By Nattira Medvedeva
Combating illicit tobacco trade is an issue that is being seriously addressed by not only those in the tobacco industry but also governments around the world and international bodies such as the World Health Organization (WHO) and INTERPOL.
In a press release earlier this year, WHO said that eliminating the illicit trade in tobacco would generate an annual tax windfall of US$31 billion for governments. Approximately 600 billion cigarettes a year are illegal, counting for 12% of global consumption. A recent KPMG study commissioned by the “big four” tobacco companies – Philip Morris, British American Tobacco, Imperial Tobacco, and JT International – estimating the scale and development of the illicit cigarette market in the EU, Norway, and Switzerland found that a total of 56.6 billion illegal cigarettes were consumed in 2014 in these markets, representing 10.4% of total consumption. Other findings include the fact that illicit grew by 8% to 21.1 billion cigarettes in 2014, with consumption of such products being most prevalent in Poland, Italy, Spain, and Greece; in 2014, 10.4% of all cigarettes consumed in the EU were illegal, compared to 10.5% in 2013 and 11.1% in 2012; and as prices have risen in the EU, flows of illicit cigarettes from outside of the EU increased from 37.3 billion in 2009 to 44.6 billion in 2014. Aside from the fact that governments are losing revenue due to illicit trade, part of the profits from illicit trade is often used to fund other illegal activities.
Various measures have been taken against illicit trade, whether it is laws and regulations passed by governments or using tracking and tracing systems. WHO has introduced its Protocol to Eliminate the Illicit Trade in Tobacco Products. The Protocol is an international treaty in its own right negotiated by parties to the WHO Framework Convention on Tobacco Control (FCTC), which has been ratified by 180 Parties. Article 15 commits signatories to eliminate all forms of illicit trade in tobacco products.
The Protocol requires a wide range of measures relating to the tobacco supply chain, including the licensing of imports, exports, and manufacture of tobacco products; the establishment of tracking and tracing systems; and the imposition of penal sanctions on those responsible for illicit trade. It would also criminalize illicit production and cross-border smuggling. So far, 8 countries have ratified the Protocol, short of the target of 40 needed for it to become international law.
FCTC requires the implementation of systems to track and trace tobacco products throughout the supply chain by means of technology such as tax stamps (either paper or digital), bar codes, and radio-frequency identification (RFID). The European Commission has also recently revised its Tobacco Products Directive (TPD) and is currently drafting implementing and delegated acts for Article 15 – Tracking & Tracing, and Article 16 – Security Features. The TPD, which entered into force May 2014, requires measures including pictorial and text health warnings across 65% of tobacco packages, deeper track and trace capabilities to fight the illicit trade in cigarettes, and a ban on menthol cigarettes after a four-year phase-out period. The revised directives are expected to be determined by early 2016.
On May 7, 2015, the European Commission published the Analysis and Feasibility Assessment Regarding EU systems for Tracking and Tracing of Tobacco Products and for Security Features report, a study defining the technical standards for traceability and authentication of tobacco products. The report said tracking and tracing alone does not provide sufficient protection against attempts to counterfeit or manipulate tobacco products, but what would is combining authentication and traceability. It also suggests security layering: combining multiple security features to counter the risk of counterfeiting, tampering, and diversion.
The authors of the report identified 44 suppliers of security technology features for tobacco products. These 44 suppliers were categorized into three groups: niche security feature providers, who offer a specialized, yet partial security feature solution package; digital security feature providers, who offer an alphanumeric code-based solution as an overt security feature for authentication; and full-service security feature providers, who offer solutions with overt, covert, and forensic elements.
The report also addressed the method of application, which includes: as part of the production of the packaging material itself; in a specific element of the packaging; printed directly onto the product; self-contained (e.g. label, film, or stamp); and fingerprinting of unique material properties of the package.
Some recommendations for traceability by the authors of the report are:
- EU standards should allow flexibility in the choice of location for the unique identifier on the tobacco product.
- Additional flexibility should be provided for some of the required data elements forming part of the unique identifier to be recorded in the data repository and linked to the unique identifier.
- Encryption of the unique identifier may provide an additional security advantage in the context of a traceability system, and asymmetric encryption provides a mechanism to segregate keys used for encryption and keys used for decryption.
