GOVERNMENT SECURITY SOLUTIONS WCO IT CONFERENCE 2015 TECH

GOVERNMENT SECURITY SOLUTIONS WCO IT CONFERENCE 2015 TECH TALK # 2 IT SUPPORT FOR TFA IMPLEMENTATION HOW TRACK AND TRACE SYSTEMS CONTRIBUTE TO THE TFA Christophe RENARD © SICPA Security Solutions – May 2014 - n° 2

CASE STUDIES 1. THE PRODUCT CONTROL CHALLENGES © SICPA Security Solutions – May 2014 - n° 3

MAIN DRIVERS FOR ‘SECURE’ TRACK & TRACE Counterfeit products damage consumer health Smuggling avoids controls & taxes, and fuels organised crime © SICPA Security Solutions – May 2014 - n° 4 Tax fraud due to under-declaration of production Lack of data & evidence hinders law enforcement and prosecutions

TRACK AND TRACE Tracking = location of item along its logistics chain Foreign Exporter, Port, International Transport / Transit Manufacturer Customs Port Customs Importer National Distribution & Sales Foreign National Tracing = Origin and path of item Tracking and tracing can be differentiated into forward and backward. © SICPA Security Solutions – May 2014 - n° 5

LEGISLATION ABOUT PRODUCTS AUTHENTICATION / TRACEABILITY IS EXPANDING (EXTRACT) EU General Food Law EC/178/2002 (art. 18) © SICPA Security Solutions – May 2014 - n° 6 EU Falsified EU Tobacco California e. Medicine Directive Products Pedigree 2011/62/EU Directive 2008 2014/40/EU EU Toys Safety Directive US FDA Drug 2009/48/EC Quality & US Consumer Security Act Products Safety 2013 Improvement Act 2008 WHO Framework Convention on Tobacco Control Protocol 2012 (COP 5) US FDA e. Pedigree 2006

CROSS BORDER TRADE REQUIRES RELIABLE INFO 1’ 000 in circulation for 100’ 000 Foreign Exporter, Port, International Transport / Transit Manufacturer Customs Importer & Port Customs Local Importer National Distribution & Sales Foreign National Self declarations, SAD, documents & data 3 rd party inspection / notified bodies docs & data 3 rd party laboratories docs & data Foreign Customs (G 2 G, AEO, IPM) docs & data Docs, declarations, history, AEO status. . Risk assessment @ Manifests & Packing docs HS Classification Valuation (ACV) Product description / content Origin certificates Conformity certificates (A)EO details © SICPA Security Solutions – May 2014 - n° 7 Inspection (NII, …). . ü. ü Clearance What if documents are fake, details are wrong, products are not those declared: how can Customs find the truth rapidly without impacting clearance process speed?

POST-CLEARANCE AUDITS MAY BE TOO LATE ? Importer & Port Customs Local Importer National Distribution & Sales National Once products are released to the market: • 100% certainty of goods’ origin cannot be guaranteed • Documentation may be modified • Responsible actors along the distribution chain may be difficult to trace • What consumers buy may be counterfeited without means to proove it or find counterfeiters • Tax may not be paid (Carousel fraud) • Legitimate economic operators suffer from smugglers • Concern for high risk, high value, sensitive, prohibited or restricted goods Smuggling / counterfeiting hinders local economy, tax collection and consumer health. . . and is expanding… © SICPA Security Solutions – May 2014 - n° 8

CASE STUDIES 2. HOW CAN MARKING, AUTHENTICATION AND TRACEABILITY ASSIST CUSTOMS © SICPA Security Solutions – May 2014 - n° 9

SYSTEMS AGAINST SMUGGLING AND COUNTERFEITING EXIST 4 key pillars are required Create product 1 identity: Secure marking and activation of legitimate goods by legitimate producers / importers Create product 2 history: Distribution chain events tracking Effective authentication 3 and traceability inspections by law enforcement agents and economic operators Data gathered for and managed 4 by the Government, shall be trusted and interoperable with other systems © SICPA Security Solutions – May 2014 - n° 10

PRODUCT INDENTITY - EVOLUTION OF TECHNOLOGIES Serialisation, unique numbering data > central database + Digital security Product SKU data + Production data + Distribution logistics data + QR codes, logistics codes + Packaging aggregation data + Business Intelligence + Increased security + + Material security + + Internet of things, interoperable + Inspection devices, smartphones Security RFID chips, security seals Semi covert, covert security features, inks Overt security features, inks, guilloche Paper stamps, substrates, tamper-evidence © SICPA Security Solutions – May 2014 - n° 11 Big Data

DIGITAL + MATERIAL SECURITY TOGETHER FOR PRODUCT AUTHENTICITY, ORIGIN AND DISTRIBUTION HISTORY CUSTOMS Secure codes / marks identifier linking product and process for authentication and traceability DISTRIBUTOR Web / smartphone / device for authentication and traceability of machine & human readable codes POINT OF SALE Web / smartphone / device for authentication and traceability of machine & human readable codes © SICPA Security Solutions – May 2014 - n° 12 BRAND OWNER Labeling obligation: Product Name, Ingredients / Contents, Expiry Date SKU / Serialization Traceability / Match CONSUMER Web / smartphone / device for authentication of machine & human readable codes

