Illicit trade causes losses of around US$2.2 trillion[1] to the global economy, depriving states of vital tax revenues and denying suppliers and legitimate retailers of sales. There is a real threat to the health and safety of consumers, while manufacturers and retailers face reputational harm, revenue losses and increasing security costs. For governments, the impact can be far greater as it deprives them of (tax) revenues for investment in critical public services while encouraging organised crime and stifling legitimate economic investment.
There are various forms of illicit trade: most commonly, under-declaration, smuggling (contraband) and fake products (counterfeit). In fact, losses amount to 3%[2] of the global economy, according to the World Economic Forum. For the European Union, that figure is much higher, estimated to be €119 billion[3] representing 5.8% of all EU imports from the rest of the world in 2019. The blight of illicit trade is widely acknowledged by global governance bodies with efforts to control this criminal activity now a leading priority.
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 the increasingly sophisticated methods of illicit trade.
A more effective solution is to better leverage the advantages of digital technologies and data analytics tools that help combat this illegal activity more effectively. Dentsu Tracking is one of the providers who embraces this focus by adopting a unique approach that is delivering a digital and data-driven solution capable of tracking product movements across a supply chain, from production to point of sale, giving law enforces the power to identify and intercept unlawful activity. For the first time, users are given full visibility of the supply chain across its entirety, while connecting, analysing, and managing huge volumes of complex data automatically and in real time.
Dentsu Tracking was founded in 2018 to disrupt the market for governmental and private supply chain control solutions, leveraging the benefits of digital technology to fight illicit trade more effectively. Dentsu’s Track & Trace solution 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. Their digital technology delivers in-depth data insights in real-time to identify illicit activities. As Dentsu Tracking aligns with common international logistics standards, their solution does not unnecessarily intrude on legitimate supply chain operations.
Dentsu Tracking currently works with the European Union and the UK Government to deliver monitoring and control services for tobacco goods. The illicit tobacco trade is a concerning issue, with far-reaching negative socio-economic impacts on governments and consumers. It impacts tax revenues while illicit tobacco products increase public health risks as they fail to comply with compulsory safety standards.
The illegal tobacco trade is estimated to cost the EU €10 billion[4] 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 Track & Trace a core mainstay of its anti-illicit trade strategy. The system is unique in its scale and volume, delivering the world’s largest traceability platform 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 £2.5 billion[5] 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.
Based on a digital and data-driven approach, the individual systems 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 tailored to meet 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.
Currently Dentsu Tracking enables governments to monitor and control more than 30 billion products globally every year across hundreds of production lines. Collaboration and co-operation between governments, law enforcers, manufacturers, suppliers and retailers 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 which are otherwise used for 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 World Economic Forum: https://www.weforum.org/agenda/2019/07/illicit-trade-sdgs-environment-global-danger/
[3] 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
[4] Source OLAF: https://anti-fraud.ec.europa.eu/public-perception-illicit-tobacco-trade_en
[5] Source Gov.UK: https://www.gov.uk/government/statistics/measuring-tax-gaps/3-tax-gaps-excise-including-alcohol-tobacco-and-oils