Category: Illicit Trade

  • Ukraine Urged to Delay Tax Rate Convergence

    Ukraine Urged to Delay Tax Rate Convergence

    Photo: Ivan Semenovych

    Ukraine’s leading cigarette manufacturers have called on the government to postpone the date by which the country’s tobacco excise tax must match those in the EU from 2025 to 2030, citing out-of-control growth of illicit tobacco sales, reports Ukraine Open for Business.

    According to the Kantar Ukraine research institute, the black market jumped from 1 percent of all tobacco sales in 2016 to 18.1 percent in August 2021 as the country is increasing its tobacco excise taxes to the EU level of €90 per 1,000 cigarettes by 2025.

    The current rate is €48.4 per 1,000 cigarettes.

    Ukraine’s total legal cigarette market is now estimated at 32.7 billion units, which is 18 percent less than in 2020 and more than 40 percent less than its volume in 2018.

    “We propose to expand the schedule for increasing excise taxes on tobacco products until 2030, providing for an annual increase in rates at the level of 10 percent [instead of the current 20 percent]. This will stabilize the situation in the tobacco market,” said Rastislav Cernak, CEO of Imperial Tobacco Ukraine.

    He also proposed to “freeze” the increase in the excise tax on heated-tobacco products for three years, until 2024. “This approach will give the consumer more time to adjust to higher prices and deprive the illegal market of the potential for growth,” said Cernak.

    Philip Morris International hinted it would consider manufacturing tobacco-heating products in Ukraine if the state creates the appropriate conditions.

    Local manufacture of such products could generate more than UAH6 billion ($229.5 million) in investments and UAH4 billion in additional income, according to some estimates.

  • Illegal Cigarette Trade Hits Record Highs

    Illegal Cigarette Trade Hits Record Highs

    Photo: Tobacco Reporter archive

    South Africa’s illegal trade in cigarettes has hit record highs, a new IPSOS report shows.

    At least two-thirds of stores in four hotspot provinces are selling cigarettes below the minimum collectible tax (MCT) of ZAR21.60 ($1.40). In Free State and Western Cape, the numbers rise to three in four stores.

    “South Africa’s illicit cigarette trade—the biggest black market for cigarettes in the world—is now officially out of control,” said British American Tobacco South Africa (BATSA) General Manager Johnny Moloto in a statement.

    “Over a year since the disastrous lockdown sales ban, the illegal networks it enabled and enriched continue to dominate the retail sector. They are destroying legal jobs and livelihoods and depriving the treasury of ZAR19 billion in cigarette excise for 2021 alone.

    “Much-publicized efforts by SARS, SAPS and SANDF to disrupt these cartels have merely scratched the surface. Government has a duty to make this menace a national priority, enforce the law without fear or favor and rid our country of this revenue-sapping scourge once and for all.”

    Following its fourth investigation of the year into the tobacco trade, IPSOS’ new report reveals: illegal cigarettes are available in almost half of stores (43 percent) nationwide; cigarettes are selling for the equivalent of ZAR8 per pack, almost less than one-third of the MCT; the number of forecourts selling illegal cigarettes has almost tripled in the past four months; and the number of stores in Northern Cape selling illegal cigarettes (63 percent) has quadrupled in the past four months.

    The latest IPSOS fieldwork was carried out from Oct. 8–15, 2021, and follows similar studies in March, February and June of this year. Using the mystery shopper model, the researchers bought the cheapest cigarettes in 4,486 stores nationwide.

  • Flooding the Market

    Flooding the Market

    Photo: Lezinav

    The U.K. vaping industry sounds the alarm over noncompliant products.

    By George Gay

    Earlier this year, the U.K. Vaping Industry Association (UKVIA) called for “tough action against resellers of noncompliant disposable vape products,” which were said to be on sale widely across the U.K. and online. Indeed, a UKVIA investigation was said to have found that “illegal and counterfeit products” were “flooding into the market,” posing “a potential health risk to customers.” Inappropriately branded products were being purposely marketed toward children, the release said.

    The situation is clearly concerning, but care needs to be taken here because it could be lethally counterproductive if reports about the need to combat the problems caused by the arrival of noncompliant disposable vapes were seized upon and used by those opposed generally to the use of vapor products as harm reduction tools proven to help smokers switch from traditional cigarettes to e-cigarettes. It is important to note that there is nothing inherently wrong with the harm reduction credentials of disposable vape products, given that they are registered with the relevant authorities. In fact, such products can act as a handy entry point for those smokers who have yet to make up their minds about the switch to vaping because disposables do not require a significant capital outlay and they are, relative to traditional cigarettes, inexpensive.

