Category: Illicit Trade

  • South Africa: Illicit Products Destroyed

    South Africa: Illicit Products Destroyed

    Image: Tobacco Reporter archive

    The Customs Division of the South African Revenue Service (SARS) has begun destroying illicit and smuggled cigarettes at the Beitbridge border post, reports SA News.

    According to SARS Deputy Commissioner Johnstone Makhubu, 2,000 master cases, or 20 million cigarettes, will be destroyed.

    The illicit products were seized in multi-agency and intelligence-driven operations led by Customs’ National Rapid Response Team.

    “SARS has a zero-tolerance for persons or organizations that are involved in tax crime or illicit trade, and SARS will pursue them relentlessly,” said Makhubu.

    Customs has put into place measures to grant benefits to compliant traders through the Accredited Economic Operator Model, according to Beyers Theron, SARS director of customs and excise. SARS is also implementing SMART border technology to increase detection capability and response.

    “Since the inception of its coordinated and focused investigations Customs has been conducting over the past three years in the tobacco and cigarette industry, there has been a noticeable shift to increased cross-border smuggling using ‘runners.’ These are not individuals smuggling these cigarettes as an entrepreneurial opportunity but organized criminal syndicates exploiting the unemployed and the poor by employing individuals as runners to carry goods, often for miles, across borders,” said Theron.

    “These runners carry at least two master cases of illicit cigarettes on their backs per run, often repeating these trips multiple times. These cigarettes are then loaded into trucks, small goods vehicles, cars and taxis that wait at locations along the border for distribution to their intended destinations on the local market.”

  • Tobacco Smuggling Costs Billions

    Tobacco Smuggling Costs Billions

    Image: somemeans | Adobe Stock

    Cigarette manufacturers estimate that tobacco smuggled across Canada costs billions in lost taxes, according to a report to Parliament, reports Western Standard.

    “The excise reporting gap was estimated to be on average $400 million of federal excise revenue for the tax years 2014 to 2018,” the Cabinet wrote in an Inquiry of Ministry tabled in the Commons. The $400 million figure included tax revenue lost to contraband of all kinds.

    “How much does the government collect in tobacco taxes annually, and what is the amount of federal tax revenue that is lost from the sale of illegal, untaxed tobacco?” asked Conservative Member of Parliament Philip Lawrence.

    “Illegal tobacco costs around $2 billion annually in lost tax revenue with that money diverted to some of Canada’s most notorious organized crime groups,” wrote Ralf Wittenberg, Imperial Tobacco Canada CEO. “Despite this, the federal government has barely mentioned illegal tobacco since 2015, let alone taken any measures to address it.”

    “Canada’s illegal tobacco problem is now a national issue that spills beyond our borders, with illegal Canadian product turning up in the United States, Mexico, the Caribbean and Central America,” said Wittenberg. “Domestically, after several years of relative stability, the illegal market is growing again.

    “This has been driven mainly by persistently high rates in Ontario estimated at 35 percent to 40 percent and a recent explosion in British Columbia, where we estimate the rate has grown to 35 percent.

    “Numerous reports from law enforcement agencies, think tanks and media have drawn clear links between illegal tobacco and other criminal activities, including drug and weapons trafficking.”

  • Affordable Vapes May Temper Black Market

    Affordable Vapes May Temper Black Market

    Image: Tobacco Reporter archive

    A study conducted by researchers at Johns Hopkins University suggests that if regulators limit the nicotine content of cigarettes, people may turn to illegal sources to buy full-nicotine cigarettes, reports Filter. However, the availability of affordable vape products could deter this shift to the illicit market.

    The study found that nicotine vapes, which are believed to be less harmful than cigarettes, played a crucial role in people’s choices. When vapes were priced lower than illegal cigarettes, they were purchased to a greater extent, according to the study. Restricting nicotine content alone could lead to an increase in black market cigarette purchases, but making e-cigarettes more affordable could reduce combusted cigarette consumption, the authors suggested. The study emphasizes the importance of regulating vaping products alongside reducing nicotine in smoked tobacco.

