Author: authentix

Are Counterfeiters Innovators

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Author: authentix

Are Counterfeiters Innovators?

I read an interesting article recently about the long discussed topic of why larger organizations can’t be more like a startup. [1] This topic is often brought up in the context of keeping organizations innovative and open to new markets and ideas outside of the normal focus of that business. But this article was interesting because it put forward a new thought I hadn’t seen in the normal discourse, the idea that startups aren’t bound by the same Iegal constraints of established businesses.

The idea struck me as absurd, what investors would get behind an operation or idea that at the outset appeared to be illegal? The article goes on to illustrate how many companies, including Uber, PayPal, Airbnb, and Tesla all had at least aspects of their business model that appeared to be illegal or at least in a very gray area that ran aground of regulatory restrictions on their industries.

One example the article missed, perhaps because of its age and lack of success was Napster. By developing a user friendly interface that specialized in music files, Napster gave would be consumers of music a taste of what they really wanted in content management; a set of features like platform independence, per track purchase, mobility, and the ability to make playlists. The problem was Napster did this be enabling the general population to become content pirates, clearly running afoul of even the most liberal interpretations of consumers rights to content they owned at the time. The music industry certainly couldn’t support having its content stolen and copied, and Napster was forced to shut down in 2001 amid copyright settlements less than three years from inception.

Yet it took Apple to drag the industry forward into digital distribution two years later rather than an internal industry response. The music industry was threatened because they didn’t know how they could monetize digital sales the way they had with physical media. And the industry suffered greatly for over a decade, with replacement revenues from digital media and streaming services just now reaching levels of the pre-Napster world. But the truckloads of CDs, associated manufacturing and logistics, and other cost structures in the industry have now been revolutionized. Digital content distribution is very high margin, with a higher percentage of revenues going to artists, and spurring on all new industries of content creation and entertainment. The future is very bright for this industry.

So what does this have to do with counterfeiters? Well, I think we can agree that counterfeiting is illegal and dominated by “startups” that can ignore the legal norms of doing business. That is not that surprising. And the technological innovations that have led to widespread outsourcing and high quality manufacturing around the globe are now being turned against the same industries that have benefited from them. Internet distribution of products have accelerated sales, but at the same time opened the door to counterfeit products being sold direct to consumer. Counterfeiters are extremely quick to exploit all these “innovations” to create an opportunity that established companies can’t exploit.
So what can we learn from this? I think the biggest takeaway from previous lessons is that there is no quick fix to the competitive threat. Fighting off the examples given will require a giant shift in how those industries do business. And the innovations of counterfeiters in the last 10 years will require companies to think beyond the simple fixes of applying a hologram or monitoring an online presence. It will require an examination from the ground up of how they source, manufacture, distribute, and ultimately sell to consumers.

In previous articles I’ve talked about the changing threats coming to CPG because of online retailers. [2] We’ve talked about both consumer and inspector led authentication, and the challenges both have. [3] An overall brand protection program that includes monitoring contract manufacturers, distributors, and retailers to gain visibility into the flow of products to consumers is becoming ever more important with the continued growth of counterfeiting. A holistic approach to fight these “innovators” is needed. Companies need to stop thinking about anti-counterfeiting solutions as a standalone effort, and think of the principals of securing supply chains and distribution as they think about the principles of quality, efficiency, and sustainability in their operations.

[1] https://hbr.org/2017/06/why-you-cant-just-tell-a-company-be-more-like-a-startup
[2] http://authentix.com/blog/preparing-for-the-pendulum-to-swing/
[3] http://authentix.com/industries/spirits/inspector-led-authentication/

The end is nigh for banknotes? The data disagrees.

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Author: authentix

The conventional wisdom is that the end of cash is near. A recent Forbes online article [1] is the latest example of selecting facts to support a view shared by many. Yes, electronic payments are grabbing a larger piece of the payment pie, and yes money can be dirty, but the most important data to assess the future of cash is to look at what is happening to the number of notes being issued each year. The data shows: the number of banknotes in circulation continues to maintain a steady growth pace of 4-5% annually. Growth rates vary between countries, but one is hard pressed to identify regions where the growth is flat or negative.

