Tuesday, 25 August 2009

More CIPRO woes

Afro-IP has been informed by several sources (including Adv Paola Cirone) about a devastating article penned by Mr James Myburg entitled CIPRO at epicentre of SA's fraud pandemic on Politicsweb. Afro Leo says that brand owners need to step up their efforts too.

"Over the past two years corrupt officials at CIPRO (the Company and Intellectual Property Registration Office), acting with seeming impunity, have facilitated hundreds if not thousands of scams which have hit the South African Revenue Service, a number of prominent companies, and hundreds of smaller private businesses."

There are apparently two forms of the fraud - so called counterfeit companies and hijacked companies:

Counterfeit companies

"One of the most prevalent scams involves the registration of duplicate or counterfeit companies. These are companies which almost the same name as the real company.... Once the company has been registered the fraudsters - who operate using stolen identities - then attempt to establish bank accounts in the name of the counterfeit company. ... This is then used to facilitate fraud against the legitimate company, its clients and suppliers, and innocent third parties....Clients are sometimes contacted and informed that the banking details of the real company have been changed (to that of the counterfeit.) ‘Overpayments' may be made using the counterfeit company's cheques to the legitimate company's suppliers and the fraudsters will ask for a refund.....In many cases cheques are intercepted at the South African Post Office. Companies with similar names to the recipients of the cheque are then fraudulently registered through CIPRO. Bank accounts are established in that company's name, the cheques are cashed, and the money removed. Usually, the counterfeit company uses the same name with a word (such as Gauteng) or a number (usually 01) added to the end. If need be, the fraudster can simply add the "01" to the named beneficiary on the stolen cheque, and it can then be deposited into their account."

"The following [companies] confirmed they had been targeted: Schindler's Lifts, SA Guide Dogs Association, Giants Canning, Trident Steel, Johannesburg Tractor Spares, G and L Agencies, Marlboro Crane Hire, Hypersave Supermarket, Space Television, Colletts Pharmacy, The Media Shop, and AfriSave Cash and Carry."

Hijacked companies:

Between 2007 and 2009 a series of well known South African companies have had their legitimate directors deregistered on the CIPRO system. New directors were inserted, probably using stolen identities. ..."companies affected by this type of fraud include Cashbuild (South Africa), The Lion Match Company, Trident Steel, Fleet Street Publications, Tedelex and Gardena (SA)...Most of these frauds were carried out using the electronic lodgement of the C29m (details of directors) form. Due to weaknesses in the system agents accessing the CIPRO database could change the names of directors of any company at will. This was done from ‘outside' but it did require insider knowledge. Despite being notified of the problem as early as October 2007 CIPRO only acted in February this year. E-lodgements of the CM29 form were temporarily suspended on February 25 2009 by then acting CEO Renier du Toit. However, this did not stop the problem completely. On April 8 2009 someone inside CIPRO deregistered the two legitimate directors of BLSA industries (the company which manufactures PoolBrite). One ‘Ndumiso Terran[ce] Mzazi' was inserted as the sole director instead."
Politicsweb Comment:

"Once the counterfeited (or hijacked) company has been registered and a bank account opened it becomes very difficult for the police to solve subsequent frauds. The new directors usually use forged or stolen identities. A common practice is for the fraudsters to use stolen identity documents and scan and electronically alter proof of residence documents in order to meet FICA requirements. Unless the fraudsters are caught in the act, or with the false IDs in their possession, it is almost impossible to successfully nail them. .. In a written response to a query from Politicsweb CIPRO CEO Keith Sendwe said he was aware of the basic points we raised. The organisation, he said, was "pulling out all stops to prevent fraudulent activities taking place." His full reply to our questions can be found here. "

Afro Leo's Comment:

This is a truly depressing article and the allegations against CIPRO, if correct, are very worrying. Corruption is inexcusable. However, it is important to note that by law CIPRO takes a limited role as public protector of the names of companies (justifiably so) and it is really up to the brand owners to police the register of company and cc names regularly to ensure that no confusingly similar names exist. CIPRO (like a number of other registries around the world) do not, for example, cross check the trade mark and company name databases when registering new names. Neither do a number of domain name registries which are often also quite prepared to register small changes to domain names and register them in the names of different applicants. Of course CIPRO needs to ensure that its staff are adequately trained and, above all, are not corrupt but beyond that it is up to the brand owner to employ a proper watching service and police trade marks and company names effectively. The recently reported Alliance case (see here) shows just how apathetic brand holders can be in RSA when it comes to looking after their IP. The alleged state of affairs at CIPRO is worrying and corruption needs to stop. However, brand owners also need to step up their efforts.

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