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What’s in Your Drink? Food Fraudsters Turn to Beverages

You are what you eat. For most of us, that adage reminds us that we’re fueled by a variety of foods and beverages—from pizza and popcorn to kale and kidney beans, from coffee to cocktails. But what about when the drink you’re sipping on is a lie?

Food fraud—which occurs when someone motivated by economic gain deliberately substitutes, adds to, tampers with, or misrepresents a food or beverage, its ingredients, or packaging—is nothing new. For example, during the medieval period, trade guilds were established to oversee the lucrative spice trade, and they aimed to discover and eliminate false goods that were sold at lower prices.

In modern markets, fraudsters leverage globalization and technological advancements to match the various stages of the modern food value chain, from farm to the market and every point between.

Some of the tactics that these fraudsters use can be lumped into different categories, including counterfeiting, altering the product for monetary gain, mislabeling, diversion, theft, and patent, design, or copyright infringement.

While these tactics are often part of a bad actor or organization’s efforts to generate illicit funds, they can result in harm to consumers during that pursuit of profit.

Between 2007 and 2008, multiple consumer complaints to the Chinese company Sanlu Group about its milk and infant formula and instances of kidney stones led the company to call for third-party tests, which discovered that the products had been adulterated with melamine, a synthetic chemical often used in plastics. The chemical was added by dairy farmers and middlemen to increase the presence of nitrogen in diluted milk, which in turn would make the product appear to have a higher amount of protein when undergoing quality control tests. The melamine caused infants to develop kidney stones and kidney damage, with roughly 300,000 children affected and six infants killed by the adulteration.

The incident garnered outrage when consumers discovered that not only did initial tests fail to detect the chemical, but also that Sanlu discovered the adulteration with later tests and deliberately withheld the information from the public for weeks. The scandal ultimately resulted in multiple arrests, including a life sentence for the Sanlu board’s then-chairwoman and general manager, Tian Wenhua. Two other defendants—Geng Jinping and Zhang Yujun—in the trial were executed for their role in the contamination. Sanlu eventually declared bankruptcy and a number of its assets were later sold to Chinese dairy company Sanyuan in 2009.

For the industry and consumers, the melamine contamination “was a game changer,” says Darren Buckley, CPP, group security manager for Fonterra. At the time of the scandal, Fonterra, a major dairy producer based in New Zealand, was a joint venture partner of the Sanlu Group. The incident changed perceptions about food fraud, showing that even when the goal is to turn a profit rather than harm others, altered food and beverages could still have fatal consequences.

Fonterra, which is New Zealand’s third-largest employer, has a complex supply chain, especially since 96 percent of its products are exported, according to Buckley. After the dairy product is exported, it enters a long and complicated chain of vendors, being resold, processed, and distributed by possibly dozens of companies and manufacturers before eventually reaching a consumer. Upon leaving the factory, dairy products—which can range from milk and cheese to infant milk formula and binding agents used in pharmaceuticals—will likely travel via road, rail, sea, and air before reaching its final destination.

“For us, the risk starts way, way before it even hits the factory,” Buckley says. The melamine incident proved that adulteration, like dilutions and additions, can occur prior to reaching processing and packaging facilities, including on farms.

Because of the potential for harm that fraudulent products can cause, Buckley says that Fonterra has combined its approaches to dealing with food fraud with its efforts in food defense—which is the protection of food, its ingredients, and other aspects against malicious contamination or adulteration for the purpose of causing harm.

“It’s about an integrity issue that’s deliberate and willful by somebody in the process, whether it’s one of our factory staff who is having a bad day or disaffected for some reason, or it’s an external party who is committing fraud,” Buckley says. “In both cases, it’s a malicious act.”

To try to mitigate frauds, the company developed a program to manage the risks and build a culture around managing the risk of food crime. Along with tangible elements, such as regularly updating product packaging and a system that allows it to trace where products come from and their various stopping points (i.e., warehouses, distribution centers, cargo carriers, etc.), Fonterra has also focused on a culture of accountability. From reporting and investigations of complaints or potential issues to communicating with employees and external stakeholders, it comes down to consistency.

“You’ve got to enforce [these controls], make sure they’re relevant and pragmatic,” he says.

More Than Milk

Milk and its various products are not the only beverage items targeted for food fraud. Counterfeit alcohol is a global and persistent issue, with the prevalence of illegal and fake or adulterated booze often spiking around holidays.

“Each year fake wine, beer, and spirits are estimated to cost UK business some £200 million ($254.8 million) in lost sales and almost 3,000 lost jobs,” according to a 2023 report from the Fraud Advisory Panel. Losses of €3 billion ($3.22 billion) were reported from the EU, amounting to 23,400 lost jobs. These losses stem from legitimate businesses losing sales, lost government revenue, and investment frauds involving illicit alcohol.

The report, What’s your poison? The true cost of fake alcohol and how to catch the culprits, estimated that 25 percent of all alcoholic drinks were illicit. But beyond monetary impacts, there are potentially life-threatening outcomes from sipping on adulterated alcohol.

“The most sinister aspect of the counterfeit alcohol trade is not wine but spirits,” the report said. Fake spirits are found to often contain dangerous or toxic additives that are cheap and used to dilute or mimic liquors, allowing fraudsters to increase the volume of illicit products, increase their profits, and increase the risk of illness or death. Fake vodka has been found to include methanol, which when ingested can cause myriad adverse health effects, including headaches, dizziness, amnesia, comas, seizures, nausea, vomiting, and even death.

What’s your poison? also pointed to a 2016 incident where fake Jack Daniels whiskey was found to contain 60 percent methanol, but not before it killed at least 32 people in Russia.

