Illicit Trade - Tobacco Reporter

Hong Kong: Record Seizures of Cigarettes

Hong Kong authorities confiscated HKD1.23 billion ($157 million) worth of illicit cigarettes to date this year—the largest haul of the contraband in 20 years, reports the South China Morning Post, citing figures from the Customs and Excise Department.

As of Sept. 22 this year, customs officials had seized about 440 million untaxed cigarettes, well above the 427 million cigarettes worth HKD1.19 billion found in the whole of 2021.

If legally imported, this year’s contraband would have generated HKD839 million in tax, according to a law enforcement source.

The source attributed the rise in contraband seizures to the resumption of seaborn logistics after Covid-19 disruptions and a possible rise in the price of tobacco products in Europe.

“As the resumption of seaborne logistics business in May, syndicates have started to accumulate their storage of illicit cigarettes in the city while trying to find buyers in Hong Kong and overseas,” the source told the South China Morning Post.

He said some of the gangs also stockpiled a huge volume of illicit cigarettes in the city as they anticipated a possible rise in the price of tobacco products in Europe amid high inflation.

This year’s seizures reached 440 million cigarettes after authorities discovered 21.6 million untaxed cigarettes worth HKD59 million hidden in two shipping containers in Tsing Yi and Yuen Long in their latest operation on Sept. 19.

September 23, 2022

Firms Settle New York Tax Evasion Case

New York’s attorney general office announced a $50 million agreement with Grand River Enterprises Six Nations of Canada (GRE) and Native Wholesale Supply Co. (NWS) of New York to settle allegations of tax evasion in the state.

According to the complaint, the two companies brought millions of cartons of unstamped cigarettes into New York from Canada.

The attorney general’s office contends that NWS purchased cigarettes and tobacco products from GRE, imported them into New York, and distributed the cigarettes to retailers in the state—despite having no license to do so. GRE allegedly knew that the cigarettes it sold to NWS would be sold into New York without going through a New York state licensed stamping agent for prepayment of state taxes and would be neither stamped nor taxed as required by New York law.

“Hardworking New Yorkers pay taxes and so should multi-million-dollar companies,” said New York Attorney General Letitia James in a statement. “Regulating and taxing cigarettes is a critical tool to protect public health from the deadly dangers of tobacco. Today’s agreement enforces New York’s laws and will stop the overflow of unstamped cigarettes into New York.”

In addition to paying the $50 million, the companies agreed to modify their business practices to prevent future sales of unstamped cigarettes in New York.

In a statement, NWS clarified that while the settlement ends the litigation, it is not an admission of wrongdoing.

“In this almost decade-long dispute, the NY Attorney General claimed that sales of cigarettes by NWS to certain Native American Nations situated within the geographic borders of New York state were subject to New York state regulation and taxation. NWS, as well as the manufacturer of those products, GRE, vigorously objected to and adamantly denied such claims. As part of NWS’ Chapter 11 plan of reorganization, NWS allowed those claims to proceed in federal court in New York State.

“The settlement announced today brings an end to that litigation, without any admission of wrongdoing or liability by NWS or GRE. The settlement payments are to be paid solely by NWS and are not denominated as payment of back taxes. They are payments that the parties agreed are payments of disputed claims payable under the trust set up in accordance with the Chapter 11 plan of reorganization.

“NWS and GRE have at all times maintained and continue to maintain that the transactions at issue do not and did not violate any federal or New York State laws, particularly in view of well-established sovereign and treaty rights established with the federal government.”

September 13, 2022

Ousted Prime Minister Urges Smuggling Probe

Montenegro’s outgoing prime minister, Dritan Abazovic, urged the state prosecutor to investigate tobacco smuggling, claiming that organized crime groups contributed to the no-confidence vote that brought him down in mid-August, reports Balkan Insight.

Abazovic provided the prosecutor’s office with documents detailing schemes and naming individuals. According to the outgoing prime minister, cigarette smugglers have been funding political groups to further their causes. “I expect an avalanche to be triggered,” Abazovic told reporters on Sept. 5. “I had to show the roadmap of the tobacco smuggling in Montenegro.”

