Category: Illicit Trade

Ukraine Restricts Duty-Free Tobacco Sales
Ukraine has restricted the duty-free sales of cigarettes and alcohol, reports Interfax.
The law, which signed into law by President Volodymyr Zelenskyy on Sept. 1, 2023, prohibits goods that fall under a certain categories of the Ukrainian Classification of Commodities from being registered as duty-free commodities until the country lifts the martial law that has been in effect since Russia’s invasion.
The measure is intended to tackle illegal trade in tobacco products. Despite restrictions on foreign travel after the breakout of hostilities in early 2022, the number of cigarette packs purchased near borders rose sharply compared with those sold at other outlets, causing the Ukraine to miss out on substantial tax earnings.
An ad hoc investigative commission created at the urging of the State Tax Service in May 2023, suggested stricter controls on tobacco manufacturers and exporters.

September 1, 2023
A Leap Forward for Public Health?

Image: waldemarus
China’s new rules on vape manufacturing will help tackle illicit trade only if they are properly enforced.
By Ian M. Fearon
The vape industry is in the midst of a growing crisis and facing an existential threat. This may seem like a pessimistic, and perhaps provocative, statement, but without those within the industry taking action to change course, the lives of the billion smokers across the globe could be placed at an increased risk.
The vape industry has always been controversial, although wrongly so. After all, nobody in their right mind doubts that when cigarettes are substituted with e-cigarettes, there are huge gains for both individual and population health. Despite this, those in “tobacco control” have become, and will remain, steadfastly resolute in their desire to remove vapes from markets across the world. While their motives are not abundantly clear, they certainly don’t appear to mesh with a desire to improve global health and may instead represent a nicotine prohibitionist standpoint. But their work is adding to the growing likelihood that vapes could be banished across the world. Or, as is currently the case in Australia, confined to prescriptions issued by physicians and not as freely available as, well, cigarettes.
Perhaps the biggest single threat to the vape industry is the mass marketing of both illegal and illicit products across the world. Wherever you look, in the United States and Canada, across Europe, in Australia and New Zealand, and pretty much any other global market in which vapes are sold, illegal products are abundant. They are causing problems by being made available to youth with scant regard for the impact this may have on public health and on the future of a lifesaving industry. In the U.K., recent assessments of vapor from illegal and illicit vapes have found them to contain high levels of poisonous metals, such as lead, or contain levels of nicotine higher than those allowed under U.K. regulatory law. And a recent investigation found evidence of the production of counterfeit products with inadequate manufacturing quality control and unhygienic product testing processes. The illicit trade is hugely damaging to the legitimate industry and makes the work of vape prohibitionists in tobacco control so much easier.
One way of stemming the flow of potentially dangerous illicit products is to act at the source. China is acknowledged as the birthplace of the modern e-cigarette, following the pioneering work of the Chinese pharmacist, Hon Lik, in the early 2000s. Chinese companies are also by far the world’s biggest e-cigarette manufacturers, with production coming mainly from the estimated 1,000 factories located in China’s Silicon Valley, Shenzhen. Recent figures show that Chinese e-cigarette manufacturing is growing at record levels, with $5.5 billion worth of vapes manufactured in the country in the first half of this year, up by almost 30 percent compared with the first half of 2022. Between $300 million and $400 million worth of these are imported each month into the U.S. and the U.K., the largest export destinations for Chinese e-cigarettes. Remarkably, $20 million worth are exported each month to Australia, a marketplace in which e-cigarettes are legal only on prescription. In that country, the end result will undoubtedly be greater restrictions on vaping, perhaps even for authorized prescription products, and many other countries are considering similar actions.
Regulating the expanse and diversity of Chinese vape manufacturing is not an easy task, but doing so would have a profound impact globally as it could make a huge dent in the supply of illicit vapes across the world. Recently, the Chinese State Tobacco Monopoly Administration (STMA) issued guidelines that may promise to clean up Chinese vape manufacturing. These guidelines are lengthy and complex but focus on a single area: the establishment of quality management systems in vape manufacturing facilities. To comply, manufacturers must, at least, implement quality and safety standards, assess and control their e-cigarette production, properly train their personnel, ensure manufacturing and distribution traceability, and complete export registrations and declarations. Products must not only be manufactured under stringent conditions, but they are also required to meet any relevant legal requirements in their export destination. And importantly, manufacturers must halt production if any safety issues arise or are brought to their attention in order to prevent and reduce harm. According to the guidelines, governments and other international organizations can report issues to Chinese authorities and have their concerns addressed.
The biggest question on everyone’s lips has to be this one: Will the STMA guidelines be enforced—and how? If we look at the status quo, regulations elsewhere are being ignored by many manufacturers and distributors of illicit vaping products, putting profit first and public health second. In the U.S., the Food and Drug Administration issues a constant stream of warning letters threatening enforcement action. But much like the fairground game whack-a-mole, as soon as one company or vape source has action taken against it, another one takes its place. The FDA’s finite resources cannot tackle this constant evolution. In the U.K., despite the scale of the vape black market, a recent assessment of enforcement actions showed that even when action is taken against distributors of illicit and potentially dangerous vapes, local Trading Standards teams have issued fines lower in aggregate than the maximum allowed by law of £2,500 ($3,181). The situation is analogous to the illicit cigarette trade of years past in which the potential financial gains far outweighed the likely punishment.
The question then becomes: Will the new STMA guidelines change the supply and distribution of illicit vapes, or, as has been the case in other jurisdictions, will the guidelines be weakly enforced? This concern, that the new guidelines will be meaningless and unenforced, is shared by the U.S. Smoke-Free Alternatives Trade Association (SFATA). When asked for their views on the new guidelines, SFATA President and CEO April Meyers suggested that while the new guidelines could theoretically increase the quality of vapor products coming out of China, she was unwilling to place any bets on such an outcome. Citing the scope and complexity of the political landscape in China, Meyers doubts that protecting the youth of other nations is at the top of regulators’ minds in Beijing, especially when there is so much money involved. Such a view is understandable given that the guidelines are suggesting that the Chinese government can fix enforcement issues elsewhere in the world.
Without doubt, the new Chinese guidelines are a positive step. The guidelines recognize the public health issues regarding the manufacturing and distribution of illicit vapes and offer a potential mechanism through which this damaging illegal trade can be eroded. But without strict enforcement, and instead relying on manufacturers to interpret the guidelines, implement appropriate quality control procedures, and to self-police, the guidelines may do little to alter the current status quo.
It’s a major irony that those companies already committed both to lawful distribution of vapor products and to the improvement of public health are facing action from regulators in the form of flavor bans and other restrictions while the illicit trade carries on regardless. The industry needs guidelines and product standards, but what it needs more than that is stricter enforcement. And stricter enforcement should include better approaches to identify and prevent illicit products from crossing borders, not just identifying them at the point of manufacture. This applies not just in China but everywhere in the world where vapor products can be sold. The existence of lifesaving consumer vapor products is at stake and, perhaps more importantly, so is public health. With the new Chinese guidelines, we are moving in the right direction. But without proper enforcement, we may carry on, in public health terms, walking backward.
Ian M. Fearon is chief scientific officer at McKinney Regulatory Science Advisors.

