Category: Illicit Trade

  • 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.

    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.

  • Illicits to Surpass Half of Pakistan’s Market

    Illicits to Surpass Half of Pakistan’s Market

    Photo: Taco Tuinstra

    The share of illicit products on Pakistan’s tobacco market is expected to reach 56 percent by the end of 2024, reports Ary News.

    According to a recent Ipsos survey, more than 165 brands of cigarettes are being sold in the country without tax stamps, depriving the government of PKR 300 billion in annual tax revenue.

    In addition, 104 cigarette brands are being sold below the minimum price.

    The shift toward duty-free and smuggled cigarette brands is facilitated by the availability of larger pack sizes and exacerbates the issue of tax evasion, according to the publication.

    Stakeholders have been calling for stricter enforcement of existing regulations, enhanced enforcement and new tax policies.

  • Congress Asked to Pass Economic Sabotage Act

    Congress Asked to Pass Economic Sabotage Act

    Photo: Mykhailo Polenok – Dreamstime.com

    Tobacco farmers in the Philippines are urging Congress to pass the Anti-Agricultural Economic Sabotage Act to counter smuggling, reports The Manilla Times.

    The Philippine Tobacco Growers Association (PTGA) and the National Federation of Tobacco Farmers Association and Cooperatives on May 2 called for Congress to already convene a Bicameral Conference Committee before July.

    PTGA President Saturnino Distor emphasized the urgent necessity of passing the bill due to widespread smuggling, which not only affects the agricultural sector but also threatens local farmers and their dependents.

    The proposed legislation categorizes the smuggling of agricultural products, including tobacco, as “economic sabotage,” which carries a penalty of life imprisonment.

    Additionally, perpetrators will face fines that are triple the value of the smuggled products.

    More than 2.2 million Filipinos depend on tobacco for their livelihoods, including more than 430,000 farmers, farmworkers and their family members, according to data from the National Tobacco Administration.

    The tobacco farmers said the Philippine government loses about PHP200 billion ($3.5 billion) in revenue annually due to smuggling, with PHP30 billion attributed to smuggled cigarettes alone.

  • ‘Quebec Lobby Groups Blind to Illicit Trade’

    ‘Quebec Lobby Groups Blind to Illicit Trade’

    Photo: Thorsten

    Imperial Tobacco Canada is taking anti-tobacco groups to task for their silence about the boom in illicit sales following Quebec’s ban on flavored e-cigarettes.

    “You cannot claim ‘Mission Accomplished’ by simply passing regulations,” said Eric Gagnon, vice president of corporate and regulatory affairs for Imperial Tobacco Canada, in a statement. “The regulations must work. And these ones don’t. Flavored vapor products are still being sold in Quebec. The problem is that they are now being sold illegally.”

    Quebec banned flavored vapes Oct. 31, 2023, following years of pressure by anti-tobacco groups. According to Imperial Tobacco Cananda, the same groups refuse to acknowledge that there is a problem with the regulations and will not call on the government to fully enforce the regulations.

    “It’s time that the Coalition Quebecoise pour le controle du tabac and other so-called health groups acknowledge that there is a problem with the regulations and push to fix it,” Gagnon said. “If the real objective of the regulations was to ban flavors, where are these health groups now that flavored vapor products are being sold illegally?”

    Imperial Tobacco Canada noted that some of the lobby groups have ties to the provincial government and receive funding from them.

    “It is time for the public to see the real intentions behind these anti-tobacco lobby groups,” said Gagnon. “They hide behind the virtue of public health, but their recent silence demonstrates that their only real objective is going after tobacco companies, even if this means pushing consumers to illegal products.”

    “It is astonishing to see that Quebec’s anti-tobacco lobbyists prefer turning a blind eye to illegal flavored vaping products rather than recognizing that this is a failed policy and working with us to demand concrete enforcement measures to Minister Dube,” said Gagnon. “This says a lot about the real intention behind the individuals leading these organizations.”

  • U.S. Marshals Seize Unauthorized Vapes

    U.S. Marshals Seize Unauthorized Vapes

    Photo: APchanel

    The U.S. Marshals Service seized more than 45,000 unauthorized e-cigarette products valued at more than $700,000 in California. The seized products were mostly flavored, disposable e-cigarette products, including brands such as Puff Bar/Puff, Elf Bar/EB Design, Esco Bar, Kuz, Smok and Pixi.

    “FDA has been unequivocally clear that we are committed to using the full scope of our enforcement tools—including seizures—to hold those who peddle unauthorized e-cigarettes accountable,” said Brian King, director of the FDA’s Center for Tobacco Products, in a statement. “The writing is on the wall for those in the tobacco product supply chain who fail to heed the law.”

    This action represents the first time the U.S. Food and Drug Administration and the Department of Justice (DOJ) have seized tobacco products in coordination with the U.S. Marshals Service.

    The seizure initially targeted products being held and sold by MDM Group, a distributor doing business as Eliquidstop.com. FDA issued a warning letter to MDM Group in May 2023, for offering unauthorized, flavored e-cigarette products for sale or distribution. In January 2024, FDA conducted a follow-up inspection of the firm and determined that it continued to commercially market its illegal products. While conducting the seizure at MDM’s facility, the agencies were informed that several firms may have an ownership interest in the unauthorized e-cigarettes seized.

    As of April 2024, the FDA had issued approximately 670 warning letters to firms for manufacturing and/or distributing illegal e-cigarette products and issued more than 550 warning letters to retailers for the sale of unauthorized e-cigarettes. The agency has also filed civil money penalty complaints against more than 50 e-cigarette manufacturers and more than 100 retailers for manufacture and/or sale of unauthorized new tobacco products, as well as complaints for permanent injunction against seven e-cigarette manufacturers.