Category: Illicit Trade

FITA Rejects BAT’s Tax-Evasion Accusations

Photo: Ognjen Stevanovic | Dreamstime.com
The Fair-Trade Independent Tobacco Association (FITA) has rejected accusations of tax evasion against its member companies.
Earlier this week, British American Tobacco South Africa (BATSA) suggested that many of its competitors were selling below the legal minimum collectable tax (MCT) level. According to an IPSOS report commissioned by BATSA, three-quarters of retail outlets in Gauteng, Western Cape and Free State are now openly selling illegal cigarettes.
Many of the brands that sold below MCT level belonged to FITA members, according to the report.
The FITA questioned IPSOS credentials. “This is not BATSA’s first dance with this particular research institution following the much-discredited report released in 2018,” the association wrote.
“Independent researchers and academics have repeatedly voiced their concerns about Big Tobacco and how it should not be trusted in respect of its research and studies on the illicit tobacco trade. They have repeatedly been found to have overstated the size and prevalence of this scourge in order to suit their selfish needs, often to the detriment of their commercial competitors and/or the fiscus.
“These so-called independent reports are now also being used as ammunition by Big Tobacco for anti-competitive purposes to smear the names and brands of independent local cigarette manufacturers.”
FITA insisted its members comply with South Africa’s tobacco laws. The association says it supports an inquiry where warranted, and that authorities should investigate BATSA.
April 13, 2021
‘Tobacco Tax Evasion a ‘National Emergency’

Photo: Tobacco Reporter archive
South Africa’s recent tobacco tax increase has sparked a criminal price war in the country as manufacturers flood the market with untaxed cigarettes, according to British American Tobacco South Africa (BATSA).
A new independent report by IPSOS shows that the announcement of the 8 percent hike in tobacco taxes appears to have been the trigger for an all-out illegal price war in key provinces.
Three-quarters (74 percent) of retail outlets in Gauteng, Western Cape and Free State are now openly selling illegal cigarettes. This is an increase of more than 7 percent on the last survey conducted before the excise increase in February.
The report showed that three-quarters (74 percent) of retail outlets in the three provinces nationwide sold cigarettes below the legal minimum collectible tax (MCT) level. Mystery shoppers were able to purchase illegal cigarettes in every retail sector more easily than during a similar study in February.
Gold Leaf Tobacco Corp. brands found being sold under the MCT rose by 13 percentage points in a month, and 85 percent of their brands purchased were illegal. One hundred percent and 91 percent of brands owned by Afroberg and Carnilinx, respectively, were being sold below MCT in retail outlets where they were the cheapest products available.
BATSA General Manager Johnny Moloto said that the findings of this latest report illustrate a “national emergency.”
The facilitation of this scale of robbery of billions of rand from the people of South Africa as we continue to struggle with pandemic hardships is totally unacceptable.
Johnny Moloto, general manager, BATSA
“We thought that the levels of criminality and tax evasion that cost every single South African huge sums of money could not get any worse. We were wrong,” Moloto said. “This study shows that, now, three out of every four retail outlets in Gauteng, Western Cape and Free State are openly selling illegal products that are not remitting taxes.
“The facilitation of this scale of robbery of billions and billions of rand from the people of South Africa as we continue to struggle with pandemic hardships is totally unacceptable. The robbery is not just getting worse. This study shows that it’s getting worse on a day-by-day basis.
“This is a national emergency, and it’s clear we need an immediate Commission of Inquiry into the tobacco market in South Africa.”
April 12, 2021
U.S. Customs Seize Unapproved Juul Pods
U.S. Customs and Border Protections (CPB) officers in Indianapolis seized six shipments containing more than 10,000 unapproved Juul Pods. All the shipments originated from an individual in Ontario, Canada, and were headed to various locations in New York and New Jersey.
The shipments arrived separately and were all seized on April 8. The packages were mismanifested as electrical apparatus, a common practice used by smugglers. A total of 10,464 pods were seized. The pods had an MSRP over $156,000.
“Our officers are dedicated to identifying and intercepting these types of shipments that could potentially harm communities,” said Kerry Carter, acting port director for Indianapolis in a statement. “Our officers and specialists enforce hundreds of laws for many partner agencies and are committed to ensuring the health and safety of American citizens.”
Last year, the Food and Drug Administration announced an increased enforcement priority of electronic nicotine-delivery systems and issued detailed guidance to the industry of these new enforcement priorities that regulate the unauthorized importation of tobacco products.
April 12, 2021
Fighting Fakes

