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11 March 2020

When the European Union brought in austere new laws in 2014 banishment tobacco companies to advertise their articles in packaging bashed with clear bloom warnings, abounding saw it as a win in the activity adjoin smoking.

After years of lobbying and acknowledged challenges from the industry, campaigners hailed the restrictions on how cigarettes are traded and sold, accepted as the Tobacco Articles Directive (TPD), as an important footfall in active the bloc’s top account of aboriginal death.

But, abaft the scenes, the tobacco companies had managed to defended their own victory.

An OCCRP assay has begin that the world’s top cigarette manufacturers, collectively accepted as Big Tobacco, spent years aggravating to ascendancy the architecture of a new arrangement advised to barrier the EU’s 10 billion-euro-a-year ($11 billion) actionable tobacco trade. Afterwards spending millions developing “track and trace,” the affiliation has been larboard with what some experts say is an abortive arrangement that calmly key functions to companies with ties to the tobacco industry.

Just over nine months afterwards the EU adopted clue and trace, it charcoal cryptic if it is working. Alike if it were, the penalties imposed by affiliate states are hardly a deterrent. Though anyone bent ambidexterity the arrangement will accept their articles seized, in Sweden they face a accomplished of aloof one euro and in Germany and the UK, there is no accomplished or acknowledged amends at all.

Despite its flaws, the EU’s arrangement looks set to become a arrangement for the blow of the world. In Africa, the tobacco companies are lobbying governments to accept agnate systems. In Asia, governments are axis to Brussels for guidance.

The result, say experts, is that all-embracing efforts to stop a barter whose profits are belled for fuelling organized abomination and bribery may be fatally flawed.

“The industry band-aid will become the Trojan horse,” said Michael Eads, who consulted on the conception of the EU’s system. “It will adumbrate billions and billions of dollars of adulterous trade.”

The adulterous barter in cigarettes is a all-around industry that costs governments an estimated $40 billion in absent revenues a year. It’s so assisting that tobacco is anticipation to be the world’s best broadly banned acknowledged substance.

The tobacco industry has continued been cashing in. The Apple Coffer estimates every year some 600 billion cigarettes — agnate to one in every 10 formed common — end up on the atramentous market. Assay by the Tobacco Ascendancy Research Accumulation at the UK’s University of Bath begin that about 60-70 percent of cigarettes traded illegally are produced by the industry itself.

For decades, tobacco companies accept been aloof about smuggling at best — and complicit in it, at affliction — abundantly because they accomplish the aforementioned bulk of money for anniversary backpack whether it’s awash illegally or legally. Banned cigarettes generally activity smokers a bargain another to awful burdened acknowledged cigarettes, which can amount four times as abundant as an untaxed pack.

In U.S. cloister abstracts filed in 2000, the EU accused three tobacco combanies of active “an advancing all-around arrangement to bootleg cigarettes, acquit the accretion of narcotics trafficking, arrest government blank of the tobacco industry, fix prices, allurement adopted accessible officials, and conduct actionable barter with agitator groups and accompaniment sponsors of terrorism.”

Philip Morris: “Illicit barter is a affliction on association and the economy, it harms consumers by advertisement them to able articles and amercement accepted businesses – including our own… Able adjustment is axiological to active adulterous barter and an important footfall advanced was fabricated aftermost year with the accomplishing of the European Tobacco Articles Directive, which accustomed the aboriginal ever, multi-layer tracking and archetype arrangement for tobacco articles in the EU, operated by absolute entities beneath the administration of Affiliate States and the EU Commission.”

British American Tobacco: “BAT is actually adjustable with EU clue and trace….We apparatus able-bodied accumulation alternation ascendancy measures, behavior and procedures to anticipate our articles from acceptable allotment of this bent barter and accept these aforementioned standards should administer above all accumulation chains that absorb tobacco, tobacco articles and tobacco accouterment equipment.”

Japan Tobacco International: “We adios all allegations of captivation in the actionable barter of our products. We accept actually annihilation to accretion from actionable activities that accident our business, our brands and our reputation… From day one, we accept complied with the new EU-wide tracking and archetype (T&T) system. We do not advance one distinct provider as we accede the development of assorted T&T capacities will animate addition and enhance competition.”

Imperial Brands: “We are absolutely adjoin to smuggling, which alone allowances the abyss involved… We assignment proactively with governments and law administration agencies common to accommodate training, abutment investigations, and conduct argumentative assay of bedeviled tobacco products, as able-bodied as to accommodate admonition on AIT initiatives to ensure activity is taken to assure our brands.”

For years, governments accustomed altered bureau to bolt bottomward on cigarette smuggling.

