Tag: illicit trade

At the Turning Point

Smuggled cigarettes on the Latvian border
Belarus’ role in the illicit cigarette trade is under scrutiny.
Contributed
For years, Belarus has been under scrutiny for its alleged distribution of illegal counterfeit cigarettes, a practice that is now under severe pressure in the current political landscape. This pressure casts a shadow of uncertainty over the industry’s future.
A cornerstone of the Belarus national budget, the tobacco industry contributed BYR2.5 billion ($76.45 million) in 2023. However, the industry is now facing alarming trends, as highlighted by Belarus President Alexander Lukashenko during a governmental meeting in August 2024.
The reasons for the existing challenges might be different, Lukashenko vaguely said, emphasizing that despite that, “It is necessary to develop measures to preserve production and export volumes to the maximum extent possible.”
The Belarusian tobacco industry has been shrouded in secrecy for over a decade. In 2015, the last time official information was revealed, Belarusian authorities set the quota of cigarette consumption on the domestic market at 30 billion pieces. At that time, local analysts indicated that the figure had nothing to do with reality.
Research by KPMG showed that the actual consumption of cigarettes in Belarus is close to 18 billion pieces. Around 13 billion cigarettes are exported, of which 8.6 billion end up in Russia and 4.3 billion in the EU.
Woes about the flow of cheap cigarettes, often smuggled, from Belarus have become common in recent years not only in the European Union but also in Russia.
In 2020, the Russian association Anticounterfeit calculated that Belarus’ domestic consumption was around 17 billion cigarettes and that production nearly three times exceeded the country’s demand. In a letter to the Russian Ministry of Justice, Anticounterfeit claimed that cheap cigarette production was put on an industrial scale in Belarus. The nameplate capacity of the Belarusian tobacco factories was estimated at 67 billion pieces, meaning export potential was tremendous.
In 2023, Belarus accounted for 84.5 percent of illegal cigarettes sold on the Russian market, estimated the Russian National Scientific Competence Center for Combating Illegal Circulation of Industrial Products. In total, illegal—counterfeit and smuggled—cigarettes represented 15.6 percent of sales on the Russian market. This illicit trade cost the Russian budget around RUB130 billion ($1.35 billion) of lost income in 2023, the analysts calculated.

Belarussian tobacco consumption is estimated to be close to 18 million pieces per year.
Shut Borders
During the past few years, the flow of illegal cigarettes from Belarus to the European Union has subsided, as in the context of political tensions, the Baltic countries and Poland tightened border controls.
As estimated by KPMG, the volume of smuggled cigarettes from Belarus to the EU dropped by 500 million in 2023 and by almost 2 billion pieces over the past three years. The analysts also cite the tighter control and closure of a number of checkpoints on the border for the decline. The place of Belarusian cigarettes is being taken by suppliers from other countries, primarily Turkiye and Algeria.
Counterfeit supplies from Belarus to European countries decreased from 2.1 billion to 1.5 billion cigarettes over the year.
However, Belarus remains the absolute leader in the supply of illegal “white” cigarettes, which mean those smuggled and sold under their own brands to European countries.
In this category, Belarus holds a staggering 43 percent share in total deliveries to Europe. A year earlier, this figure was around 52 percent, KPMG calculated.
The most popular western destination for tobacco smuggling from Belarus is Poland. Last year, 0.74 billion illegal Belarusian cigarettes entered the country, which is almost 17 percent less than in 2022 and almost half as much as in 2020. The supply of illicit cigarettes from Belarus to Lithuania fell by 15.2 percent to 0.39 billion pieces and from Belarus to Latvia fell by 27.35 percent to 0.16 billion pieces.

Russia has declared war on counterfeit cigarettes from Belarus.
Unraveling Tobacco War?
However, the main blow comes from the Russian market, where authorities also tightened the screws on illegal sales. Observers believe that problems in Russia were the key reason for Lukashenko’s concerns during the recent government meeting.
“The meeting is definitely not happening out of nowhere. But we need to call things by their proper names. We are not talking about problems with exports but with smuggling. Legal exports have been virtually nonexistent for a long time,” Nick & Mike, a local analytical Telegram channel reported.
