Category: Illicit Trade

Laser Liaison

Photos: Heinen Koehl
Heinen Koehl’s coding equipment combines serialization and aggregation in one unit.
By Stefanie Rossel
Last November, parties to the Protocol on Eliminating Illicit Trade in Tobacco Products gathered virtually to strengthen the treaty that had entered into force three years earlier. Among the decisions adopted was a roadmap to improve the global track-and-trace system. Currently, use of track-and-trace systems for tobacco products is probably most advanced in the European Union, where it is regulated under articles 15 and 16 of the Tobacco Products Directive. For cigarettes and roll-your-own products, the EU has mandated traceability and security features since May 20, 2019. By May 2024, it will be compulsory for all other tobacco products, including cigars, cigarillos and smokeless tobacco products, as well.
For tobacco product manufacturers, placing individual identifying codes on each pack and then on each bundle is a challenging additional step in the production process. Heinen Koehl, a Luxemburg-based supplier of processing and logistics equipment for the tobacco industry, has developed several machines to facilitate that process. The Label Application System (LAS) and the Laser Coding Extension (LCE) have been designed for “pack-to-bundle” aggregation.
“The LAS applies a bundle label onto the head side of each bundle and verifies this bundle with a camera. In contrast to the LAS, the LCE serializes each single pack within the bundle with a laser to provide it with a unique track-and-trace code,” says Stefan Hahn, managing director at Heinen Koehl. “This code is then verified with a camera system to carry out the aggregation. Contrary to traditional solutions available in the market, where various printing technologies such as CO2 or ink printers have to be implemented into existing bundle packers, we have developed a patented stand-alone solution. By using a special laser designed by expert company Koenig and Bauer Coding, we can apply the unique track-and-trace code to the pack through the overwrap without destroying the film. This is not only an advantage in production, but also for the security, availability and performance of the track-and-trace system.”

Standardized Solution
Easy integration is the greatest benefit of the LAS and LCE, which together can be built into the production line without changing the existing equipment. Since existing machinery doesn’t have to be adapted to additional hardware and functionality, the implementation time is significantly shorter than with other solutions. Similarly, the stand-alone combination can easily be moved to another production line or location without complex conversions of existing equipment, according to Hahn.
“With our solutions, serialization and aggregation of individual packs into bundles is carried out in one unit,” he says. “Other technologies require several production steps between serialization and aggregation, which means potential risks for the track-and-trace functionality.”
According to Heinen Koehl, the LAS/LCE combination is a standardized solution independent from packer type. This means that operators and maintenance staff don’t need special training. Maintenance is similar for both machines within a manageable expenditure of time.
The LAS/LCE combination can be adapted to all bundle types and sizes and allows for easy format changes. It has been designed for all speed ranges with up to 100 bundles per minute and up to 1,000 packs per minute, respectively.
While the LAS/LCE is presently being used for coding packs and bundles of cigarettes and cigars, Heinen Koehl has developed an additional machine especially for roll-your-own and pipe tobacco pouches based on the same technology. Known as LAS Pouch, this machine combines coding, verification, bundle label application and aggregation into one system that lasers the track-and-trace code on the pouch through the film.
Heinen Koehl also offers solutions for the manual aggregation of tobacco products that can be adapted to customer requirements and minimize disruption of the production process.
Suitable also for yet-to-be-regulated markets, Heinen Koehl is delivering its coding equipment to customers worldwide, including to clients in the U.S., Europe, Russia, the UAE, Saudi Arabia and Indonesia. As track-and-trace requirements spread around the world, Hahn says he sees great potential in other markets as well.
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

March 1, 2022
Cigarette Smuggling up Dramatically in Australia

Photo: Maxim
The Australian Border Force (ABF) has detected a significant increase in attempted illicit tobacco imports at the Australian border, according to the Border Security Report.
The ABF discovered 878.8 tons of undeclared loose-leaf tobacco and 712.7 million undeclared cigarette sticks between Jan. 1, 2021, and Dec. 31, 2021. This is a 45 percent increase compared to 2020.
The majority of the illicit tobacco is coming from the Middle East and Asian regions. Illicit imports are either held for further investigation or incinerated.
“Our detection numbers show we are very alert to the different methods and patterns of concealment used in illicit tobacco importations at our borders,” said Susan Drennan, commander of the agency’s Trade and Travel Operations East division. “Our message to those who think they can import such large amounts of illicit tobacco and get away with it is to think again.”
Illicit tobacco imports that are linked to serious and organized crime syndicates are referred to the Illicit Tobacco Taskforce (ITTF). The ITTF combines the operational, investigative and intelligence capabilities of the ABF, the Australian Taxation Office, the Department of Home Affairs, the Australian Criminal Intelligence Commission, AUSTRAC and the Commonwealth Director of Public Prosecutions.
“Organized crime groups capitalize on unwitting smokers looking for cheap cigarettes to enrich themselves and to fund other types of criminal activities that harm our community,” said Greg Linsdell, commander of the ABF Special Investigations division. “The ABF is working tirelessly to stop this activity both at our border and within Australia through comprehensive and powerful ITTF investigative actions.”
February 22, 2022
Smuggling Ring in Spain and Portugal Disrupted