There are several reasons for the ongoing support and growth of cash. Some of these are:

  • Many enjoy the convenience and anonymity of cash
  • It is a failsafe option in times of emergency
  • For the unbanked, cash is the only payment option available
  • We have an emotional attachment to currency

At some point, we will see electronic payments (credit cards, debit cards, electronic transfers, cryptocurrencies) dwarf cash, but that point in time is decades away.

Recently, I attended the annual Currency Conference, which was held over the course of a week in Kuala Lumpur. Over 500 delegates including Central Bank currency management teams and industry suppliers gathered to discuss an array of topics covering banknote design, new authentication technologies, best practices to maintain the security and fitness of notes in circulation, and future trends, such as the growth of digital currencies, that could impact the use of cash.

With the understanding that cash will continue to grow over the foreseeable future and remain a critical payment option, Central Banks continue to invest in an array of advanced technologies to protect these payment instruments. This proactive approach to authentication is necessary as the counterfeiters are often highly talented and motivated to find new ways to deceiving the public and institutions.

The barriers to entry for establishing a large-scale counterfeiting operation continue to shrink. High performance desktop scanners, image editing software, and digital printers have made it easier and less costly to create effective counterfeit banknotes. Today’s counterfeiters complement these capabilities with holographic and optically variable elements to create fake notes that deceive the public and retailers. In addition, the use of the Dark Net has served to increase the distribution capabilities of counterfeiters by identifying buyers while maintaining anonymity.

As the counterfeiters advance their techniques, the list of targeted notes is growing. When access to a large and expensive print operation was a pre-requisite for counterfeiting, higher value notes were primary targets for the counterfeiters to achieve the maximum illicit gains. Today’s lower cost of entry has brought on an opportunistic counterfeiting approach that targets lower value, transactional notes of the local currency. Numerous news stories in the last year have highlighted this as more daily-use denominations are identified as counterfeit by central banks in major economies around the world.[2]

For as long as there have been banknotes, there have been those attempting to counterfeit them. As a result, the issuers of banknotes inherently understand proper approaches to securing their notes, such as:

  • Relying on advanced technologies, which are not generally available for use outside of banknote security
  • Anticipating future counterfeiting trends and establishing security road maps to thwart the future efforts
  • Upgrading banknote security designs and security features every 7-10 years
  • Investing in public education campaigns to raise awareness regarding the features for public use to help detect counterfeit banknotes

Because of the high degree of trust between the Central Banks and those that print, protect, and process their banknotes, it is a very small group of companies which are recognized as approved suppliers. Less than 20 companies provide over 90% of the related banknote materials, sensors, and services required by the Central Banks. This is a very different picture than the broader security industry, which focuses on brand protection and lower tier security documents.

Authentix in Currency

Authentix is honored to be counted among the distinguished organizations that help Central Banks protect their banknotes. Authentix covert, Central Bank level machine readable features are protecting 10s of billions of banknotes in circulation. In addition, over 550 high speed sensors developed and produced by Authentix are used on Central Bank sorting machines to confirm the authenticity and quality of deposited banknotes. Authentix fights illicit trade in many industries such as oil and gas, pharmaceuticals, agricultural chemicals, and spirits, but the protection and quality assurance of banknotes requires the most advanced technologies that we can bring to bear.

[1] https://www.forbes.com/sites/larrymyler/2017/05/11/no-wallet-no-problem-cash-is-no-longer-king/#60950102383a
[2] https://www.theguardian.com/world/2015/dec/03/uganda-deport-american-counterfeit-money-operation

There Are No Shortcuts To Safe Medicines

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Author: authentix

The Partnership for Safe Medicines® recently hosted a panel briefing of several former federal law enforcement officials and public health experts to discuss the merits of recent prescription drug importation proposals[1]. The panel highlighted one of the often overlooked aspects of these proposals aimed to quickly reduce the cost of prescription drugs to patients in need in the United States: the safety of these drugs that would circumvent current FDA regulated domestic supply chains.