In May 2019, a probe by the Balkan Investigative Reporting Network showed how Montenegro had become a hub of global tobacco smuggling, funneling millions of counterfeit cigarettes into the EU with “ghost” ships, shell companies and forged paperwork.

The Port of Bar is reportedly at the center of this illicit trade. In several large-scale operations in recent years, Montenegro police and customs seized hundreds of tons of smuggled cigarettes and more than two tons of cocaine in the port.

Top officials are rumored to be complicit in the schemes.

In April, Montenegrin police arrested Vesna Medenica, former head of the supreme court, on charges of illegal activities that included drug trafficking and tobacco smuggling.

September 8, 2022

Belgium: One in Five Cigarettes Untaxed

More than one in five cigarettes smoked in Belgium are untaxed, reports The Brussels Times, citing new research carried out by Cimabel, the Belgium-Luxembourg federation of cigarette manufacturers.

A study of discarded packets and cigarette butts collected between April 18 and May 9 found that 21.8 percent of cigarettes consumed had escaped Belgian tax authorities, accounting for around €700 million ($699.69) in lost tax revenue.

Of the untaxed cigarettes, 1.9 percent were counterfeit. The remaining 19.9 percent were legally brought into Belgium from countries with a lower tax burden. Of the cigarettes purchased outside of Belgium, more than half (51.8 percent) came from Bulgaria. Other countries of origin included Poland (7.8 percent of supply), Turkey (6.88 percent) and Romania (3.67 percent).

During Cimabel’s previous semi-annual survey, which took place in October 2021, the share of untaxed cigarettes was 13.8 percent. The organization attributes the increase in tax-evading tobacco products to drastic tax hikes introduced on April 1, 2022, which have encouraged smokers to find cheaper ways of purchasing cigarettes.

Cimabel urged the Belgian government to refrain from further tobacco tax hikes.

“As long as the federal government continues to drastically increase excise duties on tobacco products each year, the demand for cheap cigarettes will continue to grow, and criminal organizations will continue their illegal practices on Belgian territory,” the federation warned.

September 1, 2022

On a Mission

The EUBAM supports Moldova and Ukraine in their fight against illicit cigarette trade.

By Stefanie Rossel

In June, Ukraine and Moldova became candidates for accession to the European Union. Driven primarily by the huge difference in price between a pack of cigarettes in these countries on the one hand and the EU member states immediately to their west on the other, both Moldova and Ukraine are among the leading origin and transit countries for illicit cigarettes trafficked into the EU market. According to the European Commission, EU member states miss an estimated €10 billion ($10.57 billion) in tax revenues every year due to the smuggling of both genuine and counterfeit cigarettes. This is equivalent to approximately 10 percent of the community budget.

To harmonize border control, customs and trade standards of the two countries with those of the EU member states, the European Union Border Assistance Mission to Moldova and Ukraine (EUBAM) was set up in 2005. Its aims are to ensure full implementation of integrated border management practices at the Moldova-Ukraine border, assist Moldovan and Ukrainian authorities to combat cross-border crime and contribute to the peaceful settlement of the Transnistrian conflict by supporting the development of Transnistria-related confidence-building measures and approximation of legislation and procedures in customs, trade, transport and trans-boundary management. Transnistria is a breakaway state that is internationally recognized as part of Moldova.

Cigarette smuggling, which includes both duty-nonpaid illicit whites and counterfeit products, is a major threat in the EUBAM’s area of operations, particularly at the central, Transnistrian segment of the 1,222 km border between the two countries. There are 67 border crossing points along the Moldovan-Ukrainian border, including 25 at the central part. Cigarette trafficking in the region comes in various forms, ranging from cross-border small-scale smuggling of packs hidden in vehicles to large-scale shipments being secretly transported at night. Other smugglers exploit legal loopholes.

Platform Against Contraband

To combat illicit cigarette trade more efficiently, the EUBAM in 2010 set up the Task Force Tobacco (TFT). The mission assists both Moldova and Ukraine in developing comprehensive anti-illicit strategies. At the practical level, the EUBAM helps its partner services to establish direct contact with their EU counterparts. It supports the law enforcement agencies of Ukraine and Moldova in their cigarette smuggling investigations, analysis and enforcement activities. This includes joint border control operations. Since the TFT started, the partner services have gradually developed the knowledge and expertise to conduct these operations through their own initiatives and in close cooperation with EU member states.