Photo: Europol
Spanish and Portuguese law enforcement agencies have dismantled a criminal network involved in cross-border tobacco smuggling, according to Europol.
On Feb. 16, more than 100 officers simultaneously raided addresses on either side of the border, detaining eight suspects.
The officers seized 2 tons of cut tobacco and tobacco strips, more than 10,000 counterfeit cigarettes and tobacco cutting and drying equipment. They also recovered €37,800 ($42,778.46) in cash.
Property searches were carried out in the province of Sevilla (Spain) and in the cities of Coimbra, Lisbon, Leiria and Aveiro (Portugal).
The criminals are suspected of having illegally imported from Spain to Portugal large quantities of leaf tobacco and strips, destined to produce counterfeit cigarettes. This criminal network had tobacco storage and production facilities scattered across both countries.
Law enforcement believes these criminals have smuggled over 7 tons of tobacco products from Spain to Portugal in 2021 alone.
The revenue loss generated by this illegal activity is estimated at over €163,000 in Portugal.
February 21, 2022
ITC Bars Unauthorized Juul-Compatible Pods

Photo: JHVEPhoto
The U.S. International Trade Commission (ITC) has issued a general exclusion order barring the importation of any unauthorized cartridges compatible with the Juul System that infringe Juul Labs patented product designs, including compatible flavored pods and refillable pods.
This ruling follows a filing by Juul Labs submitted to the ITC on July 10, 2020, that sought a general exclusion order directed at all importers of unauthorized cartridges that copy Juul Labs’ patented pod designs without authorization.
“Today’s ITC ruling represents a major victory against manufacturers of illicit vapor products who seek to bypass regulations and undermine efforts to create a more responsible marketplace for the category,” said Wayne Sobon, vice president, intellectual property at Juul Labs, in a statement.
“In addition to targeting the importation of all infringing products, regardless of the brand, this sweeping action will provide the additional public benefit of helping rid the market of unauthorized Juul-compatible products that can be modified by the user, such as empty and refillable pods.”
February 21, 2022
Governments Warned Against Big Price Hikes
Policymakers should consider the risks of encouraging the illicit trade of tobacco products before raising the prices through higher taxes, according to Alvarez & Marshall.
In a 2021 report titled “Causes and Control of Illegal Tobacco,” the U.S. consultancy says that taxation policy and its effect on the affordability of tobacco products is an important factor in the global illegal tobacco trade.
“There is a 97 percent correlation between taxes and tobacco consumption,’’ the A&M report said.
“Illegal trade grows when legal tobacco products become less affordable,” it added. “When cigarette prices rise more quickly than consumer incomes, consumers begin to seek cheaper options and switch to illegal products.”
This suggests that increasing the price of tobacco and reducing affordability encourages smokers to seek cheaper products and creates opportunities for criminals. In other words, less affordable tobacco products result in more illegal trade.
“We find that … if cigarettes become 10 percent more expensive for consumers relative to their income, the share of illegal tobacco will rise by an average of almost 7 percent,” A&M added.
In a separate study, relayed by the Business Inquirer, the EU-ASEAN Business Council and Transnational Alliance to Combat Illicit Trade estimates that governments in Southeast Asia lose tax revenues of about $3.32 billion yearly.
Aside from causing monetary losses to governments and legitimate businesses, the illegal tobacco trade undermines public health initiatives, contributes to underage smoking, and funds organized crime and terrorist activities, according to the EU-ASEAN study.
February 14, 2022
Philippines Losing Billions to Illicit Trade

