Hey! It’s Traci Brown, the Fraud Busting Body Language Expert. You are going to love this full interview with Jay Kennedy. He is an Assistant Professor at Michigan State University focusing on the impact of crimes on small and medium-sized businesses. He has a lot to say about counterfeiting and how theft really affects business these days. You’re going to love it.
Let’s have a little fun first so we can get to know you.
Jay Kennedy: Okay.
Traci Brown: Okay. We’re all at home here.
Jay Kennedy: Uh-huh.
Traci Brown: How’s your toilet paper stash?
Jay Kennedy: It’s doing well. It’s doing well. Actually, I was good. This was a concern to begin with. Right. I was good initially. We had like 4 packets of like 9 rolls, like 36 rolls when the whole scare first came down.
Traci Brown: Uh-huh.
Jay Kennedy: So we were good initially, and then I made a trip to Sam’s maybe 2 weeks in, and the guys had like a pallet of toilet paper and they were just throwing it in people’s carts, so I picked up another case anyway, so I’m doing good there. Paper towels, okay right now. Kleenex was the issue, but I mean, that’s good too.
Traci Brown: Okay.
Jay Kennedy: I think I’m good on paper goods so far.
Traci Brown: Okay, okay. Tiger King, you watching it?
Jay Kennedy: I am not. Everyone is watching it, but me. The problem is I’m busier. I feel like I’m busier than ever right now.
Traci Brown: Me too. Me too.
Jay Kennedy: Yea.
Traci Brown: I’ve had so many people ask me about it, because you know that’s what I do is read people in crazy crimes, and so I watched it. It’s not the kind of thing normally watch, but the cats are so interesting that I just kept . . . and the people are just train wrecks, like individual train wrecks, and then you put them together with the cats and all the people, and it’s just . . .
Jay Kennedy: You’re saying it’s something I need to watch?
Traci Brown: I feel a little dumber now that I watched it. But I would invite you with me over into being just a little dumber, Jay.
Jay Kennedy: That works.
Traci Brown: Yea, okay. A couple more questions.
Jay Kennedy: Yea.
Traci Brown: What is the latest time that you have gotten out of your pajamas in this whole quarantine?
Jay Kennedy: So probably . . . it’s probably, I want to say 3:00 pm, but here’s the caveat.
Traci Brown: Okay.
Jay Kennedy: It was like not 3:00 pm the day I woke up. It was like 3:00 pm the following day.
Traci Brown: Oh! (Laughing). You were going on 24 hours plus.
Jay Kennedy: Yes. Yea.
Traci Brown: I thought I was bad at noon, but no. You just baked the cake. Earliest time you started drinking?
Jay Kennedy: Eleven o’clock, 11:00 am.
Traci Brown: You got any recommended breakfast wine?
Jay Kennedy: I don’t because I’m mostly a red guy.
Traci Brown: Okay.
Jay Kennedy: I just finished a bottle, or close to finishing a bottle of sweet red that I brought back from South Africa. I just finished off a bottle of New Year’s Eve champagne making mimosas.
Traci Brown: Okay.
Jay Kennedy: I was doing evening and morning mimosas.
Traci Brown: Ooh, love that. Okay. Okay. It sounds like you’re doing the quarantine right. One last question, I think. Did you make one random quarantine purchase?
Jay Kennedy: I don’t know if it’s random. One of the things that I used to love doing was building scale models.
Traci Brown: Okay.
Jay Kennedy: There’s a model that I’ve wanted for probably 30 years that I bought. It still hasn’t come in yet, but I bought it.
Traci Brown: What is it?
Jay Kennedy: It’s a model of the U.S.S. Nimitz.
Traci Brown: Okay.
Jay Kennedy: It’s 135 scale, so when it’s fully put together, it’s about 38 inches long.
Traci Brown: Ooh, that’s a good one. So the Nimitz, isn’t that down in Norfolk?
Jay Kennedy: I don’t know where the Nimitz is right now. I’m sorry.
Traci Brown: Okay. I wasn’t sure if I might have been on it. You know if it’s parked somewhere, like for tourists, or is it more . . . ?
Jay Kennedy: I want to say it’s still up and going.
Traci Brown: Well, we’ll have to look that up. Someone will write in and tell us, I’m sure.
Jay Kennedy: Yea.
Traci Brown: I’m interested in that. My husband is a model train guy.
Jay Kennedy: Oh, really? Okay.
Traci Brown: Yes. In our basement we have the train room. I am fascinated by it. I absolutely love it. He bought me, for his little town, he bought me the Dairy Queen.
Jay Kennedy: Oh nice.
Traci Brown: That’s mine. Yea. (Laughing). Alright. Okay. Onto some of the fun stuff. You sent me, I’ve got to tell you, you sent me your CV and your resume, and I did not expect 13 pages. But I was just riveted by everything you’ve done. Let’s talk a little bit, well, do you want to talk first about counterfeits or employee theft? Let’s start small and get bigger.
Jay Kennedy: Sure. I guess let’s talk employee theft.
Traci Brown: Okay.
Jay Kennedy: The reason I got hooked on employee theft was I’m a member of a number of fraternal organizations, and one of them, there’s a guy who was a member who stepped into the head role, when I was supposed to, after I left, and we found out that he had been embezzling from us for probably 10 or 15 years.
Traci Brown: Oh. Fraternal organizations, meaning . . . ?
