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Category: Illicit Trade

  • Cigarette Smuggling Complicating Gaza Aid

    Cigarette Smuggling Complicating Gaza Aid

    Image: Robert

    Organized gangs have been attacking humanitarian aid convoys in Gaza to retrieve cigarettes smuggled inside the shipments, reports The New York Times.

    Following the war between Israel and Hamas, cigarettes have become increasingly scarce in tightly blockaded Gaza, with smokers paying up to $30 for a single stick.

    To evade Israeli inspections, smugglers have been hiding cigarettes in sacks of United Nations-donated flour, diapers and even a watermelon, according to aid agencies and an Israeli military official.

    Officials said that most of the trucks bearing cigarettes appeared to come from Egypt, which rerouted trucks arriving from Egyptian territory through Kerem Shalom after Israel captured the Rafah border crossing in early May.

    Convoys ferrying U.N. aid are often an easier target than private businessmen, who are willing to pay hundreds or thousands of dollars in protection money to guards or to the organized gangs themselves.

  • New Reports Exposes Illegal Tobacco Trade

    New Reports Exposes Illegal Tobacco Trade

    Photo: IvanSemenovych

    A new study, titled “Fighting the Dark Underworld: How the illegal trade in tobacco threatens to overwhelm us,” by Intrinsic Insight and commissioned by Japan Tobacco International, sheds new light on the pervasiveness of organized crime within global society, focusing on four countries with high levels of illicit tobacco trade: Canada, France, Philippines and the United Kingdom.

    The report examines how unstable geopolitical environments, fragile economies and a lack of serious deterrents create the ideal conditions for a surge in criminal activity and increased profits for criminal networks.

    The report highlights key indicators—found across the four countries—that are allowing illegal trade to flourish.

    “A combination of factors ranging from poor border controls and ineffective penalties to corruption, excessive taxation and legislation, are contributing to both the increase in demand for illicit products while making it easier for criminals to grow substantial criminal empires,” said JTI’s global anti-illicit trade operations director Vincent Byrne in a statement.

    1. Cost of living crisis

    Compromised living standards are forcing greater numbers of consumers into making difficult lifestyle decisions, creating ripe environments for criminals to push a larger number of smokers towards cheaper illegal channels and illegal products. Buying illegal tobacco products is in danger of becoming normalized behavior, with four in 10 (43 percent) adult smokers surveyed across these four countries now finding themselves comfortable with the idea of buying cigarettes, even if they know they are produced or sold illegally.

    1. Excessive taxation and loss in government revenue

    As illegal sales continue to bombard the legal tobacco market, governments are facing a decline in tax revenue. According to the World Bank, governments globally are estimated to be losing out on $40 billion to $ 50 billion annually in excise alone due to consumers being lured into buying illegal tobacco products. According to 88 percent surveyed, governments’ inability to collect tax revenue because of illegal trade is a significant issue.

    1. Rapid technological progress

    The criminal shift towards e-commerce and the advancement of artificial intelligence is leading to an increased sophistication of production, distribution and sale of illegal goods. Of those adult smokers surveyed, 14 percent have claimed to have recently purchased illegal tobacco via social channels.

    1. Not cracking down on illegal tobacco trade to curb other serious crime

    Not only is the money being lost to governments, thus limiting their capacity to fund public services such as law enforcement and important public services, the illegal tobacco trade is a direct gateway to other serious crime such as people trafficking and terrorism. The study found that policy makers underestimate the extent of the worry for the public, with 50 percent of respondents citing illegal tobacco trade as being a threat to their country, which is close to parity with those citing drugs/narcotics (54 percent) and terrorism (49 percent) as national dangers. The sale of illegal tobacco is not a victimless crime, according to 61 percent of those surveyed.

    1. Existing penalties are not severe enough to deter criminals

    More collaboration is needed to crack down on illegal trade and its intricate international criminal networks. According to 61 percent surveyed, authorities are not taking the situation as seriously as they should. The United Nations Office of Drugs and Crime estimates that no more than 2 percent of global shipping containers are inspected, signaling to criminal gangs that illegal trade is a relatively “risk free” enterprise with large financial upsides.

