A record breaking 240 delegates from 126 organisations and 36 countries proved, yet again, that tax stamps are of global interest. The 3rd Tax Stamp Forum was held in Washington DC, USA (12-14 September, 2011) and - with its theme of Combating Fraud, Increasing Revenues - covered all aspects of the role of tax stamps in the collection of excise duties on tobacco and alcoholic beverages. It included a two day conference, a workshop on tax stamp security and an exhibition. 

It is no exaggeration to state that a paper-based tax stamp is like a mini banknote, because it represents money and therefore attracts the attention of counterfeiters and illicit traders. Hence the focus on security  - not just of the stamps themselves but the investigative and enforcement efforts  required to ensure successful implementaiton - encompassing authentication, verification, track and trace and supply chain visibility.  

The event began with a workshop titled ‘The Technology behind Tax Stamp Security’.

The moderator, Dr Glenn Wood of Reconnaissance Intl., presided over an intense review of tax stamp security in which eleven presenters from nine different countries discussed various aspects ranging from security printing to track and trace to the geo-location of the inspectors. 

The presenters included representatives from Goznak on the use of embedded threads; from EDAPS on holograms; Luminescence on security inks; Opalux on security features generated by photonic colours; Inksure on taggants; SE Holography on the combination of taggants and holograms; Advanced Trace and Trace on barcodes and smart phone readers; PragmatIC Printing on the emerging technology of transistorised printed circuits and opportunities for ‘interactive’ tax stamps; AM-PG on some of the uses of smart phones for authentication; FNMT on various methods for authentication; and Figurazione on the complete system implemented in Colombia for spirits using shrink sleeves. 

Some of these topics were also covered during the main conference, which ran concurrently with the exhibition and was divided into four sessions. 

The first session – entitled The Tax Stamp Environment - covered such topics as international regulations, market statistics, the US master settlement agreement and illicit trade. 

LorenYager, US Government Accountability Office (GAO) addressed the topic of ‘Understanding Cross-Border and Illicit Trade in Tobacco Products’, pointing out how this is a particularly difficult problem in the US where adjacent states levy very different rates of tax on cigarettes. 

Jeannie Cameron, JCIC international (formerly of BAT), spoke on ‘International Regulations Relating to Tax Stamps – Challenges and Opportunities’. She recognized that the tax stamp market is going through a period of rapid change and that the need for track and trace is becoming indispensable, although whether the stamp is digital or paper-based depends on what is appropriate in a particular situation. She ended with the powerful statement that whatever the technology, nothing will be implemented unless the politics have been sorted out - because politics will always prevail over technology. 

In her presentation on ‘Excise Taxation and Illicit Trade: Balancing Tax Policy and Administration to Optimize Revenues’, Elizabeth Allen of the ITIC (International Tax and Investment Center) spoke from 35 years experience with HMRC  in the UK, which has led her to believe that paper tax stamps can be counterfeited and are a distraction to governments. She much preferred resource to be invested in enforcement. 

Michael Hering, National Association of Attorneys General (NAAG) provided a clear explanation of the ‘US Master Settlement Agreement’ made between the tobacco companies and the majority of states in the USA. From this it became apparent that the states need to account very accurately for all their tobacco products sold, because failure to do so means that they are losing annual income under the terms of the multibillion dollar agreement. This puts a special onus on the tax stamping technology to record every packet of cigarettes stamped by the distributors. 

Alejandro Ramos Carbajales (consultant and member of the FCA) provided an interesting insight in his presentation on ‘Illicit Trade in Tobacco Products in Latin America and the Caribbean’. He pointed out that the health people and tax people don’t get along. The illicit trade is seen as a social program for employment and hence is not taken seriously. Moreover, the exchange of information between customs authorities responsible for different border protections is only at the personal level. Furthermore, he did not see a serious role for paper stamps because they can be easily counterfeited. 

In their presentation ‘Tax Stamp Report - Latest Market Statistics and Analysis’,  Glenn Wood and Nicola Sudan of Reconnaissance International provided a preview of the forthcoming report, due for publication at the end of this year. In addition to new statistics relating to the global use of tax stamps on tobacco and alcoholic products, there will be new sections on the technology behind tax stamps, the machinery available for their application onto products, and the emerging digital revolution for track and trace. 