    The findings suggest that a mandate requiring all cigarettes to have low nicotine content may be unnecessary if the right policy environment is established, including favorable taxation and diverse smoke-free alternatives.

  • Coordinate Fight Against Illicit Trade

    Coordinate Fight Against Illicit Trade

    Image: Tobacco Reporter archive

    South Africa needs to enhance its coordination and enforcement efforts in combating illicit trade, which has been increasing in the country, according to the report Organised Crime, Corruption and Illicit Trade, reports The Sunday Times.

    Esteban Giudici, a policy adviser at the Transnational Alliance to Combat Illicit Trade (Tracit), emphasized that South Africa lacks effective implementation of laws and resources to address illicit trade. The problem is not treated as a comprehensive criminal phenomenon affecting all sectors, which allows criminals to exploit opportunities. The report identifies several sectors, including alcohol, illegal mining, counterfeit goods, falsified medicine, fuel, wildlife trafficking and tobacco, as particularly vulnerable to illicit trade. Giudici stressed the importance of improving coordination, as criminal networks involved in illicit trade operate across multiple countries.

    Tracit conducts research on illicit trade and transnational crimes and supports companies and governments in their efforts to combat these crimes. South Africa’s recent gray-listing by the Financial Action Task Force is expected to hinder the government’s post-Covid-19 recovery efforts and investment attraction. Effectiveness in implementing existing laws to combat money laundering, which is closely linked to illicit trade, is crucial. The report recommends that the South African government strengthen coordination, criminal penalties and law enforcement to address the issue effectively. The gray-listing could lead to a contraction of up to 7.6 percent in the country’s GDP, according to estimates by the International Monetary Fund.

  • EU Struggling with Counterfeits

    EU Struggling with Counterfeits

    Counterfeit tobacco products
    Photo: British American Tobacco

    Spanish police conducted raids on three clandestine tobacco factories earlier this year, resulting in the seizure of nearly €40 million ($44 million) worth of tobacco leaf and illicit cigarettes, reports Reuters. One of the factories, located in Alfaro, housed 10 Ukrainian workers, including war refugees, who were forced to work without contracts and receive meager pay. They were not allowed to leave the premises, living and working in the factory under exploitative conditions. This operation reflects a larger trend seen across the European Union, where law enforcement agencies report a surge in seizures of illicit cigarettes.

    Criminal organizations traditionally imported counterfeit tobacco products from outside the EU. However, they are now establishing production facilities in western Europe to be closer to lucrative markets with higher prices. The Covid-19 pandemic, which disrupted travel and supply chains, along with the ongoing war in Ukraine—a hub for illicit tobacco production and transit—have further fueled this trend. The rise in counterfeiting presents financial challenges to major tobacco companies as they face declining smoking rates and increasing investments in alternative products such as vapes.

    Last year, the EU recorded a record-breaking 531 million seizures of illicit cigarettes, marking a 43 percent increase from the previous year. Around 60 percent of the confiscated cigarettes originated from illicit production within the EU while the rest were smuggled in. To combat this problem, tobacco companies like BAT, Imperial Brands and Japan Tobacco have hired investigators to gather information on counterfeit operations and share intelligence with European authorities.

    The industry has declined to disclose the financial impact of the illicit trade, but it is evident that they are taking significant measures to protect their brands and combat illegal activities. Counterfeiters typically replicate popular cigarette brands, and the production cost of a pack of cigarettes is relatively low compared to its market value, leading to substantial profits for criminals. The decline in supplies from China and Asia due to the pandemic has spurred an increase in production within Europe itself. The situation has been further complicated by the war in Ukraine, which disrupted the illicit tobacco trade routes. Many counterfeiters reportedly exploit vulnerable Ukrainian refugees, subjecting them to harsh working conditions akin to “modern-day slavery.”

  • Pakistan Asked to Reconsider Tax Hike

    Pakistan Asked to Reconsider Tax Hike

    Image: alexlmx

    The chief financial officer and executive director of Philip Morris International in Pakistan has asked the government to reconsider a hike in federal excise duties (FED), reports The Tribune.

