Governments deploy next-gen tech to wage war on illicit trade

Governments are ramping up measures to crack down on illicit trade which is estimated to cost the global economy more than $2.2trn[1]. The impact is far-reaching as it deprives states of (tax) revenues for investment in critical public services and infrastructure, while encouraging organised crime networks and stifling legitimate business.

While free trade and globalisation are critical for economic growth, the increasing volume of transiting goods and proliferation of supply chain infrastructure has intensified security vulnerabilities. This has been further exacerbated by the boom in online shopping which makes it increasingly difficult to track higher volumes of parcels being delivered from overseas by couriers or postal services. For governments, illicit trade has a destabilising impact as it facilitates organised criminal networks and facilitates the illegal flow of money across borders. It also generates a hostile business environment that depresses legitimate investment, while exposing consumers to unregulated products.

The socio-economic impact of illicit trade also threatens the delivery of the United Nation’s Sustainable Development Goals (SDGs).[2] Without cohesive efforts to tackle illegal trade and the associated corruption and organised crime, the global community will not achieve the overarching sustainable development goals, including the end of poverty, health and well-being for all, effective governance and sustainable economic growth.

There are multiple forms of illicit trade, including under-declaration, smuggling (contraband) and fake products (counterfeit). According to the World Economic Forum, losses amount to 3 per cent[3] of the global economy. For the European Union, that figure is far higher with estimates of €119bn[4] representing 5.8 per cent of all EU imports from the rest of the world in 2019. Understandably, the scale of illicit trade in Europe is of major concern, with governments now looking at an assortment of measures, including deterrent penalties and effective regulatory structures, to deter illegal activity.

A critical addition to combating the criminals is the introduction of collaborative partnerships between governments, law enforcement bodies and providers of innovative technologies and tools designed to combat this illegal activity. One such provider is Dentsu Tracking, which is unique in delivering a digital and data-driven solution capable of tracking the movement of goods across a supply chain, from production to point of sale, giving law enforces the power to identify and intercept unlawful activity. The technology delivers full visibility of the supply chain across its entirety, while connecting, analysing, and managing huge volumes of complex data automatically and in real time.

Traditionally, preventative measures have focused on the use of material security products, such as physical security stamps, to facilitate manual authentication product checks. However, the approach has proved to be ineffective and costly to implement, while it fails to adequately address certain types of illicit trade, such as smuggling.

Dentsu Tracking’s solution, Track & Trace, uses next generation technology, including serialisation, product identification, digital authentication and powerful analytical tools powered by AI and ML to prevent the circulation of non-compliant goods. The digital technology does not stop at data collection but delivers in-depth data insights in real-time to help identify illicit activities. As Dentsu Tracking aligns with common international logistics standards, the solution achieves government objectives without unnecessarily intruding on legitimate business operations.

Additionally, while providing governments with valuable data insights within a supply chain, the solution can also track the effectiveness of implemented public policies within areas such as tax, commerce and health. It does this by gathering data on trade or anonymised consumer behaviours and uses tailored algorithms to translate the data into meaningful insights. The system can be used across a wide range of industry sectors. For instance, it can be applied to the food and beverage sector to track regulatory compliance and disposable packaging to achieve recycling targets as part of governments’ Green Deal policy.

The solution can also be used to track and trace pharmaceutical goods and medicines. Patients across the globe put their health at risk everyday by consuming unregulated medical products. Growing consumer demand, the COVID-19 pandemic, and access to online marketplaces has meant that the advertisement, sale and supply of illicit medical products from unauthorised and unregulated sources has skyrocketed in recent years.

Another leading concern for governments is the illicit sale of tobacco goods. Since 1990, the prevalence of smoking has decreased steadily worldwide. Despite this, as the global population increases, so has the number of young smokers in parts of the world. This is particularly true in Africa, the Middle East and South Asia[1]. According to The Lancet Public Health figures, the number of smokers worldwide increased to 1.1 billion in 2019[2].

Low costs of production and high levels of demand make illicit cigarettes and rolling tobacco some of the world's most trafficked illegal goods. This negatively affects governments, legal producers and sellers, and consumers as it impacts tax revenues and undercuts legitimate businesses while increasing public health risks as unregulated goods fail to comply with compulsory safety standards.

The problem is only increasing globally with illicit cigarettes, including contraband, counterfeit and illicit whites, flooding the market. It is now estimated that the global illicit trade in tobacco has grown to more than $35 billion[3] annually. While in the EU, targeted operations, conducted by the European Anti-Fraud Office (OLAF) and supported by international law enforcement agencies, led to the overall seizure of 437 million[4] illicit cigarettes in 2021. The illegal tobacco trade is estimated to cost the EU €10bn[5] in lost tax revenues every year, making it one of the most fiscally impactful criminal activities.

To reduce this financial loss, the EU has made digital track and trace a core mainstay of its anti-illicit trade strategy. The central system platform provided by Dentsu Tracking for the EU is unique in its scale and volume, delivering the world’s largest traceability regime for tobacco products and applying a digital tracking and tracing solution to the entire EU tobacco supply chain.

