BREAKING: SEC Investigating PMI and Inexto for Corruption in Argentina

Diagram by Argentinian Authorities explaining conspiracy between Inexto and PMI

I had heard rumors of this for months but now there is confirmation. PMI and Inexto are under investigation for illegal activities in Argentina. They are accused of falsifying information, defrauding shareholders and potentially money laundering. Of greatest relevance to me is that much of this revolves around PMI’s Attempts to get Inexto’s Codentify technology utilized in Argentina.

The story was broken on two different Spanish websites Including TRIBUNA and a small blog which constants elements yet to be verified.

What we do know is that using Codentify, big tobacco tried to collude with corrupted government officials in a way that would mislead PMI shareholders.

The Story is as follows: In order to insure adoption of Inexto, PMI paid off government officials in the Argentinian government, specifically in AFIP and INTI.

If this is how they behave in South American I wonder how we can expect them to be different in the EU.

All of this is based on a letter sent to Jay Clayton a laywer at the SEC from Alejandro Kalbermatten of Argentina.

I am going to delve into this story further and publish a more organized piece next week.

Connections between DG SANTE, PWC and PMI.


On June 22nd the EU Commission Tobacco working-group’s  Subcommittee on Tracibility and Security Features convened a meeting in which DG SANTE informed the committee that they have subcontracted consulting work to two firms to conduct both a feasibility and implementation study of potential track and trace solutions to be implemented across the EU. The question is: are these third party firms truly independent of tobacco industry influence.

proof of contract.jpg
Screenshot from DC SANTE document citing PWC and Everis as consultants on tractability solutions.

The Tobacco industry has produced and promoted a system called Codentify which they have begun implementing across Europe in an attempt to create an unavoidable reality in which their system must be chosen by default. In actuality this system may not even track or trace products and as the health conscious community raised concerns about the systems capabilities the tobacco industry sold the system off to a, so called, “Third Party” company named Inexto in an attempt to distance the product from themselves. This story I proudly broke to the EU observer some months ago.

The World Health Organization’s (WHO) Framework Convention on Tobacco Control (FCTC) has explicitly stated that Codentify does not meet their standard for a solid track and trace solution for the industry.

The two company’s assigned the consulting task by DG SANTE  are PWC and Everis. The hiring of such firms came as some surprise to those watching this committee closely and when the firms names where announced it was important to explore if these firms have an intrinsic interest in supporting a tobacco industry produced solution.

After just an initial search it is clear that PWC has strong ties to the tobacco industry which put their objectivity in inherent question. PWC are the primary auditors for Philip Moris International (PMI) and have in the past done auditing work for British American Tobacco (BAT) as well.

Proof from PMI’s website of an existing relationship with PWC.

Although this is just preliminary information I will continue to delve deeper into this issue and publish as more information comes to light.


Initially  DG SANTE refused to respond to requests for clarity on these matters but in recent days have responded. I will be including their full response in a follow up article.

The Hidden Agendas behind Codentify

hidden_agendaToday I would like to tell you a story about the real uses of the Codentify system in the hands of the major tobacco companies to promote their strategic campaigns against public health legislation. One of the most interesting examples I’ve found is the lobbying effort against plain tobacco packaging in the UK.

First thing’s first, to those who don’t know what plain packaging legislation is – it’s a law that forces tobacco companies to sell their products in standardized packaging, with no brand-logo or any other information other than bold health warnings. This is already mandatory in Australia, and it is being introduced in some countries such as the UK and Ireland, so by the end of 2017 it will be compulsory there as well.

There is an ongoing worldwide debate on whether these laws are helpful, and I don’t want to elaborate on that matter. If you’re interested in more information I would start from the links submitted to the following Wikipedia page:

What is undebatable is the large efforts the tobacco industry invests to undermine these laws. Unlike fighting illicit trade, they find fighting plain packs a SERIOUS BUSINESS. They took it seriously enough to cynically use Codentify as their number 1 excuse claimed by their lobbyists to block these laws:

Meet MP Michael Morris (AKA Lord Naseby), the noble Lord is a consistent supporter of the Codentify system, and in recent debates on the topic of plain packaging, he attacked the plain packs law from an original point of view – the reason he opposes this law is not that it would reduce tobacco industry’s revenue, but that it would ban Codentify from being printed on the packs and therefore boost illicit trade!

