Tracing, Tracking & the Draft Illicit Trade

Protocol With

John W. Colledge III

February 8, 2012

Introduction

Patricia LambertDirector

International Legal ConsortiumCampaign for Tobacco-Free Kids

Questions and Answers

Type your questions here throughout the webinar and

we will answer them at the

end.

John W. Colledge III

Consultant on Anti-Illicit TradeSupervisory Criminal Investigator

(Retired)Department of Homeland

Security and

the U.S. Customs Service

h

Moderator

Aaron SchwidLegal Advisor

International Legal ConsortiumCampaign for Tobacco-Free Kids

FCTC Article 15(2)

“Each Party shall adopt and implement effective... measures to ensure that all unit packets and packages of tobacco products and any outside packaging of such products are marked to assist Parties in determining the origin of tobacco products, and... assist Parties in determining the point of diversion and monitor, document and control the movement of tobacco products and their legal status.”

Intergovernmental Negotiating Body (INB) on a Protocol on Illicit Trade in Tobacco Products (ITP)

Illicit Trade Protocol• Supply Chain Control

– Licensing– Customer ID and verification– Tracking and Tracing– Record Keeping– Security Measures– Internet Sales, free zones and duty-free sales

• Offenses – Search, Seizure, and Disposal– Investigations, Prosecutions, and Penalties

• International Cooperation, Reporting, and Administrative Issues

What is “Tracking” & “Tracing?”

• Tracing is a post seizure or investigative tool used to reconstruct the flow of merchandise, including contraband, to its source.– Ex: Controlled Delivery

• Tracking is a proactive crime prevention tool to follow merchandise while it moves through the supply chain.– Ex: Computer detects anomalies

Examples of Product Markings

Firearms and Explosives

Alcoholic beverages

Examples of Product Markings

Examples of Product Marking

Pharmaceuticals

Examples of Product Marking

Currency

Examples of Product Marking

Software

Why Track & Trace?• Safeguard high value merchandise.

• Protect public health and safety.

• Collect and protect revenue.

• Deter diversion, theft, and corruption.

• Provide investigative tools.

• Ensure product authenticity.

Divergent Needs in Tracking & Tracing Systems• Tobacco Industry Interests

– Protect profits– Deter theft– Protect trademark

• Government Interests– Collect and protect revenue (taxes and tariffs)

• Interdiction – contraband seizure• Investigations and prosecutions

– Protect public health and safety– Discourage illicit trade and corruption

• Conflicting Interests– Knowledge is power. Who controls the process and information?– Tobacco = $– Tobacco industry’s historic and ongoing participation in illicit trade

Comprehensive System

• Trace and Trace systems secure products moving through the supply chain.

• The product itself needs to be secured with advanced anti-counterfeiting systems at the start of production.

• Unique Identification Numbers alone are insufficient for securing each product and preventing illicit trade.

• Control and audit measures need to be in place at the points of sale to prevent illegal products from entering into legal circulation.

Example of Tracking & Tracing System

© De La Rue Limited 2012

Centralized Secure Data Center

© De La Rue Limited 2012

Must be government

controlled and operated

Code Request

© De La Rue Limited 2012

Codes Applies and Activated

© De La Rue Limited 2012

Distribution

© De La Rue Limited 2012

Customer – First Consignee

© De La Rue Limited 2012

Consumer – Wholesaler or Retailer

© De La Rue Limited 2012

Government Enforcement

© De La Rue Limited 2012

Example of Track & Tracing System

© De La Rue Limited 2012

Basic Markings

Philip Morris CodesTax Stamp

Basic Markings - Other Tobacco Products

One-dimensional

barcode

One-dimensional

barcode

Digital Tax Stamp Features

© De La Rue Limited 2012

What is Radio Frequency Identification (RFID)

• Generic term for a system that transmits the identity of an object wirelessly using radio waves

• RFID transmits a unique serial number

• Cost-prohibitive at the pack level (for now)

(http://www.aimglobal.org/technologies/rfid/what_is_rfid.asp)

(http://www.ictrfid.com/)

Examples of Current Tax Stamps

Digital Tax Stamp –Massachusetts, USASICPA Securink Corporation

Philip Morris InternationalSwitzerland

Examples of Current Tax Stamps

Canada SICPA excise stamp

Data Requirements in the Draft Illicit Trade Protocol

• Date and location of manufacture• Manufacturing facility• Machine used to manufacture tobacco products• Production shift or time of manufacture• First customer data• The intended market of retail sale• Product description• Any warehousing and shipping• The identity of any known subsequent purchaser• The intended shipment route, destination, point of

departure and consignee

This data is collected and maintained bygovernment agencies in your country!