AGGREGATION TO FACILITATE CUSTOMS ACTIVITIES PALLET CONTAINER Container codes MASTER CASE PACKAGING PRODUCT Use of existing standards for logistics & consignment codes / symbology Aggregation data, shipment / reception data, reconfiguration data, waste data Government Data Management System: contains all data to facilitate law enforcement activities. Data may be exchanged with other Agencies (Tax, Health…), or regional control systems (EMCS…) © SICPA Security Solutions – May 2014 - n° 13

PROCESS FOR IMPORTS Information / Data Flow Secure Mark Flow Product Flow 1. Importer orders stamps 2. Upon Gvt approval, importer receives coded stamps 8 2 3. Stamps shipped to 3 b. Stamps foreign manufacturer kept by 4. Stamps applied on importer products by foreign 4 b. Stamp manufacturer and applied activated before 5. Stamped products clearance shipped by foreign 5 b. Stamps manufacturer activated 6. Customs clearance 7. Importer declares reception of stamped products 8. Inspections along distribution chain and at point of sale; consumer authentication © SICPA Security Solutions – May 2014 - n° 14 1 3 2 3 b 7 4 b 4 6 5 5 b Administration has access to data: • Products planned to be imported • Products imported from a reliable source

CROWD SOURCING TO GENERATE DATA AND INTELLIGENCE AGAINST FRAUD Hundreds Thousands Millions © SICPA Security Solutions – May 2014 - n° 15 Law Enforcement Agents Trust Points of Sale AEO, trust Importers, Distributors AEO, trust Manufacturers Trust: Authenticate products Public / consumers

CASE STUDIES 3. TRACK AND TRACE CONTRIBUTION TO THE WTO TRADE FACILITATION AGREEMENT © SICPA Security Solutions – May 2014 - n° 16

HOW TRACK &TRACK CONTRIBUTES TO TFA Article # Article 3 Article 5 Article 6 Title Sub title Advance Rulings Articles of interest 3. 9. 1 - Origin of goods = assessment of goods vs Agreements on Rules of Origin Other Measures to Enhance Impartiality, 5. 1. a - Guidance Non-Discrimination and Transparency based on risk to 1. Notification for enhanced controls or define level of controls inspections or inspections 2. Detention 3. Test Procedures Disciplines on Fees and Charges 6. 1 - Fees for imports Imposed on or in Connection with and exports Importation and Exportation 1. General Disciplines on Fees and Charges Imposed on or in Connection with Importation and Exportation 2. Specific Disciplines on Fees and Charges Imposed on or in Connection with Importation and Exportation 3. Penalty Disciplines © SICPA Security Solutions – May 2014 - n° 17 Track and Trace Marked products, Trusted traders Truster traders (AEO)

HOW TRACK &TRACK CONTRIBUTES TO TFA Article # Article 7 Title Sub title Release and Clearance of Goods 1. Pre-arrival Processing 2. Electronic Payment 3. Separation of Release from Final Determination of Customs Duties, Taxes, Fees and Charges 4. Risk Management 5. Post-clearance Audit 6. Establishment and Publication of Average Release Times 7. Trade Facilitation Measures for Authorized Operators 8. Expedited Shipments 9. Perishable Goods Articles of interest 7. 1 - Pre-arrival processing 7. 4 - Risk management (high vs low, and selectivity) 7. 5 - Post-clearance audits 7. 7 - Trade facilitation measures for AEOs including supply chain security 7. 8 - Expedited shipments –> 1. d - international security tracking techno, and 1. g - record of compliance. 7. 9 - Perishable goods Track and Trace Data on / of marked products Trusted trader Field inspections for authentication Data records of AEOs in the DMS Supply chain security DMS data transfer to other IT systems (e. g. Customs) © SICPA Security Solutions – May 2014 - n° 18

HOW TRACK &TRACK CONTRIBUTES TO TFA Article # Article 8 Article 9 Article 10 Article 12 Title Sub title Border Agency Cooperation Movement of Goods Intended for Import under Customs Control Formalities Connected with Importation, Exportation and Transit 1. Formalities and Documentation Requirements 2. Acceptance of Copies 3. Use of International Standards 4. Single Window 5. Preshipment Inspection 6. Use of Customs Brokers 7. Common Border Procedures and Uniform Documentation Requirements 8. Rejected Goods 9. Temporary Admission of Goods and Inward and Outward Processing Customs Cooperation 1. Measures Promoting Compliance and Cooperation 2. Exchange of Information (3 -12. are related to exchange of information) © SICPA Security Solutions – May 2014 - n° 19 Articles of interest Track and Trace DMS data capture and access Marked products, DMS Data in DMS data to focal points