    But while this is all well and good when it comes to licit products, things start to fall apart when unregistered products become available, though even here it is not necessarily the case that an illicit product will be more risky or less effective than other products. The problem arises because it is not known under what conditions illicit products have been manufactured and because of the way that such products distort the market. In the eyes of consumers who buy unregistered disposables unwittingly, these products do reputational damage to the legitimate industry and the whole concept of harm reduction if they underperform. And the very existence of unregistered disposables causes reputational damage to the legitimate industry in the eyes of society at large.

    Add to this the fact that under-enforcing regulations on a strictly regulated market, as is currently happening, puts the suppliers of licit products at a disadvantage to the suppliers of illicit products in respect of such matters as costs and speed to market. To place a vape product on the U.K.’s market, a company is required to have that product tested by independent, qualified companies in respect of requirements laid down by the Medicines and Healthcare Products Regulatory Agency (MHRA). It has to submit a registration application complete with the results of the required tests to the MHRA, which then has up to six months to approve the application, request more information or reject the application—a service for which it charges a fee. No product may be placed on the market until it has been approved and that approval has appeared on the MHRA’s website.

    John Dunne

    Facilitating Enforcement

    It is hardly surprising then that, while the industry welcomes robust, appropriate regulation, it can lead to frustration when a parallel, nonregulated market opens up and grows, as has happened and is happening in the U.K. While the UKVIA can and does monitor the market and call out where illicit products are on sale, it cannot enforce the regulations. And this is why John Dunne, the UKVIA’s director general, said in the press note that his organization was “calling upon regulators and the online marketplaces to robustly enforce current regulations and do much more in order to ‘clean up’ the disposable vapes market.”

    At this point, a question arises, and I asked Dunne during a telephone conversation why the regulations were not being enforced robustly. The reality, he said, was that Trading Standards, which is responsible for ensuring businesses are compliant with regulations governing the sale of vape devices and e-liquids, was under-resourced. This is a common problem in austerity in the U.K. and is unlikely to go away given the current government’s policies, so I asked Dunne whether there were ways in which the UKVIA could help ameliorate the situation. “We are trying to work out some creative ways in which, as an industry, we could help,” he said. The industry was considering the provision of funds for further enforcement if resources comprised the issue. And it had offered to provide training to enforcement officers if product knowledge was the issue.

    Dunne added that the UKVIA had recently published a one-page comprehensive guidance on the compliant retailing of disposable vape products in the U.K. And one idea that was in the pipeline was the provision by the UKVIA of one-page documents that include the images and information necessary for Trading Standards officers to easily tell a counterfeit product from a legitimate one, at least in respect of high-profile brands.

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    Unfair Competition

    One problem is that such initiatives take time to implement, especially given that Trading Standards offices operate independently in the various counties and countries that make up the U.K., and, in the interim, those interested in scamming the system have a relatively free hand.

    Another important question that arises concerns the ways in which products appearing on the market are noncompliant: Why haven’t they been registered with the MHRA? There are two basic answers to this question. One is that while the product in question conforms to U.K. regulations, its supplier has not, for whatever reason, put the product through the registration process or because the process has not been completed and the supplier has jumped the gun.

    The other answer as to why a product does not conform with the regulations is obviously more problematic. In some cases, it might be an e-liquid’s nicotine strength that makes its sale on the U.K. market illegal. Dunne said that some of the illicit products that had been identified had nicotine strengths two-and-a-half times the maximum allowed in the U.K. and were clearly marked “For sale in the U.S. only.” In the case of others, it was the tank size that broke U.K. market regulations, something that could be determined from the number of puffs that the device was credited with delivering. Yet other products were noncompliant because of failure to meet packaging requirements, which, as is spelled out in the guidance document issued by the UKVIA, are extensive.

    On the positive side, Dunne said that none of the e-liquids in the illicit disposables the UKVIA had tested contained any substances that raised concerns, and while some e-liquids were of a higher strength than was permitted, those strengths were as indicated on the packaging.

    Nearly all of the noncompliant products originate in China, but then so do nearly all of the compliant products, a geographical monopoly that has at least one advantage. When factories producing counterfeit products are located in China, the authorities act quickly to close them down. There is, after all, no reason to suffer reputational damage as a harborer of counterfeiters when you can sell the genuine product just as easily.

