Lebanon is one of the few nations where the tobacco sector, including tobacco leaf farming and manufacturing, falls under state control.
Mohamad Ali Ahmad, SCOPSIS, speaking at Tax Stamp & Traceability Forum™, October 2023.
The state-owned tobacco producer, Regie Libanaise des Tabacs et Tombacs (Lebanese tobacco and tombac authority), has been managing the country’s tobacco market since 1991. Like non-state-owned industries, the revenue generated from this sector contributes significantly to the government’s annual budget.
Having state control over the tobacco market provides advantages in the form of fewer manufacturers, a fully controlled supply chain, and an absence of industry lobbying (a major obstacle to introducing many programmes).
However, when SCOPSIS began working with Regie on a tobacco traceability project, there was a perfect storm in place in terms of industry challenges. COVID-19 was of course affecting everyone globally, but added to this was the ongoing war in Syria (with its porous borders with Lebanon), and political unrest in southern Lebanon, all of which intensified the country’s acute financial and energy crises.
These factors also led to the illicit trade of tobacco products surging to 25% between 2018 and 2021, causing the government to lose around $200-$250 million per year. It became evident that Regie needed to take urgent action to protect both government revenues and the integrity of the tobacco sector. This is where SCOPSIS came in, to support Regie in addressing this challenge.
SCOPSIS is a data-driven company, headquartered in Beirut, with expertise in digital transformation, supporting government and corporate clients around the world to implement change management initiatives, particularly in supply chain and traceability.
Our initial task was to conduct a global review of solution providers to identify the most appropriate technology for a tobacco authentication and track and trace solution. We selected OpSec Security as our partner for the project, given its rich, 20-year history as a supplier of tax stamp and traceability solutions for governments worldwide.
Furthermore, the proven track record of OpSec’s Insight® track and trace platform made it clear the technology could meet the specific demands of the Lebanese programme.
Working with Regie, we came up with a number of key objectives:
Find a way of protecting government revenues and reducing illicit trade.
With the expansion of the supply chain and brands entering Lebanon, implement a system to monitor and track cigarette production wherever it is produced.
Move towards compliance with the WHO FCTC Protocol to Eliminate Illicit Trade in Tobacco Products, both for domestic product and exports to Protocol-ratified regions.
Enable wholesalers, retailers, and consumers to authenticate stamps anywhere in the market.
Protect the supply chain from illicit sellers in retail environments and online.
For each of these objectives, SCOPSIS and OpSec worked closely with Regie to develop what we believe to be one of the most secure authentication stamps in the world.
We began with product authentication as the first step in protecting legitimate product and providing a fast, visible enforcement mechanism against illicit trade. We released an authentication stamp enabling all stakeholders to quickly authenticate the product, both visually and digitally. In addition, the stamp carries its own, complete history, from point of printing to point of activation, and beyond.
For the project to succeed, the stamp had to be designed with overt, covert, and forensic security features. But prior to the design, we carried out significant testing of base materials on OEM (original equipment manufacturer) stamp applicators to ensure there would be no reduction in speed and efficiency on production lines.
Once that was done, OpSec designed an advanced electron-beam OVD stripe as the primary overt feature, and incorporated high-level security features comparable to those found on banknotes. And as an aesthetic element, the cedar tree, Lebanon’s national emblem, was added to enhance citizen engagement.
Once the level of optical security had been defined, unique traceability codes were integrated, comprising a secure combination of sequential and random digits. Each stamp carries a unique code, containing important information on where the product has come from as it moves through the supply chain.
Two types of 2D barcodes are applied to the stamp: 1) a QR code for use in management and authentication, both in the factory and for enforcement in the field; 2) a fully encrypted code for official use, which can only be decrypted with a specialised enforcement application.
Track and trace platform
The OpSec Insight platform is responsible for the secure generation of the unique identifiers. It also ensures the record of each step in the stamp’s journey, from creation at the stamping facility, through shipment and warehousing, until utilisation on the production line.
Product metadata is also collected and dynamically linked to the unique identifier. This data currently covers brand, product type, country of origin, production facility, production line, date and time, and the destination country.
Stamps can be authenticated anywhere in the supply chain via a desktop or mobile application, providing a complete history of the product and its movements, down to specific individual operators and geo- locations.
While enforcement officials and Regie staff use the Insight mobile application to carry out checks, a major objective of the government was to allow any member of the supply chain, including consumers and retailers, to authenticate a product, check product metadata, and, if required, send feedback to Regie.
For this to happen, four essential requirements had to be met:
1.We did not want to force the consumer or retailer to download a specific enforcement app, as this would have significantly reduced the uptake of the function. Therefore, the authentication process was designed to use a standard QR code scanner, already found on most iOS and Android mobile devices.
2.While enforcement officials and Regie staff had access to detailed information via the OpSec Insight mobile application, this level of detail had to be excluded from the public app to ensure privacy of sensitive data.
3.The mobile app had to automatically switch between English and Arabic language, depending on the user’s phone settings.
4.Each scan by a consumer had to be logged in the Insight track and trace system, enabling the generation of reports on scanning activities.
Globally, it is evident that a significant portion of illicit trade occurs online, providing illicit traders with a broader market and the cover of anonymity.
To capitalise on the advantages offered by state control (ie. better regulation of legal distribution networks and approved brands within the country), we are employing OpSec’s online protection technology to monitor approved brands in the online market, identifying illicit whites and illegally imported products.
Additionally, we use the technology to monitor retail pricing, flagging products sold below expected retail price, and prompting a Regie investigation. The technology is deployed across various online marketplaces, social media networks, and global web pages.
In the event of discovering an infringing listing, OpSec takes necessary action to remove the listing, page, or post, providing support to Regie for any further required legal actions.
Each of the aforementioned solution components has introduced a level of authentication, enforcement, and traceability that was previously unattainable. However, the value of the information gathered from these components is lost without a method to analyse it for intelligence, informed decision-making, and continuous improvement.
A fundamental objective of the programme was, therefore, to consolidate industry intelligence into a single platform, facilitating the creation of core decision-making reports.
In its most straightforward form, Regie now has visibility into stamp usage across production facilities in Lebanon and overseas. These reports can be detailed, diving into specific production lines or brands during any given time period.
Within the supplying factories, efficiency in stamp usage can be monitored, alongside tracking scrappage rates and product destruction. Furthermore, all enforcement activities, whether carried out by officers using the Insight mobile app or through retailer checks, can be reviewed in near real-time to assess and enhance programme promotion and enforcement.
One year on…
It has now been one year since the authentication and traceability programme was introduced, and it is continuing to expand, with certain production lines in the process of implementing stamping equipment.
From the perspective of the Lebanese government, several notable benefits have already been realised. These include improved control over domestic and imported cigarette production, improved factory efficiencies, better visibility over product provenance in the field, improved online protection, and active citizen authentication. Surprisingly, we had very high citizen participation with thousands of products authenticated, without even creating an awareness campaign.
We don’t see the project stopping here. Future opportunities include the extension of the programme, both upstream to tobacco leaf producers, and downstream to distributors and retailers. We also envisage the expansion of the programme to cover other tobacco products and vaping.
By presenting the Lebanese government with a holistic authentication and traceability programme that can evolve to protect and secure the entire tobacco sector, we believe we are offering the government, its stakeholders, and the public a shield against the storm of illicit trade.