    In February, the government increased the FED by 200 percent for the current fiscal year, causing legal cigarette sales to drop considerably.

    PMI suffered an almost 70 percent decline in sales and a 60 percent drop in production in March and April. “This downward trend is expected to persist in the coming months due to the rise in illicit cigarette sales,” said PMI’s Muhammad Zeeshan.

    BAT subsidiary Pakistan Tobacco Co. also scaled back production in the wake of the tax hike, citing fierce competition from the black market. In a letter to the Federal Board of Revenue, the company stated its intention to re-export four cigarette making machines due to a decline in sales volume. The company has reportedly already shut down eight of 10 production lines at its Jhelum facility.

    Zeeshan told journalists that the high FED not only depresses fiscal revenue, but also fuels the illicit market, exacerbating the government’s financial challenges.

    In the quarter that ended March 31, 2023, PMI paid PKR5.99 billion ($2068 million) in excise duty, sales tax, and other government levies in Pakistan—16.4 percent less than in the previous period. Zeeshan attributed the drop to the decrease in sales owing to the rise in cigarette prices following the tax hike.

    He warned that the government’s revenues from the tobacco industry would likely fall short of the targeted PKR260 billion after the FED hike.

    Illicit sales account for approximately 40 percent of Pakistan’s tobacco market, according to Zeeshan. Without an adjustment of fiscal policies, it is likely to grow to 50 percent, he warned.

    Health activists have accused the tobacco industry of overstating the decline of production to influence policymakers’ discussions about the upcoming budget, according to Business Recorder.

  • Flavor Ban Will Create Unregulated Markets

    Flavor Ban Will Create Unregulated Markets

    Photo: Tobacco Reporter archive

    The Cigar Association of America (CAA) has published a new analysis showing the significant negative impacts the Food and Drug Administration’s proposed ban on flavored cigars would have on public health and law enforcement activities.

    “Making flavored cigars illegal will not eliminate the demand for flavored cigars; it will only criminalize their sale and create illicit markets,” said CAA President David M. Ozgo in a statement. “The nation has seen this with marijuana and our failed experiment in alcohol prohibition in the 1920s.”

    Earlier this month, the House Agriculture Appropriations Subcommittee approved language in the FDA’s 2024 appropriation that would effectively block the agency from enforcing the proposed ban, Ozgo said. “We applaud the appropriators for recognizing how damaging FDA’s proposed ban on flavored cigars would be.”

    According to the CAA, the existing regulatory system for flavored cigars was designed to ensure that legal tobacco products are manufactured to meet established standards, undergo quality control measures, and prevent inclusion of unregulated ingredients that could pose health hazards to consumers.

    Criminals, however, do not care about regulatory standards or quality control, Ozgo noted. The analysis shows how illicit tobacco products sold through criminal enterprises often contain dangerous contaminants such as asbestos and rat droppings.

    “Further, FDA claims it will only enforce the flavored cigar ban against manufacturers and retailers, not against individuals,” the CAA wrote in a press note. “However, the report notes that nearly all states have cigar excise taxes, and all 50 states have laws that treat unlicensed tobacco sales as a serious crime.”

    In written comments submitted to FDA, many law enforcement groups opposed the ban, including the National Association of Police Organizations, Federal Law Enforcement Officers Association Foundation, National Narcotics Officers Association Coalition, National Troopers Coalition and the National Organization of Black Law Enforcement Executives.

    The groups pointed out they don’t enforce FDA law, but they do enforce state laws requiring that excise taxes be paid on cigars. Shifting resources to police a new crime—sale of untaxed flavored cigars—will mean reduced efforts to combat other criminal activity, according to the law enforcement groups.

    The analysis also raises concerns that law enforcement efforts would fall disproportionately on minority populations. The National Black Chamber of Commerce stated in its FDA comments: “…enforcement of local laws against these transactions (flavored cigars) will certainly bring African Americans, already the subject of over policing, into further confrontations with law enforcement personnel.”

