Supply chain security
We support the development of the FCTC Protocol on Illicit Trade, which includes provisions on track and trace in relation to supply chain security. During 2009, we completed our track and trace pilot project in our factory in Poland, monitoring the movement of our products through the supply chain with over 99 per cent accuracy. This system can now be implemented by governments to help meet the FCTC track and trace obligations from 2011 onwards. In addition to track and trace, we are also focusing on digital tax verification and product authentication. Digital tax verification means confirming the volume of products manufactured to determine the excise tax payable, and we are working with other tobacco companies and governments to establish a digital verification pilot project. Product authentication involves distinguishing genuine products from counterfeit ones. During 2009, we updated our authentication devices to take account of recent innovations in technology.
In 2009, we worked to build employees’ knowledge and understanding of the illicit trade issue. This included launching a global anti-illicit trade (AIT) intranet site providing AIT information to our employees.
Enforcement and international cooperation
Our AIT Intelligence Unit plays a key role in identifying and investigating criminal activity in illicit tobacco products. It works with law enforcement bodies and is often called upon to cooperate with them, including assessing the authenticity of seized products or carrying out forensic analysis of illicit products.
In 2009, we provided training to government investigators, revenue authorities, prosecutors, members of the judiciary and our own AIT managers to help build capability to combat illicit traders.
External engagement and advocacy
We continued to give our views to governments taking part in the development of the FCTC Protocol on Illicit Trade and we are pleased that the important issue of addressing Free Trade Zones is now expected to be included in the Protocol, as some Free Trade Zones have been used as safe havens for organised crime.
We have participated in international conferences on illicit trade hosted by bodies such as the World Customs Organisation and the Global Congress on Combating Counterfeiting and Piracy, and co-funded a conference attended by 27 governments. We have also engaged with the media and other stakeholders to raise awareness of the issue of illicit trade.
In some markets, a significant proportion of illicit trade is low priced product manufactured by small, independent traders, and in Canada the problem is heavily concentrated in manufacturing on First Nations’ reservations. These cigarettes are then smuggled or sold without taxes being paid, which invariably undercuts the prices of legitimate brands. Sold at low prices through unofficial vendors, these cigarettes are more easily accessible to the underage. Indeed, in Quebec, where the illegal market is over 40 per cent, underage smoking is rising. We will continue to monitor the situation and provide assistance to law enforcement agencies.
Tackling illicit trade: what’s next?
We will continue to focus on engagement and advocacy to raise various issues driving illicit trade, including the role of some Free Trade Zones. We will also work with our stakeholders to build support for our approach to track and trace and digital verification.