Countering the Counterfeiters

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As counterfeiters of brand cigarettes are becoming increasingly skilled in perfecting the art of emulating cigarette packaging, TOBACCO ASIA explores what tobacco companies can do to stem the tide and how packaging manufacturers assist them.

By Thomas Schmid

The illicit tobacco trade is a significant concern not just for brand owners but also for society, consumers, and governments worldwide. Many countries around the world are seeing alarming growth rates in the black market for cigarettes, a development which poses a potential threat to national security by providing a major source of illegal income for organized crime and terrorist organization, according to a discussion paper published by the European Union in 2016.

The United Nations Security Council likewise has noted the link between cigarette smuggling and terrorism financing in its UNSC resolution no. 2199 on Syria, dated February 15, 2015. Depending on the sources, an estimated 10-12% of the global cigarette market is illicit. That amounts to a staggering 600-650 billion sticks, representing annual losses in government revenues of an estimated US$40-50 billion. Yet other sources put the figure even as high as 17-20% globally.

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The illicit cigarette trade is made up of various distinct product categories: Contraband cigarettes, which are genuine products smuggled and sold illegally; under-declared products, which are cigarettes that are manufactured and distributed in the same country, but are not declared to the domestic tax authorities; illicit whites, which are obscure, unknown brands typically sold without a legal distribution network; and last but not least; counterfeit cigarettes, which essentially are copies of genuine products.

How counterfeits fit into the equation

When it comes to counterfeit cigarettes, it is not only about lost revenues, damaging brand values, and misleading consumers. Counterfeit cigarettes are produced outside of any regulatory environment, they more often than not may contain low quality ingredients, unusually high levels of tar and nicotine and, in some cases even dangerous substances (e.g. chemical residues) that do not comply with government regulations.

While it is true that counterfeit cigarettes constitute only a fraction of all illicit tobacco products swamping markets worldwide, “criminals are deploying increasingly sophisticated methods,” according to Richard Clemente, head of anti-illicit trade (Asia) at Philip Morris International (PMI). Largely gone are the times when organized crime merely mimicked brand cigarettes by slightly amending a brand name; making a “Narlboro” out of a “Marlboro”, for instance.

Instead, the order of the day is to exactly match the appearance of original packaging as well as the features of the sticks themselves in every small detail. This has primarily become possible because unscrupulous dealers supply counterfeiters with the necessary production machinery and printing technologies that only should be made available to legitimate manufacturers.

Asia-Pacific: big successes and big setbacks

Although the illicit tobacco trade is a global problem and not isolated to any region or country,

Clemente pointed out that Oxford Economics’ “Asia Illicit Tobacco Indicator 2015” report showed that across 17 select markets in Asia-

Pacific, 117.3 billion sticks consumed in 2015 were illicit, or one in every seven cigarettes consumed.

The report, published in December 2016 and freely available from the Oxford Economics website (http://www.oxfordeconomics.com), goes on to indicate that this figure included 1.7 billion counterfeit cigarettes (see table 1). But what appears at first glance as a relatively small figure has to be contemplated in perspective.

It must be understood that counterfeiting does not usually affect cheap domestic brands (as there is no money in it for counterfeiters), but foremost premium domestic as well as well-known international ones.

Although some Asia-Pacific countries have made great strides towards weeding out counterfeit products and should be commended for it, others either haven’t done so well or even experienced a substantial resurgence of the problem (see table). For example, by 2014 total consumption of counterfeit cigarettes in Australia had dwindled to a mere 8 million sticks (from 203 million in 2013). But, incredibly, in 2015, the country again saw a mind blowing resurgence of 450% in counterfeit products compared to the year prior. Meanwhile, the Philippines, which has always been one of the region’s largest market for counterfeit cigarettes, clocked a year-on-year increase of 93.1% in 2015. And fellow ASEAN member Thailand likewise appeared to have failed in its efforts to curb this illicit tobacco segment, as consumption unfortunately skyrocketed by a rather embarrassing 204.4% in 2015. These Oxford Economics figures suggest all too vividly that the fight against counterfeit cigarettes is far from over.   

Safety features: more is better

To combat counterfeiting, a multi-layered approach is best. In other words: The more sophisticated and numerous – thus costly and difficult to copy – the security features on cigarette packaging and the sticks themselves are, the less attractive the respective brand becomes to counterfeiters.

