In "The Third Man," the brilliant, shadowy, 1949 film, Orson Welles' character, Harry Lime, is a morally bankrupt, cynical racketeer and dealer of black-market, diluted penicillin.

Purveyors of fake or diluted drugs are no less detestable today than they were six decades ago, but the business has grown to frightening proportions. The highly professional and widespread counterfeiting of drugs increasingly casts doubt on what will actually be in your next vial of pills, especially if you buy them from abroad over the Internet.

A comprehensive analysis of the problem published recently by the American Council on Science and Health, called "Counterfeit Drugs: Coming to A Pharmacy Near You," describes the breadth and magnitude of the problem. Although quantitative estimates are difficult, it appears that something on the order of ten percent of the world's drug supply is counterfeit, encompassing not only products that are completely fake, but also those that have been tampered with, contaminated, diluted, repackaged or mislabeled in a way that misrepresents the contents, dosage, origin or expiration date. The World Health Organization estimated in 2003 that as much as five to seven percent of all drugs sold in the United States may be fraudulent in some way.

The perpetrators include big-time organized crime entities, such as the Russian mafia, Chinese triads and Columbian drug cartels, as well as terrorist groups such as Hezbollah, the Irish Republican Army and Spain's separatist organization ETA.

Just as counterfeiters have become adept at reproducing Gucci purses, Rolex watches and DVDs, they can duplicate the appearance of pills and capsules, and sometimes even the holograms and other security measures on the packaging. Without actually performing some sort of chemical analysis, the counterfeits may be virtually impossible to identify.

The risks to an individual patient are obvious if the drug is, say, a treatment for a cardiac arrhythmia or cancer, or an anticoagulant (blood thinner), but there are risks as well to society at large if the product is intended to treat an infectious disease such as tuberculosis, malaria or flu. The use of diluted or degraded antibiotics or anti-viral medicines can select for drug-resistant mutants, the proliferation of which makes infections harder to treat in all patients. In other words, the presence of counterfeits can actually compromise the overall usefulness of critical drugs.

How do fraudulent medicines enter the drug supply? Primarily by counterfeiters taking advantage of an alternative to the mainstream pathway of pharmaceutical manufacturing and distribution through which drugs normally move linearly from manufacturer to distributor to pharmacy to patient.

According to the ACSH report, "as much as 10 percent of the nation's wholesale drug supply travels through a complex and confusing network of distributors, intermediaries and secondary wholesalers, a vast array of businesses, most legitimate, many semi-legitimate and some outright criminal." Because manufacturers sell drugs at widely disparate prices, so-called "diverters" can realize profits by buying low and selling higher. But the competition is cutthroat, and the murkiness and absence of regulation in this "gray market" enables counterfeiters to introduce fraudulent products into the distribution system, often at astronomical mark-ups.

Increasingly, consumers are making the counterfeiters' job easier by buying drugs abroad. In a 2003 operation, spot-checks by the FDA and U.S. Customs Service found that 88 percent of drugs imported into the country by mail or courier violated federal safety standards in some way.

Orders from Internet websites are especially vulnerable to fraud. An FDA operation in 2005 found that nearly half of the imported drugs intercepted by federal officials from four selected countries - India, Israel, Costa Rica, and Vanuatu - had been shipped to fill orders that consumers believed they were placing with "Canadian" pharmacies. Of the drugs being promoted as Canadian, 85 percent actually came from 27 other countries around the globe. A significant number of these products were found to be counterfeit.

What can be done to protect the integrity of pharmaceuticals dispensed in the United States?

First, Congress must increase the penalties for drug counterfeiting, and the FDA must more aggressively enforce regulations that require documentation of the "pedigree," or history, of a drug as it moves through distribution channels.

Second, we need to apply new track-and-trace technologies to uniquely identify and track the distribution of drugs. (And similar to our confrontations with dealers of illicit drugs, in order to keep ahead of the bad guys we will have to innovate constantly.)

Third, new authentication technologies, such as holograms and ultra-violet and forensic tags, must be developed to make it more difficult for counterfeiters to imitate legitimate drugs. A promising new technology would attach mixtures of pH-sensitive fluorescent dyes to drug molecules and measure changes in fluorescence in the presence of solutions of different compositions.

Fourth, when making Internet purchases, consumers should patronize only pharmacies on the National Board of Pharmacy's recommended list ( www.nabp.net/vipps/consumer/listall.asp).

Finally, consumers should be vigilant for anything amiss in any prescription drug obtained anywhere - unusual color, texture, markings or packaging and, when feasible, for any differences in effectiveness or side effects.

The miracles of modern medicines do us no good if we're getting the wrong drugs, the wrong dosages, or inactive sugar pills. Individually and collectively, we must assign a high priority to combating fraud in drug distribution and sale.

Henry I. Miller, a physician and fellow at the Hoover Institution, headed the FDA's Office of Biotechnology from 1989 to 1993. Barron's selected his most recent book, "The Frankenfood Myth..." one of the 25 Best Books of 2004.