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Illicit Tobacco & Alcohol Trade

“Legal and illegal trade in tobacco products are often intertwined”

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multi-million dollar tobacco smuggling gang

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.

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Australian terrorist financing investigation results in disruption of major cigarette smuggling conspiracy

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cigarette smuggling conspiracy

An investigation into terrorist financing conducted by law enforcement agencies in Australia has led to the arrest of eight men on suspicion of involvement in an illicit cigarette importation conspiracy run from Sydney.

The counter-terrorism operation that resulted in the men’s detention, which involved officers from the New South Wales (NSW) Police Force’s Terrorism Investigation Squad, the Australian Criminal Intelligence Commission (ACIC) and the Australian Border Force (ABF)-led Illicit Tobacco Taskforce, resulted in the identification of an organised criminal gang involved in the importation of illicit tobacco, drug trafficking and money laundering.

In a statement, NSW Police said three suspects were detained on Tuesday at Sydney Olympic Park, where one man was found by officers to be carrying A$12,000 ($8,245) in cash.

After those arrests, investigators carried out a series of raids on domestic properties, business premises and storage units across Sydney’s south-west, resulting in the seizure of illicit tobacco, A$50,000 in cash and a range of luxury items, including designer watches, jewellery and handbags.

During the raids, a further six suspects were detained, and were later charged with a number of offences including membership of a criminal organisation, tobacco smuggling, money laundering and the criminal possession of more than 500kgs of tobacco.

Police believe members of the gang were responsible for the importation and sale of more than seven tonnes of illicit tobacco products, estimated to be worth in excess of A$1.8 million.

Commenting on the success of the operation, ABF Acting Regional Commander for NSW Garry Low said: “We know illicit tobacco is an attractive market for criminal syndicates due to the lucrative profits that can be made in evaded tax, and as we can see here, the profits are often channelled back into organised crime.

“Illicit tobacco costs Australia about A$600 million a year in lost revenue. The ABF, working with our law enforcement partners, will continue to do everything we can to crack down on this black market, the criminals involved in it, and prevent illicit profits being channelled back into other criminal activities.”

In May of last year, lawmakers in Australia launched a crackdown on the sale of illicit tobacco that they claimed would raise some A$3.6 billion over a four-year period.

The Australian government said the initiative was intended to prevent the sale of 864 tonnes of illicit tobacco that is estimated to slip past the country’s customs officers every year.

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Analysis

Why the EU’s tobacco track and trace system fails to live up to WHO requirements

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Download a hi-res version of our new infographic here

The European Union is set to implement a system to track and trace tobacco products all along the supply chain this May, in line with the Tobacco Products Directive it passed in 2014. According to EU officials, the scheme meets a mandate from the WHO Framework Convention on Tobacco Control (FCTC) Protocol to Eliminate Illicit Trade in Tobacco Products, to which the EU is a party.

Track and trace systems have the potential to be vital tools in the fight against the illicit tobacco trade. Under-the-table smokes are “the commodity of choice” for organised crime groups, deprive governments of badly-needed tax revenue, and undermine public health initiatives by making tobacco products available at cheap prices, most importantly to highly price-sensitive groups such as young people.

The EU is by no means immune to the parallel trade in tobacco products, which costs the bloc’s governments an estimated €10 to 20 billion a year; illicit smokes make up roughly 10% of European consumption. What’s more, in some areas of the Union, the situation is getting worse. Tobacco smuggling across the Lithuanian-Belarusian border nearly doubled in 2018, and there are grave concerns a no-deal Brexit could lead to rampant illicit trade across the Irish border.

Parliamentary dissent

Against this backdrop, the May rollout of the EU’s track-and-trace scheme is welcome news. Unfortunately, the system the European bloc is planning to implement has already drawn substantial criticism from MEPs and public health bodies, who argue that the scheme is not  independent from the tobacco industry. The WHO Protocol specifies any track-and-trace system must be clearly separate from the tobacco sector’s influence; tobacco manufacturers’ long history of obstructionism and complicity in the smuggling of their own products indicate that they simply can’t be trusted. As recently as 2014, British American Tobacco (BAT) was fined in the UK for deliberately oversupplying overseas markets which it knew would make it into the hands of smugglers.

These various concerns underpinned Romanian MEP Cristian-Silviu Busoi’s January seminar on how to stamp out the parallel tobacco trade. Another, similar, debate will be held on Wednesday, February 27th, helmed by MEP Younous Omarjee. Both Busoi and Omarjee are suggesting that the Tobacco Products Directive may need to be modified in order to ensure the EU’s track-and-trace scheme is made compliant with the WHO Protocol, a higher legal norm, and does not unduly entrust responsibilities to the tobacco industry.

As Omarjee’s stated in a press release, the MEP “wants to understand why the European Commission is going out of its way to entrust the fight against the parallel trade in tobacco, fed by cigarette manufacturers, to the tobacco lobby and people close to it.”

