A global threat to economic growth, public health and security: how digital technology is waging war on illicit trade.

By Philippe Castella, managing director, Dentsu Tracking

By Philippe Castella, managing director, Dentsu Tracking
Castella: Dentsu Tracking gives users full visibility of the supply chain

Estimates suggest that illicit trade causes losses of around US$2.2 trillion to the global economy, depriving states of vital tax revenues and denying legitimate retailers of sales. The resulting effect on citizens and businesses is devastating. There is a real threat to the health and safety of consumers, while businesses face reputational harm and increasing supply chain and 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. The socio-economic impact of illicit trade also continues to jeopardise the delivery of the UN’s Sustainable Development Goals (SDGs).   

The world is seeing an increase of illicit goods flooding the market as it is an easy stream of revenue for criminals. There are various forms of illicit trade: most commonly, under-declaration, smuggling (contraband) and fake products (counterfeit). In fact, losses amount to 3% of the global economy, according to the World Economic Forum. For the European Union, that figure is much higher, estimated to be €119 billion 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 top priority.

A solution is to introduce greater collaboration between governments and providers of innovative technologies and tools that help combat this illegal activity. One such provider is Dentsu Tracking, who are unique in 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. Traditionally, efforts have been dominated by the sale of material security products, such as physical security stamps, to facilitate manual authentication checks of goods on the market. The approach has proved to be outdated, ineffective and costly to implement, while it fails to adequately address certain types of illicit trade, such as smuggling.

global threat to economic growth
The Track & Trace solution uses next-generation technology to prevent the circulation of non-compliant goods

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 business operations.

An added advantage for governments is that while providing valuable data insights within a supply chain, the system can also track the effectiveness of implemented public policies within areas such as tax, commerce and health by gathering data on trade or anonymised consumer behaviours. It can also 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. In addition, the same solution can be used to trace pharmaceutical goods and medicines which saw a spike in illicit trade during the COVID-19 epidemic.

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 problem is only increasing globally, with illicit cigarettes, including contraband, counterfeit and illicit whites, flooding the market. 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 illicit cigarettes in 2021. The illegal tobacco trade is estimated to cost the EU €10 billion in lost tax revenues every year, making it one of the most fiscally impactful criminal activities.

Dentsu Tracking,
Dentsu Tracking’s digital Track & Trace system enables the movement of tobacco products to be monitored

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 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.

An advantage of Dentsu’s Track & Trace solution is its sheer scale and unique approach to meeting the complex requirements of individual clients. 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.

Currently Dentsu Tracking enables governments to monitor and control more than 30 billion products globally every year across hundreds of production lines. As with all successful endeavours, collaboration and co-operation is key. Technology providers, such as Dentsu Tracking, must contribute by continuing to develop technically advanced solutions, while economic operators must adjust their supply chain operations to comply with the regulatory framework for track and trace. Governments must prioritise the development of regulatory structures and detection infrastructures to strengthen effective enforcement, while consumers should be educated about the risks of unregulated goods. Fighting illicit trade is a leading priority as it not only pays dividends to economic development but protects citizens’ wellbeing while enhancing national security.

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 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

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

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