Nina Valieva, formerly of the Kyrgyzstan State Agency for Information Resource & Technologies, spoke about ‘Criteria and Methodology for Effective Tax Stamp Programs in Different Economic Environments’. As the former head of the excise tax control department in Kyrgyzstan, she designed the excise stamp track and trace system and described the three important components of a successful excise stamp scheme. First, high printing quality with advanced security features to combat counterfeiting on a large scale. Second, the presence of clear legislation on excise stamp usage. And third, the presence of an information system allowing all participants hierarchy-structured access to the database where it is possible to trace excise stamp movements, tax payments, etc. The use of a printed, paper stamp was taken for granted. 

Topics in the second session – Practical Counter Solutions - included a first-hand account of the challenges posed by introducing the new tax stamp in Massachusetts, a complete case study from Cook County in USA and various aspects of digital track and trace. 

Keith Canning of the American Wholesale Marketers Association shared his practical experience in his presentation on ‘The Challenges of Introducing Digital, Encrypted Track & Trace Tax Stamp Systems’. As a distributor in the state of Massachusetts, he experienced at first hand the difficulties involved in changing over from one tax stamping regime to another, more recently-introduced, system. The requirement for replacing stamping machinery proved quite costly. As a stakeholder in the new system, he advocated the involvement of all stakeholders at the planning stage of any new system. 

Helen Cochrane of De La Rue gave a presentation entitled ‘What the Tax Stamp Market has in Common with Sesame Street, Microsoft and American Express’. Her point was that, despite their widely differing markets, the underlying needs of each are similar. De La Rue has serviced each on a global basis and is keen to expand its already considerable presence in the tax stamp market with the experience gained from providing authentication programs for these major brands. 

Dr Hugh Burchett of Cambridge Consultants, in his presentation on ‘Digital versus Physical Tax Stamps - the Pros and Cons from a Cross Industry View’, recognized the advances in digital technology such as printing and serialization, which have brought about their own challenges. He drew a parallel with the pharmaceutical industry which also has strong reasons to track and trace its products and protect them from counterfeiting. 

Kristopher Anderson of Cook County Department of Revenue described ‘A Criminal Act, a Civil Solution: a Study of Tobacco Tax Evasion in Cook County.’ He explained that Cook County encompasses the city of Chicago and faces serious challenges to its tax revenue collection. He gave a graphic account of the measures taken to implement a comprehensive system involving tax stamps, legislation, effective investigation and strong enforcement. In order to fight the sale of black-market tobacco, the act of smuggling was de-criminalized and made a civil infraction. This made it possible to judge these infractions in front of an Administrative Hearing which has proved highly successful in imposing fines for very low legal costs. 

John W Colledge 111, formerly a criminal investigator and now consultant in anti-illicit trade spoke, about on the subject of ‘The Tax Stamp and Criminal Investigations’. He strongly advocated the use of modern tax stamps and other marking systems which could provide proactive measures such as tracking trade fraud, tax evasion and other criminal schemes. 

Maurice Gilmore, Arkansas Tobacco Control Board and Chair of the FTA Technology Committee, spoke about ‘Why Track and Trace is Valuable in the US Tobacco Market–a forthcoming Request for Information’. The Federation of Tax Administrators, Tobacco Section, plans to release an RFI relating to track and trace systems. The idea will be to help prevent the interstate smuggling of other tobacco products (OTPs) from low to high tobacco tax states. The request will be broad in scope and will accept proposals that can provide track and trace systems for all tobacco products, including cigars, snuff etc. 

The first day and 2nd session closed with a presentation by Oleskii Darskyi  of the EDAPS Consortium on ‘Building the Optimum Excise Tax Collection Control through an Integrated Excise Stamp Management Solution’. Based on the practical experience of the Ukrainian tax stamp, he described a comprehensive solution that allows enforcement of excise tax collection and relevant control which includes both highly secured tax stamps with field devices and a global information management system. He provided a detailed exposition of the features of a total system architecture, together with some suggestions for future improvements. 