    “While the drivers fueling illegal trade are evident in each of the four countries, they have global impact,” Byrne said. “Given the borderless nature of illegal trade, in the future, countries that currently do not have an illicit tobacco problem, are advised to notice the triggers to avoid the onset and spread of criminality linked to illicit trade in their countries.”

    A synopsis of the situation in the four countries and consolidation of key report findings includes:

    Canada

    Contraband tobacco has spread unchecked across the country to the detriment of revenue receipts due to serious disparities in tax harmonization because of Canada’s geography and complicated relationship with First Nation states.

    • In Canada, the high volume of tobacco products produced by First Nation states is a major anomaly that drives illegal trade there. This bears a similarity to ‘free trade zones’ such as those that exist in places like the UAE. Tobacco produced legally in these zones often ends up in other jurisdictions where it then becomes an illegal product.
    • The report found that for 57 percent of Canadians, the economy and general cost of living is one of their top five concerns.
    • Seven out of ten (71 percent) Canadians believe that the proceeds of the illegal tobacco trade should fund law enforcement.
    • Eight out of ten (81 percent) Canadians believe government should work with industry to combat illegal trade.

    France

    High levels of taxation, an absence of border controls and issues of affordability caused by rising living costs are having a big impact on the increase in illegal trade. The French government’s cornerstone policy in the run up to this summer’s 2024 Paris Olympics is to remove illegal tobacco sellers from the streets and has pledged to impose stronger fines, penalties, and arrests of street sellers. Cracking down on clandestine factories is also a focus for government.

    • The report found that one in three members of the French public cite local crime as one of their top five concerns.
    • Seven out of ten (76 percent) French nationals feel that the sale of illegal and fake tobacco by street vendors makes their neighborhoods less safe.

    Philippines

    In a recent reclassification of tobacco as an agricultural product, the Philippines Congress has passed amendments to the country’s agricultural bill that established the smuggling of tobacco as an act of economic sabotage. This amendment, which is expected to be signed into law by the President, includes harsher penalties and fines, and it has the potential to have a significant impact on smuggling and the illegal distribution of tobacco products in Philippines.

    • As a result of legislation passed in 2013 (the RA 10351, known locally as “the sin tax” laws), revenues raised through tobacco sales have been used to finance public services. Several independent studies have shown that these laws have created an increase in demand for illegal tobacco and revenue losses for the government.

    United Kingdom

    While the U.K. is experiencing its largest ever cost-of-living crisis, with public debt standing at over 184 percent GDP, and with 11.7 million of the U.K.’s 67 million population living in poverty according to official figures, the U.K. government is scrambling for revenue.

    • The customs and revenue service estimates that in 2021, the loss in revenue to the U.K. exchequer due to illegal tobacco trade was £2.5 billion ($3.24 billion), money that could be used to fund the U.K. economy and social programs, instead of being funneled directly into criminal networks.
    • While many U.K. authorities, including Customs & Excise, Trading Standards, Border Force, the Police, and the National Crime Agency, have significant roles to play in tackling illegal trade, oftentimes they have conflicting and overlapping responsibilities and dwindling resources.
    • Harsher deterrents and penalties are needed for criminals who are only too eager to exploit these loopholes.
    • The study found that 72 percent of U.K. adult tobacco consumers would be happier paying the tax on tobacco products if the government spent more of these taxes on law enforcement.

    In the report, a multi-faceted approach for tackling the “dark underworld” includes:

    • Increased cooperation between governments and law enforcement at both international and national levels. This includes information sharing between industry and authorities.
    • In the case of tobacco, there needs to be a concerted effort to increase the fines and punishments for those producing, distributing, and selling illicit products to increase the risk and consequences for criminals. This should be coupled with stronger enforcement.
    • Law enforcement agencies should also explore using powers other than anti-smuggling and anti-counterfeiting laws, for example, anti-money laundering, anti-income tax evasion and anti-organized crime laws.

    Reasonable and moderate taxation is vital to maintain affordability of legal produc

  • Cigarette Smuggling Impeding Gaza Aid

    Cigarette Smuggling Impeding Gaza Aid

    Image: Robert

    Restrictions on imports of nonessential goods into Gaza have turbocharged cigarette smuggling, reports The Wall Street Journal.

