Category: Illicit Trade

  • Russia Tackles Illicits

    Russia Tackles Illicits

    Photo: Center for Research and Perspective Technologies

    Russia’s national digital track-and-trace system, Chestny ZNAK, has achieved a 25 percent reduction in illegal tobacco within a year of implementation, according to the Center for Research and Perspective Technologies in Moscow. Furthermore, it contributed to the legalization of 18 tobacco production and the dismantlement of 45 illegal ones.

    Russia’s accomplishments were recognized during the 10th Conference of the Parties (COP10) to the World Health Organization’s Framework Convention on Tobacco Control in Panama City this week.

    Chestny ZNAK tracks each cigarette pack in real-time, from the point of production to final consumption. The technology relies on digital data matrix codes assigned to each pack. This code contains information including production point, date, expiration and licensing documents. The information is updated at every stage of the product’s lifecycle until final sale. Illegal products are flagged by cash registers in stores, making them impossible to sell.

    To empower citizens and enhance transparency, a sophisticated mobile application has been introduced. This application allows users to verify the legality of various products, including tobacco and 16 other categories such as pharmaceuticals, dairy, footwear and photographic equipment.

    The system has also helped other sectors protect their businesses against brand piracy, contributing to a 12-fold decrease in substandard dairy products, a 20 percent reduction in the illegal perfume trade, and a more than a two-fold decrease in the illicit tire market, among other advances.

    Authorities estimate the tax impact of the system to be nearly RUB500 billion ($5.5 billion) and expect this figure to at least triple by 2025.

  • U.K. Authorities Seized Nearly 10 Tons of Illegal Vapes in  2023

    U.K. Authorities Seized Nearly 10 Tons of Illegal Vapes in  2023

    Photo: APchanel

    The number of illegal vapes seized at the U.K. border quadrupled last year. Authorities confiscated more than 4.5 million vapes weighing nearly 10 tons over the past 12 months.

    Figures released to the BBC show that Border Force seized just 4,430 vapes in 2021, rising to 988,064 in 2022 and 4,537,689 from January 2023 to October 2023.

    Unlike legal vapes, illegal e-cigarettes are not registered with the Medicines and Healthcare products Regulatory Agency and do not pass through quality control processes. In addition, health activists worry that retailers prepared to flout product rules may not be scrupulous about observing the ban on selling to under-18-year-olds.

    A Home Office spokesperson said the government would “not tolerate the sale of illegal products and … harmful goods, such as illegal or counterfeit vapes.”

  • E-cigarette Smugglers Found in Finland

    E-cigarette Smugglers Found in Finland

    Photo: Kekyalyaynen

    Finnish Customs uncovered a substantial e-cigarette smuggling operation in Helsinki, according to The Helsinki Times. The operation involved illicit imports from China.

    Customs officers discovered a shipment of about 1,000 nicotine e-cigarettes during routine inspections at a courier terminal in Helsinki. The suspect had ordered about 1,600 e-cigarettes from China in 2023.

    Finland prohibits importation of vapes through “distant communication methods” like online orders. Penalties can range from fines to imprisonment plus paying back evaded taxes and illicit gains.

    Some people are unaware of the rules, however. “Not all those persons always know that it is illegal to order and distribute e-cigarettes,” said Marko Laitinen, investigation leader, referring to young people ordering e-cigarettes. “Once you get caught doing that, it always entails criminal liability.”

  • A Persistent Problem

    A Persistent Problem

    JTI’s Julian Cheung during the 2023 GTNF in Seoul

    The combination of substantial potential profits and low risk that has fueled the illicit cigarette trade is now also driving criminals’ interest in new nicotine products.

    By Stefanie Rossel

    Globally, the illicit cigarette trade is a growing problem. Recently, criminals have expanded into contraband novel nicotine products as well. Tobacco Reporter spoke about this topic with Julian Cheung, who is anti-illicit trade operations director for Japan Tobacco International’s Asia-Pacific region. Before working with JTI, Cheung worked for the Independent Commission Against Corruption in Hong Kong, bringing much experience to the subject of anti-illicit trade. JTI works closely with law enforcement agencies to stop illicit trade, according to Cheung.