Jay Kennedy: I’m a Mason.
Traci Brown: Oh, you’re a Mason. Oh, cool. Okay. Okay.
Jay Kennedy: I’m Masonic Lodge. His dad was one of our oldest living members. This guy took over as Master. When he did, the guy who took over as Secretary noticed a bunch of stuff going wrong. I mean, he was skimming. He used the Lodge credit card. Cash wasn’t being deposited. Right. So the question that came to mind is one, why would he do this? But also, what’s the impact to the rest of us who have this emotional relationship with this guy? I started looking, alright, employee theft in small and medium enterprises, and what’s the impact? That led to my dissertation. That line of research is what got me into product counterfeiting because of the appointment that I have with Michigan State.
Traci Brown: Let’s go back to this one Mason. Why did he do it? Did you get to the bottom of it?
Jay Kennedy: No. We did not get that. The final question of it was he needed flow, definitely lifestyle enhancement. He would take trips and put it on the Lodge credit card. Oh, I accidentally used this credit card but then forgot to pay it back.
Traci Brown: That’s what they all say.
Jay Kennedy: Yea. Oh, of course, right. I was getting around to it. I had the money there. But then things like his home and internet on the Lodge account, so we were paying for home internet and TV service. The cash not being deposited is a real easy one, right. He can produce receipts for what he bought. He just bought stuff. There was no real good reason. I don’t think there was ever a full, yea, I did it, you got me, I’m really sorry type of thing. A lot of excuses, so we never got a full explanation.
Traci Brown: Did ya’ll kick him out?
Jay Kennedy: Yea. The struggle, and I wasn’t present at the meetings at the time because I was out of state, but the question was, what do we do? Do we kick him out? Do we take him to court? All this other stuff? I said, well, our masonic lodge was pretty clear on what we needed to do and bring him up on charges, but to pursue this criminally as well, like this is something we need to do if we ever want to try and get money back. Well, we could put a lien on his house until he pays, and he has promised to make payments back to us, blah, blah, blah. Obviously, none of that stuff fleshed out. They decided ultimately that it’s just a loss and we’re going to kick him and let that be done.
Traci Brown: Wow. Because most fraud never gets paid back like that.
Jay Kennedy: No.
Traci Brown: And most of it’s also not prosecuted.
Jay Kennedy: Nope.
Traci Brown: I know you have some research on that. Let’s take the flow here. That led you to counterfeiting a little bit.
Jay Kennedy: Yea. That opened the door to the counterfeiting opportunity. Michigan State has a Research Center that does work on product counterfeiting. Because I got an MBA as well as my PhD and my interests sort of meet in the middle of business and CJ, I was a good fit for that position, so when I applied for it, I got that role and I learned product counterfeiting on the job. It became a large part of my research agenda. There is a decent amount of overlap in terms of the theory that gets applied to it, but counterfeiting is only done for money, right. That’s the only reason people do product counterfeiting.
Traci Brown: Let’s talk about it. I didn’t’ realize how much counterfeiting there really is. It goes from like Gucci purses, which everybody knows about.
Jay Kennedy: Yes.
Traci Brown: But then, talk to me about food and cosmetics and medicine. Let’s talk about all those.
Jay Kennedy: Yea.
Traci Brown: And how people can spot it so they’re not a victim, whether they’re purchasing for their business or maybe even just something for home. I was just online buying makeup before we were online here.
Jay Kennedy: Don’t go to Santee Alley in California and try to buy from there.
Traci Brown: Wait. What’s it called? I’ve got to write that down.
Jay Kennedy: There’s a place called Santee Alley in LA.
Traci Brown: Okay.
Jay Kennedy: Just written down for counterfeits. Actually, the official photos they have on their website, you can see counterfeits hanging off of stalls in the photos.
Traci Brown: Oh, so it’s like a flea market kind of thing?
Jay Kennedy: Exactly. Yea. It’s like Chinatown in New York. Right. Big open air market.
Traci Brown: Okay.
Jay Kennedy: Maybe about 18 or so months ago LA County sheriffs and LA PD did a raid out there and seized about a million dollars worth of counterfeit makeup, so Kylee Jenner, MAC, that type of stuff.
Traci Brown: Oh.
Jay Kennedy: You asked one of the cues. Where you buy your products is a huge sign. Now the interesting thing is with the whole coronavirus thing, a lot of people are buying online. Well, the online platforms have been a huge, huge go-to market for counterfeits for a long time. The big cue there is: From whom are you buying and how much are you paying? For things like makeup, purses, jewelry, all those types of things, it’s pretty clear when things are counterfeit because you’re going to pay a steep discount. It’s going to be 15% to 20% less, maybe more than what the legitimate item actually did cost. But it’s also going to be sold by a bunch of people who are not affiliated with the actual brand. Sometimes brands sell through distributors, but you should be able to get a list of authorized distributors from the brands. If you can’t find the person selling this product as an authorized distributor, it’s suspicious at the very least, if not outright illegitimate. Now, how many people are going to do that when they go on Amazon?
Traci Brown: I was thinking nobody’s going to do that.
Jay Kennedy: Nobody does that.
Traci Brown: I’m not, Jay.
Jay Kennedy: Right. Nobody does that. All the things that would protect us, now, that’s what the platform should be doing. The interesting thing is, when’s the last time you went on Facebook or picked up your phone and just mentioned something and then all of a sudden you got an ad for that thing?
