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    Authentix

    Fuel integrity programs forcombatting fuel smugglingand enhancing revenuesand fuel quality

    November 6, 20141

    Anti-counterfeiting Brand Protection Program Integrity

    Proprietary and Confidential 2014 Authentix

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    Agenda

    Authentix Overview

    Fuel Fraud Problem Overview

    Fuel Integrity Programs

    Case Studies Questions

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    Authentix enables brand owners andgovernments to build market confidenceand maximize revenueby authenticating

    products to combat counterfeiting, protectbrand equity and assure program integrity

    November 6, 2014Proprietary and Confidential 2014 Authentix3

    Excise TaxSubsidiesFitness and QualityMarket-Promotions

    SpiritsFuels and LubricantsConsumer Packaged GoodsCosmetics

    AgrochemicalsPharmaceuticals

    CurrencyTax StampsSecure DocumentsProduct Counterfeiting

    ANTI-COUNTERFEITING BRAND PROTECTION PROGRAM INTEGRITY

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    November 6, 2014Proprietary and Confidential 2013 Authentix4

    Provensecurity,integrity and privacy

    Trustedby leadingorganizations

    Authentix is trusted by some of themost prestigious organizations in the

    world. We adhere to global integritystandards to protect our clients

    programs and the information theseprograms produce

    4Leading Oil & Gas

    Companies

    10National

    Governments

    5 of top 10Pharmaceutical

    Companies

    6Industry Leading

    Central Banks

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    BRAND PROTECTION TAX EVASION SUBSIDY ABUSE

    Market ExpansionPremium BrandsProgram Integrity

    Anti-CounterfeitingRetail Packaging

    Proven High ROIComprehensive ProgramsQuantitative ResultsBest Practices

    Actionable Intelligence

    Proven ProgramsBroadest Range of SolutionsLow Level Detection CapabilityBest Practices

    Actionable Intelligence

    Oil and Gas

    Over 20 years of experience protecting morethan 1 trillion liters of petroleum productsglobally to create leading fuel integrity programs

    for brand protection as well as combating taxevasion and subsidy abuse

    November 6, 2014Proprietary and Confidential 2014 Authentix5

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    Authentix CredentialsOil & Gas

    Proprietary and Confidential 2014 Authentix6

    Global Leader - Commercial US Oil Marketing Company (OMC)750% ROI;

    50% improvement in Random Sample Failure Rate

    South American Brand OMCSales increased byover 10%; Revenue recovery more than $330 Millionover 3 years

    Over $5 Billion USD recovered to date

    Global Leader - Governments 11 countriescurrently utilize Authentixsolutions

    African nation recovered $70M in additionalexcise tax revenue in the first year of a fuelmarking program

    November 6, 2014

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    Fuel Fraud

    November 6, 2014Proprietary and Confidential 2014 Authentix7

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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 andquality

    Environmental impacts

    Increased dependence on fuel imports

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    Criminals may also profit from the adulteration ofhigher cost fuels with lower cost fuels or solvents

    November 6, 2014Proprietary and Confidential 2014 Authentix9

    India Example : Di lut ion of Diesel with Subsid ized Kerosene

    Diesel retail = 36 Rs/L Kero Retail = 10Rs/L

    Tax

    27 Rs/L

    (80%)

    9 Rs/L

    (20%)

    Diesel

    Illicit Profitfrom

    SubsidyAbuse

    9.5 Rs/L(23%)

    26.5 Rs/L(74%)

    .05 Rs/LTaxes

    Subsidized Kero

    LEGAL SALES ILLEGAL SALESGov loses 8.5 Rs/Lin taxes

    Criminals ProfitOver 72% GM

    Kero not used bythe poor

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    A common illicit practice is to illegally divert anacceptable fuel with a lower price and sell it at fullprice in a higher tax area

    Source countrys subsidy benefitscriminals instead of intendedrecipients

    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,

    Smugglingof fuel from a low taxcountry or area into a higher tax area,or

    Diversion of tax-free transit fuels orexport fuels

    November 6, 2014Proprietary and Confidential 2014 Authentix10

    Example: If you are able to

    smuggle diesel out of

    Venezuela you could sell it at

    90x the purchase price in

    neighboring countries.

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    Fuel Fraud

    Diversion of fuels occur in multiple ways

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    1Lower grade tohigher grade

    branded fuel

    2Unbranded andundifferentiatedfuel to brandedfuel.