September 1, 2023
Cambodia: Police Shut Down Illegal Tobacco Factory

Image: Derek Brumby
Tboung Khmum police shut down an illegal tobacco factory producing counterfeit Esse brand cigarettes, in collaboration with Cambodia’s provincial military police and mobile customs officers, reports the Khmer Times. The factory was located in the Memot District, near the border with Vietnam.
The factory was allegedly owned by a Cambodian tycoon, according to Tboung Khmum Provincial Economic Police Officer Major Long Sambath. Police were investigating and monitoring the factory for a month before the raid, said Sambath.
The alleged owner was not present during the raid and has not been located, though his identity is known.
“This factory has operated without any authorization from relevant provincial authorities. We discovered recently that it was producing unlicensed, counterfeit Esse cigarettes,” Sambath said.
“The authorities have already cracked down on the factory, and we will take legal action to locate and prosecute the owner of the factory,” he said.
Several tons of counterfeit cigarettes were seized along with other tobacco-related materials, including new cigarette manufacturing equipment.
August 30, 2023
Russia Blames Illicit Trade for Tax Losses

Photo: Ivan Semenovych
The Russian government lost more than RUB46 billion ($481.33 million) in tax earnings in the first half of 2023 as a result of the illicit trade in cigarettes, reports Interfax.
“According to the latest study, which ended this month, the share of illicit cigarette trafficking was 13.3 percent in terms of smokers,” said Vladislav Zaslavsky, director of the Russian Industry and Trade Ministry’s department for the system of digital marking of goods and the legalization of the circulation of products.
“The minimum amount of losses, according to the NNCC [National Scientific Center for Combating Illicit Trafficking in Industrial Products], is estimated at RUB46.5 billion,” Zaslavsky said on Aug. 24 during a retail round table in the Volga region.
According to Zaslavsky, each percent of the share of illicit cigarette trafficking costs the federal budget about RUB7 billion in excise taxes alone.
The NNCC will conduct a study on “nicotine-containing products” in the second half of 2023. As of the end of 2022, the market share of illegal nicotine-containing products was 79 percent, including 93 percent in illegally sold nicotine-containing liquids.
August 29, 2023
Pakistan: Cigarettes Seized for Tax Violations