    Aid trucks and storage depots have become targets for Palestinian smugglers seeking to retrieve illicit smokes stashed inside shipments by their accomplices, say U.N. and Israeli officials. Other local criminals are also attacking vehicles they suspect have cigarettes hidden somewhere on board, they say.

    Cigarette prices have soared since Israel limited imports into Gaza to essential goods—which don’t include cigarettes—after Hamas’ Oct. 7 attacks. Cigarettes sell for as much as $25 apiece in isolated Gaza.

    Criminal attacks on aid convoys have reportedly become so severe that over a thousand truckloads of aid have been left sitting on the Gaza side of the Kerem Shalom border crossing with Israel.

    A UN official described cigarettes as “the new gold” in Gaza.

  • Industry Cheers Tax on Acetate Tow

    Industry Cheers Tax on Acetate Tow

    Photo: Tobacco Reporter archive

    Legally operating tobacco companies have welcomed Pakistan’s plan to impose a federal excise duty (FED) on acetate tow, reports The Express Tribune.

    While presenting the federal budget in the National Assembly on June 12, 2024, Finance Minister Muhammad Aurangzeb proposed imposing an FED of PKR44,000 ($158) per kg on acetate tow, a basic raw material used in manufacturing filters.

    Aurangzeb said the recommended FED would burden only the informal sector. Because Pakistan does not produce acetate tow, cigarette manufacturers import the material from other countries.

    During his presentation, the minister lamented the widespread availability of illicit, smuggled and tax-evaded cigarettes in Pakistan.

    The market share of illicit cigarettes has grown to 63 percent at present from around 40 percent a few years ago. While at least 24 cigarette manufacturers operate in Pakistan, less than a handful are registered with the government. The two leading formal tobacco companies alone pay 98 percent of the total tax collected from the cigarette industry. Some politicians are reportedly involved in the manufacture of undocumented cigarettes.

    One official said the government could potentially collect PKR550 billion from cigarette manufacturers if it succeeds in bringing the out-of-tax-net makers into the tax net.

    Earlier governments imposed heavy taxes on cigarettes to discourage people from smoking. However, instead of decreasing cigarettes sales, the strategy mostly diverted smokers to non-tax-paid cigarettes.

    Cigarette manufacturers have been urging the government to crack down on illicit cigarette sales and more forcefully enforce the country’s track-and-trace system. They say that half-hearted implementation has badly hit the formal sector while providing an opportunity for illicit cigarette manufacturers to thrive.

  • U.S. Regulators Grilled Over Illegal Vapes

    U.S. Regulators Grilled Over Illegal Vapes

    Photo: Katherine Welles

    U.S. Senators criticized top health and law enforcement officials for their failure to tame the rapidly growing illicit e-cigarette market, reports the Associated Press.

    During a hearing on June 12, lawmakers on the Senate Judiciary Committee questioned officials from the Food and Drug Administration and Department of Justice (DOJ) about attempts to manage the vaping market, which has grown to include thousands of flavored, unauthorized e-cigarettes imported from China.

    “I simply do not understand how FDA and DOJ have permitted thousands of products to remain on store shelves when their manufacturers have not received authorization or, in some cases, even filed an application,” said the committee’s chairman, Dick Durbin.

    Brian King, director of the FDA’s Center for Tobacco Products, said the agency has been slowed by a backlog of applications submitted by vape companies seeking approval to sell their products in the U.S. The FDA received millions of premarket tobacco product applications, each of which must be scientifically reviewed.

    An industry lobbyist told the committee that the FDA has created an untenable marketplace by rejecting more than 99 percent of applications submitted by companies.

    I simply do not understand how FDA and DOJ have permitted thousands of products to remain on store shelves when their manufacturers have not received authorization, or, in some cases, even filed an application.

    Dick Durbin, chairman, Senate Judiciary Committee

    Ahead of the congressional hearing, several government agencies, including the FDA and the DOJ, established a task force to better coordinate the fight against illegal e-cigarettes. Republican Senator Thom Tillis called the timing of the announcement “a political stunt” and criticized the absence of other federal agencies from the initiative, including Customs and Border Protection (CBP).