Traci Brown: Oh my gosh, all the time. Like, it’s creepy. It is so creepy. Okay. Talk about that a little bit.
Jay Kennedy: If we’ve got the technology to be able to discern what type of products you want, we should have the technology to pick up the cues that lie behind these counterfeiting schemes. Right. If the seller is from out of the U.S. and they’re advertising a product that’s a name brand at a specific price, and there are consumer reviews that say either counterfeit or illegitimate, you should be able to pick those out pretty quickly.
Traci Brown: Right. But they don’t.
Jay Kennedy: They don’t. Right.
Traci Brown: Why?
Jay Kennedy: Part of this is their business model isn’t set up to push people off their platforms.
Traci Brown: Oh. Okay.
Jay Kennedy: The other part is, its own brand owners, the argument being that many of these platforms take is, its own brand owners should protect their brands. They say, we don’t know. This person could be selling legitimate product. You as a brand owner need to tell us when it’s illegitimate because we don’t want to take someone off the platform when they’re selling the real thing. So they’ve created this nice little bubble. I can claim ignorance. I don’t really need to do all this work. The onus is on the brand owners or the consumers. Now, even worse, say you buy a product. You’re online. You’re looking for makeup. You buy what you want. You get it in. You get it home and you say, “This doesn’t smell right, or it doesn’t look right. I’m going to return this.” You say, “Hey Amazon, or whoever, I bought this product. I think it’s counterfeit. I’m returning it to you.” You would think they would have a responsibility to destroy it or quarantine it or send it in. No. It goes right through their normal return, a great system, probably winds up in a bin that gets sold in bulk to somebody who’s just buying bins of returned stuff on an ecommerce platform and it gets routed back out to the environment.
Traci Brown: Wow. Not only are we . . . well, the counterfeiters end up stealing a brand ultimately, but it’s not . . . like how many people get sick off this stuff?
Jay Kennedy: It depends. The World Health Organization estimates that about a million people a year die from counterfeit medications.
Traci Brown: Uh-huh.
Jay Kennedy: In the U.S. the numbers are much smaller because we’ve got a much stronger healthcare infrastructure. But developing world nations see a ton of this stuff. It is estimated there are about 200,000 people here in Africa die to counterfeit malarial and antiviral vaccines.
Traci Brown: Really? Vaccines? Oh, that’s creepy. Is that why, let’s say people go to Mexico or they go to Cuba to get medicine, what are the chances that it’s counterfeit?
Jay Kennedy: It depends. It’s higher than in the U.S., but not as high as a place like Africa or South America. In Cuba you’re going to have more issues than you will Mexico. Mexico’s got a pretty decent supply chain with pharmaceuticals, but the further you get to the global south, the further your likelihood increases.
Traci Brown: Wow.
Jay Kennedy: There are a couple reasons for that. One of the things that we see in Africa is people willingly buy counterfeit medication because they can’t afford the legitimate stuff and they’re hoping that the counterfeit stuff has a little bit of the real stuff in there.
Traci Brown: Okay. But it doesn’t?
Jay Kennedy: It doesn’t, for the most part.
Traci Brown: So it’s like sugar water.
Jay Kennedy: At best, yea. You’re good if it’s sugar water.
Traci Brown: Not like Splenda water. (Laughing).
Jay Kennedy: Not like Fentanyl laced, right.
Traci Brown: Yea, yea.
Jay Kennedy: Which with stuff coming out of China we see all the time.
Traci Brown: Really?
Jay Kennedy: Yea. Yep.
Traci Brown: So there are factories just set up doing this, or are they making a lot of profit and some are legit and then they get an idea and then they make some that they figure out they can get away with replacing the expensive ingredients with something else or. . . ? How does this really . . . why is this not stopped? Because it would seem, if you went to the source, you could figure it out. Tell me about that.
Jay Kennedy: That’s a good question and actually a very good observation. We see a bunch of different schemes. For pharmaceutical counterfeiting, it is much, much less the case that we see a plant running a third shift and putting in a phony chemical. They are typically stand-alone operations, and they’re not large-scale manufacturing operations. Typically, it’s somebody that’s got a small warehouse or they’re operating out of a basement or a garage.
Traci Brown: Really?
Jay Kennedy: Yea. You can go online and buy pill presses. You can go online and buy vials. You can go online and buy all the packaging stuff that you want, and then you just get whatever ingredients you want, you put it together, and you can ship it out the door. Because it’s not labeled as medicine, as pharmaceutical, because they lie on the packaging about what’s in the container, it’s difficult to trace sometimes. Now, that being said, there are some instances where corruption gets involved. Fraud is fraud. People will bribe their way to get out of these schemes or to fly under the radar below the government, but if you have something that’s labeled as like a nutritional supplement but it’s actually counterfeit Viagra, there are a bunch of different ways you can hide that so stuff doesn’t come back to you. False names when you’re doing Western Union transfers, so the money doesn’t get tracked back to you. Bitcoin.
Traci Brown: Yea. Bitcoin. Let’s talk about that because hackers and terrorists love Bitcoin and I guess now counterfeiters.
Jay Kennedy: Yep. It’s a great way to get paid and to avoid a paper trail because there are no BSA – Bank Secrecy Act – requirements around Bitcoin.
Traci Brown: Right. Yea.