Photo: sezerozger
Pakistan’s tax authorities confiscated 650 cartons of cigarettes from Philip Morris (Pakistan), alleging that the products were sold below the minimum retail price, reports Pakistan Today.
“This action underscores the government’s commitment to upholding tax laws and safeguarding public health,” a Federal Bureau of Revenue official was quoted as saying. “Violations of these regulations not only undermine public health initiatives but also lead to revenue losses for the government.”
Philip Morris insisted it was in full compliance with tax obligations for all its brand. A company spokesperson said that the company is cooperating with FBR and is dedicated to tackling illicit trade in Pakistan.
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August 24, 2023
Illicit Cigarettes Set to Dominate Pakistan

Photo: Taco Tuinstra
Illicit cigarettes may exceed legitimate tobacco sales in Pakistan within the next quarter, warn some industry insiders, according to Profit. The illicit products have already secured more than 40 percent of the market.
The tobacco industry has criticized the Federal Board of Revenue and the Ministry of Health for their perceived failure to curb the illicit market.
Sami Zaman, head of external affairs at Pakistan Tobacco Co., warned that if left unchecked, illicit cigarette sales could secure more than 50 percent of the market share in months.
Illicit cigarettes offer lower price points and many flavor options but lack proper taxation and legally mandated graphic health warnings.
The industry is having a hard time fighting this due to a supply shortage of legal products; 75 million kg of raw tobacco was secured for the entire cigarette manufacturing industry despite promises of 85 million kg, causing cigarette prices to increase dramatically.
The licit cigarette industry saw a 44 percent decrease in cigarette manufacturing during June 2023 followed by a 28.4 percent decrease from July 2022 to July 2023.
August 21, 2023
Call for Stronger Anti-Smuggling Rules

Image: Tobacco Reporter archive
Law enforcement and health authorities have called for stronger rules against the illicit cigarette trade in Vietnam, according to VN Express.
Most e-cigarettes that are sold in Vietnam are smuggled, according to a leader of the Vietnam Federation of Commerce and Industry. He added that there is not strict legal framework to control e-cigarette products.
“There should be a legal framework to control this product and reduce smuggling,” said Nguyen Hai Cong, head of the Department of Tuberculosis and Lung Diseases at Military Hospital 175. He noted that e-cigarettes are gaining popularity with young people and students, who seem to believe there is no risk to the products.
Many e-cigarette smugglers have been caught recently, according to Kieu Duong, head of policy and legal at Vietnam Directorate of Market Surveillance; 81 smugglers were caught in Hanoi in the first six months of the year with about 20,000 items confiscated. Recently, Hai Phong police confiscated 54,000 illicit products.
According to Duong, the highest penalty for smuggling these products is VND50 million ($2,100), which is not enough to dissuade criminals.
August 21, 2023
Indonesian Customs Seizes Millions in Goods

Image: Tobacco Reporter archive
Customs in Batam, Indonesia, have seized illicit goods worth IDR1.37 trillion ($89.35 million) in the first half of 2023, including tobacco products, illegal cigarettes, e-cigarettes and alcoholic beverages containing methanol, according to 2Firsts.
The operation was a result of tax operations aiming to ensure compliance of retail tax paying sellers as part of the area’s free-trade zone and free port, according to Anbang Puriyongo, director of Batam Customs.
Three individuals have been named as suspects and undergone trial, according to Puriyongo. He called on citizens to report suspicious activities and actively participate in creating a fair trading environment.
“We will further enhance inter-department coordination and cooperation, leveraging the latest technology,” Puriyongo said. “We aim for such actions to continue in the future, creating a better trading environment for Indonesia.”
August 17, 2023
Malaysia: Illicit Tobacco Share Down Slightly

