Feds Fighting Flow of Bogus Car Parts Into U.S.

U.S. auto makers are lauding a judicial crackdown on selling counterfeit parts, accessories and diagnostic devices following a flurry of recent court cases in which China-based manufacturers and online sales have figured prominently.

“We support very stringent safeguards,” says Dan Gage, a spokesman for the Alliance of Automobile Manufacturers. “The average vehicle on the road is 11 years old and has 30,000 components, so the aftermarket parts business is so lucrative and there are an awful lot of ways to cheat the system.”

California-based market analysts Frost & Sullivan estimates global sales of counterfeit auto parts in 2011 at $45 billion.

The U.S. Attorney's Office for the Eastern District of Virginia last October secured a federal grand jury indictment of Katiran Lee on charges including conspiring with Chinese manufacturers to sell more than $3 million worth of counterfeit General Motors and BMW diagnostic devices and other automotive equipment to U.S. consumers.

“Counterfeit diagnostic units present a serious health and safety risk, because unsuspecting drivers and mechanics rely on the accuracy of those diagnoses,” Peter Carr, a spokesman for the U.S. Attorney’s Office, tells WardsAuto.

Lee, an Indonesian national living in Duluth, GA, while allegedly making the illegal sales has been on the run since being indicted and his whereabouts are unknown.

Carr’s office had more success in January, when a federal judge sentenced Justin Scott DeMatteo, of Saxe, VA, to one year and one day in prison, as well as other penalties, on charges including selling counterfeit GM diagnostic devices.

The government accused DeMatteo of selling fake GM-branded Tech 2 hand-held diagnostic computer systems between January and May 2011. He also offered for sale falsely branded Tech 2 units and CANdi modules, GM's enhancement to the Tech 2 to communicate with future on-board computer systems.

“The threat of criminal prosecution and prison time is an important deterrent to would-be counterfeiters,” Carr says.

In February, Shashi Malhotra, of Norwood, NJ; Fadi Kilani, of Englewood, NJ; and Richard Dininni, of Easton, PA, were arrested and charged in federal courts in New York and Pennsylvania with passing off generic aftermarket parts as having been produced by OEMs.

The defendants, and others at their behest, allegedly packaged the generic parts to resemble Ford, GM and Federal Mogul products. Customers to whom the three allegedly sold falsely labeled parts included repair shops for New York City taxis and limousines.

OEM parts command a higher price, and aftermarket versions made by other manufacturers are not required to meet independent federal safety standards.

China and online sales are common elements in such cases. DeMatteo bought counterfeit parts from unauthorized manufacturers in China and sold them on the eBay online auction website or, in many cases, had the components shipped directly to U.S. customers. Lee allegedly sold unauthorized GM and BMW parts in similar fashion.

DeMatteo, prosecutors say, was “an unflagging entrepreneur, if not always a prudent one – the best explanation for his questionable decision to go into business with a Russian whom he had never met, importing high-priced diagnostic devices from Chinese companies he knew only online.”

The FBI’s Intellectual Property Rights Unit, which investigated DeMatteo as part of a worldwide initiative targeting auto-product counterfeiters, says he acknowledged running one of the many Internet sites based in the U.S., China and elsewhere offering fake automobile parts.

Malhotra, Kilani and Dininni each are charged with one count of conspiracy to traffic in counterfeit goods, which carries a maximum sentence of five years in prison, and one count of trafficking in counterfeit goods, punishable by up to 10 years in prison.

With the Chinese makers of bogus parts out of reach, middlemen in the U.S. are the only point in the chain where the authorities can bring pressure to bear. If the Malhotra, Kilani and Dininni cases go to trial this summer as scheduled, the auto industry will be watching closely.