Illicit Trade - Tobacco Reporter

Hong Kong Confiscates Black Market Cigarettes

Hong Kong customs officers arrested three men and confiscated HKD180 million ($23 million) in black market cigarettes, reports the South China Morning Post. This marks the second-largest smuggling bust of its kind this year.

Three container trucks at two shipping yards near Tsing Yi Road, Tsing Yi, and Container Port Road South in Kwai Chung carrying three 40-foot cargo containers with 31 million suspected illegal cigarettes were seized. Three more containers in the same yards were seized, holding 33 million sticks of tobacco.

If the illegal cigarettes were legally imported, the products would have generated HKD120 million in tax revenue.

Customs has seized 640 million suspected black market cigarettes this year, an almost 50 percent increase from last year’s 427 million, according to the South China Morning Post.

Many of the brands seized were popular overseas but uncommon locally. “Following the relaxation of anti-pandemic measures and the increase in the flow of people, the market demand for illicit cigarettes has increased,” Senior Investigator Lam Wai-kit said.

An investigation is ongoing to trace the source and flow of the illegal products, according to Lam.

November 22, 2022

Lawmakers: Tobacco Smuggling is ‘Sabotage’

The Philippine House Committee on Agriculture and Food has approved legislation that aims to declare the smuggling of raw tobacco, cigarettes, cigars and heated-tobacco products as economic sabotage, reports the Manilla Bulletin.

The bill seeks to include unprocessed and processed tobacco in the Anti-Agricultural Smuggling Act’s definition of “agricultural commodities.”

“Every revenue lost from illicit tobacco trade deprives the country of much-needed funds to support various programs of the government, especially the economic program of tobacco-producing provinces as well as general appropriations for education and other social welfare programs,” said Senior Deputy Majority Leader Sandro Marcos, principal sponsor of the bill.

According to Marcos, the tobacco industry provides livelihoods to 2.2 million Filipinos, including 516,000 farmers and workers. In 2020, it accounted for around 6 percent of tax revenue and 58 percent of sin tax revenues. From April to June 2022, production of tobacco dried leaves reached 36,038 metric tons with the Ilocos Region accounting for 24,020 metric tons, or 66 percent of the total production.

Smuggling threatens not only the livelihood of tobacco farmers but also causes the government to lose out on PHP26 billion ($452.84 million) in tax collections annually, according to Marcos.

From 2019 to January 2022, the Bureau of Customs (BOC) confiscated 87,430 illicit master cases each containing 10,000 cigarettes. The Bureau of Internal Revenue (BIR) seized 46.1 million packs of cigarettes from 2018 to 2021 and 47 million counterfeit tobacco excise tax stamps from 2018 to 2022.

The BOC estimated that the government lost PHP3.7 billion in tobacco excise taxes from 2018 to 2021.

Former Representative Jericho Nograles said the smuggled items confiscated by authorities “are only the tip of the iceberg.” He said smuggling is also a national security issue because it involves the porosity of the country’s borders.

Under the Philippines’ current law, companies or people caught in possession of untaxed tobacco products face prison terms of up to 12 years. The proposed legislation seeks to increase the maximum prison sentence to 40 years without bail. This would be on top of paying fines double the value of the seized smuggled items plus the total amount of unpaid duties and other taxes.

November 21, 2022

Firms Urge Crackdown on Illicit Trade

Tobacco companies have called on the government of Ukraine to crack down on the illegal cigarette trade, reports Interfax Ukraine.

Speaking during a roundtable discussion organized by the American Chamber of Commerce in Ukraine, Philip Morris Ukraine General Manager Maksym Barabash noted that war, inflation and the associated drop in consumer incomes had accelerated the growth of the illegal tobacco market in Ukraine.

In August 2022 alone, the share of illegal tobacco products grew by 5 percentage points to 21.9 percent from 16.9 percent in 2021. According to Barabash, the state misses out on UAH44 ($1.19) from each illegal pack of cigarettes. To date in fiscal year 2022, the state budget has already lost UAH20.6 billion in unpaid tobacco taxes.

To facilitate the fight against illegal cigarettes, tobacco companies proposed the creation of a joint working group with a coordination center in the Office of the President.

