Category: Governments

Republic of Zambia seeing significant return on investment after beginning to enforce its fuel authentication program.

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Author: Kathryn Olivier

In recent years, the government of Zambia became aware they had a problem with illegal fuel dumping and/or adulteration. In fact, Zambia’s Energy Regulation Board (ERB) estimated that these activities were depriving the government of 81 million dollars USD per year in fuel tax revenue. To determine what fuel products were being manipulated, and where in the country the illicit activities were most rampant, the ERB implemented an ongoing fuel authentication program.

In February of this year, fuel from all government depots and certain national-oil-company depots intended for the Zambian domestic market were marked with a small quantity of a biochemical substance that acts as an identifiable “fingerprint” for the fuel. With more than six months of significant data from this authentication program, the ERB is initiating enforcement actions.

Baseline sampling and testing of Zambia’s fuel supply chain have answered the “what and where” questions about fuel manipulation that had previously eluded the ERB. They reveal that 1) there is a high incidence of tax avoidance through dilution of domestic fuel with unmarked products and/or kerosene; and 2) fuel manipulation is most prevalent along the country’s North/South transit corridor.

Based on these findings, the ERB has undertaken targeted enforcement actions. But they are also conducting continuous, impromptu sampling and testing of fuel at all filling stations, bulk fuel storage facilities, fuel tankers, and retail facilities for domestic consumption. The consumers of this fuel include mining and allied industries, construction, transport and logistics, general commerce, and the agricultural sector.

In addition, those who are suspected of conducting illegal fuel manipulation activities have been warned that the ERB working with Zambia Revenue Authority (ZRA), Zambia Environmental Management Agency (ZEMA), Drug Enforcement Commission (DEC), and the Zambia Police (ZP) are dealing firmly with fuel manipulators.

If an entity is found in possession of, selling, distributing, and/or transporting non-conforming petroleum products, ERB enforcement actions and penalties include license suspension or revocation, and the imposition of considerable fines and/or imprisonment (once convicted) for a period not exceeding two years.

The ERB and other cooperating government agencies are all enthusiastically undertaking appropriate enforcement actions to end fuel manipulation in Zambia. The ERB is optimistic that the effectiveness of the fuel authentication program will help ensure that fuel quality is guaranteed, and that maximum tax revenue can be realized from fuel sales in Zambia.

The impressive progress of the Zambian fuel authentication program is yet another example that fuel authentication programs such as theirs demonstrate a return on investment that is well-documented and compelling.

In addition, they provide other associated benefits—not the least of which is that they can help
governments ensure authentic products are sold in-country to benefit law abiding citizens – not criminals. Fuel marking solutions enable governments to collect more excise taxes without raising taxes for the benefit of citizens and legitimate industries

Responsible Fuel Supply Chain Management Just Makes $ense

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Author: Kathryn Olivier

Illegal Fuel Trade, Supply Chain Integrity and Technology

By: Erwin Dorland, Advisory Program Delivery Manager, Authentix

When addressing the problem of fuel smuggling or fuel fraud, responsible fuel supply chain management isn’t just a simple question of doing the right thing – it makes financial sense.

Responsible management and minimising risks within the fuel supply chain will ensure quality and security of the supply chain.

Financial gain is often the key motive behind supply chain infiltration, as illegal practices can be extremely lucrative1. Often the legal and regulatory framework is weak, the risks are low and the financial gains can be high. As mentioned in a previous BLOG, in many cases, organised crime is involved, which contributes to the growth of this type of fraud.

Most countries have significant problems with lower taxed fuels being sold at higher taxed prices. For example, in Europe, diesel is sold at a lower tax rate for agricultural use, but is illegally used by road users, who are supposed to purchase higher taxed diesel. This type of fraud is preventing governments from collecting the right amount of taxes, which impacts government programs, the well-being of all citizens and the environment in which we live. In my experience, there are four key areas of focus to ignite action against the business of illicit fuel trade.

Visibility2, 3

Visibility refers to the ability to see what is going on within the supply chain. Fundamentally, having access to information will enable managers to make better decisions.

Information technology is at the root of supply chain management. With the advent of the Internet and the Cloud, information exchanges can involve many stakeholders and enables access to critical data 24/7.

Traceability

Traceability is closely related to visibility and refers to the ability to track the fuel’s provenance and maintaining a record of activities of the product flow.

Several tools are available to ensure traceability as fuel moves through the supply chain. The advancements in technology now allow stakeholders to tap into a variety of information sources for a balanced view of supply chain participants and risks. The fuel industry has a number of tools available, such as visible dyes, covert dyes, chemical markers, sealing of tankers, GPS tracking of trucks, dipping of trucks, and wet stock control to track products, to ensure quality and prevent fraud.

Integrity

National governments are increasingly being held accountable for policy actions and therefore the governments’ awareness of and commitment to high principles and business practices is increasing.

The exposure of irresponsible practice in the supply chain can result in severe damage to national governments’ reputation and citizens’ trust. For example, governments not collecting the available taxes and having the appropriate system in place to do so, might have a negative standing with citizens.

Transparency

Transparency refers to national governments’ engagement and communication with external stakeholders. Such engagement is designed to share the national governments’ practices with those that have an interest in the governments’ behaviour, including environmental and social performance. Supply chain issues are becoming more and more visible to citizens and stakeholders. Therefore, developing transparent information systems and processes to communicate sustainable supply chain practices is vital. For example, governments can use social media to inform and educate citizens about their approach to responsibility, by promoting supply chain transparency.