“Strengthening controls on the western border, where Belarusian state counterfeit goods are seized in industrial quantities, including from tanks with resin, is nothing compared to what the eastern neighbor is doing. Russia has tacitly declared a ‘tobacco war’ and has been striking at illegal businesses,” the analyst claimed, referring to the intensified efforts by Russian authorities to curb illegal tobacco traffic from Belarus.
For years, Russian authorities have been turning a blind eye to illegal cigarette imports from Belarus, but this era seems to be coming to its end, a source in the tobacco industry who wished to remain anonymous told Tobacco Reporter.
“I would not call it a war, though. This is primarily about bringing the domestic market in order. Everybody knew that a situation where Russia loses over $1 billion in tax revenues every year to cigarette smuggling from Belarus would not last forever. The country could afford it during the rich times, but now every penny counts,” the source added.
In April 2024, Russia listed tobacco products among the goods of strategic importance. Andrey Mayorov, deputy head of the main directorate for customs control at the Russian Federal Customs Service, revealed that this move helped the authorities tighten their control of illegal tobacco traffic. One of the first consequences of the step, he added, was a hike in the number of criminal cases opened against tobacco smugglers.
More legal changes are on the way to turn down illegal cigarette imports to Russia from Belarus.
An agreement on indirect taxes between Russia and Belarus scheduled to gradually come into force through 2027 is expected to fully protect the Russian market from gray imports of cigarettes from Belarus, assumed Alexei Sazanov, deputy finance minister of Russia.
“The problem of gray imports stems from a significant difference between tax rates in the countries: Russian excise rates on tobacco products are significantly higher than in Belarus. This means that Belarusian tobacco manufacturers, producing cigarettes in their country, simply supply part of the goods to the Russian market, de facto paying taxes at Belarusian rates,” Sazanov explained.
The reform is stretched in time not to provoke “social and economic tensions in Belarus,” the deputy minister added.
Change of Players
The Belarusian tobacco industry is also going through a profound transformation, with Western companies gradually reducing their presence in the country.
In September 2024, Japan Tobacco International and its British subsidiary Gallaher Group terminated licensing agreements with the Tabak-Invest factory, suspending production of the brands Winston, Camel, Sobranie and Monte-Carlo.
JTI’s Minsk office confirmed that the agreement originally concluded in 2008 is no longer in force, declining to provide additional details.
In December 2023, Tabak-Invest and several of its co-owners were subjected to U.S. sanctions. The restrictions prohibited U.S. citizens and businesses from any deals with sanctioned parties.
In the meantime, JTI continues doing business in Russia. In March 2022, the company announced a suspension of investments in its four factories and marketing activity in the country. However, in November 2023, the company announced it would continue operations, complying with international and Russian regulations.
JTI may switch to importing its brands from Russia to Belarus, writes Belmarket, a local business news outlet. Alternatively, the company could sign a new license agreement with a Belarusian tobacco factory that is not subjected to Western sanctions. This could be newcomers Sentoni PRO and Alidi-West, Belmarket’s analysts speculated.
Alidi-West is a Russian company that distributes Kent cigarettes. It kicked off sales in Belarus in July 2024. Sentoni PRO is another firm registered to sell cigarettes in the country this year.
According to the Belarusian Ministry of Taxes and Duties, Sentoni PRO will produce Kent, Pall Mall, Rothmans, Vogue and Lucky Strike brands.
These players may also launch production at the capacities previously run by Western firms.
BAT in Belarus held a contract manufacturing agreement with the Grodno tobacco factory Neman. After Neman was subjected to the U.S. sanctions in 2021, the contract was canceled, and a part of BAT’s production was transferred to Tabak-Invest.
Around the same time, sanctions were also imposed against another Minsk factory, Inter Tobacco, which forced Philip Morris to withdraw from the license production.
In September 2023, BAT announced a deal to sell its business in Russia and Belarus to a consortium of Russian investors and local management, BAT Russia. Upon completion of the “business transfer,” the new structure became known as the ITMS Group of Companies. BAT left the business to its management along with the rights to the trademarks.
