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June, 2007


Counterfeiting is Big Business

By Heneage Mitchell, Photos courtesy of SICPA Product Security SA

SICPA finds ways to help brands fight back.

Despite the numerous global advances in business in this new century, a parallel scourge has arisen: the incidence of widespread counterfeiting of almost every product imaginable.

The global transformations of the 1990s, changes to political and economic life and the revolutionary technologies widely available to all have effectively dissolved the controls that governments traditionally relied on to secure national borders.

Counterfeits that used to be easily identified are now very difficult to distinguish from the genuine article. Once, counterfeits were restricted to luxury goods; now they have expanded to aviation components, industrial bolts, and even garbage bags.

Since the early 1990s, according to Interpol, trade in counterfeits has grown at eight times the speed of legitimate trade. 20 years ago, commercial losses around the world due to counterfeiting were estimated at US$5 bn; today, they are around US$500 bn.

Another growing problem is diversion, which occurs when a product intended for one market is diverted and sold, usually illegally, to another market. Regulated price differences in neighboring countries encourage diversion. It also enables counterfeit products to be more easily passed off as genuine because diverted products are sold outside the regulated supply chain, making them difficult to track and authenticate.

So what is being done about it?
SICPA hand-held scanning device.
The fight against global illicit trade involves everyone: brand owners, international organizations, and the general public. Governments cannot do it alone. Indeed, brand owners in some industries are faced with government-imposed control mechanisms to eliminate all forms of illicit trade. With a track record of protecting most of the world’s banknotes and documents of value with security ink technology, SICPA is now applying this technology, combined with state-of-the-art information technology, to provide a powerful multilevel system to fight illicit trade in the tobacco industry.

Apart from the pressure of advertising restrictions, graphic on-pack health warnings and public smoking bans, the tobacco industry is increasingly threatened by the specter of global illicit trade. From counterfeit cigarettes, bootlegging, and the organized smuggling of tobacco products, controversy surrounds the industry, often preventing legitimate manufacturers from accessing parts of their markets and governments from maximizing their tax revenues.

Estimates vary, but governments and legitimate manufacturers are losing over US$20 bn annually to the trade in illicit tobacco. In the morass of allegations of collusion, corruption, organized criminal involvement, and terrorist funding, corporate social responsibility in the tobacco industry, more than in most industries, is a business imperative.

Self-regulation by the industry is being replaced by imposed government legislation, in particular that contained in the WHO Framework Convention on Tobacco Control, signed by 168 countries. One key measure imposed concerns the reduction of the supply of tobacco by eliminating all forms of illicit trade.

The root cause of the problem is the margin available to criminals. In some cases this is exaggerated by comparatively high taxation and in others by poor law enforcement. Furthermore, as counterfeiters adopt sophisticated printing technology, it is becoming more and more difficult to detect illegal products which are often misidentified as genuine industry output.

Major tobacco manufacturers are determined to eradicate illicit trade and work with local authorities across the globe to combat this growing trend. However, only a multifaceted solution that authenticates legitimate product and monitors and controls the movement of products coupled with the appropriate law enforcement, can hope to address this issue.

Government and manufacturer requirements
Both governments and manufacturers have started to impose their own control mechanisms for brand protection, excise monitoring, law enforcement, and risk analysis. These mechanisms include tax stamps, codes with secure and unique identifiers, authentication features: both visible and covert, excise monitoring systems and Track & Trace systems.

To be most effective, they must address anti-counterfeiting and anti-diversion, not interfere with manufacturing and trade processes, be acceptable in cost terms to the industry, have a flexible application and allow for international collaboration in tackling illicit trade. In compliance with these requirements SICPA has developed a portfolio of solutions, which have been successfully implemented by governments and industries around the globe.