The full protocol can be found in the link bellow.

Oh, one thing Lord Naseby has forgotten to mention, he is on a recent list of parliament members that accepted gifts from the tobacco industry! The Lord himself was invited to an Eagles concert by JIT! Now lobbying for JIT alongside MP Ian Paisley Jr. for example, who has penned an open letter including 51 other MPs against plain packs (while JIT owns one of the largest factories in Ballymena, the area he represents). I urge you to read the Telegraph’s article on that topic.

I’ll conclude with the answer of Lord Faulkner from the protocol mentioned earlier:
“In his amendment, and in his speech just now, the noble Lord, Lord Naseby, referred to the security system “Codentify”. This is a tobacco industry controlled system which the World Health Organization has concluded does not meet the requirements of the WHO Framework Convention on Tobacco Control anti-smuggling treaty that tracking and tracing systems have to be controlled by Governments, not by the tobacco industry. There is already a marking system on packs in the UK which enables enforcement officers to determine whether cigarettes are counterfeit. The tobacco industry opposes standard packaging for one reason only, and that is because it works.”

Now as I said earlier, I don’t know if plain packaging “works”, I only know what WORKS against it.

Dear John Smith AKA Whatever Your Name is.

jon smith commentHey everyone, So the tobacco industry has been causing me a lot of problems lately. They have now decided to comment on one of my posts under the name John Smith. The following post is response to whoever John really is.

Dear John,

First of all, I am glad we are finally im touch and you have decided to try and respond to my research. I must begin with it being truly a shame that what you wrote in your comment is not something you are willing to say to the general public using your real name, or whoever you are.

In all of my posts, I didn’t say shipping cases were not tracked by the industry, I’m sure it is selectively tracking some of it’s merchandise, for commercial reasons… What I continue to say is that when I buy a Codentify certified pack, I canot be sure that the product is genuine and that all taxes were paid to the right authorities.

Moreover, the additional information you’ve submitted (storage of 50 bundles X 10 pack Codentify codes) is NOT MENTIONED in the OFFICIAL site you’ve mentioned yourself (that basically has only commercial brochoures with no technical data). Storage of these codes raises other security issues, and the industry itself was damn proud they’re not storing codes anywhere in their previous presentations…

Don’t get me wrong, I would enjoy receiving actual, formal and official technical information.

Keep in touch.


The Track & Trace Problem

main_track_and_traceHey there! I have to admit, when writing my last post, I thought I was finished with describing Codentify’s technological disadvantages… It seemed to me I’ve told everything there is to say about how the tobacco industry’s promoting a quite lousy digital tax verification (DTV) solution to self-regulate its product. But then I recalled the tobacco companies don’t only promote it as DTV, but also as Track and Trace (T&T). The absurd thing about that, is that Codentify simply isn’t a Track & Trace technology at all. They might as well call it a nuclear reactor, it would not change the fact that Codentify doesn’t track nor trace cigarette packs.

I actually double checked myself by reading the Wikipedia article, to make sure it’s not my misunderstanding of what track & trace means, and I’m pretty sure I’m not the one who’s confused:

I quote: “Track and trace or tracking and tracing, concerns a process of determining the current and past locations (and other information) of a unique item or property.”

Well, as a smoker that bought a Codentify branded product, checking the code definitely doesn’t provide me any way to determine how the product got to my hands, but moreover, the customs, or any other governmental authority or even the tobacco company itself wont learn anything from checking the code, besides the “endpoints” of the supply chain (where it was produced, and to which market was it intended). This is a REALLY obscure way to interpret the track & trace term.

Theoretically speaking, there are two basic approaches to “follow” the product. One of them I’ve described as a possible solution to prevent counterfeiting, which is to verify the Codentify codes at multiple points throughout the supply chain. So if a product was “diverted” to illicit paths, there would be oversight what was the last “legitimate” point it checked in. Another method, is to digitally link (in the code generating process) each Codentify code to pallet-box-container codes, so when a consumer checks the code printed on his pack, he would know in retrospect how it arrived to the point of sale.