“Countering illegal turnover of tobacco products belongs to the competence of several regulatory and law enforcement agencies,” said Svitlana Sharamok, general manager of Japan Tobacco International Ukraine. “However, due to the unclear division of powers, these agencies do not always work in a coordinated manner and sometimes even compete with each other.”

Sharamok added that the work of the new group should not be judged by the number of raids or confiscated cigarettes but by the decrease in illegal sales.

November 10, 2022

Illegal Cigarettes Seized in Germany

German authorities seized around 10.4 million undeclared cigarettes in Lubeck-Travemunde, reports Xinhua, citing a statement by the customs investigation office in Hamburg.

The discovery was made when customs officers performed a routine check on a trailer arriving by ferry from Latvia. The truck had declared a consignment of peat, but instead, officers found cartons each containing 10,000 cigarettes.

According to customs officials, the smuggled cigarettes represented a tax loss of €1.9 million ($1.9 million). Authorities are now investigating the origin of the cigarettes and the recipients, who are believed to be located in Western Europe.

“Customs have once again uncovered a significant tax loss in Travemunde and are thus making a major contribution to tax justice in Germany and Europe,” Stephan Meyns, spokesperson for the Hamburg customs investigation office, was quoted as saying by Xinhua.

Earlier this month, German authorities arrested four people for cigarette trafficking.

Investigators had searched 46 residential and business premises throughout the country, confiscating cash, cigarettes and tobacco. German authorities estimate that the smugglers caused tax losses of around 11 million euros.

As par the operation, authorities also uncovered illegal manufacturing plants in Romania and Slovakia, according to the Osnabrueck Public Prosecutor’s Office and the Prosecutor’s Office and Customs Investigation in Essen.

November 10, 2022

Illicit Trade Persists After Lockdown

The illicit cigarette trade continues to thrive in South Africa despite recent enforcement actions, according to a new Ipsos study.

According to Ipsos’ latest study, shops nationwide are still flooded with illegal tobacco products more than two years after the unconstitutional tobacco sales ban was imposed by the government as part of their response to the Covid-19 pandemic.

The study found that almost four out of five stores in the Western Cape (77.9 percent) sell cigarettes below the minimum collectible tax (MCT) rate of ZAR22.79 ($1.28) per pack. Almost three in four shops in Free State (72.3 percent) sell cigarettes below the MCT as do 66.2 percent of outlets in Gauteng, a significant increase compared to research conducted a year ago.

“The latest Ipsos study is irrefutable proof that the unconstitutional lockdown tobacco sales ban created a monster with an insatiable appetite.”

Johnny Moloto, general manager, BAT South Africa

A single pack of 20 cigarettes can be bought for as little as ZAR7, down from ZAR8, which was the lowest price found in the October 2021 study, according to Ipsos.

“The latest Ipsos study is irrefutable proof that the unconstitutional lockdown tobacco sales ban created a monster with an insatiable appetite,” said Johnny Moloto, general manager of BAT South Africa.

“Criminal manufacturers of tax-evading cigarettes are refusing to give up their control of the South African tobacco market and are pocketing billions in illicit profits that deprive the state of vital revenue and destroy honest jobs.”

November 9, 2022

Turkiye to Crack Down on Illicit Trade

Turkiye plans to crack down on illicit tobacco production and consumption, which cost the state an estimated TRY30 billion ($1.61 billion) in lost tax revenue, reports Daily Sabah.

A draft bill set to be discussed at Parliament will bring prison terms of up to five years for people selling tobacco without licenses from the Ministry of Agriculture and Forestry.

Illicit product is estimated to account for 20 percent of Turkey’s tobacco market. In 2021, some 35 billion cigarettes containing contraband tobacco were sold. This year, consumption is projected to reach about 50 billion.

The majority of illicit trade comprises illegally produced, unlicensed tobacco sales, such as hand-rolled cigarettes, representing around 27 percent of Turkish cigarette consumption. Counterfeit or smuggled cigarettes, by contrast, constitute about 3 percent of the market.

Authorities seized 4.7 million packages of smuggled cigarettes, 273 tons of tobacco products and 329,000 cigars during the first nine months of 2022, preventing a loss of TRY625 million in tobacco taxes, according to police data.