The gradual withdrawal of foreign business from Belarus could add pressure to the tobacco industry, which is braced for a hard time ahead.
December 2, 2024
Illicit trade breaks another EU record
Boatloads of bootleg
The illegal cigarette trade in the EU reached a new record high for the sixth year in a row, according to a KPMG report commissioned by Philip Morris International. The study showed the illegal cigarette trade rising to 11.1 percent in 2012 from 10.4 percent in 2011.
At 31 percent of the national tobacco market, illicit cigarettes had the highest market share in Latvia. Latvia loses an estimated LVL60 million ($111.4 million) to LVL70 million in annual tax revenue due to cigarette smuggling. KPMG Baltics representative Andris Purins said Latvia’s proximity to Belarus and Russia is exacerbating the black market problem.
Other strongly affected EU markets included Lithuania, where illicit cigarettes accounted for 27.5 percent of the market; Ireland (19.1 percent), Finland (16.9 percent), the United Kingdom (16.4 percent), France (15.7 percent), Greece (13.4 percent) and Poland (13 percent).
The U.K., Greece, Italy and Estonia recorded the steepest growth in the illegal cigarette market since 2011, according to the KMPG report.
May 1, 2013
Report dismisses industry claims about plain packaging
A report commissioned by Cancer Research UK dismisses the tobacco industry’s claims that the U.K. government’s plans to introduce plain packaging for cigarettes will boost the trade in illegal cigarettes, reports HealthCanal.
According to the report, which was prepared by Luk Joossens, advisor to the World Bank, the European Commission and World Health Organization on illicit tobacco trade, producers of counterfeit cigarettes find all existing cigarette packaging easy to forge, and that introduction of plain packaging is unlikely to cause more counterfeiters to make more fake packs.
Noting that producers of counterfeit cigarettes are able to provide “top quality packaging at low prices in a short time,” Joossens said “plain packaging will not make any difference to the counterfeit business.”
Cancer Research UK’s director of tobacco control Jean King said the tobacco industry “has a track record of facilitating smuggling and often says policies that cut smoking will increase smuggling, even though smuggling has been falling for a decade.”
November 29, 2012
Parkside secure waste system guards against illicit trade
Keen to improve its environmental credentials, Parkside Flexibles has invested in a secure waste management system. The investment will also help protect tobacco customers’ businesses from illicit trade by ensuring any sensitive waste generated is destroyed on site.
Roydon Group has installed and commissioned a shredding and compacting system at Parkside Flexibles Normanton, West Yorkshire, United Kingdom. As a result, all materials leave the company’s premises in a format that offers Parkside Flexible and its clients full security for all printed products.
The system is designed to handle the two types of material produced by Parkside—laminated plastic specifications and paper products. Once processed, both products are either sent for recycling or to a waste-to-energy plant to be used as a fuel in the production of renewable energy.
The system ensures that all waste is destroyed, with the residual products being either recycled or burnt for energy, providing a totally secure zero-to-landfill system.
November 8, 2012
Elephant in the room
A recent conference on illicit cigarette trade dodges the real issue.
By George Gay
I’d like to start this piece by asking a question. Would you want to live in a country where the government encouraged people to break the law and then used the law to punish those people?
Probably most if not all of the people reading this story would answer “no” to this question but would then add that no government would do such a thing because it would be against its own interests.
OK, let me put the question another way. Would you want to live in a country where the price of an addictive but legal product was purposely raised by the government, through taxation, to a point at which the financially less well off users of that product could not afford it, were therefore forced to access illicit sources of supply of that product (they are addicted, remember), and were subsequently hunted down by a number of government agencies—perhaps after having been reported by informants—and then subjected to the full force of the law? (I don’t mean this to be taken as a rhetorical question. Please e-mail me at george@tobaccoreporter.com. It’ll take only a minute. All you need to write is “yes” or “no.”)
The reason why I ask this question is that I am beginning to wonder whether I inhabit a universe parallel to the one inhabited by many other people. I certainly don’t want to live in the sort of society described above, and I would have assumed that most other people would not have wanted to do so, but I was recently at a conference that seemed to be devoted to maintaining such a society in the country where I live. The Anti Illicit Trade Summit was staged by the think tank Progressive Vision in association with the Tobacco Manufacturers’ Association on Jan. 31.
