Authentix

Fuel integrity programs for

combatting fuel smuggling
and enhancing revenues
and fuel quality
Anti-counterfeiting

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November 6, 2014

Brand Protection

Program Integrity

Agenda

Authentix Overview
Fuel Fraud Problem Overview
Fuel Integrity Programs
Case Studies
Questions

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Authentix enables brand owners and

governments to build market confidence
and maximize revenue by authenticating
products to combat counterfeiting, protect
brand equity and assure program integrity
ANTI-COUNTERFEITING
Currency
Tax Stamps
Secure Documents
Product Counterfeiting

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BRAND PROTECTION
Spirits
Fuels and Lubricants
Consumer Packaged Goods
Cosmetics
Agrochemicals
Pharmaceuticals

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PROGRAM INTEGRITY
Excise Tax
Subsidies
Fitness and Quality
Market-Promotions

4
Leading Oil & Gas
Companies

Proven security,
integrity and privacy

Trusted by leading
organizations
Authentix is trusted by some of the
most prestigious organizations in the
world. We adhere to global integrity
standards to protect our clients
programs and the information these
programs produce
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10
National
Governments

5 of top 10
Pharmaceutical
Companies

6
Industry Leading
Central Banks

Oil and Gas

Over 20 years of experience protecting more
than 1 trillion liters of petroleum products
globally to create leading fuel integrity programs
for brand protection as well as combating tax
evasion and subsidy abuse

BRAND PROTECTION
Market Expansion
Premium Brands
Program Integrity
Anti-Counterfeiting
Retail Packaging

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TAX EVASION
Proven High ROI
Comprehensive Programs
Quantitative Results
Best Practices
Actionable Intelligence

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SUBSIDY ABUSE
Proven Programs
Broadest Range of Solutions
Low Level Detection Capability
Best Practices
Actionable Intelligence

Authentix Credentials Oil & Gas

Global Leader - Governments

Global Leader - Commercial

11 countries currently utilize Authentix solutions

African nation recovered $70M in additional

excise tax revenue in the first year of a fuel
marking program

US Oil Marketing Company (OMC) 750% ROI;

50% improvement in Random Sample Failure Rate

South American Brand OMC Sales increased by

over 10%; Revenue recovery more than $330 Million
over 3 years

Over $5 Billion USD recovered to date

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Fuel Fraud

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Problem Statement
Criminal activities associated with subsidies and
tax differentials result in significant financial
losses to governments around the world.
In addition to the financial impact, there are
social costs, including:
Lack of transparency and accountability
Failure to effectively manage fuel supplies and
quality
Environmental impacts
Increased dependence on fuel imports
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Criminals may also profit from the adulteration of

higher cost fuels with lower cost fuels or solvents
India Example : Dilution of Diesel with Subsidized Kerosene
Diesel retail = 36 Rs/L Kero Retail = 10Rs/L

LEGAL SALES

ILLEGAL SALES
Taxes

Tax

Diesel

9 Rs/L
(20%)

Illicit Profit
from
Subsidy
Abuse

26.5 Rs/L
(74%)

27 Rs/L
(80%)
Subsidized Kero

.05 Rs/L

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9.5 Rs/L
(23%)

Gov loses 8.5 Rs/L

in taxes
Criminals Profit
Over 72% GM

Kero not used by

the poor

A common illicit practice is to illegally divert an

acceptable fuel with a lower price and sell it at full
price in a higher tax area
Source countrys subsidy benefits
criminals instead of intended
recipients
Destination country does not receive
the appropriate tax payments
The lower taxed (priced) fuel may be
obtained through several methods:
Diversion of a subsidized fuel,
Smuggling of fuel from a low tax
country or area into a higher tax area,
or
Diversion of tax-free transit fuels or
export fuels
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Example: If you are able to

smuggle diesel out of
Venezuela you could sell it at
90x the purchase price in
neighboring countries.

Fuel Fraud
Diversion of fuels occur in multiple ways

Lower grade to
higher grade
branded fuel
Unbranded and
undifferentiated
fuel to branded
fuel.
Lower taxed nonroad fuels to
higher taxed road
fuels.