Photo: Piotr Pawinski
The Philippine government has lost nearly PHP3 billion ($588.17 million) in tax revenues since 2019 due to smuggling or illegal entry of cigarettes into the country, reports Philstar.
The Bureau of Customs (BOC) has intercepted 127,675 master cases of illicit cigarettes since the Tobacco Tax Law was approved in 2019, according to BOC Deputy Commissioner Teddy Raval.
The estimated value of the seized cigarettes reached PHP9.73 billion, more than half of which was accounted for in 2020 at PHP5.77 billion. The government forfeited PHP2.9 billion in excise revenues between 2019 and January 2022 due to smuggling of cigarettes.
“They took advantage of the mobility restrictions, including Customs restrictions, but you caught them,” said Albay Representative Joey Salceda in a House hearing, referring to smugglers attempts to take advantage of Covid-19 restrictions.
February 3, 2022
The Evil Twins

Photo: Taco Tuinstra
Prohibition and illicit trade
By Clive Bates
The remote Himalayan Kingdom of Bhutan was the poster child of tobacco control for many years. It appeared that Bhutan had drawn the obvious conclusion from decades of scientific research and had finally done the right thing. In 2004, the kingdom banned the sale of all tobacco products. Tobacco control activists were delighted.
Jump forward to 2020, and the picture is not so rosy. In a joint report by the government and the World Health Organization office in Bhutan, “The Big Ban: Bhutan’s Journey Toward a Tobacco-Free Society,” Health Minister Dechen Wangmo, sets out the situation: “The black market, one that emerged after the ban, is the number one challenge that Bhutan is faced with when it comes to tobacco control. The Global Youth Survey 2013 reports an increase in the number of school children between ages 13 and 15 using tobacco products. It increased from 24 percent in 2006 to 30 percent in 2013.”
According to the WHO, Bhutan has high levels of ongoing tobacco use despite prohibition. The WHO representative to Bhutan, Rui Paulo de Jesus, provides a candid explanation: “So long as the demand within the country persists, it will continue to fuel the illicit market that has expanded since the ban of its sale in early 2000. Unfortunately, as studies indicate, Bhutanese youth are at the center of this growing illegal trade in tobacco and its products.”
Prohibition as a Perturbation
Unusually for the WHO, the words above contain some essential truths about tobacco policy and prohibitions. The first and most important insight is that while demand for a product persists, a prohibition will just change how the product is supplied. A prohibition does not make a product disappear, even if that’s what politicians and policymakers would like. Instead, a prohibition is a perturbation of a dynamic market: a disruption that reconfigures the behavior of suppliers and consumers, changing who supplies the product, what products are available and under what terms. Prices can go up to reflect the costs and risk of illicit supply. Alternatively, prices can fall as no tax is paid on illicit goods. Illicit commerce is unregulated and ultimately controlled by violence rather than by consumer protection or contract law. An unregulated illegal market creates real dangers to consumers. The 2019 outbreak of severe and often fatal lung disease was caused by adding a harmful additive, vitamin E acetate, to illicit cannabis (THC) vapes as a cutting agent. Arguably, this disaster would never have happened had cannabis vaping products been widely available legally and without excessive taxation.
Participation in Criminal Supply Chains
The second insight is that young people may see the opportunity to make fast money as foot soldiers in an illicit irregular supply chain. It should be a significant consideration in assessing the case for prohibitions supposedly aimed at “protecting kids.” If adolescents want access to the banned products, then a prohibition policy will likely draw young people into the illicit supply chain and an early experience of criminality. Alternatively, the illegal supply of, say, cannabis could diversify to provide prohibited nicotine products as well. For example, in the United States, the Monitoring the Future survey shows that past 30-day cannabis use among 12th grade students has been around 20 percent for the last 25 years. That means there is a ready-made illicit supply chain for providing tobacco or vaping products to young people, should that prove attractive to cannabis suppliers.
Types of Prohibition
Not all prohibitions are as pervasive and straightforward as Bhutan’s. Let’s consider two further categories. First, many tobacco and nicotine policies have a partial prohibition element. By this, I mean the policies are intended to deter the use of the product rather than to protect the user. For example, a ban on flavored e-liquids has a prohibitionist purpose, but a ban on a toxic ingredient in e-liquids has a consumer protection purpose—an important distinction. Caps on nicotine strength or requiring a prescription to access vaping products are partial prohibitions. In On Liberty, John Stuart Mill famously equated taxes on stimulants to prohibition: “To tax stimulants for the sole purpose of making them more difficult to be obtained is a measure differing only in degree from their entire prohibition and would be justifiable only if that were justifiable.”
