Labeling and packaging play a major part in supplying information and instructions in order to convey directives to the user that identify the brand, provide useful data regarding origin and age, and often an indication that products have not been tampered with during the distribution cycle.
Figure 1.1 - The role of packaging and labeling is not just to ‘contain’, ‘ inform’ & ‘protect’ but also to help manage certain risks within the supply chain
All goods can be loosely classified as ‘assets’, since products have a value and it is this value that can be at risk from threats such as counterfeiting, diversion, tampering and theft. In this first part of the study into security labels and packaging, the focus will be on how important it is to recognize where risks may be encountered in various product sectors, and how these can be mitigated through the use of a variety of techniques that are available to the informed labeling and packaging producer or supplier.
Figure 1.2 - Security labels and packaging can be used to protect ‘assets’
It is also important to understand that security labels and security packaging in isolation cannot protect products from attacks such as counterfeiting and tampering. What they can deliver though, is a cost effective indicator that a security threshold has been breached and that action is needed to address an important safety or operational issue that needs to be actioned by a specialized security team tasked with removing that threat.
All products have a value, some more than others. It is that value that comes under attack from criminals and lawbreakers who identify soft targets that can provide an easy source of income with little effort and little outlay.
PROTECTING AGAINST THREATS FROM COUNTERFEITING
One of the biggest threats faced by manufacturers of industrial and consumer goods, including food and drink, is counterfeiting.
A surprising fact is that a product does not have to possess a high price tag to provide an attractive target to a counterfeiter.
With luxury brands the value is perceived in exclusivity, materials and design. However, even mundane products such as toothpaste and household fragrance dispensers can attract unwanted attention from fraudsters who know that these products contain inexpensive ingredients complemented by a household brand name. High product usage supports high prices through heavy advertising and an established pedigree. It is this added value that becomes an attractive target for the fraudster.
Counterfeiting is a crime that is global in scope and affects some twenty five market sectors across a wide range of goods. What is more, the market for fake products continues to grow and now touches an estimated 7 to 8 percent of trade or 1 trillion USD of revenue lost each and every year. (Some estimates put the figure as high as 1.8 trillion USD).
This type of crime is often considered ‘victimless’ and penalties can often seem insignificant when taken in context with the damage that can be done when fake medication, illicit liquor and bogus vehicle parts enter the supply chain.
Product related crime that encompasses counterfeiting and a number of other misdemeanors is growing by more than ten percent per annum, driven by the profits that can be made from cheap manufacturing. Economies in production are often supported by forced labor and distribution chains and methods that parallel those used to circulate narcotics and illegal weapons.
Indeed, product related crime often acts as a source of capital to fund even more heinous activities such as people trafficking, prostitution and terrorism, since it can generate large sums of cash quickly and with a minimum of risk.
Counterfeit products often pose an immediate danger to health since they are never manufactured to the same standards as authentic, proprietary merchandise. Most worrying, this trend is led by fake prescription drugs such as those used to treat cancer, heart disease and severe infections such as malaria and outbreaks of bird flu and suchlike.
Figure 1.3 - The economic cost of counterfeiting to the global economy. Source- NetNames
Since all proprietary drugs are specifically researched and developed they carry with them a high cost that relates to the investment made in bringing them to market. These outlays require protection in the form of patents, which protect in law the right for the developer or brand owner to be shielded from reproductions of the same compound by competitive manufacturers.
When patents run their course, which is usually around twenty years, other manufacturers are then able to add these previously protected products to their portfolio.
Obviously, medication specially developed for both human and animal use becomes an attractive target to counterfeit. This is because the cost of these products is high and through substitution of alternative non-performing ingredients criminals are able to place fake medication into the market at similar prices to authentic drugs and obtain immense profits from the operation.
This criminal activity has become so severe that governments have been forced to implement legislation that makes it mandatory for brand owners to apply markings to their authentic prescribed medical products so that they can be easily recognized as genuine by everyone in the supply chain.
This approach is by no means unique and a number of other industrial and consumer goods sectors of the market have, or are in the process of, developing systems that can be utilized to establish genuine product and provide an easily recognized indicator of authenticity for those tasked with policing the supply chain.
For instance there are many active consortiums of brand owners now operating in conjunction with specialized investigation teams supplied by established and recognized security operators who provide expert investigation staff who seek out suppliers and distributors of counterfeit products with a view to seizure and litigation.
It requires a high degree of skill and expertise to be able to track down and identify some fake products, since not all counterfeits are of poor quality or can readily be recognized as bogus-as they are on-sale from street vendors. Specialized teams of security investigators now operate in the tobacco, liquor and imaging supplies sectors. Likewise such squads are also available to supply service in the luxury goods, cosmetics, auto parts and electronic components sectors too.