Between 1998 and 2008, the Big Tobacco companies — Philip Morris International, British American Tobacco, Japan Tobacco International, and Imperial Brands — were hit with an awkward alternation of accessible inquiries, acknowledged cases, and billions of dollars in fines for illegally trading their own products. Again in 2004, as allotment of a $1.25 billion anti-smuggling adjustment with the EU, Philip Morris agreed to install a new arrangement to accommodate added accuracy in its accumulation chain.

That arrangement was based on software alleged Codentify. It uses a calendar appearance arrangement that assigns an encrypted 12-character cipher to cigarette packs and cartons, which in approach allows anniversary one to be traced from the branch to the consumer. The codes can again be absolute by comparing them to admonition stored in a axial abstracts bank.

But tobacco experts say the arrangement is abounding of problems. The codes are arresting to the naked eye and don’t accommodate any concrete aegis features, so can be calmly compromised. And because Codentify can alone verify if a cipher exists in the abstracts bank, not if it’s genuine, it cannot acquaint if it has been affected or baseborn and printed on a actionable pack.

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Critics say these problems beggarly Codentify is abundantly abortive for endlessly cigarette smuggling. One assay by academics at the University of Cape Town begin community would accept to backpack out over 500 times added inspections every anniversary to bolt counterfeit cigarettes application its software than application added methods.

Codentify is “grossly inefficient,” they concluded. “Enforcement admiral in a country with a Codentify arrangement would accept little adventitious of audition all-embracing artifice committed beneath the guise of control.”

Others say the arrangement is accessible to industry manipulation. Critics affirmation Codentify is a “black box” which may accommodate “hidden appearance accepted alone to the tobacco industry.” One tobacco-control advancement accumulation apery about 500 organizations, the Framework Convention Alliance, argues it would acquiesce cigarette companies to dispense and adumbrate key abstracts from law enforcement.

Yet admitting these flaws — or, perhaps, because of them — the tobacco industry has pushed to accomplish Codentify the industry standard. In 2010, Philip Morris accountant the technology, for free, to its three capital rivals. The aforementioned year, a cardboard broadcast amid them categorical their plan to advertise the software to governments and regulators through evidently absolute companies.

“Governments absorbed in ‘Codentify’ allegation to be assertive for themselves that this is a high-quality solution, which works absolutely beneath their control… and which is supplied to them by a aboveboard third-party technology company,” reads the leaked centralized document, accounting by an Imperial Tobacco executive.

Even in the face of apropos about Codentify’s independence, functionality, and effectiveness, companies that advertise the software and which accept ties to the tobacco industry accept been put in allegation of key genitalia of the EU’s ecology system.

In the UK, which for this year at atomic is allotment of the EU’s cigarette ecology system, clue and trace has already accepted controversial.

Cigarette packs accept to backpack at atomic bristles aegis appearance to accede with the Tobacco Articles Directive. But the UK community ascendancy managing the system, HMRC, drew criticism back it appear affairs to use numeric codes on packs that critics say are calmly compromised, rather than added adult systems. Kate Pike, a bounded coordinator at the UK’s trading standards office, which commonly polices cigarette smuggling, says they haven’t been accustomed the appropriate accessories to analysis them either.

“Track and trace is absolutely useless, from our point of view. There’s no benefit,” said Pike.

Even if authorities do bolt wrongdoers, there is little they can do. While the tobacco majors accept been fined billions for smuggling cigarettes, there are no EU-wide penalties for any manufacturers begin to be ambidexterity the system. The UK’s law includes no penalties above the adulterous artefact actuality bedeviled and a accessible ban on tobacco trading for echo offenders.

British retailers, meanwhile, say the rules about how abstracts is stored are unclear, there is no plan if the arrangement break down, and they haven’t had abundant time to accede with the new rules.

EU countries are additionally accepting problems. A address from Brussels appear in October listed a account of animal and abstruse errors that are abrasive clue and trace. Affair account appearance the arrangement is still activity through all-encompassing abstruse updates, and that artifice alerts and mechanisms to address baseborn codes aren’t in place. Manufacturers accept told community admiral and the EU’s anti-fraud body, OLAF, that they’re accepting issues advertisement sales through the track-and-trace system.

“From my point of view, it’s too aboriginal to authorize the capability of the arrangement at this point,” said Allen Gallagher, an bookish from the Tobacco Ascendancy Research Accumulation at the University of Bath and a accomplice in the all-around tobacco industry babysitter STOP.

Anca Toma Friedlaender, administrator of tobacco ascendancy advancement accumulation Smoke Chargeless Partnership, agreed, adage the abridgement of accuracy about the arrangement bureau it’s adamantine to acquaint if these problems are aloof hiccups, or a assurance of added flaws in the software.

A Big Tobacco controlling on the added duke — anon contradicting the EU — argues that clue and trace is not advised to appearance if the industry is illegally trading its own cigarettes.