Within the industry, Codentify’s well-known flaw is that this linkage between the codes printed to the packs and the codes of cigarette pallets/boxes/containers doesn’t exist.

Therefore, checking a Codentify code reveals only the production information, such as the factory’s name and place, time of production, etc… calling it “track & trace” is a double-insult, for both consumers and industries that do use track & trace solutions to ensure their product was delivered in the proper way. Otherwise, we could call any product mentioning its production place, a “tracked and traced” product (and because stating the production place is obligatory in most countries, it means EVERY product can claim it has implemented a track & trace system when it comes to Codentify’s standards).

In conclusion, when it comes to Digital Tax Verification, even if Codentify’s solution is intentionally weaker than what it is supposed to be, the tobacco companies can at least pretend to try solving the problem. But when it comes to Track & Trace, they simply use technical terminology that has nothing to do with their solution, making-up a name for a feature that doesn’t exist. At all. I would find it quite funny if the joke was not on us.

The Production Fraud Problem

minsk_gear_factory_by_deaddietrich-d58sesqNow that the buzz surrounding my video I would like to get back to dissecting the problems of Codentify. After meeting the industry insider, I also have a far deeper understanding of the system.

To remind everyone in my last post I discussed how easy it is for factory employees, especially in IT management positions to obtain a large batch of genuine Codentify codes. This is made possible by Codentify system’s design that does not demand any confirmation of the produced volume reported back by the local manufacturers.

Today I’m going to address this fundamental issue from another point of view: How could the government be certain the volume reported by the manufacturers is correct? How will it be able to identify tax avoiding factories? To make a long story short, with Codentify replacing the tax-stamps system – It simply can’t.

Each week, the factory reports back to the governmental central server the amount of produced packs via an automatic SQL query from Codentify’s software installed on the code generator. With a little help from a computer programmer, this query can send practically any number. So let’s say a factory reports 90% of its REAL produced volume – it just scored 10% tax-free. Easy money. In fact, it is even easier than that: as I mentioned in the previous post, the electronic key sent by central server to the local manufacturer, allows it to print a large batch of, let’s say 5 million packs. But every time a new key arrives, there is still an excess of codes left on the code generator, simply needed to be printed elsewhere. So in fact, this 10% discount I was talking about earlier, might happen even without “fixing” the reported production numbers.

But why the small thinking? If a factory has found a way to over-produce packs in an undeclared production line, it might as well just duplicate the signal going from a code generator to the production line printer onto another ILLEGAL production line. This case is probably a “perfect crime”: Each pack, with its genuine Codentify code is produced twice. Statistically speaking, there is almost no way a code would be checked more than once to raise any flags. But even if a miracle happens and the same code is checked twice, consumer reports on that matter would be totally random with no pattern to trace or investigate.

Actually, I’ve been describing in detail all of these complicated scenarios when the point is quite simple, almost a trivial one – you shouldn’t let a corporation, ANY COPRORATION, self-regulate its taxes. Definitely not a corporation who’s tax-regulation policy is in the middle of constant debate.

Every year, more states decide to raise taxes for industries whose products are considered harmful for public health (such as tobacco and alcohol). Moreover, more and more states earmark the taxes they collect from these industries to fund anti-smoking, anti-drinking, and anti-drugs education programs and rehab center. In all of these cases, the industry tries to fight back, through massive lobbying and campaigning against these reforms.

Hence, with Codentify replacing tax-stamps, the industry is pretending to help solve the problem of illicit trade (and I’ve already explained why their solution is far from being sufficient), in the meanwhile gaining ammunition against governmental reforms by practically taking charge of their own tax collection. I guess when you have the tobacco industry’s resources – even if the government raises your taxes, you can still make sure it will not have the necessary means to enforce any of these decisions.

EXPOSED: Interview with a Codentify Insider

After much work to disguise his identity, I am finally posting the video interview with a former IT manager who worked with the Codentify system in a tobacco factory in the EU. After speaking with multiple experts in the anti-tobacco world, I am confident this is the most damning evidence against Codentify’s claims to being a viable tax code and track and trace solution for the industry.

See for yourself.

(Use the subtitle feature to better understand what is being said)