The third session - Technology Solutions for Production, Authentication and Verification - included a peek at the emerging technology of imprinted electronics for stamps, an analysis of Codentify track and trace and Canada’s new tax stamping regime. 

Matt Moffett of Meyers Printing Company spoke about ‘Counterfeiters and Diverters:  Fitting the Right Layer of Protection to the Type of Adversary.’ Overt, covert and forensic security features on tax stamps were all reviewed together with advice on how many of them should be used for an optimized return on investment. We were left in no doubt that digital technologies, including the use of secured codes, are a valuable asset - adding traceability to authentication for law enforcement officials. The audience was given a graphic indication of how 12 digits have more than a quadrillion permutations. This means there is an inexhaustible number of unique identifiers available. 

Majid Fazeli of Authentix spoke about ‘Combining Authentication and Traceability for Increased Tax Collection’. At the 1st Tax Stamp Forum, Authentix was one of the companies advocating the use of a paperless stamp. At this conference, Majid coined a new term to describe the tax stamp - calling it a ‘digital certificate of tax paid.’ When correctly designed as a combination of security and digital print it was asserted that the result would be a win win win proposition with the tax authority, manufacturer and consumers all benefiting from the result of integrated authentication and serialization. 

Scott White of PragmatIC Printing  spoke about ‘Tax Stamp Authentication via Imprinted Electronics’. In the 2nd Tax Stamp Forum, Scott described a theoretical system for printing transistorized electronic components using a technology similar to the micro embossing of holograms. In this, the 3rd Tax Stamp Forum, he was able to announce proof of principle by showing operational smart devices using nano structures. So, it is now possible to envisage an intelligent tax stamp which could harvest energy from an RF transmitter and illuminate a mini screen to display information about its own validity. The devices use transparent thin film semiconductors on flexible plastic or paper substrates. 

Thorsten Tritschler of Atlantic Zeiser gave a presentation on ‘Tax Stamp Individualization - Impact versus Non-Impact’. The pros and cons of each were described, with consideration given to the fact that CIJ (continuous ink jet) requires the use of solvent inks and is therefore difficult to export or import. It was concluded that the need to serialize for track and trace purposes probably indicates a necessary trend towards the use of non-impact printing. 

Max Zolotukhin of Andrews & Wykeham spoke about ‘Track and Trace for Tax Stamps with a Human Face - Public Benefits for T&T Systems’. He usefully defined a track and trace system as a ‘government-operated regulatory system providing total transparency in a market segment, by tracking the taxable products from the point of origin through the distribution chain and to the point of final sale’. He then described the proprietary Theseus™ system, which uses digitally-signed QR codes to permit convenient tracking using smart phones. In this context the speaker seemed to favor the use of physical stamps rather than purely digital markings. 

Zbigniew Sagan, Advanced Track & Trace, addressed the topic of ‘Codentify™ - an Analysis of its Security and Fraud Detection Effectiveness’. He commented that he had been surprised by the intensity of the debate at the previous Forum regarding physical stamps versus digital markings. This led him to visit Philip Morris in Switzerland to study the Codentify system, which has been endorsed by most of the tobacco industry, mmore closely. The result of his detailed mathematical analysis was that $.16 is probably the maximum price to spend on a security stamp, but it is worth combining Codentify with a physical stamp. 

Michael Fiedler of Giesecke & Devrient spoke about ‘Tax Stamp Verification Using Mobile Handsets’. The value of mobile phones and smart phones as verification devices was recognized and fully described. As a means of encouraging stakeholders to verify tax stamps, it was suggested that they could be incentivized with offers such as participation in a lottery for prizes. 

Spencer Mandy and Phil McLester of Canadian Bank Note Company and Canada Revenue Agency respectively were joined on the podium by Shelley Vereen of SICPA to present ‘Canada’s New Tobacco Stamping Regime’. The team described the long process involved in developing a new tax stamp system for Canada to replace the previous system, based on province-specific tear tapes.  In contrast to the system employed in the USA, the Canadian system puts the onus on the tobacco manufacturer to apply the stamp, which started appearing in September last year. 

