...people nationwide are going to jail for selling fake routers. Last month, Robert Edman of Richmond, Texas, was sentenced to 30 months in prison for selling phony Cisco stuff—ironically—to the U.S. Bureau of Prisons.

A Tainted Supply Chain

Counterfeiting is largely a silent financial crime. A fake might pass through several countries and companies—whose employees may not realize the item is fake—before it ends up on a jobsite. There are some warning signs, though. “[Counterfeiters] don’t go through the marketplace through a common distributor,” explains Tom Grace, manager of anti-counterfeiting and brand protection for Eaton Corp., Pittsburgh. “They usually find someone who is wheeling and dealing.” For that reason, beware of brokers and keep in mind that dirt-cheap prices may not be the only tip-off, experts say.

“Unlike a counterfeit Rolex, a counterfeit circuit breaker may not reflect a dramatic enough price difference for the end-use customer that they are going to tell enough just on price alone,” explains Tracy Garner, anti-counterfeiting manager for Schneider Electric, Square D’s parent company. Scrutinizing its own supply chain is the most important action a company can take, experts say.

Doing so is not always easy. About the same time that customs officials confiscated the fake Square D circuit breakers in San Francisco, Schneider was investigating a company called Scott Electric, an independent distributor in Greensburg, Pa. The supplier had advertised buying up “Square D products by the trailer-load” so it could sell them at lower prices than Square D’s authorized distributors. Schneider bought and inspected some of the breakers and traced them back to illegal producers in China (Square D only produces circuit breakers in Lincoln, Neb., and Pacifico, Mexico).

On April 7, 2006, Schneider sued Scott Electric and others for trademark infringement, claiming that their Square D inventories were counterfeit. During testing, the breakers failed, causing explosions or fires. However, they all bore certification labels. Anyone near one of the exploding breakers “would be subjected to extreme heat, sprays of molten metal and a powerful blast of energy,” the lawsuit said.

Legal discovery during the case led to more evidence of fakes and more lawsuits. Since 2006, Square D has filed 13 cases against 27 U.S. distributors and brokers. The suits have been resolved through settlement or trial, and many independents are now barred from selling any Square D products. In addition, the Consumer Product Safety Commission (CPSC) has issued five national recalls of more than 550,000 circuit breakers, ranging in price from $3 to $85.

In some cases, the investigations have yielded large quantities of fakes. In 2006, Square D sued Specialty Lamp Inc., Deerfield Beach, Fla., which, after Square D got a court order to inspect its warehouse, turned over more than 100,000 counterfeit breakers worth roughly $450,000.

“There was just pallet after pallet of counterfeit circuit breakers,” Garner recalls. Since then, Square D has raided several illegal manufacturers in China, including Jiangxi Sunhong Electric Co. Ltd. The company still advertises electrical products on Alibaba.com and other Internet trading posts for foreign wholesalers. Sunhong did not return repeated messages seeking comment.

The case against Specialty Lamp put it out of business, according to David Langley, a Plantation, Fla.-based attorney who represented the company during Square D’s lawsuit. Invoices that came to light showed it had bought up large amounts of circuit breakers through a foreign distributor, Specialty Lamp International Columbia, or SLICO. The Florida company’s owner did not know the breakers were fake, says the lawyer, who describes his former client as “the Big Lots of lightbulbs.”

“[The client] would only buy something if he got an incredibly good deal on it,” Langley recalls. When asked about the Columbia deal, he says, “[SLICO] was a reputable distributor,” and the breakers “passed the smell test.” Speciality Lamp later issued one of the largest national recalls, with 371,000 breakers affected.

This past August, the CPSC led the most recent recall, comprising 43,600 breakers sold through Miami Breaker Inc., Miami. According to the National Electrical Manufacturers Association (NEMA), Rosslyn, Va., 750,000 Square D breakers have been seized since 2006. But officials say hundreds of thousands of faulty circuit breakers could still be lurking in the electrical panels of homes, hospitals and other facilities worldwide.

Even though manufacturers, with the assistance of local authorities, continue to raid sweatshops where many of the fakes are made, the effort takes discipline. “This is a game of Whac-a-Mole,” says Clark Silcox, NEMA spokesman. Another recent concern, he says, is fraudulent “up-amping” of electrical items. For example, a counterfeiter represents a 15-amp breaker as a 20-amp breaker. The danger is that such devices will not trip when overloaded, causing damage or death.

Homes, office buildings and institutions are not the only places at risk. An October 2009 report from the Electric Power Research Institute says Duke Energy removed four suspect Square D breakers in its Catawba Nuclear Station in York County, S.C. Another nuke plant removed five breakers that did not have amperage ratings painted in white on the handles, a sign that it was an outdated model or, worse, a fake. In both cases, the items were sitting on a shelf, not yet installed at the plants.

Pipe Dreams

The industrial sector has become another target for forgeries. “Given the competitive nature of most industries—certainly the oil-and-gas industry—you have to find ways to be competitive,” says Ted L. Kelly, global procurement manager for Mustang Engineering L.P., Houston, and one of the CII report authors. “Obviously, low-cost sourcing countries are a great avenue to reduce cost. You just have to make sure you maintain the quality.”

However, when the supply chain becomes tainted with fakes, “you’ve lost control,” says Max R. Casada, head of global supply quality with ConocoPhillips in Houston and another CII report author. He says his company is placing most of its quality-control efforts on products that “contain energy,” such as rigging gear, pressure equipment and electrical parts. Today, forged documents and certifications pose an bigger risk than “classic” counterfeits, CII says. In 2006, a pipe ruptured in China’s Datong Power Station, killing two workers. The steam pipe, which burst at 1,006° F, originally was manufactured in China, sent to Houston, fraudulently certified as safe, then sent back to China, according to industry sources interviewed by ENR.

Perhaps a more telling case was in 2008, when Tomball, Texas, businessmen Hayden Greene and James Roy were arrested for stamping American Petroleum Institute monograms and an India company’s API license on substandard pipe couplings, including one thousand 95/8-in.-dia sections made out of rejected steel stock. Those large fittings sold for $33.90 to a distributor, which then resold them to an oil-field company for $37.50 each, court records show.

If such risky components fail on an oil project, experts say, owners could end up with a situation similar to the recent Gulf oil spill or worse. The forged fittings in Texas, experts add, are the same type used to connect pipe on deepwater oil projects, such as BP’s doomed Macondo well. Greene and Roy now are serving between 15 and 30 months in prison.