    “If the timing of the task force formation wasn’t evidence of how unserious the FDA is about tackling the flood of illicit e-cigarettes, FDA’s exclusion of CBP from the task force makes it crystal clear,” said Tillis, who represents North Carolina, a major tobacco-producing state. He urged officials to concentrate enforcement on Chinese brands rather than large domestic manufacturers like Reynolds American, which is based in North Carolina.

    The FDA can conduct investigations and recommend cases, but only the Justice Department can bring lawsuits. The FDA has sent hundreds of warning letters to vape shops and e-cigarette manufacturers in recent years. But the letters have done little to dissuade companies from flouting FDA rules and introducing new vapes.

    Disposable vapes account for an estimated 30 percent to 40 percent of the roughly $7 billion-dollar U.S. vaping market. The two bestselling disposables—Breeze and Elf Bar—generated more than $500 million in sales last year, according to Nielsen retail sales data analyzed by Goldman Sachs.

    Both brands have been sanctioned by FDA regulators but remain widely available, in some cases with new names, logos and flavors.

    King noted that products like Elf Bar cannot legally be sold in China because the government there has banned nontobacco-flavored e-cigarettes. Outraged that brands banned in China are sold in the U.S., Texas Senator John Cornyn vowed to introduce legislation to rectify that situation.

    Jefferies analyst Owen Bennett said the congressional testimony could spur the FDA to approve more products from BAT and Juul. “This hearing is another example of increasing political pressure for the FDA to act” against unauthorized products, he said in a research note quoted by Bloomberg.

  • Illicit Cigarette Sales up in the Netherlands

    Illicit Cigarette Sales up in the Netherlands

    Photo: mitarart

    Illicit cigarette sales in the Netherlands are rising in the wake of tax hikes, according to Dutch News.

    Researchers collect empty cigarette packs every two years to identify their origins, and in 2023, 25 percent contained cigarettes that had not been subject to Dutch tobacco duties, up from 15 percent in 2021.

    The research showed that 19 percent of the cigarettes were bought in other countries, but 4 percent were either fake branded cigarettes or had been smuggled into the country, up from 1 percent in the previous study.

    “The big profits criminals can make with duty fraud and illegal production and trade are building up criminal assets,” the ministries said in a briefing. “And that allows them to finance other criminal activities.”

    RIVM, a public health institute, also released research showing that smokers buy about 10 percent of their tobacco abroad, either by importing it themselves or having others import it for them.

    According to the RIVM research, price increases aid in quitting, with 28 percent of participants stating they tried to quit and 18 percent successfully quitting.

    Earlier this year, the price of a pack of cigarettes increased by about €1 ($1.08) to €11.10 per pack of 20. The increase aims to curb smoking rates.

    The price of rolling tobacco packs increased by €3.60 to €24, with further increases expected. Cigarette taxes are now around €7.81 per pack.

  • Tax Hike Diverted Cigarette Sales: LUMS

    Tax Hike Diverted Cigarette Sales: LUMS

    Image: alexlmx

    Pakistan’s 2023 federal excise duty (FED) hike on tobacco products has diverted rather than reduced cigarette consumption, reports The News International, citing recent research.

    In 2023, the government announced a significant cigarette tax hike, prompting tobacco companies to more than double their cigarette prices.

    The fiscal measure aimed to boost revenue and discourage smoking. However, a recent study conducted by the Lahore University of Management Sciences (LUMS), suggests it has achieved neither objective.

    Instead of lowering smoking rates, the increased prices have prompted consumers to source their cigarettes from informal sources, a development that will likely cause the government to miss PKR300 billion ($1.08 billion) in tax earnings this year, according to LUMS.

    The LUMS study found that the share of duty-paid cigarettes shrank to 42 percent over the past two years.

    “Government has implemented various initiatives to address the extent of illicit sector to bring more companies and illicit sector under tax net,” said LUMS Associate Professor of Economics Kashif Zaheer Malik. “These, however, have not been successful in reducing illicit trade in Pakistan.”

    In light of Pakistani smokers’ profound price sensitivity, the LUMS report urged the government to reconsider its excise tiers. It also said the success of Pakistan’s track-and-trace system would depend on an all-encompassing rollout and consistent enforcement.