Jay Kennedy: It is the shady underworld currency, and because we do see criminal organizations and terrorists involved with product counterfeiting, it’s a natural overlap. Banks typically won’t process transactions to these shady sites. They’ve gotten onboard. Credit card companies as well.
Traci Brown: Okay.
Jay Kennedy: Yes, you can pay by credit card, but you use your credit card to buy Bitcoin, and then you send us the Bitcoin.
Traci Brown: That’s a big flag.
Jay Kennedy: Yea.
Traci Brown: Whenever it looks good and then they ask you to pay by Bitcoin, run.
Jay Kennedy: Yep. Yep. Or to do a wire transfer or an electronic check transfer thing, yea.
Traci Brown: Okay. Okay. Got it.
Jay Kennedy: Head for the hills.
Traci Brown: Yea. Now, what about counterfeit food? I mean, I was thinking about, what if my Oreos were counterfeit? You’d figure it out in one bite, wouldn’t you? What’s the biggest product that’s out there? How can we tell besides taking a bite? Tell me about that.
Jay Kennedy: Yea. You can take the bite, but you’ve taken the bite.
Traci Brown: Uh-huh. (Laughing). Taken a bite.
Jay Kennedy: Right. It’s like the FDA sent out warnings on counterfeit medicines. They say if it smells or tastes different, then you should be concerned. Well, if it tastes different, I’ve already taken it. There’s a problem there.
Traci Brown: Right.
Jay Kennedy: In terms of counterfeit food, some of the biggest things we see, in counterfeit we’ve got to use that term cautiously because, from my perspective, and from a legal perspective, counterfeiting is about the brand. It’s not about the product.
Traci Brown: Okay.
Jay Kennedy: It’s stealing somebody else’s trademark. We can get into fake food. When we talk about a generally counterfeit fake food, olive oil is a huge one.
Traci Brown: I’ve heard that.
Jay Kennedy: How do you tell the difference?
Traci Brown: You know who told me that? Lance Armstrong’s dad told me that.
Jay Kennedy: Yep.
Traci Brown: I ended up sitting next to him on a place and he’s a food broker. We were talking about counterfeit olive oil. Tell me a little bit more about that.
Jay Kennedy: How do you tell the difference between extra virgin and regular olive oil?
Traci Brown: I don’t know. It’s all the same. It is totally the same to me.
Jay Kennedy: Totally the same. Right. Now, if you’re from Italy or you make extra virgin olive oil, it’s not the same. Right. There’s a process in it and X, Y, and Z. But for the majority of us, most of us can’t even tell olive oil from like canola oil or something. If you cook with it a lot, you can tell the smell, the burn temperature, whatever, and all that stuff.
Traci Brown: I think that’s the big thing with that. Olive oil, you’re not really supposed to cook with it, like heat it up too much. I think . . .
Jay Kennedy: Right. You’re not supposed to fry like French fries with it. Right.
Traci Brown: It’s supposed to be a raw kind of experience.
Jay Kennedy: Yea. How many of us can really tell? When you go to the store and you grab a bottle off the shelf, there’s no way for us to tell that. Wine is kind of similar. How do you tell a 100-year-old $10,000 bottle of wine from a $10 bottle of wine?
Traci Brown: There is a little bit of difference though. I did go to the Food and Wine Fest in Aspen once. I ended up there. You can tell the difference between a 40-year-old bottle and the same kind that’s like 1 or 2 or 5-year bottle, but it’s very slight, and honestly, by the time you have several samples there, you can’t tell the difference between nothing. (Laughing).
Jay Kennedy: I was going to say that exact same thing. Right. (Laughing). After a little bit, you can’t really tell.
Traci Brown: Yea.
Jay Kennedy: The people who know wine, they know. They can tell labels. They can tell taste. But for the majority of people, you’re out there, like, hey, I want to be a big shot. I want to buy a $200 bottle of wine. You can’t tell the difference because you don’t know what it’s supposed to taste like.
Traci Brown: Right. But I know you like your reds, you said.
Jay Kennedy: I do.
Traci Brown: Could you tell a difference, knowing what you know? How’s your palate? Have you adjusted?
Jay Kennedy: Not really. Because I drink so much and I don’t drink enough. . .
Traci Brown: (Laughing).
Jay Kennedy: There are a couple of really good bottles, Opus 1, Camus, Mondavi Private Reserve Cab that I really, really love, but I’ve had those like once. If you put 2 glasses in front of me, I could tell the difference between one of those and like a $10 bottle of cheap wine. But if you gave me like a $40 bottle or an $80 bottle of really good and like a $220 Camus, I would say would be difficult to really tell the difference.
Traci Brown: Then are individuals, like me and you, are we thinking we’re getting a good deal buying this wine online, or does it go to the distributor level to end up in stores that way? How big is this olive oil and food thing that’s going on with all these counterfeits?
Jay Kennedy: It’s across the spectrum. It’s you and I online trying to find a good bargain, all the way to getting into the legitimate supply chain because somebody’s been able to pull someone in that distribution stream. Once you do that, say you’re talking about a wine distributor and you’ve got like 2 or 3 layers of distribution, once you fool that first distributor, you put what’s called a veil of legitimacy on that product.
Traci Brown: Okay.
Jay Kennedy: Now it’s not coming from some random person. It’s coming from a distributor that we know and we trust. Same thing with pharmaceuticals. As it moves through the system, the more it moves through, the more legitimacy it gets and the less likely we are to question it, but the counterfeiter is long gone. They made their first sale. They’re gone. They don’t care. The rest of us get stuck with that product.
