Big Tobacco suspected of dodging EU anti-smuggling rules
By Peter Teffer
Tobacco companies have sold their anti-smuggling system to a third party to comply with upcoming EU rules, but critics say the new owner is a front company.
The track-and-trace system, Codentify, helps tobacco firms and customs authorities to find out where a pack of cigarettes was produced and is used to combat smuggling - a multi-billion euro criminal industry in Europe.
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It was set up in the wake of cooperation agreements between the EU and the four major tobacco companies, which required the firms to keep track of their products.
Tobacco companies had previously been suspected of smuggling their own goods in an effort to avoid paying taxes.
Codentify was owned by the tobacco industry until last month.
The cooperation agreements, one of which, with Philip Morris International (PMI), is due to expire in less than three weeks, were non-legislative contracts and did not require the track-and-trace system to be separate from the tobacco industry.
However, new EU legislation, as well as upcoming World Health Organisation (WHO) rules, specify that the system should be independently owned.
The WHO has previously expressed criticism of Codentify, which it said lacked transparency “and might have features that only the tobacco industry is aware of”.
Spokespersons for Philip Morris International, and for the joint venture that sold Codentify, told this website via email on Monday that the system now complies with the EU's new Tobacco Products Directive and the WHO's Framework Convention on Tobacco Control (FCTC).
The FCTC is an international treaty, also signed by the EU, which aims to curb tobacco smuggling.
“Inexto is fully independent from the tobacco industry," said PMI spokesman Andrew Cave, referring to the Swiss-registered company that bought Codentify.
Inexto is registered in the Swiss city of Lausanne, at an address that is a five-minute drive from the offices of Philip Morris International (PMI) and British American Tobacco Switzerland.
Inexto was founded this year and owned is owned by a French group called Impala, which has several daughter companies specialising in industries that range from energy to manufacturing.
The receptionist at Inexto's mother company, Impala, said she did not know Philippe Chatelain, Inexto's managing director, but told EUobserver he would be called back. This has yet to happen.
Chatelain, and two other top officials of Inexto, have worked for PMI for over a decade. They left the firm just last month.
EUobserver was made aware of the sale and make-up of the new company by Oscar Larsson, a student at the Open University of London. He runs a blog, called Why It's Bad in which he is critical of the Codentify tool.
"This is not an innocent purchasing of a legitimate technology,” Larsson told this website in an email.
“These are not just former employees from PMI, they are the dedicated core of the whole Codentify concept. Their names are on the patents and they are the inventors of this intentionally flawed system, designed by the tobacco industry to serve the tobacco industry and not the European Union”, he said.
Other critics of the tobacco industry also questioned the motives behind the sale.
Anna Gilmore, director of the tobacco control research group at the University of Bath, said Inexto could not be considered sufficiently independent from the tobacco industry.
“Given the tobacco industry's long history of involvement in the illicit tobacco trade, a genuinely independent system would be a threat to the industry,” she told this website via email.
“It is therefore attempting to have governments implement its Codentify system by setting up intermediaries and front organisations to promote Codentify,” she added.
Luk Joossens, advocacy officer of the Association of European Cancer Leagues, said the sale was “a predictable move”, adding that tobacco companies will now “pretend” that Codentify is no longer part of the tobacco industry.
The FCTC's secretariat, which has taken aim at Codentify before, repeated its opposition in a response to this website.
“Whether or not the new company will truly be independent of the tobacco industry, or if it will continue to defend the interests of the tobacco industry with just one more degree of separation remains to be seen,” said Vera Luiza da Costa e Silva, head of the secretariat of the FCTC.
She added that even if the track-and-trace (T&T) system was independent, it would still lack transparency.
“If the new company’s purpose is to continue to promote Codentify as a T&T system allegedly in compliance with the protocol, then this independence is irrelevant, since ... analyses of Codentify have found it to not be compliant with protocol recommendations on T&T,” said Da Costa e Silva
The Digital Coding & Tracking Association (DCTA), which owned Codentify until 1 June 2016, said Inexto "is fully independent from any tobacco company".
DCTA is a joint venture by British American Tobacco, Imperial Tobacco Limited, Japan Tobacco International, and Philip Morris International.
"The three individuals you reference are no longer employees of any tobacco manufacturer and their jobs transferred to Inexto as part of the technology sale," a DCTA spokesperson said by email, without revealing his or her name.
"Their deep knowledge of the technology, combined with their understanding of the complexities involved in the tobacco supply chain, means they offer Inexto unique expertise which will be necessary as the technology continues to evolve as a world-class, open source solution”.
The European Commission did not respond to requests for a comment.