De La Rue: an iconic British brand in bed with Big Tobacco?

Amid the continuing furore over Brexit, it was easy to miss news a bona fide British institution – one which has already suffered a huge loss from the break with Brussels – had managed to secure a raft of new supply contracts.

De La Rue, the company which makes Britain’s burgundy passports but lost the contract for the post-Brexit blue ones, has won the right to provide what it refers to as tobacco “tax stamps” to a string of countries in Europe and the Middle East. According to De La Rue, the stamps are designed to comply with new tobacco traceability regulations and “will be used to fight illicit trade and to reduce risks to citizens' health.”

The company’s claims, however, are not as straightforward as they seem. For one thing, De La Rue’s statements regarding its European contracts indicate it is not providing tax stamps (which are not used in the six EU member states in question), but instead authentication labels, which are used by brands to show their products are not counterfeit. Even more importantly, with this new side of its business, De La Rue is now explicitly linked to the tobacco industry, thanks to a contract with a company that helped develop the manufacturers’ preferred traceability solution.

This directly contravenes the global anti-tobacco treaties implemented under the auspices of the World Health Organisation (WHO), which forbid the tobacco industry from joining any traceability project. That ban comes largely in response to the tobacco majors’ long history of pushing their products on the black market to dodge taxes and secure market share.

Given De La Rue’s recent slump, the company has apparently given in to the temptation to ignore the wider implications of this partnership.Founded in 1821, it produces the UK’s £5 and £10 polymer notes and was once a fixture in London’s FTSE 250. But the loss of the £490 million blue passport contract led to write-down costs of £3.7 million, launching a slide which wiped 28% off the company’s share price.

Thanks to the recent contract wins, the Basingstoke-based firm will now be supplying authentication labels in six European countries – the U.K., France, Austria, Sweden, Finland and Cyprus – as well as implementing a tax stamp and traceability solution for tobacco and soft drinks sold in Saudi Arabia. These commitments will more than triple De La Rue’s annual output of authentication labels, and help achieve its goal to double the size of its traceability business within three years. The company’s shares jumped 1.4% on the contract award, and it has installed a £10 million production line in Malta specifically to provide tax stamps and secure labels.

De La Rue claims its system is designed to comply with tobacco statutes such as the World Health Organization’s Illicit Trade Protocol and the European Union’s Tobacco Products Directive, which specifically require the application of unique identifiers to all cigarette packets, allowing regulators to follow them from assembly line to ashtray and curb the global trade in smuggled tobacco – a trade which costs the world’s governments around £30 billion a year in lost tax revenue.

Yet these treaties also require the new track-and-trace systems be completely independent of the industry, whose members have paid billions of dollars over the years as punishment for fuelling the trade themselves. Researchers claim the manufacturers have spent a fortune on third parties and front groups, both to prevent authorities from regulating them properly and in the hope of gaining a stake in the new regulatory systems.

As such, De La Rue’s February decision to award a concession contract to French IT firm Atos is particularly alarming. The Global Center for Good Governance in Tobacco Control has found Atos was involved in building and promoting Codentify, a traceability system patented by Philip Morris International in the mid-2000s and subsequently adapted by the industry as its default verification tool. A leaked 2012 email from British American Tobacco said the company was working “globally with two approved suppliers to represent Codentify” and named Atos as one of them.

What’s more, Atos is a member of the Coalition Against Illicit Trade(CAIT), a lobby group includes several other companies with links to the tobacco industry; Atos declines to mention this fact on the Transparency Register. Although CAIT purports to curb tobacco smuggling, it has released multiple reports attempting to undermine the case for an independent traceability system. One of Atos’s subsidiaries, Worldline, went into bat for CAIT during consultation on the EU’s new bloc-wide track-and-trace system in 2015. Unsurprisingly, it argued that an “industry-operated” solution was the only appropriate option.

Sadly, it seems the industry’s lobbying has worked. The EU is about to roll out the first wave of its track-and-trace solution, and it appears a key part of the operation will be entrusted to a Swiss conglomerate called Dentsu Aegis. The company’s subsidiary, Blue Infinity, has not only built a track-and-trace product which uses Codentify technology; it also boasts of working with several of the biggest companies in the tobacco market. Blue Infinity has even made a virtue of this relationship while pitching for track and trace contracts, claiming its system is preferable because it was built by the tobacco companies.

So, while De La Rue’s spate of contract wins may be good news for the company itself, it threatens to cause far bigger problems in the long term by helping Big Tobacco undermine the very systems that are supposed to bring transparency to the tobacco trade. Before any Brexiteers point to the company’s success as an example of the “Global Britain” they promised, they may want to consider just what kind of impact this most British of companies will soon have on critical issues of global transparency and public health.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.