In addition, the EUBAM supports partners from the two countries in combatting tobacco smuggling by assisting them with the coordination of risk management decisions, targeting risky shipments of cigarettes as well as joint investigations and border operations. A recent success of the TFT was joint border control operation “Scorpion II,” during which Ukrainian, Moldovan and Romanian law enforcement agencies in cooperation with the EUBAM and OLAF, the European anti-fraud office, seized 8.5 million cigarettes between August and October 2021.

General Slawomir Pichor, head of the EUBAM and chairman of the TFT, says the platform has become a highly effective tool. “Most importantly, the Task Force Tobacco has been initiating and suggesting collaboration on certain proposals for tightening the legislative framework. Law enforcement action is not enough to effectively combat illicit trade; you also have to make interventions to close the legal loopholes to set signs. The platform has been kind of an early warning system. It is also elaborating substantial proposals for making legislative changes, which has been very effective in the long term as the mission is working to strengthen cooperation between Moldova and Ukraine law enforcement agencies and neighboring European member states, which we brought to this forum. It’s actually those countries that are affected by smuggling from this region, so it was important they could share experience and exchange information with Moldova and Ukraine.”

Moldova Joins the WHO Protocol

Internationally recognized as part of Moldova, Transnistria is a special case in the fight against illicit tobacco. The breakaway republic controls most of the narrow strip of land between the Dniester River and the Moldovan-Ukrainian border as well as some land on the other side of the river’s bank. Although unrecognized as independent, the region has its own government, parliament, military, police, postal system, currency and vehicle registration system. Over the years, the Transnistrian region has become a gray economic and security area 190 km from the EU’s external borders that attracts all sorts of cross-border crime. The illicit tobacco trade is no exception. According to the EUBAM’s observations, between 2012 and 2014, the delivery of tobacco products to the Transnistrian region vastly exceeded the potential demand on the local market, which meant that those products were destined for the much larger EU market.

“There is no presence and no control by the Moldovan enforcement authorities in the Transnistrian region, which means a lack of transparency and essential information, which is very important in effectively fighting illicit tobacco trade,” explains Pichor. “The mission was helping Ukraine and Moldova to monitor this tobacco trade very closely. In May 2015, Ukraine closed all border crossing points at the central Transnistrian segment of the border for excisable goods, including tobacco and cigarettes. Even though tobacco supply was cut off from the Ukrainian side, smugglers in the Transnistrian region misused other mechanisms, such as duty-free shops. In 2020 alone, 1.7 billion cigarettes were imported to the region with roughly 480,000 residents. EUBAM was raising this issue at different levels, including TFT, and in December 2020, the Moldovan side took proper actions at the policy level by intervention to the regulatory framework.”

In March 2022, the Moldovan Parliament decided to accede to the World Health Orgnization Framework Convention on Tobacco Control’s Protocol to Eliminate Illicit Trade in Tobacco Products. “This protocol is introducing elements which will cover the existing gaps in Moldovan legislation, so this is a very good step,” comments Pichor. “This protocol provides a very good toolbox for the effective fight against the clandestine factories. It also adds more surveillance and monitoring of cigarette production, from growing tobacco till the final finished product. It will also require amendments in the Moldovan legislation to introduce this tool set as well to effectively use it, and our mission has been advocating for its adoption. Overall, it will contribute to the effective fight against illicit tobacco trade.”

New Smugglers’ Routes

The Covid pandemic markedly impacted the nature of cigarette trafficking in the region, according to Pichor. “Covid-19 influenced the modus operandi for cigarette smuggling significantly. With borders closed and regular flights and shuttles canceled, small-scale smuggling significantly decreased. Although, large-scale trafficking wasn’t influenced because cargo transportation is used in this case. In general, during this period, there have been fewer seizures, and a growing number of illegal cigarette factories was set up on EU territory.”

The next change came with Russia’s war against Ukraine. Not only is Ukraine a source of illicit cigarette production, but it is also a transit hub for cigarette smuggling. Three important seaport cities, among them Odesa and Chornomorsk, until recently Ukraine’s largest maritime gateways for imports and exports, have been blocked by the Russians. “This was the route for smuggling the cigarettes from Asia and the Middle East,” says Pichor. “Belarusian cigarettes, also a significant part of illicit tobacco trade, went via Ukraine too. Now that this route is closed, we can expect other channels to replace it. At the same time, there will now be more pressure from illicit production inside EU member states. With no internal borders in the community, the risk of detection is much lower.”