    One of the ways in which consumers can take to protect themselves against illicit products, according to the UKVIA, by consistently buying from a reputable source.
    (Photo: VPZ)

    Know Your Source

    What, for people such as me, is particularly galling about the arrival on the U.K. market by air and by sea of a growing number of illicit vaping products is the fact that this is happening at a time when so many other products are in short supply due, we are told, to Brexit, the Covid-19 pandemic, the Suez snafu and a lack of lorry drivers—when water companies are unable to access all the chemicals they need for treating sewage.

    But while illicit disposables arrive with near-impunity, once in the country, it should be another matter. Dunne said it should be possible to identify how counterfeit products were getting through the distribution system because all the manufacturers were supposed to be able to track their products from manufacture through to the consumer. So if they were doing things correctly, it should be possible to take a picture of a pack code and send it to the apparent factory of manufacture for verification or not. That is the theory. In reality, the system is so far not operating fully, so there is room for improvement.

    In any case, while the information garnered from such systems can be used to good effect in examining the workings of distribution channels and, in retrospect it has to be said, tighten them up, they do little directly for the consumer. For a consumer to discover, post-purchase, that a product is a fake or not registered merely leaves her in the position of having to decide whether she takes the unknown risk of consuming the product or takes the financial hit of throwing it away. It takes only a few seconds’ thought to realize that this situation is not in the interests of consumers or the industry.

    There are, however, some basic precautions that consumers can take to protect themselves. “The advice I always give is that you should buy from a reputable source,” said Dunne. “You buy from your local vape store whose business it is. They know these devices; they know where they come from. And for the most part, they sell only products that are registered correctly or that come from a known supplier.”

    Even so, vapers can be misled, especially, for instance, when they buy online. Dunne said he had contacted a number of platforms, including eBay and Amazon, neither of which, to his way of thinking, controlled the vape products displayed on their websites robustly enough. Amazon claimed it didn’t sell any products that contained nicotine, he said, but during the morning of the day I spoke to him, he had quickly identified 10 different high-capacity vape devices on offer on the platform, all of which contained nicotine. Some of them were displayed under a headline that indicated “No nicotine,” yet nicotine strengths could be seen on the pictures of the products. “So,” he said, “my question to Amazon is: How are you policing the products that are being put on your site? Some of these devices are not sold nicotine-free anywhere in the world.”

    Finally, picking up on a part of the press note in which it was said that disposables had a major role to play in the vape market, I asked whether it wasn’t the case that they also comprised a potential environmental problem. Dunne readily admitted that this was a concern for the industry. “And that is one of the reasons why the association as well as several manufacturers are looking at how these products can be recycled,” he said. “If we can find recyclers here in the U.K. that can deal with volume, there is an appetite within the industry to set up some sort of pick-up and recycle program.”

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    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Tobacco Smuggling Route Used For Humans

    Tobacco Smuggling Route Used For Humans

    Seven Moroccan and Malian nationals were apprehended after using former tobacco smuggling routes for illegal immigration between Spain and France.

    A joint investigation by Spain’s Civil Guard and the French National Gendarmerie, supported by Europol, led officers to dismantle an organized crime group involved in migrant smuggling. The group is believed to have moved irregular migrants from their country of arrival to another destination within the European Union.

    “The organized crime group would firstly seek newly arrived irregular migrants in southern and eastern Spanish coastal areas such as Murcia, Alicante, Vizcaya, Guipuzcoa, Navarra and Barcelona,” Europol wrote in a press note.

    “The migrants arrived by boat from destinations in North and West Africa. Those irregular migrants would then be taken by road to France via former tobacco smuggling routes in Guipuzcoa and Navarra. The main destination point from there would be Bordeaux, France, with the organized crime group facilitating further illegal immigration from Bordeaux to countries across the European Union.”

  • Mexico: Nearly One in Five Cigarettes Illicit

    Mexico: Nearly One in Five Cigarettes Illicit

    Photo: Hassan

    Illicit products account for 18.8 percent of Mexico’s cigarette market, reports Mexico Daily, citing a report released by the Confederation of Industrial Chambers of Mexico (Concamin). The figure is up from just 2 percent in 2011.

    The illicit trade has cost the government an estimated MXN13.5 billion ($667 million) in uncollected excise and VAT taxes. The report added that the illicit sales create unfair competition for legitimate sellers and noted that the black market was helping to fund criminal activities, which negatively affect public security.

    Concamin said that two-thirds of illegal cigarettes do not carry the security code that proves compliance with tax regulations “Illegal cigarettes are a multidimensional problem that has become sophisticated in recent years,” it noted.” Although before there was no local production of illegal cigarettes, today we can see in the market many brands do not have the security code that the government requires through the [tax regulator] SAT. This dynamic represents two-thirds of the problem.”