    Tobacco Reporter: Could you please provide an overview of the current illicit cigarette market in the Asia-Pacific region? What are the hot spots, and which shifts have you recently observed? 

    Julian Cheung: Over the past decade, the Asia-Pacific region has experienced remarkable economic growth. In parallel, there has been growth in illicit trade. Illicit consumption of tobacco products is primarily fueled by a surge in illicit whites,[1] which are mass-produced in countries like Indonesia, Vietnam, China and the United Arab Emirates. These illicit whites often bear well-known brand names within their regions but remain absent from legal retail channels. 

    Smuggling networks use these leaky borders to transport illicit tobacco. The Thailand-Cambodia, Vietnam-China, and Eastern Malaysia-Indonesia borders are typical examples of areas where smugglers skillfully evade checkpoints or capitalize on remote and unmonitored regions for their unlawful activities.

    How does the current illicit cigarette market in the region compare to 10 years ago, and which developments do you anticipate in the near future?

    The market for counterfeit products in Southeast Asia is worth approximately $35 billion annually, with $3.3 billion in tax revenue lost annually from smuggled cigarettes, according to a 2020 report by the EU-ASEAN Business Council and the Transnational Alliance to Combat Illicit Trade.2

    The reality is that criminal organizations see tobacco as a high-profit, low-risk source of revenue. The criminal groups are incredibly adaptable and highly motivated. In Europe, they are moving counterfeit cigarette production closer to high-value markets such as France and the U.K. Another example of how quickly criminals adapt their operations to a changing environment is a steep increase in online sales of illicit cigarettes after pandemic-related restrictions were introduced. Despite the restrictions no longer in place, this shift toward online commerce remains, making it hard for consumers to tell the difference between genuine and counterfeit products.

    The high taxes imposed on tobacco products and then evaded by criminals allow them to gain massive profits at the expense of nations and their citizens. Unfortunately, we do not expect illicit trade issues to be solved completely in a mid-term perspective. However, through innovative strategies, cooperation with international and national law enforcement agencies 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.  

    What can legislators do to prevent illicit trade?

    Evidence shows that higher taxes drive consumers to seek cheaper alternative products, such as those sold through illegal trade. We warn governments about the consequences of steep and sudden tax increases.

    For example, in Malaysia in 2015, an excise tax hike drove prices up by 42 percent compared with the previous year. The hike immediately pushed the illegal cigarette market share to 52 percent in 2016 from 37 percent in 2015. The long-term impact was that illegal products constituted almost 60 percent of cigarettes consumed in 2022, and Malaysia remains one of the countries with the highest level of illicit cigarette consumption worldwide.

    At the GTNF last September, you called for greater cooperation between the industry, governments and law enforcement agencies. What could such cooperation look like?

    Illegal trade cannot be dealt with in isolation. We work with governments, regulators, police and customs to crack down on illegal trade and criminality by sharing information and developing specific programs. We do this to protect our customers, businesses and brands.

    Better intelligence sharing between public and private partnerships, including the tobacco industry and law enforcement agencies (LEAs), is critical to tackling illegal trade.

    JTI engages with, and provides information to, law enforcement and other government agencies globally. For example, we have built a good working relationship with the European Anti-Fraud Office and law enforcement agencies across Europe to share industry expertise and information on all aspects of the illegal trade: criminal operations, locations and trends.

    We also provide various LEAs globally with anti-illicit trade awareness sessions, including counterfeit recognition training, information on evolving trends, modus operandi and actionable information on multiple aspects of illegal trade. 

    In August [2023 to] September 2023, my team supported law enforcement in Malaysia and the Philippines, who seized 37 million illicit cigarettes in successful enforcement actions.

    In how far would closer collaboration between individual tobacco companies operating in the region be helpful?