The WHO’s approach

NGOs present at the January seminar, from the European Network for Smoking Prevention to the European Cancer League (represented by prominent anti-tobacco activist Luk Joossens), agreed that among the many key changes to the Directive would include making sure that data storage providers are not selected and paid by tobacco manufacturers. The International Tax Stamp Association (ITSA), which has challenged the EU system before the European Court of Justice on the grounds that it is in breach of the WHO Protocol, agreed that, among other things, any track and trace system should be placed under the protocol signatories’ direct control. Against the backdrop of this plethora of concerns, the European Commission representative at Busoi’s conference noted that the EU system is up for review in 2021.

Our exclusive new infographic illustrates the shortcomings of the EU track & trace system. Leaving aside the security features aspect of the system, which is controversial in and of itself, the infographic highlighting its numerous discrepancies with the scheme provided for by the WHO Protocol.

The WHO calls for a logical, linear process in which it defines a set of requirements for the Protocol’s parties to enforce. A public, open and competitive tender by the parties to the Protocol is supposed to select the best service providers, entirely independent from the tobacco industry, which then take on the key missions of “track and trace”: generating unique identifier codes, printing or affixing these codes to tobacco products, verifying on the production line that the codes are linked to the right products and providing governments with a database and related alert system. Public authorities, including customs, police forces and the judiciary, then have the means to control tobacco products all along the supply chain and convict those responsible for illicit trade.

Europe’s problematic alternative

In contrast, the European system is highly convoluted. Member states only carry out tenders for the service providers charged with generating the codes, while the European Commission oversees the selection of database providers. Most problematically, the EU scheme requires the tobacco manufacturers to both affix and verify the codes in their factories—two of the most essential steps of tracking and tracing tobacco products. The industry also has a hand in selecting and remunerating both the data storage providers and the auditors intended to oversee the system.

Under this scheme, unlike that outlined by the WHO, separate databases are required, while tobacco manufacturers each select their own preferred partners for data storage, which transfers its data to the secondary repository for public authorities. The involvement of the tobacco industry and its network of preferred suppliers in three of the four core missions in the EU proposal understandably raise serious doubts about whether the data generated by the system will truly be objective, and whether its use by judicial authorities will be efficient in tackling the illicit tobacco trade.

EU Health Commissioner Vytenis Andriukaitis has underlined that tobacco consumption is the single biggest cause of avoidable death in the EU, and expressed his hope that the implementation of track and trace would help Brussels crack down on the illicit trade which furthers it. Unfortunately, as it stands, the EU proposal falls short of what’s needed to effectively regulate the sector —and fails to fulfil the bloc’s obligations under the WHO Protocol.

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More than 150 people die after drinking toxic bootleg alcohol in north-east India

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toxic bootleg alcohol in north-east India

Toxic homemade alcohol has caused the deaths of at least 150 people and made over 200 more seriously ill in the north-east Indian state of Assam.

Police in the region today announced an increase in the death toll, which has been rising steadily since news of the moonshine poisonings were first reported late last week.

Investigators said they have arrested dozens of people in connection with the production of the deadly brew.

Homemade alcohol is said to be widely consumed by low-paid labourers in the region, many of whom spend their days carrying hard physical work on tea estates.

Two excise inspectors have been suspended on suspicion of failing to take adequate steps to prevent the sale of bootleg liquor, police said.

On Friday, health officials said they were receiving new reports of people falling ill after consuming the homemade alcohol every 10 minutes, resulting in hospitals having to bus in doctors and other medical staff from neighbouring regions to help deal with the high number of causalities.

People are reported to have started falling ill after consuming the rogue batch of liquor on Thursday.

Local officials, who have warned that the death toll could continue to rise, have ordered an inquiry into the deaths.

Police said they suspect the illegally-brewed alcohol was produced locally, and that while they had not yet determined its composition, those who have died or been made ill had contracted “methyl alcohol poisoning”.

Bootleg alcohol is routinely consumed by poor manual workers throughout rural India, where moonshine makers often add methanol to their illicit liquor in a bid to boost its strength.

Low-income workers are said to turn to moonshine alcohol due to the prohibitively high price of liquor sold by government-controlled stores.

In a statement posted on his Facebook page, Congress Party President Rahul Gandhi offered his condolences to those affected by the poisoning incident, writing: “I am saddened by the incident which occurred in Assam’s Golaghat area.

“My deepest condolences to the families of the victims. I hope that those undergoing treatment get well soon.”

News of the poisonings comes just two weeks after it was reported that scores of people had died after consuming methanol-laced alcohol in the north of India.

Over 100 people lost their lives after consuming the poisonous moonshine in Uttar Pradesh and Uttarakhand.

Investigators said they believed the alcohol was first consumed at a funeral in Haridwar, where 36 people lost their lives.

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