    The Federal Commission for Protection Against Health Risks reported that there are more than 245 brands of illegal cigarettes in Mexico, mainly of Chinese origin, with the brands Win and Brass standing out as leaders in the cigarette contraband market, with 6.7 percent of total cigarette sales.

  • Compliance Guidance Issued for Disposables

    Compliance Guidance Issued for Disposables

    Photo: steheap

    The U.K. Vaping Industry Association (UKVIA) has issued compliance guidance for U.K. retailers who sell disposable vape products. Earlier, the association had called on regulators to crack down on resellers and retailers who were found to be flouting U.K. regulations for such products.

    An investigation by the UKVIA has revealed mounting evidence of illicit and inappropriately branded disposable vape products hitting the U.K. market and noncompliant sales of such products, particularly in convenience shops and on major online marketplaces. U.K. regulations mean they should contain no more than 20 mg/mL of nicotine, yet evidence collected by the UKVIA reveals that some listed as this amount contain higher concentrations of nicotine and some products are being openly sold with 50 mg/mL strength. Furthermore, product packaging is not including warnings about the nicotine content, which is a legal requirement.

    The association has been in discussions with the Medicines and Healthcare Products Regulatory Agency and Trading Standards to address the problem.

    “We are doing all we can as a trade association to ensure the industry’s reputation is not tarnished by a minority of resellers and retailers intent on making a quick buck out of a trending product,” said John Dunne, director general of the UKVIA, in a statement. “Whilst disposables have a major role to play in the vape market, like all products, they need to adhere to the legislation.

    “Our guidance is designed to ensure retailers keep on the right side of the law. We’re also working closely and are in discussions with leading disposable vape product manufacturers and the major online marketplaces to ensure they play a key role in taking a hard line against those behind the sale of noncompliant products in the country.”

    The free guide, available for download here, which has been produced in conjunction with leading vaping compliance specialists Arcus Compliance, provides information on current U.K. regulations in relation to tank/reservoir capacity of devices, nicotine levels and the elements that must be contained on packaging. It also provides details in respect to registrations with and notifications from the MHRA.

  • Illicit Cigarette Market Retreats in Poland

    Illicit Cigarette Market Retreats in Poland

    Photo: Tobacco Reporter archive

    Illegal products accounted for 6.3 percent of all cigarettes sold in Poland during the first quarter of 2021, down from 9.4 percent in 2020, reports the Warsaw Business Journal, citing a study by the Almares Market Research and Consulting Institute.

    The share of illegal trade in cigarettes in the Polish tobacco market has been gradually decreasing since 2015 when it exceeded 18.3 percent. Each percentage of the market recovered for the legal sale of cigarettes equates to an estimated PLN250 million ($65.63 million) in additional revenues for the government. The Almares Institute report shows that the market share of counterfeit tobacco products has also decreased from 1.3 percent in 2020 to 0.7 percent in the first quarter of this year.

    “In the first half of 2021, we seized nearly 169 million cigarettes and 410 tons of tobacco while liquidating 10 illegal cigarette factories,” Iwona Jurkiewicz, chief inspector of Poland’s Central Bureau of Investigation, was quoted a saying.

    The market for legal tobacco products is estimated at 60 billion pieces of cigarettes and e-cigarettes.

    Poland has performed comparatively well recently in the fight against the illegal cigarette trade. In the Schengen countries, the average share of illegal products in 2020 was 7.8 percent, 0.5 percent higher than the year before.

    A KPMG report shows that in 2020, the illegal market accounted for 23.1 percent of the market in France, 22.4 percent in Greece and 20.2 percent in Lithuania.

  • Calls for Action Against Noncompliant Products

    Calls for Action Against Noncompliant Products

    Photo: auremar

    The U.K. Vaping Industry Association (UKVIA) is calling for tough action against resellers of noncompliant disposable vape products.

    During an investigation, the trade group found that there are significant numbers of noncompliant products entering the U.K. and being sold in particular by convenience shops and on major online marketplaces.

    “We are calling upon regulators and the online marketplaces to robustly enforce current regulations and do much more in order to ‘clean up’ the disposable vapes market,” said John Dunne, director general at the UKVIA, in a statement.

    The disposable vape sector has enjoyed a significant revival in recent years, appealing as an entry point for adult smokers looking to quit conventional cigarettes. However, an investigation by the UKVIA has identified that illegal products are re-entering the U.K. market. The problem, according to the group, lies with some distributors who are flouting U.K. regulations and managing to get these products imported into the country and sell them on to traders and retailers as well as a lack of proper scrutiny on major online marketplaces.