Since packaging and labeling are common factors in most market sectors these items have become a de-facto carrier of indicia that can be useful in establishing the provenance of a product over and above the presence of a brand name, trade mark or registered design which can easily be copied.
By providing an easily recognized security printed, or applied indicia on product packaging and labeling, a brand owner is able to make available a standard authentication tool. This device enables investigation staff that are unskilled in meticulous product evaluation to make a judgement as to whether or not merchandise is indeed genuine.
Figure 1.4 - shows the major classifications of merchandise susceptible to counterfeit attack that can carry indicia on packaging and labels
Reference was made previously to health and safety, which are major issues when it comes to fake products being purchased and put into use unknowingly. Whilst purchasers may well be aware that they are buying a counterfeit product because it is self evident, many others may well be legitimately duped into purchasing a fake, especially if this is acquired in a retail store, by direct mail or from, say, an internet pharmacy.
It makes good business sense for criminals to infiltrate their bogus products into the legitimate supply chain in order to mislead consumers into making an unsafe purchase. This can be accomplished through a number of devious tactics such as illegally employing legitimate staff to withdraw authentic product and replace this with imitations or by setting up ‘official looking’ websites or direct mail companies that mimic their real counterparts.
The major consumer ‘at risk’ sectors of this activity are alcoholic liquor, pharmaceuticals, automotive parts and cosmetics, as purchasing (and using) these fake products can prove to be dangerous as they often contain harmful ingredients or components. For instance bogus liquor, often found for sale on main street sole trader outlets can contain fatal amounts of methanol. Cosmetics, also found on sale in similar outlets can contain lethal doses of heavy or toxic metals. Fake prescription drugs do not contain pure or active ingredients and phony auto-parts such as brake pads can cause accidents because they fail to operate effectively.
Other less risky, but nevertheless potentially harmful contents, can be found in counterfeit cigarettes, clothing and footwear, electronic goods, dietary supplements, chemicals, headgear and children’s toys.
Taking these sectors in turn it is not surprising to know that fake cigarettes and tobacco products often contain much more harmful ingredients than their real branded counterparts. Tobacco in fake products can be diluted with wood shavings, dried animal feces and other constituents that bear a similar texture and visual appearance to tobacco.
Clothing and footwear, safety headgear and toys are all products that require safety testing and compliance to standards that are designed to protect against accidental injury from fire, impact or ingestion in the case of children’s toys, where lead paint can poison if a toy is chewed, or small parts can cause choking attacks.
Chemicals, both household and agricultural, are also popular targets for counterfeiters because they often carry high price tags and are highly concentrated or contain patented ingredients that have involved expensive research.
Finally, counterfeit electronic goods, in both finished usable and un-finished component form, can potentially cause harm to users as they are not manufactured to recognized safety standards such as UL (Underwriters Laboratory) in the U.S.A. and CE marking in the European Economic Area (EEA).
Safety marked products offer another attractive target for the counterfeiter as such fake items do not have to conform to rigorous safety standards.
Reference will be made later to a number of other commercial risks that may be addressed through the application of secure packaging.
PROTECTING AGAINST THE THREAT OF PRODUCT THEFT
Product theft, from retail stores and also from within the supply chain, continues to cause substantial losses for businesses worldwide.
In some sectors of retail, theft from the display area and also from storerooms in the back of store, can amount to as much as two percentage points of lost turnover. Observant shoppers will notice the most at risk stores from the presence of security detection systems at each store entrance and exit. They take the form of tall gate-like structures placed each side of the gangway.
These detection systems are able to identify products that have not passed correctly through the checkouts, and therefore may be stolen.
The system, known as Electronic Article Surveillance (EAS), operates through the presence of a label or tag embedded within the packaging of items at high risk from theft. Each label or tag has an embedded micro-circuit that is activated when products are placed into the retail supply chain or on display in store.
Each checkout, at stores equipped with these EAS theft detection systems, is equipped with a deactivation station. The EAS micro-circuit is only deactivated when paid for products are passed through the store checkout. Any products that contain an EAS tag that has not been deactivated will trigger an alarm as they pass through the security detection zone at the store exit. This alerts security staffs who are then able to deal with the problem appropriately.
A number of EAS systems exist and all require specific security tags in label form to be present on at risk products in order to identify and deter theft. Some equipment used in this field depends on Radio Frequency Identification (RFID) and this technology. It may also be added to packaging either openly to deter theft, or furtively so as not to visually detract from established pack design operates in a similar manner to contactless payments inasmuch as tags can be recognized and be activated or deactivated from a distance.
Whilst contactless payments require a close proximity with the reading apparatus, EAS RFID can operate at distances enabling the technology to effectively cover the entrance of a store front, for instance.