Certainly the promise of lower cost prescription drugs is a powerful message to an electorate that sees the costs of these medicines continue to rise while stories of lower cost drugs in other parts of the developed world also make headlines. But those other countries have carefully negotiated and managed supply chains with pharmaceutical companies that ensure the safety of their drugs and often make it illegal to fill a prescription from outside the country. Such is the case in Canada, where Canadian pharmacies cannot fill prescriptions for U.S. patients. Instead, internet pharmacies that claim to be Canadian import drugs or counterfeits sell them to unsuspecting consumers. Like it has for so many other industries, the internet has enabled easy access of buyers and sellers, but with little accountability for product quality or authenticity. Consumers are left to trust the supplier is legitimate, often with no means for recourse if there is a problem.

So why not simply empower the FDA with oversight on importation of drugs from other countries to help ensure safety? That’s a reasonable proposal, but one that will undoubtedly add to the cost of importation. Furthermore, this is not a U.S. only policy problem. For example, if the U.S. and Canada were to legalize the import/export of drugs between the two countries, what would be the effect on Canadian drug prices? In 2014, total Canadian expenditures on prescription drugs was estimated to be $29B[2]. By comparison the United States spent $374B[3]. Even a mild influx of orders from the U.S. could stress the Canadian system, more importantly Canadians, affect pricing since drug companies will be forced to negotiate with Canada as an international supplier, and not a domestic single payer system, certainly driving up costs for Canadians.

The U.S. has left the pharmaceutical industry largely unregulated when it comes to pricing. We have no single payer system, we do not place limits on pricing, and we let the profit motivation of the free market system drive pricing, profit, investment, and innovation. And while we can certainly feel the effects of rising drug costs, we can also see that this system has of its own accord driven us to greater and greater innovation for treatments and cures, and has created a very secure supply chain for the sale and distribution of those medicines. There is almost certainly some kind of change and reform coming to healthcare costs in the U.S., and the pharmaceutical industry will have its part to play, but compromising safety cannot be part of the equation.

Counterfeiting and diversion of medicines and medical products are global issues that affect all countries. These illegal activities threaten the health and welfare of the citizens who receive fake or substandard product, as well as threaten the revenues of brand owners. These activities also undermine the efforts of the government to ensure the availability of affordable drugs to its citizens, thus enabling the proliferation of disease, which can lead to development of drug resistant pathogens.

Authentix is dedicated to the development of products and services that allow the authentication of products and their packaging in supply chains around the world. Authentix provides integrated programs that enable manufacturers to protect their products in complex supply and distribution chains, and informatics to monitor and report on problems as they become apparent.

For more information visit http://authentix.com/offerings/sherlox/.

1.) http://www.safemedicines.org/2017/04/the-fallacy-of-drug-importation.html
2.) https://www.cihi.ca/en/canadians-spent-288-billion-on-prescription-drugs-in-2014
3.) http://www.latimes.com/business/la-fi-drug-costs-20150414-story.html

Fuel Quality is on the Rise In Africa

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Author: authentix

The African Refiners and Distributors Association (ARA) held its annual conference in Cape Town, South Africa last week. The meeting’s theme was “Achieving Clean Fuels in Africa”, a topic that has received much attention lately. In September of 2016 in a report released by the African Centre for Energy Policy (ACEP) partner, Public Eye, it was revealed that Swiss commodity trading firms are exploiting lax regulatory standards to sell to African consumers. (1) The long and comprehensive report documents the way certain traders take advantage of fuel standards in Africa that allow for high contents of sulfur that would not meet modern environmental regulations in Europe and other developed markets. The results are poor air quality in many African cities that have far less fuel consumption than major European metropolitan areas.

The report was not without its critics, including the Ghanaian National Petroleum Authority (NPA). (2) The now former CEO of the NPA, Moses Asaga said much of the criticism of the African authority was borne out of a lack of understanding of the authority’s responsibilities. While the report highlighted that many African nations, including Ghana, have sulfur standards that range as high as 300 times the levels in Europe and the United States, it did not comment on the costs associated with bringing nations into compliance with lower standards. For example, the NPA estimates that it would cost Ghana about 300 million US dollars to bring infrastructure into compliance to produce low sulfur diesels. These types of policy decisions therefore are not solely up to petroleum agencies like the NPA, but have economic impacts that go far beyond the operating budgets of such agencies.

