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Global Supply Chain Integrity: How to Fight Illicit Trade and Diversion
Global Supply Chain Integrity: How to Fight Illicit Trade and Diversion

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03 February 2021

Global Supply Chain Integrity: How to Fight Illicit Trade and Diversion

Globalization, trade facilitation and intellectual property sensitivity are key drivers of economic growth.

Unfortunately, these have introduced other threats, orchestrated by extensive criminal networks to interfere with the integrity of global supply chains every day. When did we start worrying about the origin of products we consume and develop our concerns about ethics, environment, and product safety?


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It is surely not a recent trend: this issue, in fact, dates back two hundred years.

We mean by “Illicit Trade” any tampered activity to the genuine product such as counterfeiting, smuggling, tax leakage, homemade products, and the reselling of expired goods.
“Diversion” means to selling a genuine product in an unintended country at different price and most of the time expired or inefficient (product integrity).

Global Supply Chain Integrity

The main drivers that encouraged Illicit trade and diversion are driven by end-consumers, business stakeholders and regulations. For example, during Covid-19 period, consumers’ anxiety was depicted in stockpiling products of basic needs (CPG) such as processed food, drugs, and home care. Such shortage combined with closed borders had disrupted drastically global supply chains. In certain industries, transnational organized crime networks are exploiting the weaknesses of ineffective regulatory frameworks, supply shortages, changing consumer preferences and price gaps to expand their illicit footprint.

 

THE PLAGUE OF ILLICIT TRADE AFFECTS ANY INDUSTRY:


For example, illicit trade in pharmaceutical products involves both counterfeit and diversion (authentic goods sold in unlicensed territories). Fake or inefficient drugs can include toxic/alternative/expired ingredients that in the best-case scenario provides no intrinsic benefit without harming the patient, but in the worst-case scenario, causes serious illness or fatality. Other cases of illicit trade involve the tobacco and alcoholic spirit industry in which excise taxes are applied by governments, to monitor its diversion and minimize the excess consumption from harming citizens, especially the younger generation. Based on a study done by Euromonitor[1] entitled “Illicit Trade in Times of Coronavirus”, it was explicitly mentioned that the pandemic and the measures taken to prevent it such as lockdowns and closing borders, have seriously disrupted global supply chains and economic activity.

 

Prof. Paul Newton, an expert in fake medicines at the University of Oxford, warned of "a parallel pandemic, of substandard and falsified products" due to outbreaks and shortage during Covid-19. Coronavirus worsens USD 4.4 Billion the global counterfeit medicine problem as of May 2020[2].  The World Economic Forum (WEF) estimates that more than US$2.2 trillion will be lost due to illicit trade leakages in 2020, so the Global GDP is now expected to decline between -5% and -8% instead of a 3% growth. In one week from the declaration of WHO for Coronavirus pandemic,  Operation Pangea[3], Interpol's global pharmaceutical crime fighting unit, made 121 arrests across 90 countries resulting in the seizure of dangerous pharmaceuticals worth over $14m for 4.4 million units and more than 2500 websites were taken offline.

 

For these reasons, global supply chain integrity is becoming a primary concern for everyone when even counterfeiters get counterfeited! The complexity and interconnectivity of supply chains mean that it is often very difficult to know what is going on beyond first-tier suppliers. In this direction, the Organization for Economic Co-operation and Development (OECD) and the EU Intellectual Property Office (EUIPO) joined forces  with Interpol to study and analyze many reports in order to measure and quantify the severity of the problem related to either the trade of counterfeits or the diversion of genuine products. Such reports are the outcome of all the investigations done by the Interpol in association with WHO, FDA, regulatory authorities, and governments, just to name few.

 

HOW TO FIGHT ILLICIT TRADE AND DIVERSION?


The outlook is not optimistic as business conditions and global supply chain integrity will remain uncertain until the “next normal” post-Covid period.
Meanwhile, to combat the most vulnerable illicit activities and diversion, a tiered approach has to be in place:
First, a global harmonization and interoperability among all players has to be established empowered with a complete transparency enabling event communications at each point in the global supply chain.
This is hard to achieve without:

 

However, technology can be a double-edged sword where even criminals can benefit from encrypting their communications and operating from countries beyond the reach of any law enforcement. Thus, the convergence of product-tracking and authentication technologies using smart labels from one side and mobile/cloud technologies for real-time analysis and full visibility from the other side is primordial. Any party can obtain reliable item-level information on provenance and securely discern the genuine from the illicit product leveraging Brand Protection and Track & trace solutions. Each time a product is scanned for safety before/after purchase, a feedback loop that enriches information flows and reinforces the system is created[4]. 

 

THE FOUR QUESTIONS OF PRODUCT-LEVEL SUPPLY CHAIN INTEGRITY:


Supply chain integrity management or ‘chain of custody management’ has to tackle the four questions of product-level supply chain integrity as mentioned in the world economic forum in 2012:

  1. Integrity of source: Does this product come from where I think it did?
  2. Integrity of content: Is this product made the way I think it is?
  3. Integrity of purpose: Is this product going to do exactly what I think it will?
  4. Integrity of channel: Did this product travel the way I think it did?

 

Antares Vision Group is a global managed service provider for Brand Protection solutions, including but not limited to a Track & Trace system with a dedicated platform for Digital Authentication and consumers’ engagement. Our main concern is that, at the end, any consumer should be able to trust a product sourced online or within an unregulated nation, with the same confidence as if they are taking it off the shelf of a well-known high-street retailer.

 

Empower Your Product with Trustparency®


[1] Euromonitor

[2] Stopillegal.com URL: https://www.stopillegal.com/blog/detail/coronavirus-worsens-usd-4.4-billion-global-counterfeit-medicine-problem

[3] Interpol. URL: https://www.interpol.int/Crimes/Illicit-goods/Pharmaceutical-crime-operations

[4] Researchgate.net. URL: https://www.researchgate.net/publication/341078177_Illicit_Trade_Supply_Chain_Integrity_and_Technology

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