SICPA Solutions for a new world of risk

SICPA demonstrates their new Track & Trace technology at Tobacco Asia Expo 2007
SICPA delivers proven and effective technological solutions to governments and industry in their fight to eradicate illicit tobacco trade. SICPA’s solutions operate in the US state of California and Malaysia, and are currently undergoing full deployment by the government in Brazil. The Turkish government officially announced the selection of SICPA to develop and implement a nationwide Track and Trace Solution covering the tobacco and alcohol industry in December 2006. In Vietnam, the government signed a Memorandum of Understanding in February 2006 with SICPA covering SICPATRACE technology.

SICPA’s solutions are based on a philosophy of multi-level security. Depending on the particular challenge, clients may either require a public authentication device or a complete distribution Track & Trace system. SICPA’s portfolio has the flexibility to meet all these needs.

SICPA’s OASIS system of optically active ink technologies change color when tilted and reveal additional colors or designs when viewed through the credit card sized validator. Building from this, the SICPAGUARD system uses external device readers to identify covert markers which illuminate to authenticate the product or to spot a fake.

End-to-end solutions
Increasingly, manufacturers seek “end-to-end” solutions which deliver complete security, track and trace capabilities. Products need to be protected from counterfeiters and any coded information carried on them must only be accessed by authorized personnel. “Tracking” is the process of monitoring products, by means of a secure marker, as they make their way to the consumer. In this way, a time and location history is built for each product. “Tracing” is the concept of being able to intercept and authenticate products and trace their route back to the manufacturer. In this way, the time and location history of a specific product is retrieved.

The SICPATRACE platform is a Secure Track & Trace system, designed to combat the illicit activities of counterfeiting and smuggling, which integrates seamlessly into the tobacco manufacturing and distribution process. Each product is given an individual randomized code on the manufacturing line or applied to a label making it a secure and unique information carrier. SICPA mobile readers can identify this invisible code and authenticate the product as well as retrieving information relating to the product’s history and route to market.

There are three main components of SICPATRACE. First, secure and unique markers (or identifiers) in the form of visible or invisible codes, are applied either directly on the product or via a label. The powerful combination of security ink technology—similar to that used for securing most of the world’s banknotes—and state-of-the-art information technology is used to create the codes, and to protect them from tampering and counterfeiting. The coding technology is proprietary to SICPA and is identified by the trademark SICPADATA.

Second, a code scanning and activation system that serves the purpose of scanning, verifying, registering, and activating SICPADATA codes in the production and distribution lines, with codes assigned to individual packs, cartons or corresponding packaging. Each scan is uploaded to a data management system to build a time and location history for every product. Production data contained in the codes includes product description(s), intended market, date of manufacture and packing, date of shipping and receiving, manufacturing facility, machine, and production shift.

As part of the process, the SICPATRACE system includes the installation of scanning machines on tobacco production lines. These scanning machines read and activate the data matrix on each packet of cigarettes online.

They are non-intrusive to the production process, and have the capacity to operate at double the speed of the fastest tobacco manufacturing and packing line currently available.

The final component is a data management system. This is a highly secure central system that stores production and distribution data, allows remote authorization of Track & Trace transactions and collects, consolidates, and reconciles data into customizable reports.

The future counterfeiting challenges?
It has been recently reported that for every product manufactured, there is a counterfeit. This is acutely the case for luxury goods and high value items, such as cigarettes.

Manufacturers are under increasing pressure from governments and numerous other stakeholders to build robust, secure infrastructures that surround their businesses.

SICPA has a history of working with clients as they face and overcome these challenges. As an example, the SICPATRACE system delivers numerous benefits including banknote-grade brand authentication, increased tax revenues through production and distribution controls on excise goods, identification of illegal trading in diverted or counterfeit goods, deterrence of illegal trading through securing the supply chain, and the facilitation of law enforcement through mobile audit devices and intelligence information.

The bottom line: counterfeiting won’t go away. Just the opposite. And manufacturers need to marshal all the resources available to ensure they, not the counterfeiters, prevail.

Tobacco International - June, 2007


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