And there is good reason to believe the NPA and other agencies do take their fuel quality seriously. For the past 4 years, the NPA has run a comprehensive fuel marking program aimed at ensuring stations are providing good quality fuel to consumers. (3) A side benefit of this program has been the reduction of subsidy abuse of kerosene and marine diesel, as well as tax evasion of on-road diesel and petrol by dilution. The program is working with technology provided by Authentix, with an estimated savings to the Ghanaian government of over $11 million, while ensuring the nations fuel supply is of high quality having minimal environmental impact.

This is a great example of how governments can effectively reduce fuel fraud and minimize subsidy abuse by adopting programs to improve the quality of the fuel supply chain. Effective fuel fraud prevention programs are designed and put in place to reveal the quality and condition of the supply chain. Often, merely shedding light on the various stages that make up the supply chain will improve the flow of fuel in the country by deterring fraudulent activities that thrive in the shadows. Ensuring integrity of the fuel supply chain also ensures minimal environmental impact by keeping fuels up to specification at the retail pump.

The most successful fuel marking programs involve a number of best practices which are adjusted and modified to meet the unique requirements of each country via an interactive program design phase followed by full implementation and operation. Regular program reviews and audits ensure the program is meeting or exceeding its stated objectives and return on investment (ROI). By stopping illicit trade of fuels through monitoring retail outlets for diverted subsidized fuels or diluted fuels, environmental impact of automobiles is kept to a minimum.

And that is why the focus of the ARA annual meeting was so promising. Ultimately, further raising environmental conditions in many Africa nations will require investment in the infrastructure of the fuel refining industry to produce low sulfur fuels. That investment will come from investors when they have confidence in a strong independent regulatory function in these countries that ensure the investments made in low sulfur diesel infrastructure will pay returns. With the good governance shown by agencies such as Ghana’s NPA, as new regulations are adopted, investors should feel good that there are strong independent agencies already in place to enforce and maintain these new standards.

1. https://www.publiceye.ch/fileadmin/files/documents/2016_DirtyDiesel_A-Public-Eye-Investigation_final.pdf
2. http://citibusinessnews.com/index.php/2016/09/17/acep-displayed-ignorance-in-dirty-diesel-report-moses-asaga/
3. http://www.imaniafrica.org/2016/04/21/imani-africa-report-prevent-fuel-fraud-africa/

Preparing for the Pendulum to Swing

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Author: authentix

With the proliferation of internet trade and globalization of manufacturing the pendulum has swung in the favor of counterfeiters as far as ease of access to markets and manufacturing capabilities. And no one has been a bigger lightening rod for criticism around this swing than Alibaba founder Jack Ma. Some of this criticism is well deserved, like the time Mr. Ma suggested:

“The problem is the fake products today are of better quality and better price than the real names,” he said at Alibaba’s investor day in Hangzhou. “They are exactly the same factories, exactly the same raw materials but they do not use the names.”(1)

And I suppose if one puts no value on the skills required to do market research, design and test products, develop quality plans and raw material specifications, then yes, contract manufacturers produce the exact same goods whether they carry the added logo and identification of the innovative companies that create the intellectual property and trademarks that people come to know and trust.
But recently Jack Ma wrote an open letter to China’s “parliament” suggesting that harsher enforcement against counterfeiting was key to fighting the problem.(2) It is no coincidence this change in focus from the quality of counterfeits to fighting the scourge of illicit goods comes at a time when The Office of the United States Trade Representative (USTR) reinstated the Alibaba TaoBao platform on its blacklist of “notorious markets” for selling fakes.(3)

But Mr. Ma does in fact have a point here. As reported in the article:

Alibaba says it handed over 4,495 leads on counterfeiting in 2016 that crossed the threshold of goods worth at least 50,000 yuan ($7,250). Of those, the authorities took on 1,184. That resulted in a scant 33 convictions. Alibaba has launched high-profile efforts, such as a push with the police in the city of Shenzhen and the luxury-goods brand Swarovski to shut down merchants selling fake watches. But some lawyers say those efforts amount to showboating.

