The Russian Building Ministry has prepared a set of amendments introducing criminal liability for persons engaged in producing or selling counterfeit coatings. The new rules among other things may push sales for legal producers in the long run.

There must be clarity on recognizing counterfeit and falsified products, Vladislav Tkachenko, a spokesperson for the Building Ministry’s Public Council told the local newspaper Izvestia. The basic concept is that counterfeit products are those faked under someone else’s brand, while the very definition of falsified industrial products is absent in Russian legal regulations, he added.

“For this reason in Russia neither administrative nor criminal sanctions are applied for the production and supply of falsified today. There is no state policy to counter its production and distribution,” Tkachenko stressed.

In general understanding, falsified products are those having extremely poor quality, manufactured in violation of safety requirements established by Russian technical regulations, Tkachenko added. Some studies suggest that counterfeit and falsified coatings together account for up to a quarter of the Russian market. Quite often, coatings in this segment are simultaneously counterfeit and falsified.

“Falsified products always have incomplete or inaccurate information about their composition and quality characteristics on the label,” said Alexander Ruchev, chairman of the building materials commission at the public council.

Almost all market participants recognize illegal products as one of the main challenges of the Russian coatings market, with counterfeit and falsified coatings impacting the market in different ways.

“Currently, the market for industrial coatings is flooded with fakes. According to various studies, they account for up to 20 percent of the market,” said PK Kurs, the Russian anticorrosive coating producer.

“Industrial coatings are purchased, as a rule, in large quantities at once, which is beneficial to counterfeit manufacturers,” the company said, adding that those fakes are not only counterfeit, but also falsified, which means they have no anticorrosive properties at all. Deceived customers are likely to suffer huge losses by using these products.

“The use of such materials undermines the quality of work, and the resource of heat supply systems in our case, decreases as a whole,” the company said.

PK Kurs has to put a lot of effort to prevent poor-quality products under its brands from landing in the market. The poor-quality coatings if they stay in retail unchecked for the long term can spoil the reputation of brands under which they are being faked. This is especially dangerous for Russian coatings producers, who are not as high-profile as international coatings companies.

Different views

Valery Abramov, general director of Russian Paints, said in an interview to the Russian news outlet LKM Portal that there were not a lot of falsified products on the market, and the volume of these products had tended to decrease. He added that counterfeit products were a much more pressing issue on the market than falsified.

“A company delivers product indicating the required parameters on the label, and, in fact, the paint in these cans is much below the level that is declared. Or the company enters the market with a good quality product, and then begins to lower it. These actions discredit domestic coatings production,” Abramov explained.

Gennady Averyanov, chairman of the Russian association of coating producers Centrlack, commented that the problem of counterfeit coatings in Russia seemed to be overrated.

“The industry doesn’t see big problems with counterfeit coatings. Our assessment shows that a 25 percent share [of counterfeit coatings] in the building industry is not the same in the coating segment. It is significantly lower,” Averyanov said, adding that before hitting the market all coatings have to obtain state registration certificate confirming product quality.

There are sporadic cases of coatings being faked under different brands, but they are usually solved by the companies themselves, Averyanov said. There are several tools designed to prevent faked production from landing on the market, and several established well-operating control systems to do that, according
to him.

“The [Centrlack] association supports mechanisms aimed at increasing manufacturers’ liability for the release of counterfeit products into turnover and enhancing control of state bodies to identify cases of circulation of counterfeit products,” Averyanov added.

Dangerous to health

The faked coatings proved to be a big problem, since poor-quality products pose a threat to human health.

“Counterfeit products mislead consumers and can have unpredictable properties, which is a direct threat to consumers and society as a whole,” Ruchev said.

In Russia, both counterfeit and falsified coatings come primarily from what is known as a garage segment. It consists of small-scale private businesspeople who don’t have production facilities and simply mix up some components to produce the cheapest possible coatings in their own garages.

As a rule, the manufacturers of garage paints are not registered officially, don’t pay any taxes and don’t see any point in complying with safety or
quality requirements.

The Russian government announced plans to intensify the struggle against the counterfeit coatings, including the garage workshops, in 2018. Russian Prime Minister Dmitry Medvedev said that the illegal products was a big problem, and called the government officials to deal with this issue. However, no real steps in that direction have been taken.

“There are still a lot of low-quality products on the market for some types of building materials,” said Anton Solon, executive director of the Russian Building Materials Association. “The use of counterfeit products not meeting safety requirements and not having the proper level of quality is dangerous to the life and health of people,” he added.

Some market participants said that in some categories the share of counterfeit and falsified building materials could reach 40 percent. Currently, there is no official statistical data, and most information comes from test purchases conducted by business associations on the market.

“We see that nearly in half of all cases, the causes of fires, accidents in the construction industry, building collapses are precisely poor-quality building materials and components,” said Andrey Kolochinsky, managing partner of the Russian building company VectorStroyFinance.

“Counterfeit building materials can also contain components that emit harmful chemicals and radiation. Buildings constructed using such materials are harmful to the environment, and living in them is dangerous to health,” said Kolochinsky.

However, the biggest problem is that coatings in Russia are still able to make their way to public facilities, such as schools and hospitals. Although state control tightened in this field during the past few years, price remains a major factor determining the winner of the competitive bidding procedures under state contracts. Illegal producers are able to offer the best price.

“Building materials are now in high demand, and they are constantly rising in price,” said Dmitry Gordeev, a member of the expert council of the State Duma Committee on Housing Policy.

“Therefore, there are active people who fake them and offer them cheaper,” he said, adding that tile adhesives, paints, and solvents are among building materials most popular among
illegal producers.

Criminal liability might not solve the problem

The idea of putting illegal producers behind bars is not new in Russia. Currently, suppliers of counterfeit coatings are subjected to fines in Russia. If they managed to run their production for more than just a couple of months, they could still end up with profit even after paying fines, and launch their business all over
again shortly.

Russian lawyers said that tightening control on the market is what the Russian market is truly needed to take down counterfeit.

“It is possible to develop the real estate market and guarantee the safety of its operation only if there is control over the quality of the products used at the construction stage,” said Susana Kirakosyan, a member of the Russian Chamber of Commerce and Industry.

“However, in terms of introducing a special composition into the Russian Criminal Code, one should be careful. As practice shows, the introduction of separate chapter is not a guarantee of a solution to the problem, but this may conflict with the general corpus delicti,” Kirakosyan said.

“It is correct to talk about revising the state of control over the construction market,” she added.

A source in the Russian building industry said that it is better to wait and see what kind of liability the lawmakers plan to introduce before making any assumptions regarding their possible impact on the market. He added that criminal liability is not always about jail – as often criminals can only be subjected to fines, but bigger than those envisaged in the Russian Administrative Code.

“Better catching illegal producers might be a good idea. Besides, there are concerns that legal companies could face problems for involuntary mistakes made during the production process, which leads to disparities between the declared and actual product composition. If I were a legislator, I would try to avoid that by all means,” the source added.

It is still yet to be seen whether the new amendments would make their way to the Russian Parliament. Both Russian and international coatings companies called the government agencies to strengthen control over illegal coatings for several years, but every time the discussions led to nothing. Market participants are confident that by defeating the illegal segment, the authorities would ramp up sales for all legal coatings producers, and make competition on the market healthier than it is now.