The Business Legitimacy Paradox of Counterfeiting: Examining Revenue and Sanctions in the U.S. Pharmaceutical and Electronic Sectors, 2000-2015 Open Access

Abstract

This paper investigates the organizational characteristics of criminally indicted counterfeit pharmaceutical and electronic schemes in the United States between 2000 and 2015. Specifically, it examines organizational factors that increase illicit revenue generation and whether judicial penalties are aligned with these revenue-generating factors. Using a dataset of criminally indicted U.S. counterfeiting cases, this research identifies a “business legitimacy” paradox: organizational scheme-level characteristics that increase illicit revenue, such as formal business registration with a physical location, also serve as protection against financial penalties on the offender-level. The analysis confirms that business legitimacy acts as a “sword” that drives illicit revenue in counterfeit schemes but also acts as a “shield” by effectively lowering the probability of a fine for convicted offenders. But this “shield” can be damaged by the “hammer” of physical harm, which increases the probability of receiving a monetary fine. Furthermore, this research suggests industry divergence where pharmaceutical schemes are characterized by a higher risk of physical harm and shorter scheme durations, whereas electronic counterfeiters tend to generate higher amounts of illicit revenue. These findings demonstrate that in the judicial sentencing framework from 2000 to 2015, legislation proved more effective at penalizing overt criminal acts than addressing the use of corporate legitimacy to shield convicted offenders from financial liability.

Table of Contents

1 Introduction .....................................................................................1

1.1 Motivation and Contribution ...........................................................6

2 Legal Landscape Overview .................................................................8

3 Literature Review ..............................................................................13

4 Methodology ....................................................................................17

5 Data .................................................................................................23

5.1 Descriptive Statistics ......................................................................24

6 Results and Analysis ..........................................................................30

6.1 Stage 1: Determinants of Illicit Revenue for Schemes ........................30

6.2 Stage 2: Sentencing Likelihood for Offenders ....................................34

7 Discussion ........................................................................................38

8 Limitations .......................................................................................40

9 Conclusion and Policy Recommendations ...........................................42

A Appendix .........................................................................................50

About this Honors Thesis

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School	Emory College
Department	Economics
Degree	B.A.
Submission	Honors Thesis
Language	English
Research Field	Economics, Commerce-Business
Keyword	counterfeiting pharmaceuticals electronics
Committee Chair / Thesis Advisor	Arbatskaya, Maria, Emory University
Committee Members	Gong, Zhiyun, Emory University Mialon, Sue, Emory University

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