Illicit Trade - Tobacco Reporter

JTI Calls for Greater Cooperation Against Illicit Trade

JTI called for greater international cooperation between government agencies, industry and law enforcement in tackling the illicit trade in cigarettes.

Speaking at the Global Tobacco and Nicotine Forum (GTNF) in Seoul, Sept. 19-21, Julian Cheung, the anti-illicit trade operations director for JTI’s Asia-Pacific region, warned that criminal groups involved in the illegal tobacco trade, siphon much-needed tax revenue from state budgets. “They don’t comply with laws and regulations and, therefore, taxpayers, governments and legitimate businesses are all paying a hefty price,” she noted.

“Billions of dollars in revenue are lost to this criminal activity,” said Chueng. In 2019, the World Bank estimated the cost of the illicit tobacco trade to governments at between $40 billion and $50 billion annually.

“Let’s shift the narrative surrounding illegal trade and act together,” said Chueng in her presentation. “Through innovative strategies, cooperation and a focus on disrupting the financial foundations of these criminal networks, we can curtail the illegal tobacco trade, and safeguard our communities and economies.”

Chueng’s call for action fit well with the GTNF’s theme, “Change the Conversation. Change the Outcome.” The conference brought together hundreds of stakeholders from across the industry, including businesses, research consulting groups, scientists, public policy and regulatory experts and educators, to discuss industry trends and challenges and share best practice thinking.

September 24, 2023

Turkiye: Thousands of Cigarettes Seized

Turkish police seized more than 600,000 packs of cigarettes and 53 e-cigarettes in a smuggling case in Agri, according to 2Firsts.

Three suspects were arrested as a result of the case.

September 21, 2023

DFA Signs Anti-Illicit Trade Declaration

Duty Free Americas has signed the Duty Free World Council (DFWC) and Tax Free World Association (TFWA) anti-illicit trade declaration.

With over 200 stores in airports and border crossings throughout the Americas, the addition of Duty Free Americas to the declaration marks a major extension of the duty-free and tax-free industry’s public commitment to combat illicit trade, counterfeiting and intellectual property theft.

The DFWC and the TFWA launched the anti-illicit trade declaration in July 2023. By signing the declaration, signatories commit to a zero-tolerance approach to illicit trade within their own organization.

“The DFWC/TFWA anti-illicit trade declaration continues to grow in strength, and I am very pleased to welcome Duty Free Americas as the most recent signatory to this important initiative,” said DFWC President Sarah Branquinho.

“Our industry boasts one of the most transparent, trusted and secure supply chains in the world, and this campaign sends a clear message to our millions of customers around the world that they can shop in duty[-free] and tax-free stores around, confident that the products they are purchasing are authentic and genuine.

“Signatories to this declaration are making a firm public commitment to never permit any form of illicit trade, counterfeiting or intellectual property theft and to hold their commercial partners to that same standard. We welcome the support of any travel retail operator or supplier [who] wishes to be a part of the declaration, and we continue to encourage members of our industry to join us.”

September 12, 2023

Pakistan Poised to Enact Tracking System

Pakistan’s Federal Board of Revenue (FBR) has signed agreements with 22 tobacco manufacturers to install a track-and-trace system at their factories, reports The News International.

The digital system, which allows the FBR to monitor the production, distribution and sale of tobacco products through unique identification codes and stamps on cigarette packs, is expected to increase the tax revenue from the tobacco sector, which contributes about 1.5 percent of the total tax collection in Pakistan.

The FBR initiated the system two years ago. Pakistan Tobacco Company (PTC) and Philip Morris International were the first to sign agreements and make the system operations, followed by Khyber Tobacco Co.

Now the FBR has signed agreements with 18 more manufacturers.

There are between 26 and 30 tobacco manufacturers in Pakistan, according to FBR estimates, though some of them are not operational or have moved to nominally self-governing territories such as Azad Jammu and Kasmir.

The implementation of the track-and-trace system has been marred by legal challenges. With the exception of one case, all these challenges have been rejected in court.

FBR officials expect the system to become operational by October 2023.

September 4, 2023

Ukraine Restricts Duty-Free Tobacco Sales

Ukraine has restricted the duty-free sales of cigarettes and alcohol, reports Interfax.

The law, which signed into law by President Volodymyr Zelenskyy on Sept. 1, 2023, prohibits goods that fall under a certain categories of the Ukrainian Classification of Commodities from being registered as duty-free commodities until the country lifts the martial law that has been in effect since Russia’s invasion.

The measure is intended to tackle illegal trade in tobacco products. Despite restrictions on foreign travel after the breakout of hostilities in early 2022, the number of cigarette packs purchased near borders rose sharply compared with those sold at other outlets, causing the Ukraine to miss out on substantial tax earnings.

An ad hoc investigative commission created at the urging of the State Tax Service in May 2023, suggested stricter controls on tobacco manufacturers and exporters.

September 1, 2023

A Leap Forward for Public Health?

China’s new rules on vape manufacturing will help tackle illicit trade only if they are properly enforced.