Even though the EUBAM had to shift its priorities following Russia’s invasion of Ukraine, the fight against illicit tobacco trade continues, according to Pichor. “Currently, there is immense pressure on Ukrainian authorities to get agricultural commodities out of the country, and our role is now to facilitate this,” he says. “As for the fight against illicit tobacco, we cooperate with the Bureau of Economic Security of Ukraine, which is very active in this sphere. Established in 2021 as an umbrella body to investigate all kinds of economic crimes, the bureau serves as a platform for constructive dialog between the state and the business community. As you see, we have not abandoned combatting cigarette trafficking and will continue our efforts, which we are strengthening even more with the help of recently recruited profile experts.”

At the beginning of the war, the EUBAM relocated its Odesa headquarters to Chisinau and deployed some of its staff to assist in managing the influx of refugees into Moldova. To support the mission in this task, the EU made €15 million available for additional staff, equipment and training.

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.

September 1, 2022

Illicit Tobacco Seized in Belgium

Authorities seized over 57 million cigarettes and more than 48 tons of cut tobacco during raids in Belgium, reports Europol. The actions prevented the circulation of illegal tobacco products with a total tax value of more than €32 million ($31.98 million).

Police carried out house searches in warehouses and at a private residence in Belgium, some of which were based on intelligence provided by the Lithuanian Criminal Police Bureau on suspicious deliveries to addresses in Belgium.

Law enforcement officers discovered two production lines for cigarettes bearing a variety of well-known brand names. The market value of the seized cigarettes amounted to around €73 million in the United Kingdom, the presumed country of distribution for the majority of the products.

Additionally, law enforcement secured a large number of empty packages, filters, cigarette paper, glue, cardboard and packaging film, as well seven new machines intended for a new production and packaging line.

The searches led to the discovery of several clandestine production sites, as well as warehouses for storage of large quantities of tobacco products. In some locations, sleeping quarters for workers were uncovered on the premises. Along with confiscating significant amounts of raw materials, authorities seized various vehicles and arrested several persons of Lithuanian, Polish, Ukrainian and Jordanian nationality.

The seizures are the latest in a series of actions against the illegal cigarette trade in Belgium. This year alone, authorities uncovered and dismantled five illegal tobacco production sites and 15 storage warehouses in the country. Over the same period, they confiscated more than 274 million cigarettes, 88 tons of cut tobacco, 65 tons of water pipe tobacco and 40 tons of raw tobacco.

The unpaid tax on these products totals more than €139 million, according to Europol.

Belgium has become a major hub for illegal tobacco production due to its proximity to the French and British borders, and the rising excise duty rates in neighboring countries.

August 31, 2022

Cigarette Smugglers Busted in Hungary

An operation, led by Hungary and supported by Europol and Eurojust, and involving law enforcement authorities in Austria, the Czech Republic and Poland has led to the dismantling of a criminal network involved in large-scale tax fraud concerning cigarette smuggling.

The investigation was initiated as the result of intelligence analyzed by Europol. In a recent action day, law enforcement officers arrested one suspect and seized a large amount of valuables.

In March 2021, the Hungarian Tax and Customs Administration seized nearly 23 million unsealed cigarettes that arrived by plane from Dubai to the Hungarian airport of Debrecen. Produced in the United Arab Emirates, the tobacco products were concealed in car parts being shipped on cargo planes. Hungarian authorities intercepted one shipment as it was leaving the airport in four trucks with Polish license plates.

Officials suspect that there were two similar deliveries earlier that year, on Jan. 29, 2021, and Feb. 26. 2021. The estimated economic damage to the European Union budget caused by this organized crime group’s tax evasion on the tobacco products amounts to more than €8.75 million.

On August 16, 2022, law enforcement officers seized €750,000 in various currencies, seven luxury vehicles and 49 luxury watches from the Hungarian citizen who was arrested.

The authorities are looking for three further suspects for whom European and international arrest warrants have been issued.

