Illicit Tobacco & Alcohol Trade
“Legal and illegal trade in tobacco products are often intertwined”
Illicit Trade News Networks has interviewed Benoît Gomis, research associate at the Global Tobacco Control Research Programme at Simon Fraser University who has recently published a study on the illicit trade in South America. From the beginning of the illegal trade seeded by British American Tobacco and Philip Morris International to the ongoing trade organised by Tabesa, Benoît Gomis gives a clear picture of how legal and illegal are intertwined as long as tobacco products are involved.
Illicit Trade News Network: You recently published a study on illicit tobacco trafficking in South America and more specifically in Paraguay. Can you go back over the figures from this study in a few words?
My colleagues and I just published two papers in Globalization and Health on Paraguay’s illicit tobacco trade.
In the first paper, we demonstrate how the trade was originally seeded by British American Tobacco (BAT) and Philip Morris International (PMI), who from the 1960s onwards used Paraguay as a transit hub to smuggle their cigarettes to the then protected markets of Argentina and Brazil. Two developments later led to a boom in Paraguayan production: 1) the transnational tobacco companies (TTCs)’ switch from high-end to cheap smuggled brands in the late 1980s and early 1990s – products with which local manufacturers could now compete, and 2) Brazil’s introduction of a 150% export tax to end the TTC scheme – by which cigarettes were sent to Paraguay and then re-smuggled to Brazil. Based on our estimates, between 1989 and 1994, Paraguayan cigarette production was below the annual domestic consumption of three billion cigarettes. It grew to 12 billion sticks by 1998 and 27 billion by 2003 despite stagnating consumption.
In the second paper, we document how Tabacalera del Este (most commonly known as Tabesa) capitalized on the conditions created by BAT and PMI and a permitting regulatory environment. Created in 1994, Tabesa is now one of Paraguay’s largest companies. It was founded and is still owned by Horacio Cartes who was President of Paraguay between 2013 and 2018. Based on data on the company’s imports of cigarette components, we estimate that Tabesa imports enough to produce 25-36 billion cigarette sticks per year. Given domestic consumption and legal export figures, this means that between 19-30 billion cigarettes produced by Tabesa annually end up on the illicit market. An estimated 70% of that is smuggled to Brazil, and our research finds that Tabesa has been exploring other international markets.
Tabesa executives notably told Paraguayan journalists that the company legally exports to a number of countries, including Bulgaria, Curaćao, the Netherlands Antilles and the Netherlands. However, our analysis of UN Comtrade data shows significant discrepancies, suggesting illicit trade. For instance, between 2001 and 2016, there were no cigarette exports reported by Paraguay to Bulgaria, nor any cigarette imports reported by Bulgaria from Paraguay. In that same period, Paraguay reported exports of 1.4 billion cigarettes to Curaçao, 481.2 million cigarettes to the Netherlands Antilles, and 111.4 million cigarettes to the Netherlands, yet none of those countries reported any cigarette imports from Paraguay. In total, between 2001 and 2016, 5.7 billion cigarettes officially shipped by Paraguay to 10 markets where Tabesa exported to were unaccounted for.
What are the major findings of your study on the modus operandi of tobacco trafficking?
Our findings suggest that the legal and illegal trade in tobacco products are often intertwined. BAT, PMI, and Tabesa have all had legal sales and legal exports, and yet have also used the illicit trade – in particular through free trade zones (FTZs) and other areas of weak governance – to enter new markets and increase their revenue. We also argue that Tabesa has used its legal exports to the US as a defence against smuggling accusations. More broadly, these papers – and other research we have conducted – suggest that the illicit tobacco trade is changing its nature. There are still signs of TTC complicity in the illicit trade, but other non-TTC actors are increasingly involved as well. Meanwhile, TTCs are attempting to recast themselves as responsible partners to governments by providing intelligence, training, equipment, financial resources and even influencing budget decisions in various countries across Latin America, while also commissioning and funding studies on the illicit trade and framing the issue in the media. It is of course in their interest to do so. Through these activities, TTCs aim to undermine competitors and fight against tobacco control measures that have been effective in reducing smoking rates (e.g. higher taxes, plain packaging).
In your study, you mention tactics allegedly used by Tabesa, PMI and BAT tactics in terms of illicit tobacco trafficking. What are these tactics?
These include: 1) creating new brands, manufacturing them domestically, exporting them illegally, using the revenue to reinvest in product development and production facilities to produce more cigarettes to a higher standard and thus compete for new markets overseas; 2) using free trade zones as transit hubs for smuggling; and 3) selling to a large number of domestic distributors and later arguing that subsequent illicit exports are not their responsibility.
What measures could countries plagued by illicit tobacco trafficking take at the national level?
The first measure is to tackle industry interference with policy making. TTCs are attempting to circumvent international guidelines to reclaim influence in tobacco control by supporting governments to tackle the illicit tobacco trade. But as the WHO warns, “There is a fundamental and irreconcilable conflict between the tobacco industry’s interests and public health policy interests.”
Second, governments would do well to increase resources dedicated to relevant law enforcement and customs departments – including adequate training independent of the tobacco industry.
Third, more data should be collected and analyzed independently of the tobacco industry. Very often there is much we do not know about the illicit tobacco trade in any said country, meaning that policy responses often rely on potentially misleading seizure figures and industry-funded data.
More broadly speaking, the more fundamental issues of weak governance, institutional capacity, political will, transparency, accountability, and corruption need to be tackled for any substantial progress to be made.
What measures could be taken at the international level and in terms of traceability?
Governments should fully implement the WHO Framework Convention on Tobacco Control and its Protocol to Eliminate Illicit Trade in Tobacco Products.
Our research played an important role in the Paraguayan government’s decision to sign the Protocol, a step in the right direction. The Protocol features a number of useful action points, including Article 10.1.b which notes that Parties shall “take the necessary measures” so that companies “[supply] tobacco products or manufacturing equipment in amounts commensurate with the demand for such products within the intended market of retail sale or use”.
Article 8 on Tracking and Tracing is perhaps the most central one, however. It notes that “the Parties agree to establish within five years of entry into force of this Protocol a global tracking and tracing regime”. Under the traceability system of the Protocol, detailed information on the entirety of the tobacco supply chain is for instance required, including “the name, invoice, order number and payment records of the first customer not affiliated to the manufacturer”, “the intended market of retail sale”, “any warehousing and shipping”, “the identity of any known subsequent purchaser”, and “the intended shipment route, the shipment date, shipment destination, point of departure and consignee” (Article 8.4.1). This system is intended to “further [secure] the supply chain and to assist in the investigation of illicit trade in tobacco products”. However, it is currently at risk of being controlled by the tobacco industry. Further research on this development and caution from governments are required to ensure that the track and trace measures put in place across the world effectively mitigate the illicit tobacco trade, rather than promote the commercial interests of TTCs at the expense of public health and good governance.
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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