CASE STUDIES 4. CONCLUSION © SICPA Security Solutions – May 2014 - n° 20

KEY SUCCESS FACTORS FOR TRACK AND TRACE Government willingness to implement a track and trace programme for selected products (e. g. excise) with supporting legislation. Selection of a system provider working for the Government and independent from the industry to ensure data integrity. Full implementation necessary to combat fraud (no loopholes). Interoperable system for data interface with other systems. Effectiveness of sanctions leading to transparency and protection of legitimate economic operators. System in the hands of and controlled by the Government. Start with a few products (high value, high tax) then expand. Multi-layered security made of material-based and digital-based security along the 4 pillars. Open to existing standards (logistics). Effectiveness of law enforcement activities with adequate authentication and traceability tools. © SICPA Security Solutions – May 2014 - n° 21

DOES IT WORK? SOME CLIENTS’ TESTIMONIALS ALBANIA “ 384 economic operators registered, out which 168 have been registered with the tax authorities before the implementation of the new law. 50 cases of violation have been evidenced. The unpaid excise tax is about USD 660, 000, while the imposed fines are USD 1, 692, 000” Arlinda Mulgeci, Deputy General Director of the Albanian Customs Administration at the World Customs Organization (WCO) Conference in Dubai, May 2013 BRAZIL “Tax collection in the beverage industry increased considerably with this more advanced approach to monitoring production, known as SICOBE. In the tax arena, certain tax avoidance tactics exist that efficient measures, like this system, eliminate. SICOBE makes it possible to more reliably and accurately monitor [the production of each beverage] in real time. ” Otacílio Cartaxo, Secretary of the Brazilian federal tax authority, quoted in Folha de Sao Paulo, 6 Apr’ 10 © SICPA Security Solutions – May 2014 - n° 22 CALIFORNIA “California is pleased with the encrypted cigarette tax stamp and we recommend the technology for use in other states. The use of our encrypted stamp has significantly increased effectiveness and efficiencies in the duties performed by the enforcement officers. The system attributes provide California with the technology needed to stay a step ahead of the counterfeiters and cigarette tax evaders. ” Lynn Bartolo, State of California Chief Special Taxes and Fees Division, in a letter dated 24 Feb’ 11

SOME CLIENTS’ TESTIMONIALS -2 MOROCCO “The aim of marking is to create traceability, to know in real time the production of the ones and others. The experience in a certain number of countries, in particular Brazil and Turkey, shows that this system offers a strong prospect. The increase in declarations reached 20% after the marking installation. We therefore suspect that the amounts of the statements were previously somewhat undervalued. Apart from that, we made a certain number of controls which also resulted in several recoveries. . . ” Zouhair Chorfi, Director General of Morocco's administration of customs and indirect taxes, interviewed by L’Economiste, 12 Oct’ 12 GEORGIA “SICPATRACE® implementation has started in Georgia in February 2012 and is fully operational on tobacco, alcohol and beer products. I would like to express my gratitude towards the company and highlight its excellent performance for reaching the objectives and requirements set by the contract between SICPA and GRS. ” George Bubuteishvili, Head of Service Department, LEPL Revenue Service (GRS) in reference letter to SICPA, 2013 © SICPA Security Solutions – May 2014 - n° 23 KENYA “The winner for the Best Tax Stamp Programme was the Kenya Revenue Authority for its Excisable Goods Management System. . … The introduction of the system has led to enhanced tax compliance, faster access to stamps and improved service delivery, and has resulted in KRA seizing over 300, 000 illegitimate products from about 900 outlets, prosecuting more than 150 offenders and increasing excise revenue on spirits by 53% between February and June 2014. ” Tax Stamp News Volume 6 – n° 9 / September 2014

CLIENT TESTIMONIALS EXTRACTS - 3 BRAZIL - Soft drinks and beer industry publicly recognises the benefits of the system to control and monitor their production. “NATIONAL BEER PRODUCTION With the installation of SICOBE (Beverage Production Control System), it was possible to control and monitor the beverage production, especially with soft drinks and beer. ” http: //afrebras. org. br/en/setor/cerveja/producao/ © SICPA Security Solutions – May 2014 - n° 24

CASE STUDIES 5. SICPA OVERVIEW © SICPA Security Solutions – May 2014 - n° 25

SICPA - AT A GLANCE Offices in 30 countries Sales to Founded in CH in 180 1927 countries 50+ engineering expertise © SICPA Security Solutions – May 2014 - n° 26 3000 employees

SICPA - GLOBAL ROLE Securing most of the world’s currencies, and value documents with high security inks Mark, authenticate, track and trace a wide range of products n ime pec S en cim pe S 140 billion banknotes / year © SICPA Security Solutions – May 2014 - n° 27 76 billion products / year

SICPA - GLOBAL PRESENCE © SICPA Security Solutions – May 2014 - n° 28