It would have been easy to accept what went on at the conference if all of the participants had been unpleasant, but they weren’t. Everyone in attendance in the comfortable surroundings of the Liberal Club, just off Whitehall, London, was polite, intelligent and, as far as I could tell, well meaning.
Avoiding the real issue
But clearly, to my way of thinking, there was a problem here, and perhaps it resided in the fact that the besuited are unsuited to understanding the motivations of the impoverished consumers of illicit tobacco products, especially from the viewpoint of the Liberal Club.
But the disjoint went much deeper than this, I think. When Simon Clark, the director of Forest, stood up toward the end of the morning session of scheduled presentations and suggested, quite reasonably to my mind, that the event seemed to be avoiding the elephant in the room, taxation, it was as if he’d lit a cigarette before the loyal toast.
There was certainly a reluctance and, in part, a refusal to discuss taxation. Of course, this was understandable up to a point in respect of those working with government agencies, who, presumably, are bound not to criticise their employer’s policies, no matter how dotty they might be. But for the rest, it seemed rather lame.
Summing up at the end of the day, the chairman of the event, Jonathan Charles, a BBC presenter, made the point that the issue of illicit trade in tobacco had to be approached with realism because the government wasn’t going to backtrack on its taxation policies in respect of tobacco.
I was astounded. Charles’ realm of realism is not one I want to inhabit. Where is the ambition in this kingdom? Thank goodness we weren’t relying on Charles in 1215 or we’d not have got King John to put his seal on the Magna Carta. We’d still all be being bled dry with taxation as our leaders prosecuted expensive and largely unpopular overseas wars. Hmm … plus ça change.
Diverting attention
But in a way, Charles was right. He’d done his job and summed up the mood and the tone of the conference. Whatever you do, don’t mention the fact that the chancellor isn’t wearing any clothes. Let’s talk only about how bad are those who are trying to avoid paying unconscionable amounts of taxes and the people profiting from this activity.
Let’s talk about the pointless exercise of explaining to smokers the unsupportable idea that counterfeit cigarettes are more harmful than are other cigarettes. Let’s talk about how some illicit cigarettes contain rat droppings, whether there is any evidence to support such an idea or no.
Let’s talk about how a BBC crew recently came under attack from somebody allegedly involved in the illicit trade in tobacco as the members of that crew were doing their job in investigating this trade. Really? So what? This is a dog bites man story; it’s hardly a revelation. So the bad boys are violent. Well actually we knew that; it goes with the job. But they wouldn’t have that job—not the tobacco job at least—if the government hadn’t given it to them.
And it has to be borne in mind that the BBC would probably be attacked if it sent a crew to investigate why those at the treasury are applying tax levels of up to 90 percent on the retail price of a pack of cigarettes and then wondering why people thrown out of work by the government’s policies are trying to avoid those taxes. Of course, the BBC won’t be attacked by a treasury man wielding an iron bar, but it would do well to be on the defensive when its funding comes up for review.
From my observation—and I have to admit here that I attended only one of three breakout sessions during the afternoon segment of the one-day conference—there seemed to be little thought given to the idea that we could rise above coercion and retribution to extricate ourselves from the mess that we have got into over the illicit trade in tobacco. If we want to stop the illicit trade, why can’t we investigate taxing smokers rather than the products? Why can’t we consider the possibility of applying a sliding scale of tobacco taxes based on a person’s income, given that smoking is addictive? Why can’t we allow each smoker to buy 10 percent of her cigarettes from illicit sources, rather like we allow motorists to drive at 10 percent above the speed limit without being punished? Why can’t we look at making cigarettes expensive ex-factory by forcing up the price of tobacco?
Are we completely devoid of imagination? Do we not have the wit to look at these problems from other directions? Are we content to have our beards plucked off and blown in our faces by the men at the treasury? Are they not supposed to serve us?
Why do we have to bleed dry the already-financially poor so that we can keep our banks on drips? Where is the justice in that? Where is the quality of mercy?