By Ian M. Fearon

The vape industry is in the midst of a growing crisis and facing an existential threat. This may seem like a pessimistic, and perhaps provocative, statement, but without those within the industry taking action to change course, the lives of the billion smokers across the globe could be placed at an increased risk.

The vape industry has always been controversial, although wrongly so. After all, nobody in their right mind doubts that when cigarettes are substituted with e-cigarettes, there are huge gains for both individual and population health. Despite this, those in “tobacco control” have become, and will remain, steadfastly resolute in their desire to remove vapes from markets across the world. While their motives are not abundantly clear, they certainly don’t appear to mesh with a desire to improve global health and may instead represent a nicotine prohibitionist standpoint. But their work is adding to the growing likelihood that vapes could be banished across the world. Or, as is currently the case in Australia, confined to prescriptions issued by physicians and not as freely available as, well, cigarettes.

Perhaps the biggest single threat to the vape industry is the mass marketing of both illegal and illicit products across the world. Wherever you look, in the United States and Canada, across Europe, in Australia and New Zealand, and pretty much any other global market in which vapes are sold, illegal products are abundant. They are causing problems by being made available to youth with scant regard for the impact this may have on public health and on the future of a lifesaving industry. In the U.K., recent assessments of vapor from illegal and illicit vapes have found them to contain high levels of poisonous metals, such as lead, or contain levels of nicotine higher than those allowed under U.K. regulatory law. And a recent investigation found evidence of the production of counterfeit products with inadequate manufacturing quality control and unhygienic product testing processes. The illicit trade is hugely damaging to the legitimate industry and makes the work of vape prohibitionists in tobacco control so much easier.

One way of stemming the flow of potentially dangerous illicit products is to act at the source. China is acknowledged as the birthplace of the modern e-cigarette, following the pioneering work of the Chinese pharmacist, Hon Lik, in the early 2000s. Chinese companies are also by far the world’s biggest e-cigarette manufacturers, with production coming mainly from the estimated 1,000 factories located in China’s Silicon Valley, Shenzhen. Recent figures show that Chinese e-cigarette manufacturing is growing at record levels, with $5.5 billion worth of vapes manufactured in the country in the first half of this year, up by almost 30 percent compared with the first half of 2022. Between $300 million and $400 million worth of these are imported each month into the U.S. and the U.K., the largest export destinations for Chinese e-cigarettes. Remarkably, $20 million worth are exported each month to Australia, a marketplace in which e-cigarettes are legal only on prescription. In that country, the end result will undoubtedly be greater restrictions on vaping, perhaps even for authorized prescription products, and many other countries are considering similar actions.

Regulating the expanse and diversity of Chinese vape manufacturing is not an easy task, but doing so would have a profound impact globally as it could make a huge dent in the supply of illicit vapes across the world. Recently, the Chinese State Tobacco Monopoly Administration (STMA) issued guidelines that may promise to clean up Chinese vape manufacturing. These guidelines are lengthy and complex but focus on a single area: the establishment of quality management systems in vape manufacturing facilities. To comply, manufacturers must, at least, implement quality and safety standards, assess and control their e-cigarette production, properly train their personnel, ensure manufacturing and distribution traceability, and complete export registrations and declarations. Products must not only be manufactured under stringent conditions, but they are also required to meet any relevant legal requirements in their export destination. And importantly, manufacturers must halt production if any safety issues arise or are brought to their attention in order to prevent and reduce harm. According to the guidelines, governments and other international organizations can report issues to Chinese authorities and have their concerns addressed.

The biggest question on everyone’s lips has to be this one: Will the STMA guidelines be enforced—and how? If we look at the status quo, regulations elsewhere are being ignored by many manufacturers and distributors of illicit vaping products, putting profit first and public health second. In the U.S., the Food and Drug Administration issues a constant stream of warning letters threatening enforcement action. But much like the fairground game whack-a-mole, as soon as one company or vape source has action taken against it, another one takes its place. The FDA’s finite resources cannot tackle this constant evolution. In the U.K., despite the scale of the vape black market, a recent assessment of enforcement actions showed that even when action is taken against distributors of illicit and potentially dangerous vapes, local Trading Standards teams have issued fines lower in aggregate than the maximum allowed by law of £2,500 ($3,181). The situation is analogous to the illicit cigarette trade of years past in which the potential financial gains far outweighed the likely punishment.

The question then becomes: Will the new STMA guidelines change the supply and distribution of illicit vapes, or, as has been the case in other jurisdictions, will the guidelines be weakly enforced? This concern, that the new guidelines will be meaningless and unenforced, is shared by the U.S. Smoke-Free Alternatives Trade Association (SFATA). When asked for their views on the new guidelines, SFATA President and CEO April Meyers suggested that while the new guidelines could theoretically increase the quality of vapor products coming out of China, she was unwilling to place any bets on such an outcome. Citing the scope and complexity of the political landscape in China, Meyers doubts that protecting the youth of other nations is at the top of regulators’ minds in Beijing, especially when there is so much money involved. Such a view is understandable given that the guidelines are suggesting that the Chinese government can fix enforcement issues elsewhere in the world.