Traci Brown: Wow. Okay. Then, you’re out and about, researching this stuff, seeing what’s going on, but you’re not really in law enforcement per se that I know about, okay, or maybe that anybody here knows about, wink wink. What are you doing? Are you making friends with some of these guys and going down in their basements and seeing what’s going on over in Africa and calling it in later, or what? Tell me what’s your . . . who’d be hard to walk away from, all this stuff that you know. Tell me about that.
Jay Kennedy: I do a bit my own investigating on the ground. I’ve made a relationship with one individual who sells counterfeit goods, though I haven’t spoken to him in a while. But as a researcher, it’s not my responsibility to go in there, identify stuff, and then call the good guys to do what they do. My job is to do the research. I’ve got a responsibility to my research subjects that if they’re sharing this information with me, I need to keep their information confidential, so I would not be the informant going in saying, “Hey guys, we should look this up”, unless it’s something that’s like killing people. That’s different.
Traci Brown: Right. Oh, so you know all these guys. Okay. So then how much of the stuff in your house is counterfeit?
Jay Kennedy: Oh, none.
Traci Brown: (Laughing).
Jay Kennedy: I went through a period when I first got this job, let’s just say I spent quite a bit of money replacing a lot of my wife’s purses.
Traci Brown: You did! Oh, wow! Okay. Because she had the counterfeit ones?
Jay Kennedy: It was only a few, so it was just an excuse for me to buy them. She liked them and it was a nice gift. She had like maybe 2 or something. It was like a 3 for 1 ratio maybe, I don’t know.
Traci Brown: Alright. You were only out a couple thousand dollars.
Jay Kennedy: Yea, just a few.
Traci Brown: Okay. Okay.
Jay Kennedy: But you know. Good question. You say that, I don’t know sometimes because I’ve been fooled and several other people in my research center have been fooled into buying counterfeits when they thought it was legit.
Traci Brown: And they’re that good. But then how did you figure it out? What did you buy?
Jay Kennedy: I’ll give you a great example. We have a summit every year where we bring brand owners on a campus, and we talk about product counterfeiting.
Traci Brown: Okay.
Jay Kennedy: One year we got one of our little chotchkies. It was one of those little portable phone chargers.
Traci Brown: Okay.
Jay Kennedy: It had the Center for Anti-Counterfeiting and Product Protection logo all over it. One of our partners is Underwriter’s Lab, UL. They came to us and they said – and we handed these to all our participants: Law enforcement, brand owners, everybody, and they said, “You know these are all counterfeit, right?”
Traci Brown: Oh no!
Jay Kennedy: The tag on it or the label said: Battery manufactured by UL. UL doesn’t manufacture anything. They just verify processes.
Traci Brown: Oh boy!
Jay Kennedy: We had gone through a Michigan State University approved vendor. We had done everything right. It had our name stamped right on it, and it’s counterfeit.
Traci Brown: Oh my goodness.
Jay Kennedy: Yea. We didn’t think about it because we went through an approved vendor. We didn’t think to look over and make sure that it’s counterfeit or not. But for that partner recognizing that their logo was counterfeited on it, we would have never known.
Traci Brown: Wow! Wow! Okay. So there’s not a lot you can really do to stop it besides just undercover infiltrating work.
Jay Kennedy: It’s been around since the ancient Egyptians. Since the first time someone put their mark on a product that was in demand, we have had counterfeiting. Laws on it were passed in the 1700s.
Traci Brown: What were the ancient Egyptians counterfeiting? I didn’t know they had a brand.
Jay Kennedy: Obelisks and other monuments.
Traci Brown: Oh. Okay.
Jay Kennedy: Certain makers, apparently in ancient Egypt, there would be certain artisans who would make obelisks and other sculptures and things like that. They would put their unique mark on it, and those were counterfeited. Ancient Chinese vases, Greek sculptures.
Traci Brown: Wow. It’s been going on forever, pretty much, you’re telling me. What I’m hearing is it’s not going to stop.
Jay Kennedy: It’s not going to stop. But it can definitely slow down.
Traci Brown: Right. Because we’ve just got to pay attention as consumers the best that we can.
Jay Kennedy: It’s a couple, right. It takes consumers. Consumers are a big part because consumer demand drives counterfeiting.
Traci Brown: Sure.
Jay Kennedy: For legitimate and illegitimate. Because there are people that willing seek out counterfeit products. It’s going to take, particularly now with the ecommerce platforms, really stepping up, using AI, using all their technology, and it’s going to take law enforcement around the world to really come together because the places where counterfeits are manufactured tend to be the places where economies are suppressed, unemployment is high, and labor rates are low. What’s the social harm of putting hundreds of people out of work who are making counterfeits but they’re earning a living for their families? Can the government come in and say: We don’t want you to do this anymore, but we aren’t going to give you economic relief. Most governments are going to say: Go ahead and do that and we’ll do some marginal stuff to keep it out.
Traci Brown: Huh. Wow. Okay. Let’s talk about and transition into employee theft because I know you know a little bit about that. Whether we call it embezzlement, or we call it something else, what’s going on with that these days? What trends are you hearing about in relation to the virus? We’ve got a big economic problem right now.