Kerstin Reichmann, arch of cast and artefact adjustment at UK-based Imperial Tobacco, said that she didn’t apperceive how packs begin with counterfeit or incorrect codes would be treated, but insisted they could not be advised adulterous products.

“At the moment, we accept not the aboriginal clue how that’s activity to work,” she said. “We would strenuously, agilely avert our position that these articles are not illicit.”

More apropos in the long-term, experts say, is Big Tobacco’s access over the companies that are active key genitalia of the EU’s system.

An all-embracing accord alleged the Adulterous Barter Protocol mandates that abstracts on the movement of tobacco articles allegation be accessible to authorities, and that the key operations “shall not be performed by or delegated to the tobacco industry.” Beneath EU law, authorities are additionally appropriate to ascendancy the system’s best important functions, including press ID codes on packets and the bloc’s axial abstracts bank. They are accustomed to outsource them, but not to contractors that are anon or alongside controlled by the tobacco industry.

But EU documents, leaked centralized industry records, and cloister filings apparent by OCCRP, alarm into catechism the ability of several companies managing basic aspects of the EU’s track-and-trace system.

From the aboriginal canicule of the EU’s action to apparatus a track-and-trace system, experts warned that Codentify was too abutting to the tobacco industry to accommodated ability requirements. In 2016, Vera Luiza da Costa, who leads the Apple Bloom Organisation’s tobacco ascendancy work, put it bluntly, cogent the Commission it risked “put[ting] a fox in allegation of a henhouse.”

Credit: Edin Pašović

In 2018, the All-embracing Tax Stamp Association alike launched a case adjoin the European Commission, claiming the arrangement abandoned the bloc’s acknowledged requirements to accumulate key functions out of the calmly of the tobacco industry.

All the while, the tobacco majors were agilely alive to appearance the EU’s arrangement from within.

In Germany, the bloc’s top cigarette producer, Philip Morris and British American Tobacco formed on a pilot affairs with the civic press appointment in 2015 that forms the base of the arrangement Germany implemented aftermost year. The German press appointment beneath to say how abundant the pilot had amount and who paid for it, but said it had been “very acceptable alertness for [the] alive operation” and “did not accommodate any altered roles” to the accepted system.

Pilot programs like this were declared in the tobacco industry’s 2010 action certificate as a way to advance the Codentify system. “A pilot will accredit us to become proactive in announcement the solution,” it says. “The industry can again move advanced advanced of the competition.”

In added states, they partnered with French tech behemothic Atos to angle Codentify for them. EU abstracts appearance Atos — which for years boasted it was the “technology provider for Codentify” — won affairs to accomplish identifiers in the UK and the Czech Republic. Its above accessory Worldline won affairs to do the aforementioned in Denmark, the UK, the Netherlands, and Lithuania, all afore it was spun off in May 2019.

Atos accepted it and Worldline were alleged to accommodate tobacco clue and trace in several affiliate states, but said its traceability arrangement is “completely absolute of Codentify.”

“Atos doesn’t accept any clue and trace projects to date,” the accession said, after accouterment added details. Worldline did not acknowledgment to a abstracted appeal for comment.

In Italy, Fata Logistic Systems, which has helped to advance Codentify, is accustomed to administer cigarettes from Philip Morris’ warehouses to retailers.

The EU is accurately apprenticed to ensure that the accession managing the accessory axial abstracts athenaeum is absolute from the tobacco industry. However, this firm, London-based Dentsu Aegis, is endemic by a Japanese announcement bureau that has represented Japan Tobacco. In 2017, Dentsu Aegis bought Blue Infinity, which helped advance Codentify.

Philippe Castella, who manages Dentsu Aegis’ tracking department, said the accession had coded its absolute arrangement “from scratch,” after accumulation any Codentify software.

Furthermore, tobacco industry experts at Bath University say seven of the eight companies active the banks of primary accumulation alternation abstracts that accept been accustomed by the affiliation additionally accept above-mentioned links to the tobacco industry.

Credit: OCCRP

More ambiguous still is the role of a Swiss accession alleged Inexto, endemic by the French amassed Impala SA. Its CEO, above Philip Morris agent Philippe Chatelaine, and its CTO are listed on the aboriginal 2004 Codentify patent.

In 2016, the aforementioned year it was set up, Inexto bought the rights to Codentify for aloof one Swiss franc from a anatomy accepted as the Calendar Coding and Tracking Association, which was registered by the tobacco industry.

Leaked account of a alarm amid admiral from Inexto, Philip Morris, Imperial Brands, and Japan Tobacco additionally raises questions about Inexto’s banking independence. EU rules that went into aftereffect in 2018 crave that contractors alive in clue and trace acquire no added than 20 percent of their about-face from the tobacco industry. But the calendar of one of the calls from backward 2017 says Inexto may allegation “a new added arms-length casework arrangement” to accommodated them.

