Global Taxes

Covid-19: regulators confronted with scourge of ‘fake cures’

Joanne HarrisMonday 28 September 2020

For consumer protection bodies, a major collateral challenge from the Covid-19 pandemic has been the prevalence of traders selling treatments or tests for a virus we’re still learning about.

Since March, the United States Federal Trade Commission (FTC) has sent 341 warning letters to companies allegedly selling unapproved products that may make deceptive or scientifically unsupported claims about their ability to treat or cure the novel coronavirus.

Meanwhile, the US Food and Drug Administration (FDA) has sent 113 warning letters to companies for selling fraudulent products with claims to prevent, treat, mitigate, diagnose or cure Covid-19.

The United Kingdom’s Competition & Markets Authority (CMA) and National Fraud Intelligence Bureau (NFIB) have also been trying to address consumers’ issues relating to Covid-19. There were over 80,000 complaints to the CMA’s Covid-19 taskforce between March and June, largely connected to concerns about price gouging – where the price of goods is increased beyond what seems reasonable – or cancellation problems. The NFIB, meanwhile, received 105 reports in February and March alone, with a total of almost £1m lost by consumers.

It’s never-ending right now and I don’t know how you’ll get control over that. There’s always going to be someone else to fill the gap

Joanne Hawana
Member, Mintz

The UK’s National Cyber Security Centre said in April it had removed 471 fake online shops selling fraudulent coronavirus-related items.

Even in countries less affected by the pandemic than the UK and the US, the problem of fake treatments has persisted. The Australian Therapeutic Goods Administration has issued 81 infringement notices and fines totalling AU$847,000 to companies for illegally importing or unlawfully advertising drugs or therapeutic treatments which make illegal, false or exaggerated claims about the effectiveness of their products.

The scale of the problem has staggered experts. An assistant director at the FTC, Richard Cleland, told the media in September that he didn’t think ‘the breadth of the fraud or the variety of products that we have seen’ had been anticipated.

Joanne Hawana, a member at US firm Mintz who specialises in advice on FDA-regulated products, says the proliferation of fake products related to Covid-19 began weeks before the first stay-at-home orders within the US. ‘Some of the early bellwether activity is fraud,’ she says.

Over 80 warning letters have been sent to companies jointly by the FTC and FDA, which Hawana says is unusual. She adds that the warning letters are frightening enough to the predominately small businesses that receive them, that they will respond.

‘In the majority of cases generally a warning letter does freak people out enough that they’ll stop. In the agencies’ view that’s the most rapid and effective way to address the problem,’ adds Hawana. ‘They have a huge amount of discretion and they rarely lose in court. You don’t want to be on the receiving end of that kind of lawsuit, which is why people fix their ads.’

If a consumer realises they have bought a cure or test which turns out to be useless, there is relatively little that they can do. Complaining to the regulator is often the only possibility, say lawyers.

‘The difficulty for consumers here is knowing that what they’ve bought is nonsense – it’s very difficult for people to individually make that judgement. In that case you fall back on the regulators to take appropriate enforcement action to protect consumers,’ explains Sam Rose, a senior associate and consumer protection expert at UK firm Penningtons Manches Cooper.

Rose says UK law is clear when it comes to misleading advertising. ‘There are particular regulations in relationship to medicines and products, but even for tests, if you’re lying about something and inducing someone to buy something as a result of that lie, that’s a breach of the law,’ she says.

The most effective way for regulators to react to the market for fake Covid-19 cures is to use tactics such as warning letters or infringement notices, and potentially escalate to injunctions, litigation or fines. The European Union Consumer Protection Cooperation Network as well as individual regulators like the CMA have also been active in persuading online giants like Amazon and Google to remove advertisements or take traders off their platforms.

The challenge many regulators have is jurisdiction. ‘Enforcement becomes much harder when there are sellers outside the UK. The way people shop now has changed and maybe the enforcement landscape hasn’t adapted quickly enough to tackle that. That’s been brought to the fore by the current pandemic,’ says Rose.

It is notable that the prevalence of fake products appears to be much higher in countries worse-affected by the pandemic. Robert Johnston, Senior Vice-Chair of the IBA Consumer Litigation Committee and a partner at Australian firm Johnson Winter & Slattery, points to his country’s relatively low rates of Covid-19 and says this is reflected in the activity the regulators have had to engage in.

‘While issues have arisen from time to time of fraud or misrepresentation about drugs or products or attempts to unlawfully profit from the pandemic, they have all been pretty small scale and the regulators have bene pretty swift to act,’ Johnston says.

Similarly, Dr Jonás Bergstein, Vice-Chair of the IBA Healthcare and Life Sciences Law and managing partner of Bergstein Abogados says the Uruguay government have had the pandemic well under control, and fake products have not been a major issue. If such products are sold, this counts as fraud.

‘In other scenarios the enforcement of the rules could be a bit more relaxed, but now anything to do with Covid is very strict,’ adds Bergstein.

But in places like the UK and the US, it does seem as though the problem of products purporting to cure Covid-19 is here to stay. As many of the traders selling such products are small and nimble, it appears to be almost impossible to completely stamp the problem out.

‘It’s never-ending right now and I don’t know how you’ll get control over that. There’s always going to be someone else to fill the gap,’ concludes Hawana.