Jay Kennedy: That’s a good question. I haven’t heard any trends on the virus, but I’m going to assume it’s going down because people – well, wait a minute, okay. I’m going to assume that certain forms of theft are going down because people are at work. High-theft industries, things like that, it’s probably going down. But I wonder, as people are working more from home, if you got AP or AR responsibility and you’ve got access to the accounts, and you don’t have a boss there, you’re just communicating via email, I wonder what’s happening in those situations, if somebody’s got access to a bank account or the checkbook.
Traci Brown: There’s always, most of the time, a paper trail, but no one looking over your shoulder is close. They’ve got other things to worry about right now.
Jay Kennedy: Yep. They’re worried about making sure customers are still there. They’re worrying about making sure their employees are safe and healthy. If they weren’t opening up bank statements before, they’re definitely not opening them now.
Traci Brown: Right, right. Where are you seeing the biggest employee theft these days? What department or what job description or is there a profile of someone? Tell me about that.
Jay Kennedy: It’s a good question. I don’t know if I’ve got the right answer to that because there’s so much of it going on. I’ll say this, I think we’re seeing some new ways in which theft is happening.
Traci Brown: Okay. Talk about that.
Jay Kennedy: The advent of electronic – not the advent – but the growth of electronic banking and the push for more things being online, particularly with cash apps on people’s phones.
Traci Brown: Cash apps, like . . . ?
Jay Kennedy: Like Venmo, Zelle, things like that.
Traci Brown: Okay.
Jay Kennedy: With the ability to link those to a bank account. You go to your bank account, send money via Zelle, there’s Venmo, whatever, right. On the bank statements it just says that you send money via this app. It doesn’t say what it went to. You can put a note in there if you want, but if not, then you don’t. That bit of ambiguity, if you’re a small enough business or a medium-sized business and you’ve got a customer that you pay, particularly with the gig economy, that you pay with these type of means, I would see that as a great opportunity to start taking money off the top. Because you can easily create invoices. The bank statement is just going to say to whatever cash payment app. Now if you go to the cash payment app, I guess you can subpoena them to give records on where the money went, but unless you’re a large corporation, are you going to spend the money to do that? Or if it’s a large amount, you’re not going to spend the money to do that.
Traci Brown: Totally not.
Jay Kennedy: But I wonder. One of the things I was, before the whole crisis, we were doing really, really well in terms of the unemployment rate.
Traci Brown: Yea.
Jay Kennedy: One of the things I was telling people about was, this is not a sign, or this is not a time when you need to let your foot off the pedal in terms of vetting the individuals that you’re hiring, but also keeping an eye on your funds, because unemployment is so low, good people have options to go places because companies are looking for people. There’s no disincentive to leaving on the turn of a dime if you’re perceived to be a good employee and you feel like the heat’s coming down on you. If you’re stealing, you can steal and then say, “Alright, good, I’ll see you later, I got a new job” and go somewhere else. It’s very unlikely that the new employer is going to do a whole round of vetting because they need people they want to bring in. The person who you’re leaving may just think: Oh, it’s just natural, they got a job and may not think there is something suspicious about it. Low levels of unemployment, I don’t think, reduces. Now, I don’t have any numbers to back that up. That’s just my thinking.
Traci Brown: Yea.
Jay Kennedy: But I don’t think it reduces the likelihood that we’re seeing a lot of theft still going on.
Traci Brown: Right. Now that unemployment is high . . .
Jay Kennedy: See now. Yea. Now what’s going to happen when people come back to work? Right.
Traci Brown: Well, when they come back to work, they’re going to be glad they have a job, but they’re going to be stressed.
Jay Kennedy: Yea, and they’re going to be thinking, what bills have I not paid that have piled up?
Traci Brown: Yea.
Jay Kennedy: Yea, I’m making a great paycheck now, but that paycheck’s going to pay the bills I have now. What about the bills that have piled up? It won’t cover that.
Traci Brown: Exactly. Exactly.
Jay Kennedy: Or even worse, you know what? I stuck through with this company when they laid me off or when they reduced my hours substantially. You didn’t give me a bonus. You didn’t give me a raise. This is money that I’m owed.
Traci Brown: Yea. A feeling of entitlement. Um-huh. Wow. What’s the craziest, either employee theft story, or maybe even a counterfeit story, what’s the craziest one you’ve got?
Jay Kennedy: The craziest one that I heard, I guess this is the craziest, was during my dissertation when I was interviewing small business owners in Cincinnati. There is a gentleman who owned a mechanical services firm. He had an employee. One of his kids worked in the office and had physical health issue. This employee stepped up. The employee was going through some issues at home herself. There was a point where, apparently, she couldn’t make it to work, so the guy gave her a car. He was like, we have fleet vehicles, gave her one and said, you know, it’s worth probably like $15,000. Give me $5,000 and we’ll call it a day and then just pay me back over time. Never, whatever. Ultimately, this lady started stealing from the company by writing checks in the owner’s kids’ names. Because the kids would come in and work seasonally as they were in college or over the summer, something like that. She would write checks to herself basically putting it in their names in the accounts.
Traci Brown: Okay, wait. Putting it in their name, meaning?
Jay Kennedy: On the ledger, she would put the funds under the kids’ names, but she would write the check to herself.
Traci Brown: Oh, okay.
Jay Kennedy: We paid Jay $3,000 this month, but in reality, he only got $1,000 and she took $2,000.