Photo: K Stocker
The share of Malaysia’s illicit cigarette market declined slightly this year, reports the New Straits Times.
According to a recent survey, Illegal products accounted for 55.3 percent of the domestic cigarette market in May, down 1.3 percent from a year ago.
The Confederation of Malaysian Tobacco Manufacturers (CMTM) attributes the drop to new anti-illicit measures, including the strict control on the shipment of tobacco products and increased enforcement efforts.
In Kelantan, the illicit incidence had declined to 50.2 percent compared to 70.6 percent in 2020 as a result of heightened enforcement actions in the state.
Despite the progress, the prevalence of illicit cigarettes remains extremely high by international standards. While legal cigarettes retail for between MYR9 ($1.98) and MYR12, the same products can be purchased for between MYR4 and MYR8 on the black market.
The government misses out on an estimated MYR5 billion in annual revenues due to tax-avoiding cigarettes.
The survey report also highlighted the notable increasing presence of cigarette packs with fake tax stamps in the market. Based on the study, the incidence of cigarette packs with fake tax stamps has increased to 8.5 percent from 4.9 percent in 2018.
Concerned about the persistence of illicit trade, the CMTM urged the Parliamentary Special Select Committee to carefully consider the impact of the Control of Smoking Products for Public Health Bill 2023 that is currently under consideration in Malaysia.
Among other measures, the proposed legislation would prevent those born in or after 2007 from buying tobacco or vapes. Policies should be based on substantiated science-based evidence and be designed to prevent any unintentional proliferation of illicit cigarettes, the CMTM said
August 2, 2023
Stranglehold

Photos courtesy of Vladislav Vorotnikov
The illicit cigarette trade remains a big problem in Central Asia.
By Vladislav Vorotnikov
Last year, cigarette production perked up in Central Asia, a part of post-Soviet space comprising Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan. The positive production dynamics were registered despite mounting regulatory pressure and flourishing illegal trade.
Kazakhstan, the largest cigarette market in the region, saw a 7.9 percent rise in the tobacco industry’s output to 17.4 billion items in 2022, the National Statistical Bureau estimated. This is the strongest increase in the past decade, following a three-year decline.
Last year, the average household spent KZT44,800 ($101) on tobacco, up 10.8 percent compared with the previous year. This is primarily associated with a steady rise in tariffs, as Kazakhstan has been gradually raising the excise rate and the minimum prices per pack since 2021—a process slated to end in 2024. Against this background, the average price of cigarettes in Kazakhstan jumped by 17.9 percent in May 2023 compared with the previous year.
Some lawmakers were troubled by the trend. “Of course, tobacco is not bread, and it doesn’t belong to the list of essential products. However, there is a certain percentage of our citizens for whom it is also necessary,” said Sergey Ershov, a member of Kazakhstan’s parliament. “And in a situation where the prices for a pack of cigarettes are growing, and the incomes of the population remain at the same level, a further increase in the cost can lead to a significant increase share of illegal trade, inevitably spurring the consumption of cheap counterfeit products of dubious quality.”
The government is boasting of a 10.1 percent drop in domestic tobacco consumption to 3.7 billion units in the first quarter of 2023 compared with the 4.1 billion units during the same period of the previous year, though there are doubts whether these figures actually reflect the state of play in a market where the share of illegal trade reportedly is surging.
Currently, Kazakhstan’s cigarette market is dominated by Philip Morris Kazakhstan, which runs a factory in the Almaty region it acquired in 1993, and Japan Tobacco International Kazakhstan, which operates a factory in the same region. The sole local manufacturer, Phoenix Enterprises, which sells cigarettes under the Dryuzba brand, accounts for a small share of the budget segment of the market. In addition, nearly a quarter of demand on the Kazakhstan tobacco market is met by importers, including BAT Kazakhstan, KT&G and Donskoy Tobacco.
Uzbekistan has an estimated consumption of around 10 billion cigarettes per year, worth $500 million, according to Igor Nikolsky, JTI regional director.
In the past few years, Uzbekistan reportedly saw a substantial rise in cigarette production. Currently, the industry comprises the Tashkent Tobacco factory, manufacturing JTI brands, and the UzBat factory, operated by BAT Uzbekistan. The local press reported that these two factories ramped up production to a level allowing the country to nearly reach self-sufficiency.
In 2018, the Uzbek government abandoned a decade-long ban on cigarette exports from the country, allowing local factories to sell to Mongolia, Kazakhstan, Afghanistan and other countries.