The conference was told by HM Revenue & Customs that, since the start of its anti-fraud campaign in 2000, 3,300 people had been “successfully prosecuted.” I don’t know how many of these people were master criminals and how many were ordinary folk, but if this is success, I don’t want to see what failure looks like. This is not a success; it is a social disaster.
Scepticism
Above, I opined that the U.K. had got itself into a mess over the taxation issue, but we are by no means alone. Writing in The Ottawa Citizen earlier this year, Don Butler reported on the findings of research commissioned last year by the Canada Revenue Agency that found that most young Canadian smokers are very familiar with black-market cigarettes and that many support their sale. And these young people are deeply skeptical of government assertions that contraband cigarettes are linked to organized crime.
And from what I heard at the conference, opinion in Britain is much the same. How proud can we be of this? We have overseen a situation that has led to many of our young people believing that breaking the law is OK and that the government lies to them.
This lack of trust is concerning, and concerning beyond tobacco. It is easy to laugh off such skepticism and say that nobody trusts politicians, but there needs to be some trust. In a report to the executive board of the World Health Organization earlier this year, the WHO’s director general, Dr. Margaret Chan, said that during this winter season in the northern hemisphere, some countries saw cases of severe H1N1 disease in a comparatively young age group. In some cases, she added, persuading the public to seek vaccination had become even more problematic than during the pandemic. The problem of public mistrust extended well beyond influenza vaccines.
Of course it does. And, in part, that mistrust is fed by misinformation put out by governments and their agencies. Often, I’m certain, this misinformation is put out with the best of intentions by people who genuinely feel that they have a mission to stop others from smoking at any cost, but such misinformation simply comes back to haunt them. And anyway, I don’t wish to be unkind, but I would suggest that these people need to give some thought as to whether they shouldn’t mind their own business.
We need to understand that people are not stupid. They just need to be told the truth so that they can make informed decisions. And for that to happen, those doing the telling need to be able to recognize the truth, which is not always easy.
At the end of the conference, the chairmen of one of the breakout sessions referred to the illicit trade problem as manifesting itself in Britain but arising overseas, which I took to mean that the illicit tobacco products were being manufactured largely overseas but sold in Britain. I’m willing to believe that the products are arriving from overseas, but “the problem” is not arising overseas. The problem is being manufactured at home—goodness knows, we even know the number of the street in central London where it occurs.
And take the often-used expression: nobody benefits from the illicit tobacco trade but the criminals. At first glance, this seems to be perfectly true, but you could just as easily argue that because of the situation we find ourselves in, everybody in the country benefits from this trade. It is the glue that holds everything together. If there were no illicit trade, those addicted smokers who could not afford licit cigarettes would have to break into shops or mug people on the streets for their smokes.
I know that some people argue that addicted smokers unable to afford cigarettes can avail themselves of help in curing their addiction. But there is a problem here—time. Taxes go up overnight, but, according to a recent survey carried out by the U.K.’s Lancaster University, it takes the average smoker five years and seven attempts to quit smoking.
The government of the U.K. is currently promoting a favorite idea of Prime Minister David Cameron, called the Big Society. Cameron has come in for a lot of criticism over this idea because it is seen as being not fully thought out. People are moaning because little detail has been given. But I’m a fan of the idea. And I think that many of the critics are missing the point. This is about the Big Society. It is an idea for us to pick up and run with. If Cameron provided the detail, it would be Big Government—more Big Government, and we have spadefuls of that already.
But the government has to help. We cannot create a Big Society in a country where we are more and more being subjected to Big Brother: a society with paid informants, infiltrators, undue surveillance and law enforcement agencies by the truckload. And especially we don’t need taxation policies that can lead only to law breaking. This is the road to the Broken Society, the ailment that Cameron says he wants to cure with the Big Society.
Toward the start of this piece I suggested that the Liberal Club might not have been the right venue to discuss the illicit trade in tobacco. It wasn’t. The next one should be held at Runnymede (which, for our non-U.K. readers, I should explain was where the Magna Carta was sealed).
March 1, 2011