May 2017 (Volume 9)

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The International Tax Stamp Association (ITSA) has issued a strongly worded warning that the digital serialised coding technology being promoted by the tobacco industry to worldwide governments is seriously flawed and would never comply with international regulations.

The International Tax Stamp Association (ITSA)
The International Tax Stamp Association (ITSA)

In a recent positioning statement, ITSA (which is the global trade body for the tax stamp industry) says that the Codentify® coding system for product traceability (now also known as Inexto Suite) fundamentally fails to deliver the protective measures stipulated by the WHO FCTC Protocol and EU Tobacco Products Directive (TPD).

In particular, ITSA highlights key control and security issues that disqualify the use of Codentify as a legitimate and secure track and trace solution under these regulations, which are designed to introduce effective traceability and authentication measures to help curb the illicit trade in tobacco products.

For example, Article 8 of the WHO FCTC Protocol requires that an acceptable track and trace solution must be under the control of the government, and that duties may not be performed or delegated to the tobacco industry.

ITSA points out that the tobacco industry, contravening this requirement, developed the Codentify system, consisting of digital codes generated by the tobacco manufacturers themselves.

It also argues that Inexto, a newly formed Swiss company to whom ownership of Codentify was transferred in June 2016, relies on a business model based on almost complete dependence on the world’s four largest cigarette manufacturers, who grouped together to form the Digital Coding and Tracking Association (DCTA).

In security terms, ITSA warns that the digital codes generated by Codentify can be easily duplicated (or ‘cloned’) and passed off as originals on a counterfeit or genuine pack. The codes are also produced by relatively unsecured commercially available equipment and lack any physical high-security features capable of protecting the authenticity of genuine identifier numbers.

A spokesperson for ITSA said: ‘We strongly believe that any governance model for a secure track and trace system designed to control a particular industry should not be based on trusting that industry, because the underlying conflict of interest means the industry will likely find ways to circumvent those controls. This has already been the case for tobacco.

‘The tobacco industry originally invented Codentify in response to obligations imposed on it by the EU. It was slow to deploy and did so selectively and without consistency.

‘In our view this demonstrates a fundamental lack of will to put in place an effective system, and there remains no evidence to suggest that the industry wishes to see effective and independent controls put in place. For example, Codentify is not available to smaller manufacturers, reinforcing the oligopoly in the sector that favours the dominant players in the market.’

To overcome these inherent drawbacks with the Codentify system, ITSA recommends a potential solution for a secure and effective track and trace programme that combines a serialised unique identifier with material-based security features.

Under its proposal, an identifier would be integrated into a tax stamp provided by a party that is independent of the tobacco industry – such as a government security printer.

Many tax stamps now carry unique identifiers – typically as 2D barcodes – with the potential to comply with the track and trace requirements of the FCTC Protocol and TPD.

These identifiers are often incorporated within a layered security structure on the stamps. This  combines overt and covert security features in line with the widely recognised principles and standards of high security protection and unique identification systems.

The ITSA spokesperson said: ‘Over 140 billion tobacco and alcohol stamps in the form of securely affixed labels are issued every year by over 150 provincial and national revenue agencies around the world. Included in this number are 23 out of the 28 EU member states who have been using tobacco stamps for some time now.

‘This means that many manufacturers are already equipped with tax stamp applicators on their production lines and the continued use of this equipment for track and trace purposes would be neither disruptive nor costly to manufacturers.

‘We believe that only a combination of authentication and track and trace technologies, composed of both physical and digital features and operated by an independent third party, can effectively meet the needs of both the WHO FCTC Protocol and the EU Tobacco Products Directive.

‘Since the Codentify solution so clearly and fundamentally does not meet either of these requirements, it can never be considered as a potential option under these regulations.’

For the full ITSA positioning statement on a secure track and trace solution for the tobacco industry, visit
www.tax-stamps.org

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