    While tobacco companies in the region already work together, we recognize that we need a more unified approach and cohesive voice so we can make a more significant impact in supporting authorities in the fight against illegal trade. 

    One example of the industry’s collaborative efforts is the Empty Pack survey. This survey, conducted quarterly or annually in selected countries across the Asia-Pacific, helps assess illicit cigarette prevalence in overall tobacco consumption. By evaluating the effectiveness of anti-illicit measures based on facts and evidence, authorities can adopt and fine-tune appropriate regulations to protect consumers and society from criminal groups that deprive state budgets of tax revenues.

    We are also involved in cooperation platforms like the Tobacco Association, which engages with authorities, advocating for protecting rights of legitimates businesses, particularly regarding tobacco-related policies and regulations. Using this platform, we also work with other tobacco companies to exchange information, experiences and best practices to share with authorities to help curb illegal trade.  

    At the GTNF, you said that in order to eliminate the illicit cigarette trade, it’s important to follow the money. What would be an effective strategy to tackle the problem?  

    The main driver of all illegal trade, but especially the illegal tobacco trade, is the ability of crime groups and individuals to generate huge illegal profits with very little deterrent. Across the globe, there is an increase in enforcement activity focusing on confiscating the proceeds of crime. However, more needs to be done; criminals especially do not like it when “they are hit in the pocket.” There is a very low imprisonment rate for people charged with tobacco-related smuggling offences—and even if they do receive jail time, it is taken as an occupational hazard. So, it is very important for LEAs and other government agencies to follow the money and infiltrate the complex world of money laundering and other criminal activities linked to these groups. Investigating these connections is essential to disrupt their criminal operations.

    For example, in July 2023, Malaysia’s Multi-Agency Task Force launched a major investigation into a prominent businessman with ties to local politicians and celebrities using these very methods. The arrested businessman, identified as the mastermind behind various criminal activities including cigarette smuggling operations, was apprehended during a series of well-coordinated raids. 

    This high-profile and complex case was investigated, with authorities employing the Anti-Money Laundering and Anti-Terrorism Financing Act and the more conventional Anti-Smuggling Act.

    Do you have examples of instances where a government successfully curbed illicit cigarette trade? What could we learn from those examples?

    Intelligence and research show that the main drivers for illegal trade are steep and sudden tax increases, making legal tobacco products less affordable and pushing consumers to seek cheaper alternatives. That is why balanced, reasonable and predictable taxation are prerequisites to curbing illicit trade.

    The illegal tobacco trade is, by nature, a transborder crime, with illegal cigarettes smuggled into a country and quite often with legitimately declared transit goods. While countries like Taiwan, Malaysia or Singapore recognize the economic benefits of being a transshipment hub, criminal groups exploit these hubs for their illicit activities. The following are a few examples of where government action was successful: 

    • Taiwan: Illegal tobacco smuggling often takes place through containers, utilizing a carousel-like approach to evade detection by law enforcement authorities. The Taiwan government has taken significant measures in this regard and has successfully intercepted containers suspected of carrying cigarettes with incorrect declarations while transiting through Taiwanese ports.
    • Malaysia: Starting in January 2021, the Malaysian government took action to address the widespread diversion of illegal cigarettes within the country. As part of this effort, a policy was implemented to restrict the transshipment of cigarettes to five designated ports in Malaysia. This policy successfully reduced smuggling activities at these ports by strengthening control and monitoring measures related to the illicit tobacco trade. By doing so, the government aimed to safeguard its revenue and protect against losses.
    • Singapore: Being the world’s second-busiest container port and largest transshipment hub, Singapore’s strategic position also attracts criminal activities. Starting from 2024, the Singapore government will implement a new licensing regime in phases and enhance the enforcement powers of customs officials. These measures aim to prevent smugglers from exploiting the free trade zones and ensure the security and integrity of these areas from illegal activities.

    Criminals have also started targeting reduced-risk nicotine products (RRPs). Can you please describe your findings in this regard?

