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“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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Europe-wide operation results in dismantling of tobacco smuggling operation that cost tax authorities €70 million

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dismantling of tobacco smuggling operation

An international operation coordinated by Eurojust, Europol and the European anti-fraud office OLAF has resulted in the breakup of a cross-border organised crime gang behind a major illicit tobacco smuggling operation.

A day of action involving law enforcement officials from seven countries resulted in the arrest of 18 people suspected of having links to the conspiracy.

The suspects were arrested on suspicion illegally storing and trading some 670 tonnes of illicit tobacco and several money laundering offences.

Alleged members of the gang, who are said to have deprived customs authorities in the Netherlands of some €70 million ($77.7 million) throughout the course of their plot, were detained in a coordinated series of 29 raids in Italy, Poland, Belgium, the UK and the Netherlands, mainly in the south eastern province of Limburg.

Police officers from Romania and Cyprus are also said to have contributed to the operation.

In total, the effort involved more than 250 investigators, including police, fiscal detectives and customs officers who were deployed during the action day.

In a statement, Europol said the gang is thought to have purchased tobacco in Italy before processing it at illicit cigarette factories and selling it on to traders.

“The criminals played a role as well in the brokerage of illegally produced cigarettes and bought, sold and repaired machinery for cigarette production,” Europol said.

“As a result of international cooperation, since last year already illegal cigarette factories have been dismantled in Poland, the Czech Republic and the Netherlands, whose operators had close links to the criminals who have now been arrested.”

The operation was the result of analysis conducted by a special operational taskforce that was set up in February 2018 comprising of Europol, UK tax authorities and FIOD, the Dutch fiscal information and investigation service.

In a report published back in June of this year, KPMG said the illicit trade in black market cigarettes across the European Union deprived member states of some €10 billion of tax revenues in 2018.

This was up from €369 million in 2017, despite the total number of counterfeit and smuggled cigarettes consumed in EU nations falling 1.1 billion to 43.6 billion.

According to the study, which was commissioned by Philip Morris International, the EU market for illicit smoking products was equal to legal cigarette sales in the UK, Austria and Denmark combined in 2018.

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Scottish researchers to investigate whether minimum alcohol pricing pushes homeless to illicit drink and drugs

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minimum alcohol pricing pushes homeless to illicit drink and drugs

Researchers at Glasgow Caledonian University are to study how minimum alcohol pricing policies impact homeless people.

The project will be led by experts at the institution’s Substance Use and Misuse research group after Scotland became the first country in the world to introduce minimum alcohol pricing last year.

In May 2018, the Scottish government introduced a 50p a unit minimum price, which experts cautioned could result in vulnerable groups turning to dangerous forms of counterfeit alcohol and new psychoactive substances such as synthetic cannabinoid Spice.

This resulted in the price of a three-litre bottle of cider containing 7.5% alcohol, a beverage popular with problem drinkers and homeless people, rising in price from £3.50 ($4.32) to £11.25.

While the Scottish government believes global evidence suggests the new pricing structure will have a positive effect on problem drinking among the general population, academics have thus far not carried out research into the potential impact minimum pricing might have on vulnerable sections of society, such as the homeless.

In a statement issued this morning, the university said its researchers will be working with colleagues from the University of Victoria in Canada, the University of Stirling, Heriot-Watt University and experts from the UK’s National Health Service and charity the Homeless Network.

Professor Carol Emslie, who will head up the investigation, commented: “Scotland is the first country in the world to implement alcohol minimum unit pricing.

“We need to explore the potential benefits of this policy for homeless people but we also need to understand any potential negative consequences.

“We do not know how vulnerable groups such as people experiencing homeless have adapted to the higher price of alcohol such as vodka and strong white cider.

“Our study will inform decisions about minimum unit pricing in Scotland and provide guidance for other countries planning to introduce the policy.”

Prior to the introduction of Scotland’s new pricing law, Director of Lifestyle Economics at the Institute of Economic Affairs Christopher Snowdon told the Daily Telegraph that the new policy could see heavy drinkers replace low-price alcohol with more dangerous substances.

In May of this year, 12 months on from the new pricing regime coming into force, it was revealed that Scotland had the highest number of drug-related deaths in Europe.

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Organised crime police in Australia seize 1.5 tonnes of smuggled tobacco worth A$1.5 million

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1.5 tonnes of smuggled tobacco
1.5 tonnes of smuggled tobacco

Police in Australia discovered a 1.5-tonne consignment of illicit tobacco estimated to be worth A$1.5 million ($1.01 million) in Sydney’s south west earlier this week, according to a statement from New South Wales Police.

Officers from the force’s Strike Force Raptor, which is dedicated to targeting organised criminal activity connected with the country’s motorcycle gangs, found the huge haul after conducting a raid on an industrial unit in the Fairfield district of the city on Tuesday.

Detectives searching the premises after executing a warrant came across 73 boxes that were found to contain loose tobacco weighing almost 1.5 tonnes.

Police said the tobacco was impounded and taken away for further analysis, adding that no arrests had been made in connection with the shipment.

In May of last year, authorities in Australia launched a crackdown on the sale of illicit tobacco that the country’s government said it hoped would raise some A$3.6 billion over a four-year period.

Finance Minister Mathias Cormann said at the time that the initiative would see the government take action to prevent the sale of the 864 tonnes of illicit tobacco that was estimated to make it past the country’s customs agencies every year.

Kelly O’Dwyer, who was the nation’s Minister for Revenue and Financial Services at the time, said: “These measures will shut down the avenues that organised crime syndicates have to access illicit tobacco to fund criminal activity.”

Just months later, officers from Australian Border Force announced that they had arrested a man in connection with the discovery of a record haul of 9.5 million smuggled cigarettes, which were found concealed inside a container in a port city of Fremantle in Western Australia.

The illicit cigarettes, which were thought to have been made in Southeast Asia, would have cost the Australian treasury A$7.66 million in evaded duty had they made it onto the country’s black market.

Earlier this month, the Australian Criminal Intelligence Commission (ACIC) released a report that revealed law enforcement agencies across the country confiscated 30.6 tonnes of illicit drugs last year, noting that methamphetamine remained one of the most consumed and seized illicit drugs in the nation.

Michael Phelan, ACIC CEO, commented: “The estimated street value of the weight of amphetamines, MDMA, cocaine and heroin seized nationally in 2017–18 is nearly $5 billion, underlining the size of the black economy that relates to illicit drugs alone.”

The seventh National Wastewater Drug Monitoring Programme report, which was released in June by the ACIC, found that Australians are now using twice as much methamphetamine as any other illegal drug.

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