Dignitaries examine tobacco at the Tashkent Tobacco factory in Uzbekistan.
The Wild West
The level of government control over the tobacco market varies across Central Asia. In Kazakhstan, it is relatively strict while in some other countries, such as Kyrgyzstan, it leaves a lot to be desired.
In 2021, the Kazakh government estimated that the share of illegal trade on the domestic market was close to 1.6 percent. Market players have doubts about whether this figure is correct, however. JTI Kazakhstan, for instance, put this rate at 3 percent to 5 percent, which is in line with the estimation of the Association of Trade Enterprises. Moreover, the steady rise in excise tariffs will likely drive this figure up by 1 percent to 2 percent per year, according to Alyona Stepanishina, external communication manager of JTI Kazakhstan.
Over the past two years, the share of illegal tobacco products in Uzbekistan jumped from 4 percent to 15 percent, Komil Abdurakhmonov, a spokesperson for the Agency for Regulation of Alcohol and Tobacco Market, estimated.
The lion’s share of illegal tobacco in the market comes from smuggling and flows into the country through the southern regions, Abdurakhmonov claimed. Commonly smuggled brands include Milano from the United Arab Emirates and KT&G’s Esse, he said. The cigarettes are first delivered to Kirgizstan and Tajikistan to be further smuggled to Uzbekistan.
“A series of recent studies showed that in all stores and the markets, we have Milano cigarettes, coming from Dubai. Their price is much lower than that of the local brands, and many consumers smoke them because of the price,” Abdurakhmonov said, adding that there are also substantial concerns over the quality of these products. “Simply checking information on the label, we can see that the level of nicotine content in these cigarettes by several times exceeds the allowed levels,” he added.
Ulugbek Kasimov, a spokesperson for the Uzbekistan State Customs Committee, also blamed Kyrgyzstan for illegally exporting tobacco products to his country. He disclosed that a large part of the shipments goes through the porous southern border. In this case, the customs service is nearly powerless to pull the plug on smuggling.
This is not the first time Kyrgyzstan has been blamed for large-scale cigarette smuggling in the region. The country shares a common customs space with Kazakhstan within the Eurasia Economic Union and is believed to be reexporting cheap cigarettes to several neighboring countries. In 2019, consulting firm KPMG reported that nearly a third of cigarettes entering Kyrgyzstan are reexported to other parts of Central Asia and Russia, often through various smuggling channels.
Azamat Arapbaev, a member of the Kirgiz Parliament, said that a large share of illegal cigarettes entering the country come from the Middle East, Tajikistan and Serbia while some cigarettes make their way to the market from duty-free stores on the border. He estimated that these supplies have a big impact on the domestic cigarette market, where sales are close to 3.2 billion units per year.
A 2022 study conducted by the think tank IPSOS showed that the share of illegal cigarettes on the domestic market of Kirgizstan is close to 9.5 percent. Kamila Aikultlova, an analyst with IPSOS, estimated that the national budget lost between $6 million and $7 million from illegal trade on the domestic market. Meanwhile, in Tajikistan, illicit cigarettes accounted for a whopping 74.2 percent of retail sales in 2021, according to Nielsen.
The future of the Kazakhstan tobacco market is tightly linked with a proposal, published by the healthcare ministry in early 2023, to ban vapes. Alibek Kuantirov, the economy minister, backed the initiative, claiming that the Kazakhstan society favored this idea. He promised that tobacco-heating devices would not be banned. Still, Olga Krutova, an analyst with local publication MK, assumed that the restrictions in this field would give further impetus to the growth of the illegal tobacco market.

In some parts of Central Asia, illicit cigarette account for 75 percent of the market.
An Island of Deficit
Things on the cigarette market look different in Turkmenistan, one of the poorest countries in the post-Soviet space, where smokers struggle to find affordable cigarettes. In 2016, the government imposed a ban on selling cigarettes in private stores, restricting the trade to state stores. Turkmenistan aims to become the world’s first tobacco-free country by 2025, though not everyone is happy with that goal.
News outlets report that people must wait in queues stretching for hundreds of meters for a rare opportunity to buy cheap cigarettes for TMT50 ($14) to TMT60. In 2021, the release of a long-awaited cigarette brand provoked stampedes, fights and detentions in several regions.
“A huge number of people gathered in front of the store in the Zheleznodorozhnik microdistrict of Turkmenabad, and even the police could not keep order,” said one of the customers who described those events to the foreign press. “Two people in line got sick. In the pandemonium, several shop windows were smashed. The store started dispensing cigarettes at 7 a.m., and people were standing in line 10 [hours to] 12 hours before that.”
Turkmenistan remains a closed country even by the standards of authoritarian Central Asia, so there are no reliable statistics pertaining to actual cigarette consumption. Occasional reports describe cases of smuggling and the existence of various underground cigarette workshops. Some citizens try to grow tobacco on their land plots for personal consumption, though frown on the practice.
August 1, 2023