    Disposable vapes are pre-filled with e-liquids and cost around £6 ($8.27) each. U.K. regulations stipulate that they should contain no more than 20 mg/mL of nicotine, yet evidence collected by the UKVIA reveals that some listed as this amount contain higher concentrations of nicotine, and some products are being openly sold with 50 mg/mL strength. Furthermore, product packaging is often missing warnings about the nicotine content, which is a legal requirement.

    The UKVIA has been in discussions with the Medicines & Healthcare Products Regulatory Agency (MHRA), which regulates vape products and trading standards, to address the situation. In a major crackdown on unscrupulous suppliers, the association is providing guidance on official distributors and disposable vape products to its members as well as looking at the idea of licensing vape shops to fund enforcement. It’s also working with manufacturers of disposable vapes to ensure they are doing all that is possible to monitor and audit their distributors.

    “Robust enforcement of the current regulations is the only answer, and it’s needed now,” said Dunne. “We can provide support to the regulators and educate the industry on how to distinguish between what’s a compliant product or not, and we are in the process of doing this. However, we are not in a position to come down heavy on those breaking the law; that lies with the regulators.

    “The vaping sector’s reputation, [which] the industry has taken years to build up and which has made it one of the most successful business markets in the 21st century to date, is being threatened by a minority intent on making a quick buck out of a popular product, and we will not stand back and just watch it happen. Disposables have a major role to play in the vape market, but like all products, they need to adhere to the legislation.”

  • Alarm About Illicit Cigarettes in Ghana

    Alarm About Illicit Cigarettes in Ghana

    Photo: Dietmar Temps

    One in every five cigarettes in Ghana is illicit, reports Business Ghana, citing research conducted by Arti Singh, a faculty member of the School of Public Health at the Kwame Nkrumah University of Science and Technology.

    The study revealed that close to half of illicit tobacco products originate in neighboring Togo. In the border town of Aflao, more than 90 percent of packs studied turned out to be illicit.

    Singh attributed the prevalence of illegal stock to porous borders and low awareness among stakeholders, among other factors.

    Out of 384 retailers interviewed, close to half were unaware of illicit tobacco. A third was unaware of tobacco control laws on illicit products.

    The study recommended the implementation of a track-and-trace system, enforcement of restrictions on single-stick sales and the implementation and enforcement of an illicit tobacco protocol. Ghana is in the process ratifying the WHO Framework Convention on Tobacco Control, according to Olivia Agyekumwaa Boateng, head of the country’s tobacco and substance abuse department at the food and drugs authority.

    The study also suggested educational campaigns to inform retailers on tobacco control laws and illicit tobacco products.

    The illicit tobacco trade study was carried out as part of the Tobacco Control Capacity Program, which aims to improve research capacity in low-income and middle-income countries and conduct high-quality studies that will generate evidence on how to reduce morbidity and mortality caused by tobacco use. 

    Led by Professor Linda Bauld from the University of Edinburgh, the program is funded by a grant from Research Councils U.K.

  • ‘Spike in Seizures Hints at Illegal Production’

    ‘Spike in Seizures Hints at Illegal Production’

    Photo: Veronika Kovalenko

    A recent spike in loose tobacco seizures by authorities suggests there are “large-scale” illegal cigarette factories operating in Ireland, according to Retailers Against Smuggling (RAS).

    To date, law enforcement has seized 13.5 tons of loose raw tobacco with a combined estimated retail value of €8.1 million ($9.57 million), representing a potential loss to the Exchequer of €6.7 million.

    “The significant volume of the consignments being seized and the elaborate means being used to conceal this raw tobacco suggests that it’s unlikely the product is intended for direct resale to the consumer on the black market,” RAS national spokesperson Benny Gilsenan was quoted as saying by The Journal.  

    Instead, such shipments are likely destined for illegal cigarette-making factories operated by criminal gangs in either the Republic of Ireland or Northern Ireland, he said.

    Ireland’s first illegal commercial-scale cigarette production plant was uncovered in 2018. Authorities seized up to 66 tons of raw tobacco during that operation.

    The 13.5 tons seized this year is sufficient to manufacture between 13 million and 15 million cigarettes.

    In its pre-budget 2022 submission to Minister for Finance Paschal Donohoe, RAS argued that continuous excise increases on tobacco are fueling demand for a growing black market, urging against an increase in October’s announcement.

    “The continued growth of the black market can only be halted by stopping the continuous excise increases on tobacco products, the retail price of which is 121 percent above the EU average, according to a new Eurostat survey issued today,” Gilsenan argued.