Traci Brown: Uh-huh. Wow. Okay. Check fraud. That’s what I’m hearing.
Jay Kennedy: So there’s that.
Traci Brown: Yea.
Jay Kennedy: Then when she was caught, the accountant who was looking at it said, well, we got about $5,000 here. She said yea, yea, yea. It’s $5,000. Then of course, dug a little bit more. Oh yea, it’s $10,000. Oh yea, it’s $15,000. It came out, I think he said it was somewhere around $45,000 to $50,000. She did not pay anything back for the car, so she got the car. He took her to court. The judge said, well, I can throw her in prison, but then you’ll never get restitution. Let’s just do restitution. This guy said, okay, I’ll do restitution. She got restitution. I think she was paying like $10 a month or something in restitution.
Traci Brown: Ten dollars.
Jay Kennedy: Yea. She got a job at another firm in the area, started stealing from them almost immediately, went back to jail, ultimately went to jail for that. The owners of the two companies knew each other because they were in the same industry. The owner of the victimized firm, the second firm, calls up the first firm and says, why didn’t you tell me this lady was a thief? He said, you never called to do an employment check. If you had called me, I would have told you anything you wanted to know.
Traci Brown: Oh boy. I have another guest that we had on here, Susan Frew, and she had an employee do a real similar thing. She owns an HVAC and plumbing company. Same industry, real similar story about what happened. The question is then, do you think that industry is more prone to that for some reason?
Jay Kennedy: You know, given everything I’ve looked at, I don’t think so. I think it’s across. Actually, a good question because this brings something back that I’d forgotten about. I interviewed a couple of medical professionals. I interviewed a vet who was adamant that vets are taken to the bank all the time because they’re good doctors, they focus on what they do, but they’re horrible business people. They give no oversight and they have no clue when money’s gone because if they get a lot of money in, just as long as everything’s operating well, it’s good. He said, I know guys who have been taken. They have been cleaned out, and they still refuse to do any type of oversight or guardianship inhouse. At least from that anecdotal evidence, medical offices are probably. . .
Traci Brown: That’s in medical offices, more than HVAC. Oh, wow. Okay. Okay. I don’t want to keep you all day here, but I’m really curious on one more thing on the CV that you sent me. It looks like you got a big grant from Ford to do automotive cybersecurity research. A lot of cars are hooked up to the internet now. I assume that’s what you were studying. But tell me a little bit about that.
Jay Kennedy: I got pulled into this one through a buddy of mine, another professor at Michigan State, Tom Holt who’s a cybersecurity expert. My role in this was to apply theory, but also look at the insider threat. When you go to your car, particularly a modern car, and you get in your car. I get in my car and my phone automatically connects to my car. Someone trying to hack into my phone, very, very difficult, but when I take my car to the service department and they plug that little thing into the OBD II port, they get access to all of the computers in the car. Any information that’s on any of those computers, they can get access to. Also, if you’ve got a wireless hotspot in your car or if you get satellite radio, there are weaknesses. We haven’t seen anything “in the wild.” We know that there are weaknesses there. People can get in and hack into those systems, and they can get access to all of your data via your car. As we’re building on smart vehicle technology, like driverless cars and cars connected to home and all that stuff and sending information to the dealerships and all this stuff in real time, the question was: What’s the opportunity for people to hack in and get access to that? More specifically, for me, as Ford and all these other companies work with contractors, they farm this out for people to write code and to build these systems, what happens to the knowledge of these systems? It’s a digital environment. It’s all digitized information. If I write that code and I’m just a contractor, I leave and I go to another job, I still know what that code is. I have access to it. If I wanted to share it with someone, I can easily sell it to somebody who can then hack the system and then backdoor their way right in and get all of your data.
Traci Brown: Wow.
Jay Kennedy: Shut down your car, turn your radio station.
Traci Brown: Wow. Is car cybersecurity an actual problem right now or is it a potential problem?
Jay Kennedy: It’s a small minor problem right now, but it’s definitely more of a potential problem coming in.
Traci Brown: So. . .
Jay Kennedy: Most of the reason . . .
Traci Brown: No. Go ahead.
Jay Kennedy: Most of the reason why it’s not a huge problem right now is because many cars still aren’t connected in the way that makes it variable.
Traci Brown: Is the worst problem that a car hack could, I guess, result in, would that be getting someone’s information, which is a problem, or could they make the car blow up or take over the vehicle? Tell me about that.
Jay Kennedy: Ultimately when we’re talking about connected or autonomous vehicles, like semiautonomous vehicles, there’s a potential they could take over the vehicle.
Traci Brown: Oh man. Okay. Okay.
Jay Kennedy: Turn off brakes, apply brakes, turn off brakes, apply the accelerator, all that stuff’s electronic. It’s all controlled through the master brain of the computer. If you can get into it, yea.
Traci Brown: Oh my goodness, that just freaks me out. Is there anything we can do to stop that? Did you find any, are they building things in? Tell me about that.
Jay Kennedy: Sure. They’re definitely building in processes to stop it. Part of it is this continual renewal of information. Every time you hit something that says update X, Y, and Z, update X, Y, and Z.
Traci Brown: Got it.
Jay Kennedy: Typically, because they found a weakness, whether that weakness has been exploited or not, but they found a weakness that could lead to an exploitation. So update. The other thing is they’re building in a lot of redundancies to try and stop. It’s not just one system they have to overcome. It’s multiple that would have to be overcome. Then they’re doing a lot of stuff that they’re not telling us about, which I think is a good thing.
