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Scammers turn Instagram into a showroom for luxury counterfeits

Image: Instagram struggles to deal with counterfeit luxury goods as users t
Instagram struggles to deal with counterfeit luxury goods as users turn to Stories. -
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Chelsea Stahl NBC News
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Instagram is failing to clamp down on the abuse of its platform by groups of organized criminals promoting counterfeit luxury products including shoes, handbags, clothes and sunglasses, according to research by analytics firm Ghost Data.

The research, seen exclusively by NBC News, shows that the number of accounts involved in counterfeiting activities linked to brands including Gucci, Chanel, Balenciaga, Louis Vuitton and Dior has almost tripled over the last three years.

The research comes as Instagram has sought to ramp up its e-commerce efforts, shifting from being a social media platform to a place where brands can sell to customers directly.

"The luxury brands I speak to are frustrated because it's so easy to find these accounts, but Instagram is not very responsive," said Andrea Stroppa, CEO of Ghost Data, who spearheaded the research.

The researchers can't necessarily tell real from fake by just looking at the photos of the products, with some high-quality counterfeits almost indistinguishable by photos or videos. Stroppa said that he consulted with luxury experts to attempt to parse real products from fakes and noted that the research focused on accounts that sent products as opposed to the products themselves.

Instagram said that the sale of counterfeit goods and fraudulent activity are not allowed on the platform and that it took the issue "very seriously."

The research team used logo-recognition technology, combined with hashtag and keyword searches, to scan about four million Instagram posts to identify almost 56,769 accounts involved in counterfeiting activities, compared to the 20,882 accounts the same team found in 2016.

Not only have the accounts become more numerous but they have also become more active, publishing a total of 65 million posts and an average of 1.6 million Stories each month — the ephemeral posts that expire after 24 hours — compared with 14.5 million posts in the 2016 research.

Facebook, Instagram's parent company, previously acknowledged the challenge of moderating ephemeral Stories.

A search page for the hashtag "#mirrorquality" on Instagram.
A search page for the hashtag "#mirrorquality" on Instagram.

"With new formats come new challenges, their own set of challenges," product management director Alex Deve said at an event at the company's Menlo Park headquarters April 10. "We actually don't have all the answers. There are a lot of things we're learning, and what we're trying to do is get ahead."

The researchers found that for each luxury brand's hashtag, for example #Gucci or #Dior, about 15 percent of posts were generated by accounts dedicated to illegal counterfeiting activities.

Even without using logo recognition technology, it was easy for NBC News to identify fake products on Instagram with the right search terms. Hashtags such as #mirrorquality and #mirrorbag are coded descriptions for counterfeits, as are #replica and #replica shoes. All of these hashtags yielded hundreds of thousands of search results.

Many of the accounts on Instagram using those hashtags direct prospective buyers to contact them on encrypted messaging apps, which offer near-complete secrecy for their users. Facebook CEO Mark Zuckerberg recently announced that encrypted messaging will be a major part of the future of Facebook, Instagram and WhatsApp — to the chagrin of some government and law enforcement agencies.

"Counterfeiting has been a growing problem with the luxury industry," said Robert Burke, from New York-based fashion consulting service Robert Burke Associates. "It's a threat that generally brands have not known how to approach."

He said that just as luxury retailers have embraced social media platforms as a public relations and marketing vehicle, so too have the counterfeiters "realized the power of Instagram."

"If you go down Madison Avenue, you'll see stalls set up selling all kinds of counterfeit products like Chanel bags. Instagram opens these stalls to the whole world," he said.

"Brand owners cannot remain the only ones taking action to chase online counterfeiters," said a spokeswoman for LVMH, the parent company of luxury brands including Louis Vuitton, Christian Dior, Marc Jacobs and Fendi. "As the level of infringement on Instagram and other channels increases, their efforts should be focused on strengthening actions to track, block and remove online listings and promotions for counterfeit goods."

Gucci, Chanel and Balenciaga did not respond to requests for comment.

The findings come at a time when Instagram is moving into e-commerce, allowing users to buy products straight from brands via a checkout feature within the app. Prior to the launch of the payment system last month, brands could only promote their products on the app through organic posts or paid advertising, but had to send customers out to their online store to buy items.

Instagram has signed up a range of partners to test the checkout feature, including luxury brands such as Dior, Oscar de la Renta, Prada, Balmain and Burberry.

Sellers ask potential buyers to contact them through WhatsApp by adding phone numbers to their profiles.
Sellers ask potential buyers to contact them through WhatsApp by adding phone numbers to their profiles.

Facebook already uses image recognition technology to identify problematic content such as nudity and to provide descriptions of images for people with visual impairments. However, Instagram said it only deployed machine learning to detect logos and brand names in advertisements and not the kind of organic Instagram posts and stories that Ghost Data's research focused on.

"That's crazy," Stroppa said. "Manual moderation without image recognition is insufficient when we are talking about millions of posts a day."

"But on the other side, if Instagram closes an account, it's very easy for counterfeiters to come back because most of them are in China and Russia," Stroppa noted.

An Instagram spokeswoman said the platform takes "IP rights, including issues around counterfeiting, very seriously."

"We have a strong incentive to aggressively remove counterfeit content and block the individuals responsible from our platform," she said.

The company said it has allocated more resources to a program that allows intellectual property rights owners or authorized representatives of brands to report counterfeit content for takedown. Regular Instagram users are not allowed to report such content.

"We now regularly respond to reports of counterfeit content within one day, and often within a matter of hours," she said.

Counterfeit goods sold on the internet account for $30.3 billion in losses to luxury brands each year, according to the2018 Global Brand Counterfeiting Report. The goods are increasingly produced by criminal groups based in China, in some cases in the same factories that manufacture the legitimate versions of the goods.

There's also a hidden human cost to counterfeiting, according to Lara Miller, vice president of corporate strategy at the International AntiCounterfeiting Coalition.

"The same organized criminals are the ones selling weapons and committing terrorist acts. If you wouldn't give your money to a human trafficker, you shouldn't buy a counterfeit handbag," Miller said. "Consumers need to think about that."