    The Congress of Racial Equality also opposed the ban in its public comments, noting that the deaths of Eric Garner and Michael Brown at the hands of police involved tobacco enforcement. Michael Brown’s initial infraction was related to cigars and Garner’s to the sale of untaxed tobacco.

  • Traders Hit With Tax-Evasion Charges

    Traders Hit With Tax-Evasion Charges

    Image: natatravel

    The Philippines’ Bureau of Internal Revenue (BIR) has filed 69 complaints for tax evasion worth PHP1.8 billion ($32.25 million) against tobacco traders, reports Business World.

    During a nationwide raid in January, authorities confiscated numerous countless cigarette products.

    “This is a warning against all illicit traders,” Internal Revenue Commissioner Romeo D. Lumagui Jr. was quoted as saying. “The BIR will not only raid your stores and warehouses, but we will also file criminal cases against you. This will not be the last.”

    According to Lumagui, the widespread peddling of illegal tobacco products is hampering government efforts to meet its excise tax collection target of PHP352.9 billion this year.

    Lumagui said his agency would partner with online platforms and merchants to impose stricter guidelines on illicit cigarettes.

    Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said the state should enforce stricter tax collection measures to reach its collection target this year.

    “Through intensified collections based on current tax laws, the government can further structurally increase its recurring tax revenue collections,” he said in a Viber message.

    The BIR set a collection target of PHP2.6 trillion this year, 11 percent higher than last year.

  • Tax Hike to Boost Tobacco Revenue

    Tax Hike to Boost Tobacco Revenue

    Photo: sezerozger

    The government of Pakistan will collect PKR200 billion ($698.5 million) in tobacco taxes this year, up from PKR148 in the previous fiscal year, reports Dawn, citing a study by The Capital Calling.

    In February, the government significantly increased the federal excise duties. According to The Capital Calling study, the higher prices forced one in every 94 smokers in Pakistan to quit.

    The tobacco industry says the higher taxes have prompted many smokers to buy their cigarettes on the black market. According to industry representatives, volumes of duty-not-paid cigarettes and smuggled cigarettes have shot up 32.5 percent and 67 percent, respectively, since January. This has bumped the illicit sector’s share to more than 42.5 percent of Pakistan’s total tobacco market.

    Critics say the industry is exaggerating the problem, with some surveys estimating the share of illicit sales at only 18 percent of the tobacco market.

    Pakistan Tobacco Co. has scaled back production in the wake of the tax hike, citing difficulties competing with the thriving illicit market. In a letter to the Federal Board of Revenue, the company stated its intention to reexport four cigarette making machines due to a decline in sales volume. The company has reportedly already shut down eight of 10 production lines at its Jhelum facility.

  • Illicit Tobacco Trade Up in Ireland

    Illicit Tobacco Trade Up in Ireland

    Photo: UbjsP

    The illegal cigarette trade cost the Irish government approximately €384 million ($415.25 million) in lost excise duty and value-added tax during 2022, reports the Irish Examiner, citing estimates by the Revenue Commissioners.

    A survey carried out by Ipsos MRBI on behalf of the Revenue Commissioners, shows that 17 percent of all cigarette packs held by smokers in 2022 were illegal. This is up from 13 percent in 2021.

    An illicit rate of 17 percent equates to approximately 31.7 million illegal packs. Nearly nine in 10 of those illegal packs were classified as contraband—that is, normal commercial brands that were purchased abroad and brought into the country. A further 13 percent of cigarette packs were found to be legal but with no Irish duty paid—up 8 percent from 2021.

    The survey also found 17 percent of pouches of roll-your-own tobacco held by smokers surveyed were illegal and 10 percent were legal but with no Irish duty paid.

    In 2022, the Revenue Commissioners seized 51.6 million cigarettes valued at €39.5 million, and 11,803 kg of tobacco with an estimated value of €8.5 million.

    The agency obtained 41 summary convictions relating to the sale of illicit tobacco, four of which were on indictment with fines of €76,250 imposed.

    There were 24 convictions relating to tobacco smuggling in 2022, four of which were on indictment, with fines of €35,100 imposed.