November 8, 2022

Ukraine: Illicit Tobacco Sales Hit Record High

The share of illicit tobacco products in Ukraine reached its highest level since the country’s independence in 1991, reports Interfax Ukraine.

According to an October study by the Kantar Ukraine Institute, illicit products accounted for 21.5 percent of the Ukrainian tobacco market in August 2022, up 5 percentage points over the average annual indicator for 2021.

The survey shows that Ukrainian smokers bought 8.46 billion illegal cigarettes since the beginning of 2022, equaling the volumes for the whole of 2021, and caused the government to miss UAH20.65 billion ($558.71 million) in tobacco tax payments.

Kantar Ukraine specified that fake cigarettes in Ukraine accounted for 8 percent of Ukraine’s tobacco market in August 2022 compared with 6.6 percent in August 2021.

November 4, 2022

Politicians Linked to Tobacco Smuggling

Montenegro’s outgoing Prime Minister Dritan Abazovic has accused the Democratic Party of Socialists (DPS) of maintaining ties to tobacco smugglers, reports Balkan Insights.

During a parliamentary Security and Defense Council session on Oct. 17, Abazovic claimed that three major tobacco smuggling groups operate in the country, at least one of which is linked to the DPS.

Abazovic urged prosecutors to investigate his claims, adding that he would “self-arrest” if his assertions proved false.

Since the collapse of Yugoslavia in the 1990s, the Port of Bar has become a center for cigarette smuggling from where imported tobacco is re-exported and cigarettes made in Montenegro are shipped.

Abazovic said the smugglers had the political support of current President Milo Djukanovic and his DPS, which held power for almost three decades.

In recent years, Montenegrin authorities have seized hundreds of tons of smuggled cigarettes and more than two tons of cocaine in Bar. Earlier this month, the head of Montenegro’s Customs Office resigned after being linked to tobacco theft in Niksic.

October 19, 2022

Record Seizure of Illegal Cigarettes at Hull Port

British Customs authorities reported the largest-ever seizure of illegal tobacco in the United Kingdom when a sniffer dog found 99 million illicit cigarettes in the Port of Hull, reports BBC News.

The illegal products were in eight shipping containers said to have been shipped through the United Arab Emirates. The cigarettes were worth about £44 million ($48.56 million) in unpaid taxes, according to HM Revenue and Customs (HMRC).

Import documents falsely labeled the shipping containers as carrying birchwood logs.

“This is the single largest seizure of cigarettes ever made at a U.K. port,” said Anthony Usher, deputy director of HMRC’s fraud investigation service. “Our streets would have been flooded with them had they not been discovered.

“Cheap cigarettes come at a cost as they often fund organized crime and other illegal activity that causes real harm to our communities, such as drugs, guns and human trafficking.”

October 10, 2022

Customs Chief Quits Over Cigarette Theft

Rade Milosevic, head of Montenegro’s Customs Office, resigned after an investigation launched by the Special State Prosecution into the tobacco theft in the town of Niksic, reports Balkan Insight.

Milosevic was questioned by police after €1 million ($971,805) worth of tobacco was stolen from a factory in Niksic, where it was supposed to be destroyed.

“I decided to take this action in order to relieve the government, the Customs Office and myself personally of the pressure. I am convinced that my work did not violate the law, but the media and a political hunt were aimed at discrediting me,” Milosevic said.

“It [the hunt] was designed and instructed by certain interest groups threatened by my conscientious and professional work,” he added.

The Special State Prosecutor’s Office stated that Customs officials, without adequate security measures, took over a truck of cigarettes intended for destruction. The truck never made it to its destination at the Mai-rai factory. Police later found the truck hidden in Podgorica, the capital. Customs officers Elvir Adrovic and Milutin Pejovic were arrested.

“I would be very unpleasantly surprised if Milosevic made this kind of oversight,” said outgoing Prime Minister Dritan Abazovic. “He explained to me how the system works, but the authorities will investigate whether there is anything else there.”

Opposition and civic organizations called for Milosevic’s dismissal, but Abazovic urged prosecution to fully investigate the matter first.

Earlier this year, Abozovic suggested tobacco smuggling groups contributed to the no-confidence vote that brought him down in mid-August.

October 10, 2022

Category: Illicit Trade