Last year, the UK Government also took the decision to install a new standalone Track & Trace system to combat the illicit tobacco trade within its borders which was responsible for £2.5bn[6] in tax losses in 2020-21, according to Her Majesty’s Revenue & Customs (HMRC) figures. This illegal trade damages the UK economy by reducing revenues that would otherwise be used to fund vital public services and creating illicit markets which harm lawful commercial businesses and retailers.

Speaking at the Policy Exchange recently, UK Minister for Primary Care and Public Health Neil O'Brien[7] said in praise of Track & Trace: “We’ve already implemented a successful new UK-wide system of track and trace for cigarettes and hand-rolling tobacco to deter illicit sales. We want to start using this existing system in a new way, to help strengthen enforcement and target the illicit market.” He confirmed that Track & Trace would be extended to all tobacco products, including cigars and cigarillos, in May of next year.

Based on a digital and data-driven approach, the individual Track & Trace solutions implemented in the EU and the UK allow for real-time collection and verification of data from the entire supply chain. They work by registering a product’s Unique Identifier (UI) so that its validity can be checked and recorded during each transit movement. Every UI is embedded in a data carrier, for instance a QR or barcode, which enables authorities to read the information in the field with a standard smartphone.

Each supply chain participant, from manufacturer to importer and distributer, is then able to report data on logistics and transactional activities in accordance with applicable legislation. The collected data is not just passively stored but is subject to advanced validation protocols that verify compliance with applicable rules. In addition, data analytics tools translate the captured data into meaningful information to provide intelligence reports and support enforcement bodies in their anti-illicit trade activities.

The solutions provide the EU and UK with traceability functionality across their entire tobacco supply chains and form an important pillar in their weaponry against illicit tobacco trade. Each system has been specifically developed in line with the distinct policy objectives of the EU and UK governments and the individual characteristics of each market. The gathered intelligence assists the authorities in conducting targeted controls and real-time investigations in the field and at border control. The solutions also enable governments to meet the requirements of the WHO FCTC Protocol.

An advantage of Dentsu’s Track & Trace solution is its sheer scale and unique approach to meeting the complex requirements of individual clients and the supply chains they wish to control. Currently Dentsu Tracking enables governments to monitor and control around 30 billion products globally every year across hundreds of production lines. It uses advanced data analytics technology to autonomously generate warnings that a product movement could be unlawful. In addition, it provides authorised authorities with a database of all registered companies to assist law enforcement authorities in identifying illegal traders.

Collaboration and co-operation between governments, law enforcers and private companies will be critical to winning the war on illicit trade. Governments must establish tax regimes and economic policies that discourage illegal activity while prioritising the development of regulatory structures and detection infrastructures to strengthen effective enforcement. Technology providers, such as Dentsu Tracking, can contribute by continuing to develop technically advanced solutions to track goods movements, while economic operators must adjust their supply chain operations to comply with the regulatory framework for track and trace systems. Fighting illicit trade is critical to the long-term sustainability of the planet as it not only pays dividends to global economic development, it also stops illegal cash flows, further stimulating criminal activities that negatively impact all our lives.

For further information, email: info@dentsutracking.com

1) Source World Economic Forum: https://www.weforum.org/agenda/2019/07/illicit-trade-sdgs-environment-global-danger/

2) Source TRACIT: https://unctad.org/system/files/non-official-document/DITC2020_TRACIT_IllicitTradeandSDGs_fullreport_en.pdf

3) Source World Economic Forum: https://www.weforum.org/agenda/2019/07/illicit-trade-sdgs-environment-global-danger/

4) Source The Economist Impact Pg. 9: https://impact.economist.com/projects/deliver-change/wp-content/uploads/2023/02/Illicit-trade-in-a-time-of-uncertainty-report.pdf

5) Source The Lancet Public Health: https://www.thelancet.com/pb/assets/raw/Lancet/infographics/tobacco/Tobacco_infographics_young_smokers.pdf

6) Source The Lancet Public Health: https://www.thelancet.com/infographics-do/tobacco 

7) Source TRACIT.org: https://www.tracit.org/tracit-talking-points/the-world-needs-g7-leadership-to-counter-illicit-trade

8) Source OLAF: https://anti-fraud.ec.europa.eu/media-corner/news/olaf-helps-stop-over-430-million-illicit-cigarettes-flooding-eu-market-2022-02-23_en

9) Source OLAF: https://anti-fraud.ec.europa.eu/public-perception-illicit-tobacco-trade_en

10) Source Gov.UK: https://www.gov.uk/government/statistics/measuring-tax-gaps/3-tax-gaps-excise-including-alcohol-tobacco-and-oils

11) Source Gov.UK: https://www.gov.uk/government/speeches/minister-neil-obrien-speech-on-achieving-smokefree-2030-cutting-smoking-and-stopping-kids-vaping

Philippe Castella is managing director of Dentsu Tracking