Mixing waste
products and nonpetroleum
products into
fuels.
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Government subsidies (tax free) that create

price differences in fuels have contributed to world
wide fraud problem
Subsidized fuels are often diverted from their intended
supply chain
Used domestically to dilute higher taxed fuels
Smuggled out of the country to higher priced markets in other
countries

Mining, road construction, others

10% abuse rate = $200B/yr problem (Authentix
experience with programs is that this number is usually
20-30%)

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Through a combination of diversion, smuggling,

and dilution tactics, criminals can steal hundreds
of millions from governments
Due to very high dollar amounts at stake, organized crime
is usually involved
Criminal organizations are well funded, organized, and very
well equipped
Fuel
Fraud

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Revenue
Programs

Citizens
Helped

Subsidy
Programs

Smuggling

Transit Fuel
Smuggling
Inferior Products

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Taxes
Collected

Arbitrage Activity

Criminals take advantage

of fuel price arbitrage through:

Dilution
Unmarked fuel
or contaminants

Smuggling
Depot

Marked fuel

Additive
Route

Adulteration
Marked fuel

Transport
Border
Unmarked fuel
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Fuel Integrity Programs

to Fight Fuel Fraud

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Fuel integrity programs help governments identify

the sources of fraud and take action to address
them
Mark all high or regularly taxed fuels with covert markers to be able
to detect dilution of legal fuel
Mark known or suspected adulterants (such as subsidized diesel,
kerosene, etc.) to be able to detect their presence in other products
Deliver sampling, testing, and reporting tools to provide actionable
intelligence to fight fraud
Assure forensic integrity of system to allow for enforceability under
the rule of law.

Comprehensive Programs | Best Practices | Quantitative Fuel Sample Results | Timely Actionable Intelligence
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Fuel Integrity Program Deployment

Terminal

Gasoline

Refinery
Additive with
nanomarker

Field
Screening

AXISTM
Web-based program mgmt. tool

Data
Station A

Reporting
Sample
Lab
Testing
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Station B

Station C

Field
Screening

Case Studies

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Case Study
Guyana Energy Agency (GEA)
Problem Statement: Non-taxed fuel is smuggled
into the country and sold illegally to retail sites, while
taxed road fuels are being adulterated with subsidized
products (kerosene and mining fuels).

Technology Used
Automated injection marking with covert NIR
fluorescent dyes and laboratory markers into
legally imported fuels
Manual marking of subsidized products to detect
presence in high tax fuel with field test kit
Field devices to detect dilution of legal fuel, with
laboratory confirmation via HPLC methods

Benefits realized
Over 90% reduction in dilution detected in tested
samples
17% increase in legitimate sales of fuel products
Over 40 analytical chemistry jobs created in the
GEA for Guyanese citizens
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Ghana National Petroleum Authority

(NPA)
Problem Statement: The adulteration of petroleum
products offered for sale at retail outlets negatively affects
the quality of the available supply, while depriving the
government of tax revenue.
Technology Used

Full-taxed domestic fuels are marked with a field covert NIR

fluorescent marker for screening and dilution detection, and
a forensic molecular marker for lab confirmation
Subsidized products marked to detect adulteration in
domestic fuel

Benefits realized

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Improvement in the quality of the fuel supply of the country

(78% reduction in adulteration in sampled products)
Estimated increase excise tax collection of over GH 43
million per annum
National infrastructure of advanced mass spectroscopy labs
deployed by NPA (4 regional labs)
Over 150 Ghanaians employed on the program

Proprietary and Confidential 2014 Authentix

November 6, 2014

Case Study
Serbia
Problem Statement: Non-taxed fuel is
smuggled into the country and sold illegally to
retail sites, while taxed road fuels are being
adulterated with subsidized products (heating oil)
and inferior products (base oils)
Technology Used
Marking with covert NIR fluorescent dyes and
molecular markers into all legally imported fuels
Field devices to detect dilution of legal fuel, with
laboratory confirmation via GC/MS methods

Benefits realized
In the first five months of the program 35M in
additional excise taxes collected
Sales of base oils (known diesel adulterant) dropped
by 7 times
The Ministry of Energy expects they will collect
80M/year in taxes as a result of the program
Retail fuel sales up ~15% despite economic
downturn and catastrophic flooding in Serbia
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Serbia Public Relations

The Ministry of Energy is the government sponsor for the program
and recognized the need for an effective public relations campaign
Many Serbians were benefitting from illicit trade including some in the
government
Gaining program momentum and public support is critical success
factor to the program

All elements of the program are discussed publicly with a high level
of transparency
Frequent communication by multiple media outlets is ongoing

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Minimum of 30 minutes of television coverage per month

Print media 5/month
Radio 5/month
Web media 10 articles /month

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Serbia Press Examples

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Serbia Press Examples

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Case Study
Kenya: Excise Tax Recovery Program
PROGRAM START: 1998

Problem Statement

tax free transit fuels being smuggled and resold without paying
tax
Fuels being adulterated with subsidized kerosene
Loss of sales volumes and tax revenue

Technology Used - Transit and subsidized fuels marked

with covert molecular recognition markers, domestic fuel
tested in the field with simple test kits to detect the
presence of marked products (evidence of adulteration)
Benefits realized - In the first year, fuel excise tax
revenue increased $70M
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