panama, as if to offer one last and extended chance for catastrophe to be avoided. In fact, the drums had sat there so long, their expiration dates had come and gone. The court’s evidence shows that the broker changed the dates and by doing so saved his investment but removed one of the last remaining barriers to tragedy.
Two years earlier, on the docks of Colón, the same broker had filled in a customs form describing the contents of the shipment not as poisonous DEG but as “pure glycerine”. The circumstances and responsibilities related to that transformation is one of the subjects of the present trial. When a buyer was finally found—the Social Security Fund of Panama—the drums were shipped to its state-run manufacturing facility in Panama City. There, the contents were mixed into production lines for a number of cold remedies, including cough syrup. The tainted bottles and packages then entered normal distribution channels, fanning out across the country in anticipation of flu season. Soon, an inexplicable number of emergency patients were filling Panama’s hospitals and wards, exhibiting similar symptoms—acute kidney failure and paralysis. Half would die.
It might have been a simple but murderous case of arbitrage, that is, profiting from the price difference between a legitimate product and a knockoff—something worthy of a modern-day Harry Lime. But according to the broker, his company was a victim, too. What is certain is that the true nature of the contents of those 46 barrels should have been detected prior to production—no matter what the circumstances. According to court documents, a quality control laboratory examined the toxic diethylene glycol on two occasions, first as a raw material and then as part of a finished drug product. On both occasions, the laboratory certified that it complied with the legal requirements for human consumption. Whether there was criminal intent or criminal negligence will be determined at the trial. What we do know is that samples from the drums revealed traces of sorbitol and sugar, additives that may have been introduced at the source to produce falsely reassuring test results (Schier, 2009). Whatever the case, even before an act of deliberate counterfeiting is pinpointed, deadly deficiencies in the supply chain are apparent.
The globalisation of trade and the advent of the Internet has made it possible to source products, ingredients, compounds and components around the world, creating complex and dynamic value chains. This can be a boon to trade but it has its downsides. It can encourage ad-hoc relationships with distant and little-known suppliers based solely on price rather than quality, trust or accountability. The sheer complexity of supply chains, their global breadth and the fragmented landscape of regulatory control across jurisdictions can multiply the entry points for unscrupulous actors.
Today’s supply chains are without borders, and that goes for both legitimate and corrupt ones. The broker in Colón, Panama sourced his order from an agent in Barcelona, Spain in July of 2004. The Spanish broker produced a certificate of analysis (COA) printed on its own letterhead, attesting that the shipment contained 99.5% pure “TD” Glycerine. Middlemen are not required to test the products they sell. That responsibility falls to the original product manufacturer and the manufacturer of the end product. Yet all references to the provenance of the shipment and the original COA had been removed, a pre-emptive tactic used by certain middlemen to protect business. There was no way to assess the origins and value of the COA, and every reason to thoroughly test the product prior to production of the end product.
Did the agent in Barcelona knowingly switch the label from DEG to medical-grade glycerine? Again, possibly not. His source, an agent in Beijing, also produced a certificate of analysis attesting to 99.5% pure “TD” Glycerine, also on its own company letterhead with no mention of the origin of the shipment or documentation.
Along with freight forwarders and customs officials, third parties are amongst the weakest links when it comes to integrity risks in global trade. While middlemen can provide valuable local knowledge and lower the cost of negotiating, 75% of bribery cases of foreign public officials involved intermediaries, according to the 2014 OECD Foreign Bribery Report. Unscrupulous agents, consultants, distributors or suppliers can use bribes to bypass health and safety requirements, avoid licensing and otherwise evade legitimate law enforcement, creating significant additional liability risks related to product safety, as the case of Panama so tragically demonstrates.
So where was the smoking gun? The original certificate of analysis was “produced” by the manufacturer of the DEG, a factory near the Yangtze Delta with a phony web site and no registration to produce pharmaceutical grade glycerine. Leaving the factory, the drums were labelled “Glycerine” giving a batch number and weight. As the shipment made its way from the port of Shanghai to Colón, Panama, a second label appeared on the drums marked “glycerina pura”. In a kind of gruesome coda to the affair, the New York Times, whose Pulitzer Prize-winning investigative reporting played a crucial role in bringing many of the case’s facts to light, was able to uncover what no one had bothered to ask: the meaning of “TD” in the product name.
It was an obtuse English phonetic abbreviation for the word “Substitute” in Chinese.
The outcome of labelling a product “99.5% pure substitute glycerine”—the equivalent of labelling a box of powdered arsenic “pure sugar substitute” and placing it on a grocery store shelf—was mass death and suffering. How humans subsequently chose to handle that ambiguity may say as much about human nature as it does about the vulnerabilities and risks associated with modern global supply chains.
China has made strides in recent years in cracking down on counterfeit and illicit trade. Yet global illicit trade is bolder and more sophisticated than ever. The 2016 OECD Integrity Forum – “Fighting the Hidden Tariff: Global Trade Without Corruption”, taking place at the OECD Conference Centre in Paris from April 19-20, is a leading public forum on integrity and anti-corruption worldwide, bringing together different policy communities as well as the private sector, civil society organisations and academia. Join us and discover from leading front-line experts, policy makers and researchers how illicit trade continues to evolve as well as the strategies for containing it.
 United Nations Office on Drugs and Crime – UNODOC, 2012