    Currently, national regulations on RRPs vary from market to market and are even nonexistent in many countries, leaving room for illegal trade to operate in a gray area. For example, Taiwan has banned the sale of e-cigarettes but allows the sale of heat-not-burn sticks and devices. There are a lot of relatively new products, such as disposable vapes, coming into markets, and it is often not clear to enforcement officers what is legal and what is not. So apart from better regulation, there is an education factor often required for the officers charged with enforcing the law. Unfortunately, organized crime groups are exploiting either the lack of clear regulation or legislation or the confusion within enforcement authorities regarding the various products.

    Since RRPs are a relatively new category, illegal product distribution through online channels—including websites and instant messengers—gained significant popularity and widespread adoption, especially in the wake of the Covid-19 pandemic. 

    The increase in online sales presents a challenge for law enforcement officials because of cross-border distribution and the ability to conceal the IP host. This makes it difficult to identify and track the source of the products. These challenges are even more pronounced due to the limited resources available to many governments.

    Australia is probably a special case: Its strict regulation of tobacco products has contributed to the emergence of a black market for cigarettes. Now it has adopted a tough stance on vaping products too. What is this doing to illicit trade in the country?

    The less affordable legal cigarettes are, the higher the demand [is] for illegal products from consumers. The cost of a pack of cigarettes in the country is well over AUD40 ($26) and can be twice as much as an illegal pack, making it a lucrative market for criminal tobacco operations.

    To safeguard tax revenue and combat the negative impact of illegal trade, the Australian government has taken several measures. The Australia Border Force—custom—established the Illicit Tobacco Taskforce, which collaborates closely with industry stakeholders and ASEAN’s customs. Through information sharing and best practice exchanges, they target tobacco smuggling and protect Australia’s interests. 

    However, cracking illegal operations takes a lot of time and effort as criminal groups have constantly changed tactics. For example, smugglers have recently started breaking down consignments into smaller units to make detection and enforcement more challenging.

    As for the government’s position on a regulation on reduced-risk products, effective January 2024, Australia has implemented a ban on importing disposable vapes. However, history shows that such bans always have dangerous side effects, as seen in South Africa, where the illicit market boomed in 2020 following a temporary ban on cigarettes. An effective ban on disposable vapes will potentially create an illegal or black market that organized crime groups could exploit. This situation poses risks to consumers who may unknowingly purchase counterfeit or substandard products.

    1 “Illicit whites” are cigarettes manufactured by legitimate businesses that are smuggled to the markets outside the jurisdiction where they are produced and then traded illegally without any relevant duties being paid, causing a loss of revenue to governments and legitimate retailers.

    2 www.tracit.org/uploads/1/0/2/2/102238034/illicit_trade_paper_final_final.pdf

    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.
  • Tanzania Targets Illicit Drug Sales

    Tanzania Targets Illicit Drug Sales

    Image: KPad

    Tanzania initiated a nationwide operation targeting all illicit drug selling points, pharmacies and entertainment venues where shisha is widely available, says the Drug Control and Enforcement Authority (DCEA), according to the Xinhua News Agency.

    The operation will encompass land and sea areas, according to DCEA Commissioner Aretas Lyimo.

    Lyimo noted that recent operations uncovered widespread cannabis cultivation in the Mara and Morogoro regions, and there were high instances of drug-related cases in Kilimanjaro and Tanga.

    “The operations will encompass drug farms, border areas, distribution points and usage sites, including bars,” said Lyimo. “Anyone found using drugs, including shisha, will face legal consequences.”

  • UKVIA Exposes Illicit Vape Sellers

    UKVIA Exposes Illicit Vape Sellers

    Image: makcoud

    Authorities have been alerted to more than 100 retailers suspected of underage and illicit vape sales through the U.K. Vaping Industry Association’s (UKVIA) nationwide Be Vape Vigilant initiative, according to a UKVIA press release.

    The ongoing campaign, which started at the end of 2023 and is supported by Trading Standards, the Association of Convenience Stores and the wider retail sector, was created to encourage legitimate businesses and the general public to help cut off youth sales and the supply of illegal products at source by turning in those retailers and wholesalers believed to be flouting the law.