Examples of Other Useful Data Linked to a Comprehensive

System• Brand name

• Trademark holder

• Harmonized tariff schedule number

• Customs Duties and payment record

• Taxes paid and payment record

• Previously reported stolen, destroyed, seized or returned to the manufacturer

• Importation for destruction, date and location of intended destruction. (usually the trademark holder)

Current Enhanced Systems • National Systems

– Albania– Brazil– Canada– Dominican Republic*– Ecuador*– Germany*– Guatemala*– Jamaica– Kenya– Kosovo– Kyrgyzstan– Lebanon*– Morocco

• National Systems(continued)

– Panama*– Peru*– Portugal*– Spain– Thailand– Turkey– Ukraine

• Subnational Systems– California (USA)– Massachusetts (USA)

(

*Codentify® - Developed and patented by Philip Morris International

What is “Tracking” and “Tracing” in ITP Article 7

• “Tracking” means systematic monitoring by competent authorities or any other person acting on their behalf…

• “Tracing” means the re-creation by competent authorities or any other person acting on their behalf…

Tracking and TracingITP Article 7

• Unique, secure and non-removable• Codes or stamps• All unit packets, packages• Cigarettes – within five years• Other Tobacco Products – within ten

years

Required Key Elements for ITP Article 7

• Covert Codes – Invisible with encoded information that can be decoded by specialized readers. A visible unique code can be copied and when applied on an illegitimate product suggests legitimacy that is misleading.

• Codes at Unit Pack Level – Origin information of products can be compromised by switching of master case contents. Unit pack is the unit of taxation as well as sale. Relevant security information needs to be put at pack level.

• Real-Time Information Access – In the fast moving environment of cigarettes, delay in detection of illicit trade will result in ineffective control. Real-time visibility is critical to enforcement.

• Best Available Technology – Currently secure track and trace systems using covert codes are operational in several countries.

What is “Consensus”?

• Tentative agreement on the text

• ITP Article 7 is not final until the entire draft Protocol is final– “Nothing is agreed until everything is agreed.” Ian

Walton, INB Chair.

• INB delegates must be prepared to lobby and negotiate any possible changes that could occur related to ITP Article 7

Major Unresolved Issues

1.Who controls the systems? Industry, Governments, vendors?

2.Tracking Requirements

3.Global Information Sharing Focal Point

Industry Control and Influence of Systems

• “Obligations assigned to a party shall not be performed by or delegated to the tobacco industry.” ITP Art 7 (12)

• Previously signed “legally and binding” cooperation agreements between the governments and tobacco manufacturers

Tracking Systems

• Tracking is defined, but not fully developed

• ITP should prioritize tracking on the same level or higher than tracing

• Many existing systems are described as T&T systems, but they are really only tracing systems

Global Information SharingFocal Point

• Not clearly defined in the ITP draft• Make queries or requests to Global

Information Sharing Focal Point• Exchange relevant data• Based at the WHO in Geneva• Government controlled data and

systems – not industry controlled

A Possible Solution for the Global Information Sharing Focal Point

National Law Enforcement Telecommunications System

nlets.org

What System Does My Country Need?

• Government-controlled system free of the tobacco industry.

• A system that is based upon governmental needs of revenue (including customs), police and prosecutors.

• A system that is based on how tobacco flows to local market, considering manufacturing, free zones, imports, exports and illicit trade

• System that integrates other taxed products such as alcoholic and other beverages.

• Costs passed to the tobacco industry or users, external financing, funding arrangements with security system vendors.

Conclusion

• Tracking and tracing was intended to aid in the collection and protection of government revenues, not tobacco industry trademarks and profits.

• It is not necessary to wait for a finalized ITP.

• Tracking and tracing will not solve all your problems.

• There are many myths surrounding tracking and tracing – educate yourself!

Tracing, Tracking & the Draft Illicit Trade Protocol

Questions and Answers

Thank You.

For more information, go to:www.tobaccocontrollaws.org

orhttp://tobaccofreecenter.org/resources/illicit_trade_smuggling