Counterfeits need stopping at every door, not just the last one

From Jane Yu

I’m relieved to see the health ministry defend its FarmaTag hologram system with the clarity that it did.

As a Malaysian, it’s reassuring when agencies stand behind the systems designed to keep us safe from counterfeits and illicit goods.

The phygital, or combined physical and digital system works. The MOH data shows it. That matters.

So if phygital works for the MOH at the retail counter, why stop there?

The counterfeiting threat is getting broader – and smarter.

This isn’t just about medicines. There are a host of counterfeit and illegal goods that Malaysia grapples with, and the OECD ranked it the 14th biggest source of counterfeit trade just last year, down from eighth in 2019.

On tobacco, Fazli Nordin, the managing director of Retail and Brands Advocacy Malaysia, estimates that the country loses RM5 billion annually in uncollected excise tax.

The MOH rebuttal raises a big question: If phygital authentication is good enough for medicines, why is Malaysia apparently considering a digital-only approach for tobacco, where the illicit market share is 54%?

The government’s own evidence for phygital’s effectiveness now exists in the form of the very system the MOH just defended. The harder problem deserves at least the same standard of solution.

Malaysia’s defences

In an earlier letter, I wrote about how Malaysia is considering digital-only solutions for illicit and counterfeit goods. But digital-only systems don’t work.

Tobacco, medicines, alcohol, vapes – the principle is the same everywhere. When counterfeiters attack a system, they exploit the weakest point. If it’s only physical, they replicate the hologram or tax stamp. If it’s only digital, they clone the code. This is simple, cheap and easily done at industrial scale – there is no entry barrier.

But when a product needs to pass both physical and digital verification at every node in the supply chain — from manufacturer and importer through distribution to the pharmacy shelf — counterfeiting becomes exponentially harder.

The UK learned this. So they moved back to phygital. But Malaysia appears to be moving in the opposite direction, away from the hybrid approach that actually works.

Of course, someone may ask: doesn’t the 54% illicit rate mean that the phygital system isn’t working? But that 54% rate is actually evidence that the system is working well enough to make the problem visible and measurable.

Without a physical stamp that legitimate products must carry, enforcement officers cannot reliably distinguish legal goods from illegal ones in the field. The data on illicit market share comes from precisely that detection capability. Customs knows the scale of the problem because the existing system creates a visible standard against which non-compliant products can be identified, seized, and counted.

Making the whole system work

Of course, technology alone doesn’t solve this. Phygital systems only reach full capacity with parallel enforcement strengthening:

Whistleblower protection:

People who spot counterfeits in warehouses or online need protection from retaliation and real incentives to report: anonymous channels, witness protection when necessary, and rewards for actionable intelligence.

Forensics training and judicial system:

Customs just launched a RM8.5 million digital forensic laboratory in April 2025. That needs expansion – officers trained to extract data from fake stamps, analyse counterfeit products, and spot supply chain anomalies.

Convictions:

Seizures and fines mean nothing if they don’t lead to convictions. When criminal rings know that confiscated goods just become a business cost with no judicial follow-through, counterfeiting remains profitable. Phygital systems matter precisely because they generate evidence that survives court scrutiny. Weak systems – where data can be hacked, where chains of custody break down, where a skilled lawyer can argue reasonable doubt – undermine the entire enforcement chain. For sanctions to be meaningful, convictions must be certain.

Cross-border intelligence:

Smuggling routes are regional, requiring both technology and intelligence-sharing to bust crime.

In April, authorities in Cebu, Phillippines uncovered an industrial-scale factory built specifically to target Malaysia, seizing RM71.83 million worth of counterfeit tobacco products and more than 10 million fake Malaysian excise stamps. The fake stamps are not evidence the system has failed. It is evidence that the physical stamp is a meaningful enough barrier that criminal networks have to invest in industrial infrastructure to replicate it. A digital code requires no factory — just a printer.

While Malaysian Customs shared intelligence prior to the raid, Philippine police identified those stamps as counterfeit using physical security features. That capability disappears under a digital-only system. Foreign enforcement agencies cannot query Malaysia’s authentication database in real time. They work with what they can see and verify physically.

The forward move

This is not about blaming the health ministry or customs. Both are doing serious and commendable work. Customs is consistently committed to detecting and seizing contraband, including RM4 million worth of cigarettes and liquor in Penang just this week. Both the MOH and Customs built a modern verification system.

The question is: as counterfeiting evolves, are the tools keeping pace and are they being applied at all of Malaysia’s checkpoints and not just the later ones?

This is about where to invest, not a judgment on effort.

Some will point to cost, saying that phygital is more expensive whereas digital-only systems are cheaper to procure and faster to roll out. That is a fair observation.

But the procurement price is not the true cost of getting this wrong. When a digital-only system is breached – and the European experience shows that it will be – the bill arrives later, in the form of enforcement operations, laboratory testing, legal proceedings, and the tax revenue that never makes it to Putrajaya.

The cheaper system at procurement often becomes the more expensive problem in the field.

The question is not which system costs less to buy. It is which system costs less to fail.

The health ministry showed what modern enforcement commitment looks like.

There’s an opportunity to apply that same approach – combining physical security with real- time digital tracking – at every node of Malaysia’s supply chains, from the moment products enter distribution to the very last one.

Jane Yu is an FMT reader.

The views expressed are those of the writer and do not necessarily reflect those of FMT.