    A new online platform has been established as part of the initiative, through which suspected rogue traders can be reported. The UKVIA then passes the information on to the relevant authorities who will use the intelligence in their ongoing efforts to crackdown on rogue traders. To date, 136 reports have been made through the platform.

    “Trading Standards Services rely on intelligence to target enforcement effectively and efficiently, so we are pleased that the Be Vape Vigilant reporting line is being used to let us know about people selling illegal vapes and/or selling vapes to children,” said Kate Pike, lead officer for vaping at Trading Standards. “The more intelligence the better from our point of view”

    Of those businesses flagged, more than half were nonspecialist retailers including convenience stores, corner shops, off-licenses and market stalls. One of the sellers reported through the platform was a dessert shop and one was a private residence.

    Almost 20 percent of all reports related exclusively to the underage sale of vaping products, while 47 percent related exclusively to illicit and noncompliant products. Overall, more than one-third of the reported businesses were believed to be guilty of both.

    Other key data includes: 77 percent of the retailers were physical sellers while 23 percent were online; 84 percent of the retailers were located in England, 9 percent in Scotland and 7 percent in Wales; Swansea was the area with the highest number of reports; at least two of the retailers have previously been reported to Trading Standards and the police; and eight of the retailers were suspected of engaging in other illegal activity such as the supply of drugs and the underage sale of tobacco.

    “I was pleased to see so many people have engaged with the campaign in the short time since its launch and thank all those who have used the Be Vape Vigilant platform to sound the alarm on retailers suspected of underage and illicit vape sales,” said UKVIA Director General John Dunne. “Many of the reports actually came from legitimate vape retailers, which makes clear that unscrupulous sellers are not welcome and will not be tolerated by our industry.

    “The data gathered from the first batch of reports supports the link between youth access to vaping and illicit products with many of the retailers believed to be engaging in both. Further, the sheer number of reports, paired with the fact that two of the retailers have already been reported to the authorities, reinforces the need for greater resources and support for Trading Standards.”

    Dunne added: “The UKVIA is currently involved in a major industry-wide consultation to develop a framework for vape retail and distributor licensing—due to be presented to parliamentarians in February—which could generate millions of pounds in additional funding for enforcement and further bring the hammer down on rogue retailers.

    “While 100 reports is an excellent first milestone, this only represents a step on the journey to creating a more responsible and accountable sector—which is why the UKVIA will be ramping up this campaign moving into 2024 and is calling on those within and outside the industry to be vape vigilant.”

    As part of the Be Vape Vigilant initiative, the UKVIA has also created a range of downloadable materials, which businesses can display in-store and online to mobilize the general public in helping to bring cowboy retailers and wholesalers to justice.

  • Industry Sounds Alarm About Illicit Trade

    Industry Sounds Alarm About Illicit Trade

    Photo: Taco Tuinstra

    Tobacco industry officials are sounding the alarm over an influx of smuggled and counterfeit cigarettes into Pakistan, reports Pakistan Today.

    From July 2023 to November 2023, the industry’s output declined by 40 percent, according to data from the Pakistan Bureau of Statistics. Officials of BAT subsidiary Pakistan Tobacco Co. (PTC) attributed the decrease largely to an increase in illegal tobacco products.

    PTC Senior Business Development Manager Qasim Tariq says that around 850 million counterfeit cigarette sticks are currently being sold across Pakistan, causing the government to miss out on PKR5.7 billion in tax collections.

    While they together control only 60 percent of the domestic tobacco market, PTC and its competitor, Philip Morris Pakistan, pay 98 percent of the country’s tobacco taxes. The remaining 52 tobacco companies, by contrast, paid only PKR2 billion in taxes during fiscal 2022, while accounting for 40 percent of cigarette market.

    A 2019 report by the Federal Board of Revenue report suggested that illicit cigarette trade has a market share of more than 36.2 percent in Pakistan.

