Illicit Tobacco & Alcohol Trade
France ramps up its fight against illicit cigarettes
In the face of criticism that the French government has not done enough to stem the flow of illicit tobacco into the country, French MPs and Senators have been redoubling their efforts to address the problem. In the most recent attempt, Senator Xavier Iacovelli brought together all of the debate’s various stakeholders, for the very first time in France, to discuss the issue at a conference in late November.
The conference was urgently needed: despite a significant fall in the number of smokers, France remains the number one country in Europe for the illicit trade of cigarettes. The conference’s communiqué provides some arresting figures which underline the gravity of the black market for tobacco. In France, black market tobacco counts for 25% of total consumption, with illicit trade translating into a loss of €3 billion in fiscal revenues nationally, compared to €20 billion for the European Union (EU) as a whole.
None of the diverse stakeholders present at the Senate conference were willing to contest these figures. Disagreements surfaced however when it came to discussing solutions to the problem, notably how best to implement a scheme to “track and trace” cigarettes sold.
The overwhelming prevalence of contraband cigarettes
Illicit trade includes both contraband (legitimate products upon which taxes due are not paid) and counterfeit (fraudulent imitations of legitimate products) products. All parties at the conference—even the tobacco industry representatives— agreed that 98-99% of illicit tobacco in France is contraband rather than counterfeit, meaning cigarettes manufactured by the tobacco companies themselves that have subsequently evaded the appropriate taxation.
To explain how this many licit smokes slip through the cracks, Iacovelli cited the arresting example of the parallel tobacco trade in Andorra. The tiny principality consumes 120 tonnes of tobacco per year, yet buys 850 tonnes from tobacco companies. The surplus supply, which retails for €1.20 a packet in Andorra, is carried by 8 million tourists across the border into Spain and, principally, into France, where a packet costs €8. While supplying Andorra’s duty-free shops in reasonable quantities is not in and of itself illegal, in practice it means that tobacco companies are able to get their product on the French and Spanish market without it being subject to the taxes which pad government coffers and underpin public health initiatives.
Being able to pinpoint exactly when a tobacco product leaves legal channels is key to stopping this illegal flow. One of the most robust tools for doing so, the World Health Organisation (WHO)’s Protocol to Eliminate Illicit Trade in Tobacco Products, officially entered into force on 25 September this year. Under the pact, signatory countries are required to establish “tracking and tracing” systems by 2023, enabling authorities to follow the movement of legal tobacco products from factory floor to the final consumer.
Perhaps unsurprisingly Big Tobacco — having repeatedly been shown to be involved in cigarette smuggling itself — has pushed back against the WHO Protocol and other attempts to crack down on illicit trade. The tobacco manufacturers typically argue, as one industry representative did at Iacovelli’s conference, that the root of the problem is that the average consumer perceives the price of cigarettes as too high. According to Big Tobacco, this high price, intended as an incentive to encourage people to stop smoking, naturally leads consumers to attempt to outmanoeuvre governments’ fiscal strategies. Research has generally dismissed this argument, finding that raising tobacco taxes does not necessarily impact the amount of tax evasion.
Big Tobacco muscles its way into track & trace
Despite arguing that high tobacco taxes, rather than the lack of an effective track and trace scheme, is the root of the illicit tobacco trade, the industry has simultaneously been aiming to position itself as central to the debate surrounding how best to trace tobacco products.
Having developed Codentify – its own bespoke trace and track system – Philip Morris International (PMI) has sold parts of the intellectual property behind the scheme for peanuts to a French company, Inexto. Subsequently, PMI has also led its direct tobacco industry competitors in a coordinated lobbying campaign worldwide to encourage national governments to adopt its system.
Given the industry’s record of direct and indirect involvement in the illicit trade of tobacco, it is concerning that a certain number of governments in Africa and South America have indeed purchased Codentify, the independence of which is highly contested by anti-tobacco activists and health professionals. Perhaps more surprising, however, in 2017 the European Commission itself proposed that the industry be in large part responsible for the tracking and tracing of its own products in the EU.
