In 2012 Philip Morris donated 15 million euros ($20.42 million) over three years to Interpol – the world’s biggest police force, which had total operating income of 70 million euros that year – to help it fight the black market.
Interpol says the donation was in full compliance of its rules which allow it to accept private money “when it is in the best interests of the organization to do so … and when Interpol itself decides how the money is to be used.”
But skeptics say that help from the industry allows it to maintain influence with governments and public agencies.
This is particularly worrying, they say, given historical evidence of links between the industry and smugglers: Several cigarette makers have been accused of oversupplying markets with porous borders on the edge of the EU, or other low-tax markets, in order to benefit from the additional revenues.
In 2004 Marlboro-maker Philip Morris struck a $1.25 billion deal with EU regulators to end a legal dispute over its role in smuggling cigarettes into the bloc. Japan Tobacco, maker of the Winston and Camel brands, settled a similar dispute in 2007, and BAT and Imperial, maker of Gauloises, reached voluntary agreements with EU regulators in 2010. Their combined payments were around $2 billion.
SCALE OF THE CHALLENGE
The industry’s current standard, Codentify, which is used in 50 world markets, focuses on product authentication, volume control and tax verification. It does not store codes, create a database or register the product’s journey – hence critics’ claims that the system is inadequate.
Back at BAT’s plant midway between Berlin and Munich, Bernd Meyer, head of manufacturing for Western Europe, oversees operations that track cartons of Lucky Strikes and Pall Malls from production line to first customer, usually a wholesaler.
However, shipments often pass through several independent distributors after that, and gathering that information is the biggest challenge.
Another difficulty is tracking individual packs – which are packed inside cartons that are fitted into cases that are placed onto pallets, which are loaded onto trucks that leave Bayreuth, BAT’s largest factory by volume, at a rate of about 40 per day.
Meyer says he is in the process of implementing changes expected to cost 100 million to 200 million euros, some of which relate to track and trace.
With the Codentify technology Meyer is installing, the Digital Coding & Tracking Association says each production line will have a code generator that feeds into a central server overseen by a government. Each pack would be printed with unique codes, which would link to the codes on cartons and cases and be scannable in transit – allowing the government and customs agents to trace its journey.
“We are intensifying our work in this area,” Meyer told Reuters. “It’s a lot of money because you have to equip every single machine with that track and trace technology.”
Nonetheless, critics still question whether Codentify meets the independence test, especially that of the FCTC, which states that “obligations assigned to a party (country) shall not be performed by or delegated to the tobacco industry.”
To get around this, the industry says it is willing to hand over Codentify’s intellectual property or open itself to audits. “We’re open to any level of inspection,” said BAT’s Hubert, on behalf of the DCTA.
THE PRICE OF INDEPENDENCE
Any alternative system will be pricey, insiders say.
“By definition, any system where they self-regulate and where they choose the functionality they want is going to be cheaper than any system that comes from the outside,” said Christine Macqueen, director of corporate affairs for SICPA, a Swiss company that sells rival authentication technology.
It is also likely to be multi-layered as countries will have different needs and thus need different functionalities.
Several different options are on the table at the moment.
SIPCA, which operates a tobacco tracking programs in Brazil and Morocco and could benefit from Codentify’s rejection, says it offers among other things data aggregation from pack to carton and carton to master case, and supply chain visibility by consolidating data from SICPA systems and other sources.
Britain’s De La Rue, which also makes banknotes and passports, provides authentication systems alongside track and trace solutions that include tax stamps, although some in the industry worry that affixable stamps can be removed.