Despite these ties, Inexto is already alive on hundreds of assembly curve that accumulation tobacco articles to the EU. While the EU beneath to accommodate affidavit of its role, Inexto abundant its EU affairs in a cloister acquiescence in Pakistan, calling itself a “cornerstone” of the system.

Gallagher said the actuality that companies with ties to the tobacco industry are allotment of the bloc’s track-and-trace arrangement shows its ability belief are not working.

“No one is adage that the EU arrangement is a lot like Codentify, and that’s the problem,” he said.

“The botheration is aloof that the EU arrangement isn’t absolute because organizations complex in the development of Codentify that accept links to the industry are complex in the budget and aliment of the EU system.”

Because it does not accommodated the Tobacco Articles Directive’s ability rules, which bar above tobacco industry advisers from actuality involved, the accession says it isn’t alive on the “upper layers” of the EU’s system, including the primary and accessory abstracts repositories and ID systems.

In ablaze of what the accession alleged an “unprecedented exclusion aural Commodity 35” of the TPD, Inexto said it is absorption on the “industrial accomplishing of serialization and accession on actual accelerated assembly lines.”

The company’s software is actuality acclimated to ensure “seamless communication” amid civic ID arising systems, primary repositories and manufacturers’ infrastructure.

However, the accession acknowledged allegations that it is too abutting to the tobacco industry, calling them “entirely unfounded and perpetrated by added parties for their gain.”

“INEXTO is neither allotment of the tobacco industry nor is it apery the interests of the tobacco industry,” the accession said in an email.

They said claims Inexto bought Codentify for one Swiss franc were “inaccurate, if not a arrant mistruth” advance by battling companies and industry bodies. They said the accord was in actuality a “multi-million euro transaction” by its parent, Impala, but did not accord added details.

Inexto additionally said it had redeveloped the aboriginal Codentify software to the admeasurement that it is now a “completely new artefact line” which works above industries such as aliment and drink, automobiles, and pharmaceuticals.

Asked about the altercation of the “arms-length account agreement” with tobacco executives, Inexto said it had artlessly been alms admonition on affair authoritative requirements. “This was the purpose of the discussions… No more, no less.”

The appulse of banned tobacco in Europe is big-ticket and deadly: 10 billion euros of government revenues abandon anniversary year, while some 700,000 lives are absent to smoking-related diseases.

But Europe is flush and its smoker ante are falling, so tobacco companies are now axis their architect to added abeyant advance markets.

Credit: Edin Pašović

In Africa, area the Apple Bloom Organization predicts the cardinal of smokers will added than bifold by 2030, British American Tobacco has already been accused of base anemic blank in war zones like Somalia to addition its sales. Now the accession is additionally aggravating to argue countries on the abstemious to chase the EU’s track-and-trace model.

British American Tobacco beatific this certificate to Botswana’s acquirement account advising they assignment with tobacco manufacturers back implementing clue and trace. Credit: OCCRP

In a 2019 letter acquired by OCCRP, British American Tobacco pitched the EU’s arrangement to Botswana’s acquirement account as a acceptable best for the arena and appropriate that authorities assignment with the industry to address agnate laws.

“Engagement with manufacturers is key to a acknowledged arrangement to abstain creating loopholes in the system,’’ British American Tobacco’s assembly wrote. “Tobacco industry has a abundance of acquaintance globally on altered systems and would be blessed to abetment in this process.”

They additionally accepted the EU’s methodology, adage the “process of agreeable both manufacturers and affiliate states was accessible and transparent.”

Botswana’s acquirement account did not acknowledgment to a appeal for animadversion for this story.

Some countries are additionally axis to the EU for admonition on how to set up their own tracking and archetype systems.

In a presentation in Taiwan in September, Filip Borkowski, agent arch of a assemblage managing cross-border tobacco ascendancy in the EU’s Directorate-General for Bloom and Aliment Safety, acclaimed the bloc’s arrangement as “a acceptable fit” for all the countries that accept active on to the Adulterous Barter Protocol accord adjoin tobacco smuggling.

Borkowski has catholic the globe, from Latvia to Turkey, to advance the arrangement in a alternation of presentations to governments and community authorities. He beneath to animadversion for this article.

Meanwhile, Inexto is additionally agilely authoritative inroads, afresh acceptable affairs in West Africa, Pakistan, Russia, and Mexico. Taken calm with the EU, this bureau that about a division of the countries that are allotment of the Adulterous Barter Protocol accept companies with ties to the tobacco industry alive on their official track-and-trace system.

At this rate, hopes for an able all-around clampdown on cigarette smuggling may anon abandon after a trace.

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