Tax stamp body offers ‘blueprint’ for tobacco traceability

The organisation represent tax stamp producers has come up with a tobacco track-and-trace model that it says covers weaknesses in the system implemented in the EU.

The International Tax Stamp Association (ITSA) – a longstanding critic of the traceability system in the EU’s Tobacco Products Directive – says its ‘technical blueprint’ could be used to meet the requirements laid out in the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC).

ITSA took legal action in the EU to challenge the TPD, claiming it doesn’t meet the WHO’s Protocol to Eliminate Illicit Trade in Tobacco Products and effectively delegates track-and-trace to the tobacco industry.

The WHO has expressed deep concerns about the tobacco industry’s involvement in traceability systems being rolled out around the world, and there are concerns that the TPD traceability model will be used as a template for systems elsewhere in the world.

The TPD allows which allows for the delegation of key activities to the tobacco industry or a supplier of its choice, says ITSA. Specifically, it is worried about the use of a track-and-trace system based on the Inexto (formerly Codentify) platform that was originally devised by tobacco giant Philip Morris International (PMI).

An investigation by the Organized Crime and Corruption Reporting Project (OCCRP) claims that big tobacco companies spent years lobbying to control the design of the traceability system, and that has resulted in a scheme that is riddled with weaknesses.

Among the criticisms? The 12-character codes in Codentify are visible to the naked eye so can be copied, don’t include physical security features, and – most importantly – doesn’t protect against code duplication because it simply verifies if a code exists in a database.

That means it can’t tell if a code has been copied or stolen and printed on a black-market pack, says OCCRP, so isn’t effective at fighting illicit activity such as smuggling.

ITSA lost a lawsuit seeking to challenge the TPD traceability provisions last year, arguing they were not fit for purpose, but has launched an appeal.

ITSA says its blueprint “draws on best practices used by tax administrations around the world in the fight against illicit trade of tobacco products,” adding that it “adheres strictly to the requirements of Article 8 of the Protocol”, which emphasises that traceability systems should be independent of industry.

Among the provisions is the establishment of a national and/or regional database to register actors in the tobacco supply chain – manufacturers, distributors and wholesalers – as well as products.

The system would use a tax stamp issued by the competent authority of the destination market, and which would include multiple security features, including a unique serial number and encrypted codes to make them very hard to counterfeit.

“ITSA recommends using the ISO/IEC 15459:2014/15 standard7 to encode the unique ID of each stamp and of each entity registered in the T&T database,” says the blueprint document, which is closer in form to the track-and-trace systems being deployed in the pharmaceutical industry.

It also says tobacco companies should be required to print pertinent information on packs – including date and location of manufacture, product description, manufacturing facility and where available the intended market of retail sale – and capture and report this information in near-real time to their national database.

“The Protocol is widely recognised as an international standard of best practice for the regulation of tobacco production and distribution, one that will help to reduce illicit tobacco trade providing that countries comply with it,” said ITSA chairman Juan Carlos Yañez.

“Although certain tasks, such as the reporting of manufacture and shipment information, may be carried out by the tobacco industry, the vast majority of other tasks should be undertaken by the relevant competent authority,” he added.

There have been multiple examples around the world where tenders for tobacco track-and-trace systems have been awarded to companies with close ties to industry, according to the organisation.

One such recent case involved Pakistan, where the winning bidder – National Radio & Telecommunication Corporation (NRTC) – has been accused of having little experience with track-and-trace and has links to Inexto.

Anti-corruption group Transparency International EU has also expressed concerns about the EU’s tobacco traceability system, saying it shows that the European Commission needs to strengthen mechanisms for preventing “covert lobbying and regulatory capture”.

“It is unacceptable that the tobacco industry has reportedly turned an EU process meant to tackle the illicit trade in cigarettes to their own advantage,” said Vitor Teixeira, policy officer at the group. “These investigations raise serious questions regarding the extent to which EU policy and decision-making is protected from abuse by powerful private interest.”

It also describes reports of a representative of the Directorate-General for Health and Food Safety (DG SANTE) promoting EU’s track and trace system outside of the EU as “worrisome”.

“It is especially crucial that decisions with serious impact on public health are made with utmost integrity. One of the first urgent steps to ensure regulatory processes are not captured by the tobacco industry is to reform EU’s lobbying transparency rules,” argued Teixeira.