The United States and New Zealand have proposals to reduce nicotine in cigarettes to a minimal “subaddictive” level. This is essentially a prohibition of cigarettes dressed up as a sophisticated regulatory intervention. Without adequate nicotine, cigarettes are worthless for most users, and they might as well be prohibited. The practical question is what would happen next: Would users quit altogether, move to illicit cigarettes or, for example, switch to vaping? The least likely outcome is any significant or sustained use of low-nicotine cigarettes.
Second, a particular category needs to be defined for the prohibition of products that are beneficial to the user. The snus ban in the European Union has persisted since 1992 despite a mountain of evidence that snus has had a radically positive impact on public health in Sweden and Norway, where it is widely available. There may be arguments for prohibiting harmful products like cigarettes, even if there are doubts about the practicalities, perverse consequences and ethical implications for adult autonomy. But how can anyone defend the prohibition of much safer products that function as alternatives to cigarettes? Yet, there is now a lavishly funded international campaign to do exactly that. The international respiratory health organization The Union is calling for vaping and heated-tobacco products to be banned in all low-income and middle-income countries. That would cover 80 percent of the world’s smokers. This crazy logic is equivalent to campaigners against sexually transmitted diseases pressing for the prohibition of condoms in the hope that it would deter sex by making it more dangerous.
More Enforcement?
Although the WHO’s representative in Bhutan concisely described the problem, he still followed the eternal prohibitionist playbook and called for more enforcement effort. “WHO shares the country’s concerns, and it appears timely that Bhutan embraces the Protocol to Eliminate Illicit Trade in Tobacco Products the country is yet to ratify.”
But this idea, embracing hi-tech track-and-trace technology, seems implausible in the environment of a developing country and an informal economy in tobacco products. Further, more enforcement muscle brings problems of its own. It is expensive, violent and prone to bribery, corruption and abuse of office. Drug prohibition in the United States is notoriously associated with racism. As the Drug Policy Alliance puts it, “People of color experience discrimination at every stage of the criminal legal system.”
Prohibition by Trial and Error
Perhaps the big policy questions cannot be answered until a prohibition has been tried and experience gained? Beware! The danger is that temporary prohibitions may have irreversible effects. Prohibitionists should turn to the 2020 experience in South Africa in which the government banned tobacco sales with a justification based on a Covid-19 response. Research by independent economists at the University of Cape Town concluded that the legal supply had been replaced by illicit supply with a substantial loss of tax revenue. But now that tobacco users have found illegal suppliers to evade prohibition, what is to stop them from continuing to avoid tobacco taxation?
Responsibility and Accountability
One characteristic of prohibition advocates is a reluctance to assess the consequences of their work. The prohibition policy is their real goal, but the real-world consequences are of lesser concern. For example, the UN Office on Drugs and Crime has dogmatically resisted calls to conduct a thorough assessment of the benefits and detriments of the drug prohibition treaties it oversees. This mindset is already evident in the tobacco and nicotine field. In 2019, India’s federal government imposed a comprehensive ban on vaping products. In 2021, the WHO awarded India’s former health minister, Harsh Vardhan, its highest tobacco control medal “for spearheading the government of India’s legislation to ban e-cigarettes and heated-tobacco products”. However, this award was made without any evaluation of the impact of the prohibition on illicit trade, no consideration of the likely perverse consequences leading to more smoking or any reflection on the ethics of denying India’s 100 million smokers lawful access to much safer alternatives.
Proposals for prohibitions, in all their forms, need a much stricter assessment of the likelihood of illicit trade, perverse but easily foreseeable consequences and the ethics of using the force of law to control individual risk behaviors. That has been a conspicuous failure with illicit drugs and alcohol. Let’s hope that policymakers learn those lessons and don’t repeat the mistakes with nicotine.
Finally, a postscript. Following a temporary lifting of Bhutan’s tobacco ban in 2020 for Covid-19-related reasons, Bhutan’s National Assembly passed the Tobacco Control (Amendment) Bill 2021 and Tax Bill of Bhutan 2021. This lifts the ban and legalizes the selling, buying, possession, distribution and transportation of tobacco and tobacco products. The signature prohibition of tobacco control has officially failed.
Clive Bates is the director of Counterfactual Consulting and the former director of Action on Smoking and Health (U.K.).