Europol facilitated the information exchange, cross-checked operational information against Europol’s databases and provided additional analytical support to help advance the national law enforcement authorities’ investigations. Eurojust actively facilitated cross-border judicial cooperation between the national authorities involved, including the execution of European investigation orders.

August 30, 2022

Dunne: Illicit Vapes a Big Problem in U.K.

Up to 60 percent of disposable vapor products sold in the U.K. are illicit, according to the U.K. Vaping Industry Association (UKVIA).

Speaking to the U.K. trade publication Convenience Store, UKVIA Director General John Dunne estimated that between 40 percent and 60 percent of disposable vapes currently on sale in the country were either noncompliant with domestic laws or counterfeit.

“Based on the amount of [illicit] products I see in the marketplace, the number of reports of illicit sales and what’s being reported to trading standards, I believe it’s that big and a huge concern,” he explained. “I probably receive between 200 [reports] and 400 reports of illegal sellers in the U.K. every month.”

Dunne warned that noncompliance among retailers could destroy a category with huge potential. “This is a market that has huge growth potential for retailers, if it’s allowed [to] grow in a responsible manner, but having a short-term view and ignoring compliance is going to have a detrimental effect. And potentially lead to things like the category being banned, flavor bans or plain packaging.”

He also called for more action on retailers found to be selling vaping products to those under the age of 18.

August 25, 2022

Firms Shun Track-And-Trace System

More tobacco companies must install Pakistan’s new track-and-trace system to tackle the country’s massive tax evasion problem, according to Project Director Tariq Hussain Shaikh.

Out of the 40-plus companies registered with the Pakistan Tobacco Board, only three—Philip Morris Pakistan, Pakistan Tobacco Co. and Khyber Tobacco—have installed the track-and-trace system that became operational on July 1, reports the Business Recorder.

According to Shaikh, the system has significantly boosted government tax collections in other sectors. In the sugar industry, for example, sales tax collections increased by 34 percent after its implementation at the end of 2021.

Success, however, depends on across-the-board implementation, Shaikh cautioned. Unless more tobacco companies adopt it, the track-and-trace system will not reduce tax evasion, which in Pakistan amounts to PKR80 billion ($335.74 million) per year.

In a letter dated June 30, 2022, Pakistan’s Federal Board of Revenue directed all cigarette manufacturers to apply tax stamps to their products from July 1, 2022. Nine tobacco companies have challenged the directive on technical grounds.

July 28, 2022

Ex-President Scrutinized Over Cigarette Shipment

The U.S. government has blacklisted former Paraguayan President Horacio Cartes for his role in “significant corruption,” a move that prevents Cartes from entering the United States, reports The Wall Street Journal.

The decision follows revelations that an aircraft formerly owned by an Iranian carrier that is blacklisted by the U.S. Treasury for alleged arms trafficking transported cigarettes from a company owned by the former president.

Earlier this year, Paraguay’s then interior minister, Arnaldo Giuzzio, accused Cartes of laundering money and illicit enrichment tied to the alleged sale of contraband cigarettes from the former president’s tobacco company, Tabacalera del Este, known as Tabesa. The assertions didn’t lead to charges.

Last month, Paraguay’s top anti-corruption official, Rene Fernandez, called for a probe into allegations that Tabesa was linked to a group of Venezuelan and Iranian men who traveled through Paraguay in May. Paraguayan prosecutors are now investigating the men for alleged links to terrorism, though they have not been charged, government documents show.

The plane and its crew were grounded in Argentina last month, with authorities there saying they are investigating alleged terrorism ties.

Flight logs show that the jet reported carrying $754,000 worth of cigarettes sourced from Tabesa when it flew out from Paraguay to Aruba on May 16, according to the anti-corruption office. Listed as the recipient of the cargo was Tabacos USA, a Pennsylvania-registered company also owned by Cartes.

Paraguay, which borders Brazil and Argentina, has long been at the center of the illegal trade of contraband goods and drugs, according to security experts in the U.S. and Latin America.

July 25, 2022

Category: Illicit Trade

The EUBAM supports Moldova and Ukraine in their fight against illicit cigarette trade.

Platform Against Contraband

Moldova Joins the WHO Protocol

New Smugglers’ Routes