The final session – End-to-End Tax Stamping Systems - included case studies from Colombia, Russia, Spain, Ukraine and Mexico, with useful insights into local and  national approaches to the collection of excise revenues. 

Paloma Varela of Fábrica Nacional de Moneda y Timbre addressed her title of ‘A New Tax Stamp for Spain’ by describing some of the considerations involved in the creation of a new tax stamp, including the challenge of increasing the security of a tax stamp without a corresponding increase in cost. This could be achieved by reducing the thickness of the paper, adding additives to the paper and applying QR codes to add to the functionality. Thus, the combination of a security paper-based stamp with digital data accessed by smart phones seems inevitable for Spain’s next tax stamp. 

Tal Gilat of Inksure Technologies spoke about the development work carried out between Inksure and EDAPS for the launch of the new Ukrainian tax stamp in 2008.  This collaboration produced a solution which combines covert and overt security technologies to create an easier way to identify counterfeits and a more efficient tax collection program. The preferred technology of a hologram combined with taggant technology led to an instant increase of $200 million in state budget revenues in 2008 with reported annual revenue increases of 59.6% and 39% for years 2008/2009 respectively. 

Andre Arsenault of Opalux replaced at short notice the advertised speaker from India to discuss ‘ChromaPrint: Printing an Optically Variable Rainbow’. Based on the emerging science of photonic color, this technology promises a highly visible frontline security feature for a wide variety of security documents, including tax stamps. It offers a method of adding optically variable barcodes, serial numbers and logos as a means of adding visual authentication to variable digital print. 

In his presentation on ‘A New Shrink Sleeve Solution for Liquor in Colombia’, Andres Diaz of Figurazione described the turnkey system to protect the revenues of alcoholic products in various states of Colombia. The system uses 81 million units annually of holographic, tamper evident, tagged sleeves for the successful protection of state revenues from liquor products. An essential part of the program has been the training given to 1,350 tax authority investigators and members of the police force to improve counterfeit product detection. For an initial investment of $5 million the annualized revenue increases exceed $58 million to date. 

Valentin Xenofontov of the Federal State Unitary Enterprise Goznak,  described the tried and tested tax stamps which have been in use in Russia since 2006. Although four types of printing are used in the stamps - offset, ink jet etc -  no security printing such as Orlov or intaglio is used. Instead, all the security is incorporated via embedded security threads, UV dull paper with security fibres, a holographic stripe and UV luminescent marker.  Serial numbering and product marking are applied to the stamp using ink jet. Public recognition of security features seems not to be of prime importance. 

Belén Saenz de Miera Juarez, National Institute for Public Health, Mexico, concluded the conference with a presentation on ‘Stamping of Alcoholic Beverages and Tobacco Products in Mexico’. Although tax stamps have been used on alcoholic drinks in Mexico since 2005, no stamp has as yet been introduced on tobacco products, in spite of a law that has been introduced mandating them. This is apparently due to the fact that official figures indicate that only 2.1% of tobacco products in Mexico are illicit. Although this figure is small, the issue is considered significant but it is felt that a tobacco stamp alone is not enough to justify its introduction. A wider system needs to be envisioned and implemented. 

The platinum sponsor for the event was the EDAPS Consortium, and gold sponsors were SICPA, De La Rue and Madras Security Printers. The exhibition of technologies for tax stamp production, authentication and tracking exceeded expectations in terms of the number and quality of exhibitor booths. The companies that exhibited, in addition to the sponsors, included AM-PG Group, Andrews & Wykeham, Atlantic Zeiser, Banknote Corporation of America/GSSC, Blumer Maschinenbau, Giesecke & Devrient, Holostik India, Inspectron, KBA Nota-Sys, Luminescence, Meyers Fiscal Stamp, Opalux, Optaglio and Security Papers UK. 

One of the exhibits, by De La Rue, included a complete stamping system from RED Stamp Inc which weighed over two tons and required a special crane for installation. 

The next Tax Stamp Forum will be held in Madrid, Spain in early 2013.

Read the Review of the 2nd Tax Stamp Forum.

Read the  Review of the 1st Tax Stamp Forum