Kenya- BAT’s Tactics to Influence Track and Trace Tender

Background

In 2012, the Kenyan Revenue Authority (KRA) held a tender, looking for a company to develop and implement an Excisable Goods Management System, for the fixing of revenue stamps to tobacco, wines, and spirits.¹
As the first tobacco track and trace system (i.e. determining where a product was produced and following it through to the point of sale) to be implemented in Africa post the World Health Organization’s Illicit Trade Protocol, Kenya’s tender outcome was important to the tobacco industry, as the selected system could go on to be adopted elsewhere.²³
British American Tobacco (BAT) tried, unsuccessfully, to influence the tender’s outcome in favour of the tobacco industry’s own track and trace system Codentify, through the use of a third party with close links to the tobacco company.

BAT Opposition to SICPA Solution

The KRA received 21 tender applications, including a submission by Swiss company SICPA. Its SICPATRACE@ solution had previously been implemented in California, Massachusetts, Turkey, and Brazil.⁴
The tobacco industry considered SICPA’s solution a threat to the adoption of its own Codentify system,⁵ with a document written by a member of the pan-industry working group on Digital Tax Verification (DTV), stating that:

“It is very important to monitor activities by SICPA and other tax stamp suppliers in your market. If we are reactive, there is a big risk that we only learn about the activities of these suppliers when a tender document is published- often describing a specific solution in such technical detail that competing technologies, such as DTV using ‘Codentify’ are excluded. This situation is ‘too late’ for the industry as the SICPA engagement will have been active and very carefully planned for some time prior to a tender.”⁶

A tobacco industry lobbyist argued that if SICPA’s solution was adopted it would “set a very unhealthy precedent” by locking out “every other provider in the sector”.⁷ A SICPA representative responded to this, stating that “a powerful, independent ‘track and trace’ regime would make illicit tobacco trade very difficult” and that “if you don’t want that to happen… you can replace it with something less effective”.
SICPA’s comment suggests that the industry’s support for Codentify represents support for a less-effective measure for addressing illicit tobacco trade which, given the evidence of its historical and ongoing facilitation of tobacco smuggling, may be the industry’s intention.

• For information on the tobacco industry’s historic involvement in, and more recent facilitation of, illicit tobacco trade, see also: Tobacco Smuggling.

Use of Third Party Technique: FractureCode

BAT Kenya did not tender for the service directly, but instead used a third party called FractureCode to promote Codentify. FractureCode is a Danish company established in 2002, offering track and trace, digital authentication and volume verification solutions including Codentify.⁸ The company was a founding member of the (CAIT).
Eric Jones, BAT’s International Solutions Engagement Manager for Global Supply Chain Tracking and Verification, noted in a leaked email to BAT Kenya:

“following the launch by the KRA of the tender that clearly favoured SICPA, we agreed the use of FractureCode (FCC) to support you in fighting/amending/cancelling this tender.”⁹

Jones added:

“It is worth noting that not using a third party such as FCC to respond to the tender is likely to severely reduce our ability to shape events and prevent SICPA from winning”.

Court documents relating to an employment dispute between BAT and its former employee-turned whistle-blower Paul Hopkins, state that FractureCode was “in the pay” of BAT by 2011.
Leaked industry documents suggest that FractureCode’s roles included: “to guarantee to governments that the “Codentify system works” and “to promote and sell the system to governments”.
The documents also show that BAT had “purchased” the tender on FractureCode’s behalf, had commissioned FractureCode as a consultant to represent them at a KRA question and answer session, and had drafted a letter on FractureCode’s behalf to be sent to the Commissioner General of the KRA, saying: “We, FractureCode Corporation/Codentify, a well-established Security Company in Denmark, promoting and selling Digital Tax Verification for Tobacco and Alcohol Products, would like to formally protest about the conduct of the recent KRA tender carried out by your authority”.
FractureCode also collaborated with the Danish Embassy/Foreign Affairs. Leaked emails indicate that the Danish Embassy wrote a letter on FractureCode’s behalf and met with the KRA to help get the tender extended. On 4 May 2012, a Danish Embassy staff member in Nairobi emailed the minutes of their meeting with the KRA to FractureCode stating:

“We believe the result of this meeting leaves room for your company to submit your bid and have a direct dialogue with the KRA throughout the process. The Embassy would be happy to assist you in facilitating the contract.”

The Embassy sent FractureCode an invoice for nine hours work at 915 Danish Kroner (roughly £108, as of June 2018 an hour).

Alleged Bribery of Kenyan Politician

Former BAT whistle-blower Paul Hopkins has claimed that he paid former Kenyan Justice Minister Martha Karua £50,000 in exchange for confidential information regarding procurement of the excise tax stamps. An article in The Independent revealed that BAT “then had the contract deliberately delayed while they secretly lobbied to get their own system chosen”.¹⁰

Outcome of BAT’s Efforts to Undermine Tender

Despite BAT’s efforts to undermine the successful tender, at the end of 2012 KRA awarded the tender to SICPA.
Responding to BAT’s potential involvement, the KRA stated that:

“BAT Kenya, as an entity, has not tendered for the supply of Excise Tax Stamps, in any of the tenders floated by KRA in the past. Additionally, KRA is not aware whether BAT supported any of the past bids presented by participating companies.”¹¹

The tender was for a five-year contract to provide 3.55 billion stamps a year which was later increased to 12.87 billion stamps, extending from tobacco products to also include beer, bottled water, and soft drinks.¹² The implementation of SICPA’s system was completed by March 2014, and government figures indicate an increase in legal tobacco sales and tobacco tax revenue in Kenya, post implementation.

TobaccoTactics Resources

• Codentify
• Third Party Techniques
• Tobacco Smuggling
• BAT Involvement in Tobacco Smuggling
• For more examples of tobacco industry interference in Kenya, see:

Kenya- Country Profile

Kenya- Timeline: Industry Interference with the Tobacco Control Regulations 2014

Kenya- BAT’s Tactics to Undermine the Tobacco Control Regulations

• (CAIT)

TCRG Research

• Tobacco industry’s elaborate attempts to control a global track and trace system and fundamentally undermine the Illicit Trade Protocol, A. Gilmore, A.W.A. Gallagher, A. Rowell, Tobacco Control, Published Online First: 13 June 2018
• The transnational tobacco companies’ strategy to promote Codentify, their inadequate tracking and tracing standard, L. Joossens, A.B. Gilmore, Tobacco Control, 2014;23:e3-e6