 

Ready for Action

To really support the initiative to stop fuel smuggling and fuel fraud, making the supply chain more resilient to supply chain risk involves attaining a good understanding of the supply chain and conducting analysis of the potential threats and the level of risk4. Technology can be used to verify fuel authenticity and tampering. The resulting information will need to be captured using the appropriate information technology and made visible to the appropriate stakeholders.

Among the considerations of the technologies to be used, must be the ability for the technology to pay for itself. Government and policy makers need to be educated regarding the risks of fuel adulterations and how the legal and regulatory framework need to work hand-in-hand with the introduction of technologies. Awareness needs to be created that no technology will provide absolute supply chain security, as there are always weaknesses to be exploited. The key is to understand the key risks and put tools in place to collect the appropriate information, so those risks can be managed.

Click here to learn more about how Authentix’s Vigilant® offering is helping governments prevent fuel fraud. You can also learn more about Assure™, our brand protection fuel marking program for oil marketing companies.

 

References

  1. Illicit Trade, Supply Chain Integrity, and Technology – www3 … – Illicit Trade, Supply Chain Integrity, and Technology, J Picard and C.A. Alvaranga
  2. https://dupress.deloitte.com/dup-us-en/topics/operations/supply-chain-transparency.html – The path to supply chain transparency, D Linich, University of Tennessee
  3. Creating a Transparent Supply Chain Best Practices – Global Supply…  – Creating a Transparent Supply Chain – Best Practices, University of Tennessee
  4. Manage your supply chains responsibly – Business in the Community – How to: Manage your supply chains responsibly, Business in the community

The Harmful Implications of Illicit Fuel Trade—the economy, the people, the environment

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Author: Kathryn Olivier

Written by: Kevin McKenna, President, Oil & Gas, Authentix
Stop Fuel Fraud Series

People often ask me what I do for a living. When I state that I manage a business that helps detect and deter illicit fuel trade, most of the time the response is a confused look and the question, “What is illicit fuel trade, and is that really a problem?” My quick answer is that illicit fuel trade is likely the biggest problem that you have never heard of. The first step in tackling this menace is to shed light on its existence and the harm it inflicts on society.

For the past couple of weeks, we’ve produced some different blog posts discussing illicit fuel trade, a major worldwide problem stealing billions of dollars from governments, legitimate businesses, and consumers. “Illicit trade” can be the simple case of outright theft, which is very prevalent in Mexico today, where the state oil company, Pemex, says it lost about $1.6B in 2016 from fuel stolen from over 6,800 pipeline taps across the country. Another scheme of illicit trade is made possible by exploiting the differences in price between fuels or other petroleum products because of tax differences, subsidies, different grades, or product types (e.g., adulteration with non-fuel products such as solvents or waste oils).

Why fuel fraud is hard to detect

In both cases of illicit trade, the execution of the crime is simple – take a lower price (or stolen) product and either mix it with a higher priced product or replace it outright – sell the fuel at full price and pocket the difference. Even small differences in product prices can generate massive returns for criminals due to the sheer volume of petroleum products consumed every day. The crime is further enabled by the difficulty in detecting when it is perpetrated.

What does this mean to you?

Most consumers never see the road fuels that they purchase, and even if they did, an illicit product may look the same as legitimate product. If as a consumer, I unwittingly buy adulterated fuel at the premium price, obviously, I don’t get what I paid for; but it can also damage the engine of my car, reduce my fuel economy, and increase air pollution. The government doesn’t collect the taxes it needs, legitimate businesses suffer from unfair competition, and the reputation of oil marketing company brands may be unfairly tarnished.

At Authentix we believe that a system of fair and open commerce serves as a powerful agent for good throughout the world. When this system is compromised by illicit trade, civil society is weakened. The scope and scale of illicit fuel trade is particularly damaging in this regard – diverting money to organized crime and, in some cases, terrorist organizations, while defrauding governments of tax revenue necessary to fund programs in the service of their citizens. In many cases these taxes are a significant portion of the country’s total tax revenue – any shortfall in collection may necessitate higher taxes in other areas, placing an even larger tax burden on the populace.

The only people benefiting are the criminals perpetuating the crime – and it is BIG business. Our experience in several countries is that the illicit trade rate in the fuel supply chain was over 30% – translating into hundreds of millions of dollars each year lost to criminals in each of these countries.

Time to disrupt the business of illicit fuel trade

Fuel Marking Programs (FMPs) are a highly effective means to redistribute illicit gains away from organized crime and savings toward legitimate businesses and Government, while ensuring consumers get the quality products for which they have paid. In weeks to come, we will dive into FMPs and how we have seen FMPs assist governments in enforcement of policies prohibiting illicit fuel trade. Many of these programs deliver a significant return on investment of usually five to 10x the cost of the program.

I hope you recognize the lasting implications illicit fuel trade has on all of us. Usually after an awakening to how people’s everyday lives are affected, the next question is typically, “Why isn’t every government doing an FMP?” My personal opinion, it’s the same reason that most citizens aren’t aware of the problem and the harm it brings to their community – something we at Authentix are working diligently to change.

Click here to learn more about how Authentix’s Vigilant® offering is helping governments prevent fuel fraud. You can also learn more about Assure™, our brand protection fuel marking program for oil marketing companies.

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

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Author: Kathryn Olivier

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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