Many health advocates have warned that Codentify is the industry’s “Trojan horse”, and argue that the Commission’s decision has the effect of putting the fox in charge of the chicken coop. Moreover, the WHO Protocol, to which the EU is a party, takes a clear position in this regard: the tobacco industry is part of the problem of illicit trade in cigarettes, not part of the solution, and must therefore have no influence on regulation – a real thorn in the side of one of the most influential lobbies in Brussels.
An unreliable partner
It is for this reason that PMI used the French Senate conference to contest jurists’ argument that the WHO Protocol, by way of its adoption across EU Member States, supersedes existing EU law on the issue, and therein the directives of the European Commission. At the same time, the Commission has attempted to hit back at criticism of its track and trace proposals, claiming that they are fully in line with the WHO Protocol.
As these debates continue to rage, what seems clear is that the tobacco industry has shown again and again—including at Iacovelli’s conference—that it will go to extensive lengths to look after its own interests, making it a problematic partner in initiatives to collect taxes and safeguard public health.
Prompted by the example set by Senators like Xavier Iacovelli, the French government could and surely will do more to stem the illicit trade of tobacco in France. Those hoping for swifter progress, however, should also be looking to mitigate the influence Big Tobacco continues to wield over tobacco policy.
Spanish police discover subterranean counterfeit cigarette factory near Costa del Sol
Police in Spain have raided an underground illicit cigarette factory run by a British organised crime network.
In an operation supported by Europol and law enforcement agencies from countries including Lithuania, Poland and Britain, investigators found the subterranean bunker close to the Costa del Sol, rescuing six Eastern European modern slaves who had been forced by the gang to work and sleep at the facility.
The factory, which had been built nearly four metres underground, is said to have been capable of producing illicit cigarettes at the rate of 3,500 every hour.
Police said the workers they found at the factory had effectively been “left to die” after suspects arrested above the ground turned off the system that provided them with clean air in order to hide the bunker from law enforcement agents attending the site.
In total, 20 suspected members of the gang thought to be responsible for the factory were arrested in the operation, including a Briton who is said to have been on the run from authorities in the UK after failing to return to prison while on temporary release while serving a sentence linked to drug and forgery offences.
Thirteen separate locations were raided by police in the operation.
These raids resulted in the seizure of more than one million counterfeit cigarettes, 20kgs of herbal cannabis, 144kgs of marijuana, three weapons, eight GPS tracking devices, and a jamming device that the network likely used to help its members avoid the attention of police.
Investigators said the counterfeit cigarettes the gang made in its underground bunker were produced in unsanitary conditions and consisted of low-quality ingredients and components.
Detectives were forced to use a forklift truck to move a shipping container that was concealing the entrance of the underground facility.
In a statement, Spain’s Guardia Civil said most of the suspects arrested were British citizens, including the alleged 30-year-old ringleader of the conspiracy, who was identified only by the initials DD.
Another of the detainees, identified only as AR, was said to have been a Lithuanian national listed as having fled from justice in his home country while wanted in relation to smuggling offences.
In a statement relating to its involvement in the operation, Europol said: “Europol facilitated the information exchange between the participating countries, provided coordination support and analysed operational information against Europol’s databases to give leads to investigators.
“Europol also provided on-the-spot operational support by deploying two analysts to Malaga, Spain, to provide real-time analytical support.”
Gibraltar and Japan Tobacco International agree to tackle smuggling of firm’s cigarette and rolling tobacco brands
Officials in Gibraltar and UK customs authorities have teamed up with Japan Tobacco International (JTI) to protect the legitimate trade in tobacco products and foster a stable and transparent tobacco market in the British overseas territory.
The aim of the new partnership, which was agreed during the signing of a memorandum of understanding (MoU) on Friday, is to prevent smugglers from trafficking JTI brand tobacco problems into Spain via Gibraltar.
The agreement will see the signees work to improve information and intelligence sharing, and result in customs workers based in Gibraltar receiving training on how to tell the difference between authentic and counterfeit tobacco products.