Chinese law enforcement officers destroy confiscated equipment that was used to manufacture counterfeit cigatrettes (Photo: Tobacco Reporter archive)
As illicit trade thrives in the pandemic, demand for security devices is expected to grow.
By Stefanie Rossel
Reduction in trade, restrictions on movement—while many legal businesses are suffering in the difficult conditions brought about by governments’ attempts to halt the proliferation of Covid-19, the pandemic has provided fertile ground for the activities of criminal organizations. A 2020 report by Euromonitor International found that the pandemic led to a surge in illicit trade, particularly in the tobacco industry, where organized crime is causing governments to lose billions in tax revenue as well as severely affecting legitimate businesses.
“The pandemic has created the ideal conditions for illicit trade in general to grow by amplifying the underlying key drivers that contribute to market imbalance,” says Nicola Sudan, general secretary of the International Tax Stamp Association (ITSA). “These include disrupted supply chains combined with global demand going off balance and government interventions, such as closed borders and consumption bans.
“There is also altered consumer behavior as a result of increased economic hardship and lockdowns. In North America, for instance, we have seen an exponential increase in illegal tobacco—and drug—trafficking direct to consumers while they are locked down at home. This is expected to continue as a way of avoiding taxes. And in France, interestingly, changes in sales patterns during times when borders were closed has also shown the extent of cross-border shopping in normal times when customers take advantage of differential tax regimes in the European Union to circumvent tax measures.”

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Stretched government resources have curtailed enforcement efforts. “Indeed, the pandemic impacted the traditional work practices of tax authorities, leading to decreased inspection visits to factories and reduced audit performance. This weakened state capacity might have emboldened producers to mis-declare and under-declare their production,” says Sudan.
Criminals have been quick to exploit these opportunities to expand their activities in scope and scale. “While legitimate businesses were struggling to maintain business operations during the pandemic, criminal elements adapted to the altered conditions with remarkable speed. With air traffic and air cargo significantly reduced, traffickers increasingly utilized land shipments, international small parcel shipments and relocated production facilities closer to destination countries.”
Increased illicit trade in excise goods also resulted as an unintended consequence from well-intentioned efforts to blunt the impacts of the pandemic. Several countries, including South Africa, banned both the sale of liquor and tobacco products during lockdown, leading to unprecedented levels of illicit trade. “According to news reports, over 90 percent of smokers were able to buy their cigarettes from illegal sellers [in South Africa],” says Sudan. “Many people fear these levels of illicit trade will persist long after the pandemic finally subsides as they will have the effect of further entrenching in different countries an already thriving illicit tobacco and alcohol market.”

The pandemic has created the ideal conditions for illicit trade in general to grow by amplifying the underlying key drivers that contribute to market imbalance.
Nicola Sudan, general secretary, International Tax Stamp Association
Revenues required
The massive rise in counterfeiting during the pandemic is expected to boost demand for security and authentication devices to better protect brands. Sudan notes that requests for security devices, including that for tax stamps and marks and secure traceability systems, come primarily from national governments. “Given the devastating impact of the pandemic on economies across the world, it has never been more important for governments to be able to raise significant levels of revenue—and raise them quickly—in order to rebuild their ravaged economies. To do this, however, they will likely need to increase tax rates, including excise taxes.”
Sudan warns that before imposing tax increases, especially in the exceptional circumstances created by the pandemic, governments should ensure they have robust tax administration, border management and supply chain control systems in place to recover the taxes and duties already due to them that are lost to illicit trade. “This is where security mechanisms such as tax stamps and traceability schemes have a significant role to play as confirmed by authoritative bodies such as the World Bank and as demonstrated by systems already in place in a number of countries.”
Sudan anticipates the greatest need for security devices to come from developing economies, mainly throughout Asia and Africa, where weak tax administration and supply chain control have led to widespread acts of noncompliance and tax evasion by domestic operators and where porous borders have facilitated smuggling and other forms of illicit trade. “Robust tax administration and supply chain control systems are generally characteristic of advanced economies because of their well-established practices. In developing countries, there is an appetite for new technologies such as the use of tax stamps and other security devices to strengthen tax administration and increase compliance by economic operators involved with excisable products.”