- Prevention of possible duplication of equipment and solutions on a tobacco production line.
- A readiness survey of the distribution chain operators should be conducted to guide the implementation model.
- All dispatch and receipt operations by distribution chain operators should be recorded.
- Information requirements for commercial documents supporting traceability events are developed by the Member States and the European Commission, and, if necessary (based on the impact on manufacturers and distribution chain operators), a phased implementation approach could be adopted.
Some recommendations for security features by the authors are:
- The security feature itself should be manufactured with at least some basic serialization of the security feature itself.
- The security feature package should be reviewed every 3-5 years (minimum every 5 years) to evaluate the security elements used to create the security feature.
- An economies-of-scale ceiling should be reached by consolidating production of security features for the collective EU market.
- Flexibility for the label application method should be allowed to accommodate the variety of packaging types and the mix of production processes associated with tobacco products.
- A mix of security features sizes should be specified for different categories of tobacco products.
- The security feature should be irremovable and therefore applied directly to the tobacco pack, under any clear wrap materials, and over the tobacco pack opening (for both soft packs and flip-top-style packs).
A widely-used track and trace system at present is Codentify, a technology which enables tracking and tracing, product authentication, and digital tax verification, developed by the Digital Coding & Tracking Association (DCTA), whose members include British American Tobacco, Imperial Tobacco Group, Japan Tobacco International, and Philip Morris International.
Codentify, which is used in more than 50 world markets, uses the application of securely-encrypted 12-digit alpha-numeric codes generated through a patented multi-layer encryption process. This code is printed directly onto cigarette packaging during the manufacturing process. All manufacturers, their machinery, and the products to be sold in a specific country must be registered through the system with the government of that country. A server-based central information system (CIS), controlled by the government, manages this process. This acts as an effective licensing system. The CIS establishes a link with each manufacturing facility through a server installed at every licensed manufacturing facility, which is, in turn, linked to a Codentify code generator which is installed on each individual production line within a manufacturing facility. The codes are then printed directly onto the packaging. The information within each code can include the date and time of manufacture, machine of manufacture, brand and brand variant, pack type, pack size, destination market, price, and tax level. Once the codes are on the packaging they are counted and the data is securely communicated to the government. Also, manufacturers and government authorities, as well as distributors, retailers, and consumers can easily distinguish between genuine and counterfeit products by checking the validity of the Codentify code over the phone, by SMS, email, or through a dedicated Internet platform.
Other track and trace solutions include Alpvision’s Cryptoglyph technology, a digital invisible marking that can be applied to tobacco and cigarette packaging using standard printing processes and regular visible ink or overprint varnish while a commercially available smartphone can be used to authenticate the covert security feature. Integrated with prepress, the Cryptoglyph embeds a pseudo-random pattern of microdots (10 to 20 microns) in the imperfections of the printed material. When applying overprint varnish, the Cryptoglyph adds a pseudo-random pattern of micro-holes (40 to 80 microns) to the coating. Non-intrusive and totally invisible, these microdots or holes cover the entire surface of the packaging or label without changing its design.
Digitally encoded within the artwork, AlpVision Cryptoglyph can be easily integrated into any existing packaging or label printing process at zero production cost. Highly secure, AlpVision’s Cryptoglyph technology can only be deciphered with a 128-bit encryption key.
SICPA’s SICPATRACE is another alternative. In this system, the SICPA Data Management System generates a unique reference code that is applied either on a tax stamp or directly on the product during the manufacturing process. These tax stamps contain multiple material-based and information-based security levels, including overt, semi-covert, covert, and forensic layers. Following application on the product, each code is activated by SICPA on the production line, allowing on-line production control. The codes are scanned as the products move along the supply chain. Each scan sends encrypted data to the data management system, which aggregates details of the product’s path until final point-of-sale. Government enforcement field inspectors identify and trace the product with the SICPAMOBILE handheld audit device, which securely authenticates and reads the unique code in a single swipe. Audit findings are recorded in the Data Management System.
If multilayered measures are implemented, there is genuine hope that the share of illicit tobacco products can be greatly reduced, if not eliminated completely.