    Only a handful of Pakistan’s cigarette manufacturers have implemented the new system.

    In related news, the government of Pakistan’s Khyber Pakhtunkhwa (KP) province announced a 400 percent tobacco tax increase.

    Civil society groups welcomed the measure. “This substantial increase is projected to generate over PKR2 billion annually, which will be dedicated to enhancing health facilities across KP,” Blue Veins and the Provincial Alliance for Sustainable Tobacco Control wrote in joint statement.

    Tobacco growers warned the tax hike would destroy the sector. “The farmers can’t afford this and will stop growing tobacco,” Pakistan Tobacco Board member Rustam Khan was quoted as saying by The News International.

    “Tobacco crop is the only cash crop of the province. And around 1.2 million people in the province depended on it,” said Khan, adding that more than 75,000 farmers were involved in tobacco cultivation.

    Tobacco taxation has been a contentious topic in Pakistan recently. In May, market leader Pakistan Tobacco Co. threatened to cease operations in the country if the government further increases cigarette taxes.

  • Hong Kong Crackdown Nets $72 Million in Illegal Smokes

    Hong Kong Crackdown Nets $72 Million in Illegal Smokes

    Credit: Timothy S. Donahue

    Hong Kong customs officers seized untaxed cigarettes worth HK563 million ($72.1 million) during a nearly three-month illegal trade crackdown, coinciding with a tobacco tax increase in February.

    Assistant Commissioner Barry Lai Chi-wing said officers clamped down on the post-pandemic trend of smuggling the contraband into the city in small portions from February 19 to May 14 in an operation code-named “Tempest.”

    Part of the operation also took place after Financial Secretary Paul Chan Mo-po announced in this year’s budget that the tobacco tax would be raised by 80 HK cents per stick with immediate effect, according to media reports.

    The increase raised the average cost of a pack of 20 cigarettes by HK$16 to more than HK$90. A pack costs HK$19 to HK$38 on the black market.

    During the operation, 4,347 people, aged 15 to 89, were arrested. Officers confiscated 139 million sticks of suspected illicit cigarettes, 105kg of cigars, and around 1,525kg of manufactured tobacco products, which had a market value of HK625 million. The tax take would have been about HK454 million.

  • Illicit Market Smaller Than Suggested: WHO

    Illicit Market Smaller Than Suggested: WHO

    Photo: Taco Tuinstra

    Pakistan’s illicit cigarette market is smaller than the tobacco industry claims, according to the World Health Organization.

    Nonetheless, the illegal sales still account for 23.1 percent of the country’s total cigarette trade, a survey by the global health body found.

    Of the illicit cigarettes, 47 percent is smuggled, 45 percent is nontax paid and 8 percent is counterfeit.

    According to the study, which is based on Pakistan Bureau of Statistics data, tax evasion on domestically produced cigarettes in 2015-2016 amounted to PKR53.8 billion ($193.16 million). Seventy percent of that share was evaded by the legitimate sector, the WHO study said.

    Anti-tobacco activists have been pressing the government to raise tobacco taxes to 70 percent of the retail price, in line with WHO guidelines

    “With over 60 percent of the population comprising youth, it’s crucial for the government to protect them from the ills of tobacco use,” said Malik Imran Ahmed, country head of the Campaign for Tobacco-Free Kids (CTFK), told Business Recorder.

    He said the move would generate PKR200 billion in additional revenue by year-end, and help recoup healthcare costs associated with smoking-related illnesses.

  • Industry Urges Crackdown on Illicits

    Industry Urges Crackdown on Illicits

    The tobacco industry is urging Cambodia to crack down on the illicit trade in cigarettes, reports The Khmer Times.

    A recent study by Kantar International found that 18.5 of cigarettes on the market failed to display the required tax stamps, causing the government to miss out on up to $10 million in revenues each year.

    Vernon Little, president of the Association of Tobacco Industry in Cambodia (ATIC), which represents several local and international tobacco manufacturers, said better tobacco tax stamp compliance would not also boost government income, but also contribute to a level playing field for the industry.

    “We request the Royal Government of Cambodia to take more action strongly against those illicit [products],” said Little.