With air traffic and air cargo significantly reduced, traffickers increasingly utilized land shipments, international small parcel shipments and relocated production facilities closer to destination countries.
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Sophisticated solutions
In recent years, authentication technologies in the tobacco sector have made great strides. The implementation of a tracking and tracing regime is a requirement of the World Health Organization Framework Convention on Tobacco Control’s (FCTC) supplementary treaty, the Protocol to Eliminate Illicit Trade in Tobacco Products, which entered into force in September 2018. Traceability of the movement of legal tobacco products from the field to the consumer has already become obligatory in the EU, which, as part of its revised Tobacco Products Directive, requires cigarette packs and other tobacco products packaging to be labeled with an individual ID code, a so-called unique identifier (UID) since May 2019.
An authentication system using a UID involves the generation, capture, encryption, application, recording, interrogation and verification of the code. “Such systems are designed to provide crucial data to revenue and customs authorities for the effective control and enforcement of their excise management programs,” says Sudan. “Comprehensive track-and-trace systems, which go a stage further by following the product all the way from manufacturer/distributor to retailer/consumer are not yet the norm. However, the building blocks are there, and an increasing number of such systems are now being implemented—not only because it makes financial and logistical sense to do so but because, in a few years’ time, the more than 60 parties to the WHO FCTC Protocol will in any case be obliged to implement tracking and tracing as part of their commitment to the Protocol.”
An all-digital solution, as opposed to one based on the use of paper-based security labels, cannot be used to cover the traceability, authentication and tax collection needs of a government, she clarifies. “Although there are some very good digital systems currently in place that provide a lot of data for national excise management programs, tobacco products in particular are susceptible to acts of fraud and manipulation due to the high levels of tax associated with them. Such illicit acts involve the cloning of a UID on a pack of cigarettes to make it look like the real thing and ostensibly perform the same function as a legitimate code.”
To mitigate the risk of code duplication, ISO standards recommend incorporating an intrinsic, physical security layer into the UID as an authentication element. “However, although it is possible to incorporate some security into digital codes, a lot more security can be carried by a label such as a tax stamp. The stamp provides better protection and higher visibility as well as providing an anti-tampering function and catering to a wider range of stakeholders. So, while a digital solution may be suitable for low-tax or no-tax products, tobacco products in particular need a more robust solution to deal with the fraudulent practices that affect this high-risk market.”
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.

April 1, 2021
Bulgaria: Illegal Cigarettes Seized

Photo: Tobacco Reporter archive
Bulgarian law enforcement officers seized more than 13 million smuggled cigarettes in the port city of Burgas, according to Xinhua Net. The cigarettes were destined for Hungary.
The illegal products were found in a semi-trailer that arrived by ferry from Georgia, according to the National Customs Agency (NCA) and Bulgaria’s prosecutor’s office.
The total value of the seized cigarettes is about $3 million.
Due to its location, Bulgaria is a favorite destination for traffickers, with 16.1 million illegal cigarettes seized by the NCA in 2020.
March 31, 2021
Philippines Urged to Adopt Virtual Stamps