February 1, 2022
Illegal Cigarette Factory Dismantled in Slovenia

Photo: Europol
French and Slovenian authorities have dismantled a cigarette factory in Slovenia that was supplying millions of counterfeit cigarettes to France, according to Europol.
Initiated in October 2020, the investigation focused on an organized crime group involved in the illicit production and distribution of cigarettes. After two successful actions in France in April and May 2021 targeting the criminals involved in the distribution of these counterfeit cigarettes, the Slovenian authorities started a mirror investigation aimed at arresting the suspects responsible for the production of these illegal products.
On Jan. 25, more than 100 officers from the Slovenian National Police Force and Financial Administration simultaneously raided 11 sites, including industrial premises and private residences. They were assisted in the field by officers from the French Gendarmerie as well as French magistrates from the Bordeaux Interregional Specialized Court and Europol officers.
This action uncovered several production sites established in warehouses located in remote areas of Slovenia. In total, more than 26 tons of tobacco were seized in Slovenia as well as 29 million filters, several cigarette-making machines and 10 tons of printed papers for packaging. The seized equipment was capable of producing cigarettes with a value of €13 million on the French market.
Leaders of the criminal network were arrested in Croatia and Slovenia. They will be handed over to the judicial authorities in Bordeaux.
In November 2021, the Slovenian Financial Administration seized an additional 12 tons of cut tobacco.
January 29, 2022
Alarm About Ecuador’s Traceability Approach

Photo: ITSA
The International Tax Stamp Association (ITSA) has raised concerns over Ecuador’s decision to allow tobacco and alcoholic beverage manufacturers to hire a provider of their choice to implement the marking and fiscal traceability system required on excise products.
According to the ITSA, this development sets an alarming precedent and could open the “flood gate” to taxpayers across the globe using traceability systems that are in their own self-interest, leading to a significant drop in the capacity of authorities to collect tax revenue.
Last year, Ecuador’s Internal Revenue Service (SRI) published resolutions allowing taxpayers to use any provider for traceability systems in a move that the ITSA says is a fresh blow to the country’s SIMAR traceability system. This has been in place since 2017 to regulate and gather excise on beer, alcoholic beverages and tobacco products and has been instrumental in securing more than $100 million in additional tax revenues, according to the trade group.
The ITSA has already flagged its concerns with the general director of the SRI, reiterating the position that marking and fiscal traceability solutions independent of controlling industry interests are far more effective in securing supply chains and excise. According to the ITSA, these technologies generate independent and precise information to facilitate more effective tax administration through better control of tax declarations and enforcement of taxpayer obligations.
Ecuador’s move heralds a potential conflict of interest between the provider and taxpayer because authorities cannot independently verify production and import levels without controlling the track-and-trace provider. It also sees noncompliance with the World Health Organization’s Framework Convention on Tobacco Control, which Ecuador has signed up to.
“We are deeply concerned that Ecuador’s decision could set an unhealthy precedent for the whole industry, both within the region and globally, which could have a serious impact on the wider tax stamp and traceability industry,” said ITSA President Juan Carlos Yanez in a press note.
“We urge Ecuador’s government, in conjunction with experts, to review its decision about resolutions 19 and 48 and look at fiscal marking and traceability continuity through a new transparent international public bidding process. In this way, the SRI will be able to significantly increase revenue collection via modern and reliable tax payment methods.”
January 21, 2022
Dentsu to Operate U.K. Track-and-Trace System

Photo: Tobacco Reporter archive
Her Majesty’s Revenue and Customs (HMRC) of the United Kingdom has appointed Dentsu Tracking with the establishment and operation of the new digital tobacco track-and-trace system, replacing the current provider, DeLaRue. The new system becomes operational on July 1, 2022.
“I am very pleased about HMRC’s decision to task Dentsu Tracking with the establishment and operation of the new digital U.K. tobacco track-and-trace system,” said Dentsu Managing Director Philippe Castella in a statement. “Dentsu Tracking brings a wealth of experience and expertise in supply chain control, and we are thrilled to team up with HMRC in their fight against the illicit tobacco trade, helping them to increase revenue collection and protecting citizens and legitimate businesses in the U.K.”
All businesses engaged in the manufacture, importation or supply of tobacco products in the U.K. will need to report their activities to the new track-and-trace system.
“Leveraging the advantages of digital technology, Dentsu will deliver a track-and-trace system tailored to the specifics of the U.K. market,” said Jan Hoffmann, director of regulatory affairs. “It will provide HMRC with a high level of government control over the tobacco supply chain, allowing enforcement bodies to detect the different forms of illicit trade and curb the circulation of noncompliant products. The new system also enables the U.K. government to comply with the WHO FCTC Protocol.”
Headquartered in Geneva, Switzerland, Dentsu Tracking is a provider of digital supply chain control solutions.
January 11, 2022