    3

    Lower taxed non-road fuels to

    higher taxed roadfuels.

    4Mixing wasteproducts and non-petroleumproducts intofuels.

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    Government subsidies (tax free) that createprice differences in fuels have contributed to worldwide fraud problem

    Subsidized fuels are often diverted from their intendedsupply chain

    Used domestically to dilute higher taxed fuels

    Smuggled out of the country to higher priced markets in othercountries

    Mining, road construction, others

    10% abuse rate = $200B/yr problem (Authentix

    experience with programs is that this number is usually20-30%)

    Proprietary and Confidential Authentix 201412 November 6, 2014

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    Through a combination of diversion, smuggling,and dilution tactics, criminals can steal hundredsof millions from governments

    Due to very high dollar amounts at stake, organized crimeis usually involved

    Criminal organizations are well funded, organized, and very

    well equipped

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    FuelFraud

    Smuggling

    Transit Fuel

    Smuggling

    Inferior Products

    TaxesCollected

    CitizensHelped S

    ubsidy

    Programs Re

    venue

    Programs

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    Arbitrage ActivityCriminals take advantage

    of fuel price arbitrage through:

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    Marked fuel

    Unmarked fuel

    Unmarked fuelor contaminants

    Marked fuel

    Dilution

    Adulteration

    Depot

    Additive

    Transport

    Route

    Border

    Smuggling

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    Fuel Integrity Programsto Fight Fuel Fraud

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    f

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    Mark all high or regularly taxed fuels with covert markers to be ableto 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 actionableintelligence to fight fraud

    Assure forensic integrity of system to allow for enforceability underthe rule of law.

    November 6, 2014Proprietary and Confidential 2014 Authentix16

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

    Fuel integrity programs help governments identifythe sources of fraud and take action to addressthem

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    Fuel Integrity Program Deployment

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    Refinery

    Terminal

    Gasoline

    Additive with

    nanomarker

    AXISTMWeb-based program mgmt. tool

    Data

    Reporting

    FieldScreening

    FieldScreening

    Station A Station B Station C

    SampleLab

    Testing

    http://c/Documents%20and%20Settings/TDriscoll/Local%20Settings/Temporary%20Internet%20Files/OLKDD/Michigan_Tax_Stamp_video.m4v
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    Case Studies

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    Case StudyGuyana Energy Agency (GEA)

    Problem Statement: Non-taxed fuel is smuggled

    into the country and sold illegally to retail sites, whiletaxed road fuels are being adulterated with subsidizedproducts (kerosene and mining fuels).

    Technology Used Automated injection marking with covert NIR

    fluorescent dyes and laboratory markers intolegally imported fuels

    Manual marking of subsidized products to detectpresence in high tax fuel with field test kit

    Field devices to detect dilution of legal fuel, withlaboratory confirmation via HPLC methods

    Benefits realized Over 90% reduction in dilution detected in testedsamples

    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 petroleumproducts offered for sale at retail outlets negatively affectsthe quality of the available supply, while depriving thegovernment of tax revenue.

    Technology Used

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

    fluorescent marker for screening and dilution detection, anda forensic molecular marker for lab confirmation

    Subsidized productsmarked to detect adulteration indomestic fuel

    Benefits realized

    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 43million per annum

    National infrastructure of advanced mass spectroscopy labsdeployed by NPA (4 regional labs)

    Over 150 Ghanaians employed on the program

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    Case StudySerbia

    November 6, 2014Proprietary and Confidential 2013 Authentix21

    Problem Statement: Non-taxed fuel issmuggled into the country and sold illegally toretail sites, while taxed road fuels are beingadulterated with subsidized products (heating oil)and inferior products (base oils)

    Technology Used

    Marking with covert NIR fluorescent dyes andmolecular 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 program35M in

    additional excise taxes collected

    Sales of base oils (known diesel adulterant) droppedby 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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    SerbiaPublic Relations

    The Ministry of Energy is the government sponsor for the programand recognized the need for an effective public relations campaign

    Many Serbians were benefitting from illicit trade including some in thegovernment

    Gaining program momentum and public support is critical successfactor to the program

    All elements of the program are discussed publicly with a high levelof transparency

    Frequent communication by multiple media outlets is ongoing

    Minimum of 30 minutes of television coverage per month

    Print media5/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 StudyKenya: Excise Tax Recovery Program

    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 markedwith covert molecular recognition markers, domestic fueltested 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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    PROGRAM START: 1998