Without doubt, the new Chinese guidelines are a positive step. The guidelines recognize the public health issues regarding the manufacturing and distribution of illicit vapes and offer a potential mechanism through which this damaging illegal trade can be eroded. But without strict enforcement, and instead relying on manufacturers to interpret the guidelines, implement appropriate quality control procedures, and to self-police, the guidelines may do little to alter the current status quo.

It’s a major irony that those companies already committed both to lawful distribution of vapor products and to the improvement of public health are facing action from regulators in the form of flavor bans and other restrictions while the illicit trade carries on regardless. The industry needs guidelines and product standards, but what it needs more than that is stricter enforcement. And stricter enforcement should include better approaches to identify and prevent illicit products from crossing borders, not just identifying them at the point of manufacture. This applies not just in China but everywhere in the world where vapor products can be sold. The existence of lifesaving consumer vapor products is at stake and, perhaps more importantly, so is public health. With the new Chinese guidelines, we are moving in the right direction. But without proper enforcement, we may carry on, in public health terms, walking backward.

Ian M. Fearon is chief scientific officer at McKinney Regulatory Science Advisors.

September 1, 2023

Cambodia: Police Shut Down Illegal Tobacco Factory

Tboung Khmum police shut down an illegal tobacco factory producing counterfeit Esse brand cigarettes, in collaboration with Cambodia’s provincial military police and mobile customs officers, reports the Khmer Times. The factory was located in the Memot District, near the border with Vietnam.

The factory was allegedly owned by a Cambodian tycoon, according to Tboung Khmum Provincial Economic Police Officer Major Long Sambath. Police were investigating and monitoring the factory for a month before the raid, said Sambath.

The alleged owner was not present during the raid and has not been located, though his identity is known.

“This factory has operated without any authorization from relevant provincial authorities. We discovered recently that it was producing unlicensed, counterfeit Esse cigarettes,” Sambath said.

“The authorities have already cracked down on the factory, and we will take legal action to locate and prosecute the owner of the factory,” he said.

Several tons of counterfeit cigarettes were seized along with other tobacco-related materials, including new cigarette manufacturing equipment.

August 30, 2023

Russia Blames Illicit Trade for Tax Losses

The Russian government lost more than RUB46 billion ($481.33 million) in tax earnings in the first half of 2023 as a result of the illicit trade in cigarettes, reports Interfax.

“According to the latest study, which ended this month, the share of illicit cigarette trafficking was 13.3 percent in terms of smokers,” said Vladislav Zaslavsky, director of the Russian Industry and Trade Ministry’s department for the system of digital marking of goods and the legalization of the circulation of products.

“The minimum amount of losses, according to the NNCC [National Scientific Center for Combating Illicit Trafficking in Industrial Products], is estimated at RUB46.5 billion,” Zaslavsky said on Aug. 24 during a retail round table in the Volga region.

According to Zaslavsky, each percent of the share of illicit cigarette trafficking costs the federal budget about RUB7 billion in excise taxes alone.

The NNCC will conduct a study on “nicotine-containing products” in the second half of 2023. As of the end of 2022, the market share of illegal nicotine-containing products was 79 percent, including 93 percent in illegally sold nicotine-containing liquids.

August 29, 2023

Pakistan: Cigarettes Seized for Tax Violations

Pakistan’s tax authorities confiscated 650 cartons of cigarettes from Philip Morris (Pakistan), alleging that the products were sold below the minimum retail price, reports Pakistan Today.

“This action underscores the government’s commitment to upholding tax laws and safeguarding public health,” a Federal Bureau of Revenue official was quoted as saying. “Violations of these regulations not only undermine public health initiatives but also lead to revenue losses for the government.”

Philip Morris insisted it was in full compliance with tax obligations for all its brand. A company spokesperson said that the company is cooperating with FBR and is dedicated to tackling illicit trade in Pakistan.

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August 24, 2023

Illicit Cigarettes Set to Dominate Pakistan

Illicit cigarettes may exceed legitimate tobacco sales in Pakistan within the next quarter, warn some industry insiders, according to Profit. The illicit products have already secured more than 40 percent of the market.

The tobacco industry has criticized the Federal Board of Revenue and the Ministry of Health for their perceived failure to curb the illicit market.

Sami Zaman, head of external affairs at Pakistan Tobacco Co., warned that if left unchecked, illicit cigarette sales could secure more than 50 percent of the market share in months.

Illicit cigarettes offer lower price points and many flavor options but lack proper taxation and legally mandated graphic health warnings.

The industry is having a hard time fighting this due to a supply shortage of legal products; 75 million kg of raw tobacco was secured for the entire cigarette manufacturing industry despite promises of 85 million kg, causing cigarette prices to increase dramatically.

The licit cigarette industry saw a 44 percent decrease in cigarette manufacturing during June 2023 followed by a 28.4 percent decrease from July 2022 to July 2023.

August 21, 2023

Category: Illicit Trade

China’s new rules on vape manufacturing will help tackle illicit trade only if they are properly enforced.