    Qasim underscored that revenue collections have declined between 2012 and 2016, following the government’s switch to a new tax structure.

    On Jan. 13, officers of the Inland Revenue Service Officers conducted a seized 13.77 million non-duty paid cigarettes.  

  • Hong Kong Seizures Hit $288 Million in 2023

    Hong Kong Seizures Hit $288 Million in 2023

    Credit: Alven 0920

    Customs officers in Hong Kong reported that the agency had impounded more than 650 million black market cigarettes worth HK$2.25 billion ($287.8 million) last year, the largest annual cash value in more than two decades, according to media reports.

    The seized cigarettes would have generated about HK$1.54 billion in tax revenue, also a record, over the same period, according to an undisclosed source.

    Last week, authorities in Hong Kong said they were considering a further increase in tobacco duty.

    Last year’s total number of cigarettes seized was lower than the 732 million impounded in 2022, although the value was higher. Last year’s record seizure coincided with a 31 percent tobacco tax increase in February, which raised the average cost of a pack of 20 cigarettes by HK$12 to more than HK$70.

    A pack on the black market costs HK$18 to HK$38.

    The source said the confiscated tobacco products were stored in government warehouses currently, pending court proceedings or further investigations before being destroyed and buried at landfill sites.

    He added customs officials would boost efforts to combat crime syndicates that tried to take advantage of busy logistics services in the run-up to the Lunar New Year to smuggle cigarettes into the city.

  • Australian Gangs Torching Tobacco Shops

    Australian Gangs Torching Tobacco Shops

    Tobacco Reporter Archive

    Police in the Australian state of Victoria have arrested five individuals believed to be connected to the Finks outlaw motorcycle gang and a series of arson attacks on tobacco stores in Victoria.

    The arrests are a police response to the so-called tobacco wars, which have seen criminal gangs fight for control of the “significant source of income” generated by the sale of illicit tobacco.

    Victoria police Det. Insp. Graham Banks acknowledged community concern about the attacks in recent weeks and said the force was “turning the corner” with new intelligence, according to media reports.

    The arrests are related to the torching of four tobacco stores and a cafe between Christmas Day and Friday in Moe, Croydon, Altona, Altona North and Sunshine.

    On each occasion, police allege the offenders broke into the stores before setting them ablaze.

    Police report they found five vehicles believed to have been stolen when arresting the group, along with Molotov cocktails.

    “We believe they were preparing to do further attacks, so this is a substantial series of arrests,” Banks said. “This certainly impacts a syndicate that is driving this.

    “There is still a significant conflict between multiple different groups over control of a significant source of income. It will be an ongoing issue for several months, but we’re certainly turning the corner.”

  • Illegal Vapes Continue Flooding U.S. Ports

    Illegal Vapes Continue Flooding U.S. Ports

    Photo: Katie Chizhevskaya

    Thousands of unauthorized flavored vapes continue entering the U.S. from China, reports the Los Angeles Times, citing government and industry data.

    More than 11,500 unique vaping products are being sold in U.S. stores, up 27 percent from 9,000 products in June, according to Circana data reviewed by the Associated Press. The products generated $3.2 billion in the first 11 months of 2023. Nearly all the new products are single-use e-cigarettes.

    In December, federal agents seized more than 1.4 million illegal e-cigarettes, valued at $18 million, at Los Angeles International Airport. The illicit vapes were mislabeled as shoes, toys and other items.

    While the number of confiscations has been growing, they represent only a fraction of the unauthorized products slipping through.

    The FDA has authorized a handful of e-cigarettes for adult smokers and is still reviewing products from several major companies, including  former market leader Juul. Regulators consider nearly all other e-cigarettes to be illegal.

    The authorized tobacco-flavored products are not popular, however. Their combined sales were just $174 million, or 2.4 percent of the vaping marketplace, according to Circana.

    “Nobody wants them,” a Michigan shop owner was quoted as saying. “If people wanted them, they’d be on the shelves, and they’re not.”