But the sheer size of the problem of counterfeit distribution through an essentially frictionless market like Alibaba or Amazon Marketplace and Ebay make the follow-up on potential cases overwhelming for enforcement agencies. An activity that used to require some level of distribution and brick and mortar storefront to move counterfeit goods that could be investigated and raided is now replaced by digital entities that can literally appear and disappear with a few keystrokes. Traditional approaches to fighting illicit goods are overmatched.

So, what can a brand owner do to battle this enormous problem? The reality is that in the 21st century if you are a brand owner creating value from those intangible product qualities of design, style, quality, and ultimately reputation, you need to be investing some degree into the further differentiation of your finished good from that of your contract manufacturer. In our twenty years protecting brands we most often see hybrid and multi-layered solutions as effective means to enable different levels of inspection, from the internal security expert, all the way down to the consumer. And with the proliferation of smart devices and internet access, new tools are becoming available set to swing the pendulum back into the favor of brand owners to track the location of their products and possible illicit goods are a rate commensurate with the new internet economy. What is important is that brands consider equipping their goods with an overall brand protection program that includes monitoring and sampling contract manufacturers, distributors, and retailers to gain visibility into the flow of their products to consumers.

1. http://blogs.wsj.com/chinarealtime/2016/06/15/jack-ma-says-fakes-better-quality-and-better-price-than-the-real-names/

2. http://realmoney.thestreet.com/articles/03/08/2017/alibaba-urges-china-get-real-fakes

3. https://ustr.gov/sites/default/files/2016-Out-of-Cycle-Review-Notorious-Markets.pdf

4. http://realmoney.thestreet.com/articles/03/08/2017/alibaba-urges-china-get-real-fakes

Europol Confirms Link Between Organized Crime and Fuel Fraud.

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Author: authentix

Last week, Europol released its European Union (EU) Serious and Organised Crime Threat Assessment 2017 (SOCTA 2017)1. The SOCTA is “Europol’s flagship product providing information to Europe’s law enforcement community and decision makers. It serves as the cornerstone of the EU Policy Cycle for Serious and Organised Crime.” The report serves to inform member states on key priorities that Europol feels require inter-state cooperation to effectively combat. The 2017 report identifies about 5,000 international organised crime groups currently being investigated in the EU. That number is up from 3,600 groups in 2013.

But the 2107 report is interesting for another reason. For the first time, it calls out fuel fraud as a growing phenomenon amongst these organised crime groups. The linkage between organized crime and fuel fraud is not a surprise to Authentix. We have been a quiet partner to over a dozen foreign governments in the last twenty-years, helping them shut off the supply of illegal fuel to fund organized crime.

The illicit trading of fuel has many names: fuel fraud, fuel piracy, and fuel smuggling just to name a few. Most people, especially in the developed world, may never have heard these terms or realized that fuel fraud is such an important problem to solve. The illicit trade of refined fuels is estimated to be valued at $100B2, and fuel is the #1 most smuggled natural resource in the world.

If you happen to be reading this in the United States, you may be interested to know that the IRS estimates that 10% of our $23B downstream fuel market illegally crosses state lines to take advantage of lower taxes and higher selling prices in neighboring states. The United Kingdom knows all too well the correlation between fuel smuggling and organised crime as it has marked fuel traveling between Ireland and England for over 15 years to crack down on illegal funding of the IRA. The European Union estimates it loses $4B euros a year in excise tax revenue on fuel smuggling. Thus, fuel fraud is not just a challenge in emerging economies but very much a problem in developed economies.

What is fuel fraud? Fuel fraud involves the dilution, adulteration, or smuggling of fuels to exploit price arbitrage conditions in a market. When taxes and/or subsidies create a large difference in prices between fuel products, unscrupulous parties can take advantage of this price arbitrage by perpetrating various fuel frauds to funnel huge profits into their coffers. The schemes typically fall into two categories: tax evasion and subsidy abuse. In tax evasion, higher-priced taxed fuels are diluted by lower-priced fuels. The resulting mixture is sold as authentic high value fuel. When this scheme is carried out in countries that have both a subsidized and taxed fuel, it can result in government revenues being stolen twice. The government loses the taxes on the higher-priced fuels and pays for the volume of subsidized fuels used for the dilution. In addition, lower-priced subsidized fuels can be transported across national borders into countries without subsidization programs, and possibly even high taxes on the smuggled product.