Photo: Gerd Altmann from Pixabay
A senior legislator in the Philippines wants the Bureau of Internal Revenue (BIR) to create “virtual stamps” for export cigarettes to deter their smuggling into the domestic market, reports Business World.
At a hearing conducted by the House Committee on Ways and Means on March 22, Representative Jose Ma. Clemente S. Salceda proposed a “less visible” form of security labelling along with material labelling features.
Salceda also reiterated his call for the BIR to revoke a rule that exempts cigarettes sold for export from tax stamp affixture, adding that unstamped export cigarettes were a key source of supply for smugglers. Cigarettes for domestic sale affixed with tax stamps indicate that the manufacturer has paid the required excise taxes.
The House tax panel has found that tobacco smugglers evade excise taxes by declaring tobacco products “for export.”
BIR Deputy Commissioner Arnel SD. Guballa said while the agency supports stamps on export cigarettes, manufacturers expressed concerns that this could deter foreign markets since most other countries prefer the products to be shipped without stamps.
“The international market demand is for cigarettes to have no stamps,” he said.
The government loses PHP30 billion annually due to untaxed tobacco products on the domestic market. In February, the Philippines’ Bureau of Customs declared an “all-out war” against cigarette smuggling.
March 25, 2021
Registration Mandate for SEZ Manufacturers
Cigarette manufacturers operating in the Philippines’ special economic zones (SEZ) will soon have to register with the Bureau of Internal Revenue (BIR) to help curb illicit tobacco trade, reports The Philippine Star, citing the Department of Finance (DOF).
Some companies registered with the Philippine Economic Zone Authority (PEZA) have allegedly been engaging in illicit activity and enjoying tax breaks, according to Finance Secretary Carlos Dominguez III. “These errant firms have been depriving the government of unpaid income taxes, excise taxes, value-added tax (VAT) and customs duties whenever their illicit products are sold in the local market,” he said in a statement.
The BIR is drafting revised rules covering the operations of cigarette makers in SEZs, according to a letter from Dominguez to Trade Secretary Ramon Lopez.
“The fact that the alleged illicit activities occurred inside the PEZA Ecozone is alarming,” Dominguez wrote. “Not only did PEZA provide tax breaks to the alleged perpetrators, the government has lost billions of pesos in income taxes, excise taxes, VAT and customs duties when these illicit goods entered the local market.”
“It appears that the manufacturers took advantage of the lackadaisical monitoring inside the zone to perpetrate their schemes under the cover of the laws, rules and policies enacted to favor them,” said Dominguez.
PEZA-registered locators are subject to an income tax holiday between four years and eight years as well as duty-free importation of raw materials, capital equipment, machinery and parts. Locators can only sell up to 30 percent of their production to the domestic market—if they sell more than that, they must pay taxes and duties at regular rates.
“We expect the completion of the revised rules by the BIR soon after the PEZA and other stakeholders have provided comments thereon,” Dominguez wrote in his letter.
March 24, 2021
Illegal Cigarette Factory Dismantled in Denmark
Police arrested 13 individuals for smuggling counterfeit cigarettes from a clandestine factory in Denmark to the United Kingdom, reports Europol.
A timely exchange of intelligence via Europol between the Danish, Dutch and Polish investigators facilitated the investigation carried out in the framework of the European Multidisciplinary Platform Against Criminal Threats.
On March 2, law enforcement officers dismantled an illegal cigarette factory in Vamdrup. This is the first illegal cigarette factory to be dismantled in Denmark. Police arrested 13 individuals of Polish and Ukrainian nationality and confiscated 11 million cigarettes alongside 11 tons of raw tobacco and a full production line.
Forensic analysis is still ongoing to quantify the factory’s exact production capacity, which is presumably several million cigarettes per week.
The value of the seized tobacco products on the illegal market in the United Kingdom is believed to be in the region of €13 million ($15.5 million).
The action in Denmark led to another one in the Netherlands that same week. Investigators of the Dutch Fiscal Information and Investigation Service searched the premises of a warehouse in Ospel. Eight pallets of contraband cigarettes stored in maritime containers were seized, worth close to €1 million in the destination market.
The cigarettes produced in Denmark were shipped to the U.K. via the Netherlands.
March 12, 2021
Illegal Tobacco Destroyed in Australia
Australian authorities destroy illicit tobacco at Beverford
(Video: OTA)
Australian law enforcement officers uncovered more than 40 hectares of illegal tobacco on properties on either side of the Victoria-New South Wales (NSW) border, reports The Australian Taxation Office (ATO). Based on the excise that would be charged on legal tobacco of the same weight, the tobacco’s potential value was estimated at $84.3 million.
More than 183 tons of tobacco was found during raids on a property at Kyalite, in southwest NSW. The Natural Resources Access Regulator participated in the action to investigate possible water theft.
“That’s the biggest crop we have discovered to date,” said Australian Border Force Commander Greg Linsdell, who headed up the taskforce.
Another crop was found on the same day at Beverford, on the Victorian side of the border, where ATO officers destroyed 183 tons of illicit tobacco along with 140 kg of processed tobacco bales.
The next day, another 60.7 tons of illicit tobacco was seized and destroyed on a third property at nearby Vinifera.
That’s the biggest crop we have discovered to date.
Gred Linsdell, head of The Illicit Tobacco Taskforce
Tobacco cultivation has been illegal in Australia for more than a decade. The country’s illicit tobacco market is worth about $822 million a year in evaded revenue. Linsdell said many organized crime syndicates, including outlaw motorcycle gangs, were involved in illegal tobacco production. “[The proceeds] are going into the hands of criminals to be used for other crimes, and buying this stuff, supporting this market, is a crime as well,” he said.
While charges were yet to be laid, those convicted of tobacco cultivation face penalties of up to 10 years behind bars.
March 10, 2021
BATSA Calls for Inquiry Into Illicit Trade

Photo: Tobacco Reporter archive
British American Tobacco South Africa (BATSA) is calling for an urgent inquiry into the country’s booming illicit cigarette market.
In some provinces, three out of every four retail outlets are selling a pack of 20 cigarettes below the minimum collectible tax rate (MCT) of ZAR20.01 ($1.30), according to a recent study by Ipsos.
The market research company found brands registered to Gold Leaf Tobacco Corp. to comprise half of all products selling below the MCT. Brands registered to Carnilinx were the next most prevalent, being identified as the cheapest brands on sale in 16 percent of the nationally representative sample of retailers visited, with 48 percent of these selling Carnilinx brands at below the MCT.
“These results are outrageous,” said BATSA general manager Johnny Moloto in a statement. “Even allowing for some of these purchases being stolen, smuggled or counterfeit stock, the sheer volume and range of brands available suggests that some manufacturers must be complicit in the sale of these products—whether through omission or active facilitation. There is no other plausible explanation.”
These results are outrageous.
Johnny Moloto
“South Africa urgently needs an uncompromising, comprehensive investigation into all players in the industry,” Moloto said. “We need a Commission of Inquiry as well as rapid enforcement by SAPS and SARS.”
March 9, 2021