One of the largest importers and producers of tobacco in Europe, JTI owns numerous high-profile brands that are routinely targeted by smugglers, including Winston, Camel, Silk Cut, Benson and Hedges, American Spirit and Old Holborn.
The MoU was signed during a ceremony at Gibraltar International Airport in the presence of Chief Minister of Gibraltar Fabian Picardo, Collector of Customs of HM Customs Gibraltar John Rodríguez, and Tom Osborne, JTI Iberia General Manager.
Members of the Anti-Illicit Trade Department of JTI were also in attendance.
Picardo commented: “We welcome the signing of this MoU with JTI as we are committed to working in partnership with the tobacco manufacturers to eradicate illicit trade in tobacco products. Illicit trade fosters further criminality across frontiers, unsociable behaviour and harms legitimate business.
“We continually review our procedures and legislation to ensure proper compliance with our laws and conditions of tobacco licences by all local entities involved in the tobacco business.”
Speaking as the agreement was signed, Osborne said it is vital that the tobacco industry works with world governments to prevent the counterfeiting and smuggling of its products, noting that the illicit trade in cigarettes and rolling tobacco is an issue that “impacts tax collection, the stability of the market and promotes disrespect for the law and disrupts public security”.
Last week, UK tobacco industry trade body the TMA published the results of a poll that showed the illicit trade in tobacco products “remains resilient” in Britain.
The survey, for which 12,000 adult smokers were questioned, revealed that more than three-quarters (76%) of respondents had purchased tobacco products over the preceding 12 months on which UK tax had not been paid.
TMA Director Rupert Lewis said: “These survey findings highlight the volume and widespread availability of illicit tobacco throughout the UK and the ‘relaxed’ attitude that many consumers have towards buying and selling illicit tobacco, believing it to be a ‘victimless’ crime.”
Australian tax authorities seize and destroy illicit tobacco crop with estimated excise value of A$34.5 million
Tax authorities in Australia have confiscated and destroyed more than 26 tonnes of illicit tobacco that would have deprived the country’s government of an estimated A$34.5 million ($23. 55 million) in tax had it been sold on the black market.
The seizure was made after agents from the Australian Taxation Office (ATO) carried out raids at illicit tobacco farms across at five sites in New South Wales (NSW).
Acting on intelligence and in cooperation with officers from NSW Police, ATO investigators discovered 50 acres of illicit tobacco crops, of which 30 acres contained mature plants almost ready for harvesting, and a further 20 acres that recently plated crops.
The ATO said no arrests had been made in connection with the illicit tobacco, but added that the operation resulted in the identification of two men who were in Australia illegally.
Police are continuing to investigate the discovery of the crops, as well as the alleged illegal removal of water from the Hastings River as part of the cultivation process.
Commenting on the seizure, ATO Assistant Commissioner Ian Read said: “The trade in illicit tobacco products in Australia has widespread negative consequences across the community. Tobacco growing operations are not run by small producers or farmers.
“They are run by organised criminal syndicates who deliberately engage in illegal activities.
“Involvement in illicit tobacco production is a serious offence. This type of activity takes vital money away from the community and places it directly into the hands of organised crime syndicate.”
In September of last year, 9News reported that the market for smuggled, illicit and counterfeit cigarettes exploded across the country in 2019, with Australian Border Force officers seizing more than 300 tonnes of smuggled contraband tobacco.
That figure was more than three times higher than the amount seized in 2017.
“We’re talking about large criminal entities interested in making money off the tobacco industry,” Western Australia Border Force Commander Rod O’Donnell commented.
“There’s money to be made if you can get the products in and sold into the black-market economy.”
Last month, Australian police arrested a man in connection with a plot to smuggle tobacco products with an estimated excise value of A$24 million into the country.
Officers from Australia’s Illicit Tobacco Taskforce (ITTF) detained the man at Melbourne Airport before he was later charged with five offences under the Customs Act 1901.
Prosecutors claimed the man was involved in a plot to smuggle almost 16 tonnes of loose-leaf tobacco and over 20 million cigarettes into Australia.
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