While counterfeit drugs and designer goods gain large headlines, the billions of dollars of public funds being misappropriated by fuel fraud goes largely unreported. Stopping this activity, whether it is subsidy abuse or tax evasion, results in immediate positive financial impact on a governments budget without reducing a subsidy or increasing the tax burden of its citizens. When a government employs a successful strategy to curb fuel fraud, the benefits are not limited to fiscal policies. A large source of funding of organised crime and terrorist groups is cut off. It also stems the negative impact that fuel fraud has on the environment by ensuring the fuel supply in the country is unadulterated, leading to cleaner burning and better running engines in the country.

Authentix has been working with national governments and Oil Marketing Companies around the globe and has covertly marked over 1.5 trillion liters of fuel. In our experience, the cost of deploying and enforcing a covert fuel marking program returns value orders of magnitude on the investment. It is not uncommon for Vigilant fuel marking program to return USD $100s of millions in lost revenue in a year.
To start combatting the illicit trade of fuel visit http://authentix.com/offerings/vigilant/.

1. https://www.europol.europa.eu/newsroom/news/crime-in-age-of-technology-%E2%80%93-europol%E2%80%99s-serious-and-organised-crime-threat-assessment-2017

2. “How Chemistry is Helping Defeat Fuel Fraud,” Alex Scott, Chemical & Engineering News, Vol. 94, Issue 5, pp. 20 – 21.

3. https://www.bloomberg.com/news/articles/2013-08-26/fuel-smugglers-costing-europe-more-than-4-billion-in-lost-taxes

Authentix Announces Jewel Accredited & Certified Partners for Banknote Security and Authentication

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Author: authentix

ADDISON, Texas, Dec. 1, 2016 /PRNewswire/ — Authentix®, a leading global authentication and information services company, is pleased to announce that five currency industry organizations have completed the Jewel Certification program. Jewel Certification enables industry suppliers to become more familiar with the design and incorporation of Jewel into the banknote. As part of the process Authentix transfers best practices in the handling, use and quality checks of the feature. Support for a trial to demonstrate incorporation into the ink, varnish, substrate, or finished banknote is also provided.

Jewel is a complete Level Three security platform involving proprietary materials, QC equipment, and specialized sensors to be used by the Central Bank for confirming the presence and correct response of the feature. Jewel is characterized by its high security, durability and ease of incorporation via a wide range of implementation options. Jewel is in use by several leading Central Banks and has been developed in response to the Central Bank’s need to dis-aggregate their supply chain in order to have more options as they strive for highly secure and cost effective currency designs.

“Central Banks increasingly want choice and to build best of breed solutions to stay ahead of counterfeiting threats,” says Tim Driscoll, General Manager of Authentix’s Currency & Tax Stamp Business. “Authentix has partnered with six of the most respected names in banknote substrates, inks, design and printing. Central Banks are assured of continuity and choice when selecting Authentix Jewel.”

Accredited and certified partners include respected names in banknote security such as Landqart AG, PNO Global, Royal Joh. Enschedé and Arjowiggins Security. Authentix will continue to grow the partner program in both size and offerings.

Although Authentix will support all industry suppliers in meeting a Central Bank’s specification for the incorporation of Jewel, Certified partners are uniquely positioned to support the Central Bank’s needs with established competency in print trials and marketing the offering.

About Authentix:
Authentix, a leading global authentication and information services company, assists customers in combating illicit trade and managing the integrity of their global supply chains. With comprehensive end-to-end authentication solutions we help protect currencies for many leading central banks as well as help safeguard customers in refined fuels (e.g. gasoline, diesel, lubes, and LPG) and branded products (e.g. pharmaceuticals, agrochemicals, and spirits industries) from counterfeiting, product theft, product diversion, and adulteration.

Headquartered in Addison, Texas USA, Authentix, Inc. has offices in the US, UK, UAE, and Africa serving clients worldwide. For more information, visit http://www.authentix.com/offerings/jewel/

 

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