Traci Brown: Yea, absolutely. We don’t have to worry about terrorists taking over our cars just yet, is what I’m hearing.
Jay Kennedy: No.
Traci Brown: Okay. I’m very relieved. (Laughing).
Jay Kennedy: You’re good for now.
Traci Brown: Good deal. Good deal. Alright. Well, what is the one thing I haven’t asked you that can really, like the knowledge of which can really help the people listening, to make their lives more safe and more on the up and up so they’re not a potential victim.
Jay Kennedy: I would say anything about the value of being proactive. With both employee theft and product counterfeiting, you see a lot of reactivity. People may have fidelity insurance, but they’ve got like $100,000 on a $10 million business, or even larger, and it’s not until after something has actually happened to them that they start to see the value of being proactive. I wrote a paper with my mentor, Mike Benson, about the emotional impact of employee theft. In small to medium enterprises, you cannot understate that. The narratives that we had lined up very much with the narratives of victims of sexual assault. This is a long time plight. The people that I interview, some of them, it was 10 to 15 years ago that they were stolen from. They had visceral responses. I worried about re-victimization issues because we were talking about these things. There were visceral responses. In fact, they were re-living this violation of trust. Somebody I trusted, I had known for years, I brought to this business, and they stole from me. They still haven’t been able to process it. You can’t put that into words how much of an issue that can be, so I really, really preach proactivity. Part of that is, and I mentioned to you before, having – this is something I really need to get back to – is developing that script of what do I do if I have a theft. The research on psychology says that one of the worst times for us to make really important decisions is when we’re in one of those situations when we’ve been victimized or trying to process all of this emotional trauma. At those points, we make horrible decisions. The best thing to do is to either pass decision making off to somebody else or to beforehand, if you’re cognizant enough, follow a script. I’m going to do X, Y, and Z. I’ve got to contact my account for that information, not just the bank account, call the police. Having that plan specific to a business, I think, is the best thing a company can do.
Traci Brown: So having an emergency plan.
Jay Kennedy: Yea. That’s something I really want to develop. What does that look like? What’s the basis of it? What are the things that you need to have in there? Then once it’s done, it sits on your shelf, and you update it every once in a while as situations in the business change, but if you never have to use it, a small investment. You have never have to use it, but when you do have to use it, it’s so important. It’s like insurance.
Traci Brown: That’s what you were telling me about how you haven’t quite worked on developing your products like you wanted to. Is that the one you were telling me about?
Jay Kennedy: That’s the one product that I think we really, really need. Now the difficult sell in there is if you’ve never had an employee theft, you think, well, I’m not going to have employee theft or no one can steal enough from me to really have an impact. It’s not really worth it. I’ve got a good structure in place.
Traci Brown: Don’t have time.
Jay Kennedy: May very well, but there are thousands, millions of people who said the same thing that have been victimized.
Traci Brown: Well, exactly. Until it happens to you, man.
Jay Kennedy: Yep.
Traci Brown: So Jay, how can people get a hold of you so you can help them with their plan?
Jay Kennedy: Sure. The best way to reach me is just to email me. That’s jpk@msu.edu, or you can just type in Jay Kennedy, Michigan State University and you can find me via Google that way. Shoot me an email. I’m more than happy to talk to people individually about their specific circumstances because this isn’t an off-the-shelf thing. It needs to be specific in many ways to each individual’s business is different.
Traci Brown: Yea.
Jay Kennedy: But I’m always open to talk, whether it’s about product counterfeiting, keeping them out of your supply chain, if you’re a brand owner and you’re worried about it, employee theft, whether you just want to talk about how Michigan State’s potentially going to do if we have a football season.
Traci Brown: (Laughing). Ya’ll had a pretty good basketball year, didn’t you last year? Am I . . . ?
Jay Kennedy: Yea. They did. Now again, unfortunately, the tournament was cancelled. But yea, they were doing pretty well.
Traci Brown: Yea, yea. For sure. Well, thank you so much for taking a minute to chat with me. I’ve been just fascinated by everything you’ve said, I think.
Jay Kennedy: Thanks for talking to me. Thanks for reaching. I’ve been following you as well and what you do is absolutely intriguing to me. It’s really, really interesting how you take this behavioral based approach.
Traci Brown: Oh yea. Whenever you need to read people, call me. I’ll get a quick read on them, whether it’s on the Bachelor or Tiger King or a counterfeiter. They’re all the same to me.
Jay Kennedy: I’m going to do that next time I get out there and start talking to counterfeiters. I’ll definitely need to prep for that.
Traci Brown: I would love that. Put me on a secret camera.
Jay Kennedy: Yea.
Traci Brown: I’ll tell you what questions to ask and we’ll get some real interesting answers that way. (Laughing).
Jay Kennedy: That might be interesting. We work with internal investigations people all the time, and they go out there on these raids with law enforcement. Questions are the big thing. How do we get more information?
Traci Brown: Oh yea. It’s all about information recovery. That’s what I love. I got to train right alongside the FBI and green berets and things like that. I’m the only one in these training classes without a gun. Everyone’s like cargo pants and a gun. I’m like, I didn’t see that on the supply list. I could have brought one. (Laughing).
Jay Kennedy: (Laughing).