Figure 1.5 - An anti-theft RFID label or tag can be added to a product to identify stolen products in-store or in the supply chain
It is possible to leverage a number of other benefits from RFID labels other than anti-theft devices, but more of this later.
The use of EAS security labels and tags is most commonly seen in self-service stores such as supermarkets, department stores, DIY centers and clothing and footwear outlets. The practice of adding EAS tags to liquor and luxury food products such as smoked salmon and expensive cuts of meat is also becoming prevalent as retailers attempt to detect and deter stock loss.
DIVERSION AND PARALLEL TRADING THREATS NULLIFIED
So far reference has been made to how labels and packaging are useful platforms for authentication indicia and theft detection systems.
There are however, a number of other little known but nevertheless important risks, which may also be addressed through the presence of print related security systems or features that can be added to labels and packaging.
Some of these risks relate to the differences in selling prices for high profile brand-named products that exist from region to region throughout the world. The process is known as ‘parallel trading’ when regular goods are involved, and ‘diversion’ where excise duty is levied at differing rates.
These price differences may be because of taxation variances, or they may come about as brand owners seek to grasp the maximum value they can from a luxury good or indispensable product in a market that is opulent rather than deprived.
Take pharmaceutical products and medications as an example. These are often discounted in third world markets where the population is unable or unwilling to pay the same price that is demanded in the North American or wider European markets. The trick here is for wholesalers to buy in markets where products are less expensive (usually deprived or developing nations) and then move the goods to countries where prices are higher, thus making a tidy profit in the process.
Whilst this might be viewed as sharp practice by the legal brand owners, it is often difficult to deter and since a certain degree of value is lost to the manufacturer in the process, it requires some ingenuity in order to identify and halt the loss of profit and shareholder value that is eroded when parallel trading occurs.
The descriptive term ‘parallel trading’ relates to products that flow into the market from official and unofficial sources in tandem. The official source is that route chosen by the brand owner and covers officially priced product. Traders and wholesalers then infiltrate the channel with cheaper authentic product sourced from elsewhere. There is also a risk of counterfeit product flowing within this chain too, so being able to identify legitimate goods within each discrete market is of major value to each brand owner.
A similar situation to this occurs when excisable products such as tobacco and liquor find their way into illegitimate distribution channels. In this case the brand owner is not the loser; rather it is national and regional governments that face the loss of taxation revenue when this illegal practice occurs.
Everybody will be aware that some products face taxation or excise duty charges as a revenue generating stream for either national governments or regional administrations. It’s these taxes that help pay for services provided by the state. Rates of taxation are set centrally and often differ from country to country or region to region. In the USA, for instance, tobacco may be taxed at varying rates in adjoining states. In Europe liquor and wines are taxed at differing amounts, sometimes to deter unhealthy consumption, but also in order to generate as much revenue as possible for the administration in charge.
In economic terms products that are highly taxed and still find ready buyers are termed ‘inelastic’. It’s these products that face the danger of the highest levels of taxation, and also are at most risk of diversion from regimes that levy lower rates to administrations that tax much higher.
Originally, this law-breaking was termed smuggling, but more commonly today it is referred to as excise evasion. In order to overcome the threats relating to excise duty evasion and product diversion many regimes now mark excisable products with special security labels termed ‘tax stamps’ in order to show duty has been paid and also to help identify the source of origin of dutiable products.
Since both diversion and parallel trading result in significant loses for governments and brand owners there is a growing requirement to track and trace those products most at risk.
Track and trace systems often take the form of numbered labels as well as special product marking codes that are useful in determining the authenticity and provenance of goods. Here then, packaging can be a useful platform for carrying identification markings that can be used to detect and deter illegal imports and unauthorized goods in retailers and distributors in the supply chain.
Figure 1.6 - Excise duty labels are useful tools in the fight against custom duty fraud and are affixed to at risk products either as self-adhesive stamps or as wet glue decals
PROTECTING AGAINST SUBSTITUTION, TAMPERING, DILUTION AND EXTORTION
Everyone recognizes the need for tamper evidence in all forms of packaging. Proof of first opening communicates with consumers the freshness of food and drink products and that a pack or jar remains safe against previous and maybe unsafe openings.
Tamper evident closures take many forms. Push button twist and open caps on jars, drop down tamper evident cap bands on bottles and weld seal zip locks on polyethylene bags. In the case of security related labels and printed packaging, focus is made on those closure seals that can be manufactured on label presses and other forms of traditional print equipment.
This is because printed tamper evident seals are most useful when they can be made to satisfy a number of other major risks in addition to offering evidence of first opening, or that a product’s packaging has remained safe and secure during transit and/or on a retailer’s shelf.
A number of dangers exist in this ‘sphere of influence’ and these all relate to unlawful activities that encompass opening packs on supermarket shelves and part consuming product (grazing), then returning a re-closed pack back onto display for later consumption by an unaware purchaser.