More recently, on 20 June 2024, there were reports of at least 34 deaths in India that were attributed to toxic illegal alcohol. In the Kallakuruchi district, several people started to get sick after consuming bootleg alcohol, resulting in the hospitalization of at least 80 people for illnesses and the expectation that the death toll will increase. Authorities arrested two people suspected of involvement in selling the alcohol through a local vendor and suspended a senior police official and ten members of the state’s agency that is meant to eliminate or prevent illegal alcohol from being smuggled in, citing negligence, according to the BBC.

With support from other law enforcement and regulatory agencies, Europol and INTERPOL conduct a regular operation targeting counterfeit food and beverage products, code named Operation OPSON. The latest report details the results of the seventh joint operation, which occurred between December 2022 and April 2023. The main illicit product the law enforcement agencies seized during that operation was alcoholic beverages, clocking in at 6.5 million liters (1.7 million gallons).

Alongside the illicit alcohol, agents seized expired or spoiled food that had been mislabeled with a fake best-by date to extend its market value. But this presents a risk to consumers’ health.

“During this year’s Operation OPSON, the relatively new trend of relabeling expired food has been detected on an unprecedented scale,” the report said. “In the majority of cases, criminal organizations approach waste disposal companies and purchase food that should have been destroyed.”

When organized criminal operations step into this arena, they’re not only siphoning off customers from legitimate producers and sellers—they are also using the illicit funds generated to support other criminal efforts, notes Glenn Schoen, a crisis and security management advisor and CEO of Boardroom@Crisis B.V. “They also might be using some of the gains to get involved in cybercrime or human smuggling,” says Schoen.

Out of Sight, Top of Mind

For some products and producers, once an item is purchased by a distributor, market, or wholesaler, the risk stops. If a product spoils while still on the shelves, it becomes the store’s or consumer’s problem.

But this fails to be the case with products tied to a brand, especially one that offers higher quality items. For branded products, including Fonterra’s, fraudulent items that look like a company’s legitimate product create a serious and complex reputation security threat.

“There’s a growing expectation now on industries to ensure that they have good systems in place to manage these risks,” Buckley says.

While globalization has given rise to industry giants with products bought, sold, and consumed on nearly every continent, it has also increased the level of risk that these companies must contend with. Identifying the origin of an illicit product can also be an issue for larger companies given the breadth of distribution.

“If you’re producing and something goes wrong with it, your security is not in order, the financial implications are now much greater,” Schoen says. So, even when a product is faked at the store level, intentionally mislabeled to resell an expired product, or made into an illicit product in other ways, a company’s bottom line and reputation can take a hit.

Usually, companies that solely produce beverages have a fairly narrow product line, and this means that reputational hits have a wider impact.

“If you have a problem with the reputation of one of your drinks, quite often it will affect all the other drinks you produce. So, your name as a producer is under fire,” Schoen says.

And when something is wrong with a product, it’s incredibly easy for consumers to raise a virtual red flag for others to see.

“Nowadays, it takes very few activist voices raising a concern about a brand to possibly taint a brand,” Schoen says.

For example, a large soda drink producer becomes aware that three separate accounts on a social media platform are claiming that one of its products caused an illness. Account A even posts photographs of the product and of themselves while ill. The company may pause production of that product, or at least its distribution from a relevant facility, while it investigates the claims. While the illness was not caused by the soda, the company still suffered losses from the days where its drinks were withheld from the market and production was paused. On top of this, the company must also deal with the negative attention the product and company received online.

“Companies are very careful with their name, careful with their reputation,” Schoen says. But the need to protect a brand also means that organizations must weather such incidents even when their product has not caused a problem with consumers. “And in the meantime, there are still people online who are spreading the word that your product is not safe.”

When a company finds out that one of its products has been leveraged in a fraud, Schoen says that an organization looking to protect its reputation needs to not only communicate with stakeholders, but it must also do so honestly, directly, quickly, and with expertise on the incident.

“Speed is a big element. In other words, have a crisis team, be prepared for different scenarios, and have a scenario playbook,” Schoen says. These scenarios should consider and outline how to engage with appropriate law enforcement agencies—including which employee is the designated liaison—plus how to monitor the issue and communicate it to other stakeholders.

When it comes to investigating a product suspected of being tampered with, food and beverage manufacturers have the advantage that modern supply lines and their management and oversight have become increasingly efficient, Schoen notes. This means that if, for example, a product is accused of causing an adverse health effect, the producer is often not forced to stop production of all its products. The investigation can be highly targeted and focused along the specific path of the product, from its manufacturing to the purchasing by a consumer.

In communicating its efforts to stakeholders, Schoen recommends acknowledging the issue, its gravity, and which steps the company is taking to investigate and remedy the matter.

“What we’ve seen is that speed and honesty is always the best recourse,” Schoen says.

Even when a company is honest with its consumers about a fraud, it still is at risk of losing customers who may continue to associate that brand’s name with an incident or crime. To rebuild trust, Schoen emphasizes the importance of having a response strategy and policy where the consumer comes first.

“The health and safety of the consumer—not your bottom line in terms of money or your investors—that’s the most important thing,” Schoen says. Communicating this policy to consumers is step one when recovering.

He warns that when the consumer’s wellbeing is not the priority, the market is likely to punish the company. “The consumer won’t trust you anymore, and your investments will evaporate,” he adds.

The second objective should be to support or initiate any necessary efforts to clarify the incident, meaning assist with investigations.

“The advantage nowadays is that a lot of consumer products are made in smaller batches, and they’re more and better identifiable,” Schoen notes. If a contaminated or adulterated product pops up in one location, its path through the supply chain can be tracked. “You’ll be able, in a much more targeted sense, to find out if there’s anything wrong with other products elsewhere.” 


Sara Mosqueda is associate editor for Security Management. You can connect with her on LinkedIn or on X, @XimenaWrites.