“Fake products need to exactly match the original, therefore every part would need to be copied exactly,” said Stephan Schmidt, managing director of TANNPAPIER GmbH. “While standard packaging is relatively easy and cheap to copy, special features - for example microprint on tear tape, holograms and UV-markers - are increasing cost significantly, making the product financially less attractive for copying.”  The Austria-based company is part of the globally active TANN Group and counts among its customers not only the big multinationals but also many smaller, independent tobacco companies looking for enhanced security features for their cigarette brands.

“We are regularly asked by cigarette manufacturers whether we can offer potential solutions for superior security features as anti-counterfeiting measures for their tobacco products,” explained Michael Lindner, the company’s technical services manager. “The focus is on ‘smart’ safety features that we can realize for tipping papers, inner liners and frames and/or tear tapes”

Tear tape evolution á la Germany

Likewise a member of TANN Group, TANN Germany GmbH’s broad range of tear tapes are ideal carriers for covert security features, such as non-visible UV inks or sophisticated TAGGANTs that can help protect brand integrity.

“The TANN Group has developed and provides for the market combinations of overt security features such as sophisticated print designs including micro text and fine line printing, as well as special inks like ‘color-shifting’ OVI inks to support brand values and protect brands against counterfeiting and plagiarism,” elaborated Ralph Schaffranke, sales manager of TANN GERMANY GmbH, adding that these features are extremely difficult to reproduce for counterfeiters.

Most commonly using MOPP base film, tear tapes can also be produced from PET base film as per the customer’s requirements. All TANN Group-supplied tear tape products guarantee easy application, 100% adhesion to the wrapping film, improved pack appearance, produce no wrinkles on the package and have high tensile strength, according to Schaffranke.

Clear up that label!

A new security product range that TANNPAPIER introduced at the recent World Tobacco show in Hamburg, Germany, are closure labels made of clear (i.e. transparent) film material. While Lindner concedes that “unprinted clear closure labels exhibit a relatively low level of security as they can be theoretically made of any flat and flexible transparent material like different polymer films,” he adds that security can be raised tremendously “if the labels are combined with sophisticated and elevated printing effects.” There currently exists only a small handful of transparent base materials that are suitable for special effect printing and it requires enormous expertise to actually obtain impeccable printing quality on these select few materials.

TANNPAPIER offers rotogravure printing, which can realize a wide range of outstanding printing effects on the clear closure labels. Even color changes, thermo-chrome, and UV-active features are feasible. But if holographic or shiny metallic effects are desired, Lindner said hot-foil stamping should be used, “a very common technology deployed in the tipping paper industry.” To achieve a higher grade of security on these labels, Lindner therefore recommended: “Whenever special color or effect pigments are involved, it all gets significantly more complex and difficult [to copy] as all relevant printing parameters are totally different from common standard settings.”

Apart from being able to serve as supplementary anti-counterfeiting measure, clear closure labels aid in the perfect sealing of cigarette soft packs yet make them easy to open. There are self-adhesive and non-adhesive variants and the company offers as base materials either polymer or bio-polymer films, the latter of which are fully biodegradable. Last but not least, the labels provide additional branding space.

A step into the future

Together with an undisclosed partner, TANNPAPIER some time ago developed an ingenious, almost futuristic marketing tool for tobacco companies: QR code tipping! The original idea was that consumers could actually scan the QR code printed on the cigarette filter with their smartphone, which would then lead them to web-based marketing content or a demographics-gathering site. “But this technology could well also be used in combination with tear tape or clear closure labels for brand protection purposes, as it is very cost-efficient,” suggested TANNPAPIER’s Schmidt, insinuating that scanning the code could be linked to a database where the customer could check immediately whether the pack of cigarettes they purchased was genuine or fake/illicit.

While the idea of using a QR code on tear tapes and closure labels is certainly intriguing, something into that general direction is already being offered by a Swiss company specializing in brand protection, authentication, serialization and track & tracing solutions. Lausanne-based Inexto S.A’s systems are used by many international brands across a range of industries, including many cigarette manufacturers. Described as a cost-effective open source system, it can be used by relevant stakeholders in the supply chain and across different technological platforms to prevent product diversion. A digital code is printed directly onto the pack in the factory, providing comprehensive tracking, tracing and authentication functionalities. This code also provides information to law enforcement and tax authorities. And because it is an open source system, even consumers are able to check whether their product is genuine and from where it originated. If they so wish.