Other risks involve the refilling of discarded empty packs with inert or similar looking material through to ‘spiking’ product with harmful substances and then extorting a retailer or brand owner into paying for information on which products were affected and where, before they are consumed by an innocent purchaser.
Figure 1.7 - Refilling is an ever present danger in the high value liquor market
Whilst this latter attack is thankfully very rare, it has been widely reported a number of times in the last decade or so and is treated in a similar manner to blackmail by the police.
Finally there is also the risk of dilution to guard against. This occurs when packs are opened, the contents diluted with inert substances and the ‘refilled’ product is spread further (into counterfeit packs) making more profit for the supplier. This type of attack happens to liquids such as liquor, concentrated detergents and products supplied in bulk such as fertilizers, washing powders, chemicals, oils and paints.
As would be expected, a number of innovative solutions to these problems have been developed in tamper protecting perforations used on labels that deliver a ‘seal’ to screw caps for jars and bottles order to address the risks associated with this type of product related crime.
The most simple construction is a self-adhesive ‘bone label’ with tamper strip perforations to deter and detect removal and re-affixing. This label is affixed (using wet glue applicators) over the pack closure and can only be removed through the destruction of its surface.
Figure 1.8 - Various tamper evident constructions showing perforations and tamper indicating adhesives
Making this construction more complex and therefore more secure, involves adding tamper evident features to the adhesive by utilizing specialized substrates available from recognized material suppliers.
These ‘printed’ adhesives provide very good evidence of unauthorized opening.
More complicated versions of construction are available that allow for resealing after the pack has been opened. The integrity of the seal however, once opened, remains in a state of alert, with a clear warning message that is difficult to remove as it is formed from tinted, patterned adhesive.
An extremely cost effective approach for brand owners and designers is to add authentication devices to this method of securing a closure. If that process is adopted then two security threats may be accomplished simultaneously.
RETURNS FRAUD – A GROWING PROBLEM FOR E-TAILERS
An e-tailer is a store or individual who does business only or primarily on the Internet. Both traditional main street retailers and their cousins on the world wide web suffer from returns fraud.
This type of fraud involves the purchase of expensive goods and then dismantling them and stripping out valuable components which are replaced with counterfeits or obsolete mechanisms that carry out the same function as the original.
For instance, high specification graphics cards on new computers can be replaced with outmoded parts. Re-clocked processors are also a target for this activity.
The main target for these types of attack focuses on industrial and military electronic components. This is a fast moving business and microelectronics are quickly outdated making their obsolete equivalents worth much less but so similar in visual appearance that they can be easily re-marked and sold for a higher amount.
Marking the authentic components and corresponding labeling and packaging with suitable security devices is an important part of providing clear identification features in this sector.
Likewise, there are similar risks within the e-commerce market place, especially where high cost luxury or branded designer products are purchased with the intention to return them for refund after first use.
Figure 1.9 - e-tailers are now a part of every consumer’s environment
The trick here is that if you are planning to attend a wedding or similar event and want to impress everyone, you identify your chosen outfit on the net beforehand and then purchase in the usual way using your shopping cart and credit card. As long as your apparel and accessories are not marked you can return these later for a refund!
Alternatively, savvy (but dishonest) shoppers are now purchasing fake designer goods on internet auction sites and then buying their REAL counterparts from authentic suppliers who are then sent the counterfeit products as a ‘return’ for a refund.
Both these latter stings are serious matters for Internet-based retailers and also for mainstream retail that offers a (collect at store) or mail order delivery service.
In many cases the only sure fire method of identifying this type of fraud is by labeling products together with tamper proof hang tags that carry suitable security markings attached with closures that are also difficult to copy. Also these items should carry security features that enable quick identification to take place during returns inspection procedures.
This article contains a brief summary and selection of the most suitable applications for security enabled packaging and labeling. It is by no means exhaustive and during their day-to-day contact with customers, suppliers of these products will discover a number of other important opportunities for products of this type that can be manufactured on a printing press.
Counterfeiting is often viewed as a victimless crime. Nothing could be further from the truth. Criminals and terrorists do not ‘partition’ crime; to them it is homogeneous. Counterfeiting is often viewed as a relatively riskless activity for creating monies in order to finance more profitable endeavours such as people trafficking, drug distribution and attacks on democracy in order to destabilize governments.
These facts may be the reason why counterfeiting and its associated activities continue to be of interest to law enforcement agencies such as the FBI, Interpol and Europol. However, other players such as investigation agencies, intellectual property lawyers and trading standards organizations are also key performers in the reduction of activity in this field.
Since none of these groups are expert in identifying fakes across all sectors, security product marking, linked to effective control systems, is an important assistive tool when applied to labels and packaging.