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Below are some links to some visual examples:
Below are some links to some visual examples:

'''Malaysia:'''
'''Malaysia:'''
http://www.mysihat.gov.my/v2/promosi/images/stories/pusatmaklumat/itcreport.pdf
http://www.mysihat.gov.my/v2/promosi/images/stories/pusatmaklumat/itcreport.pdf

Revision as of 06:29, 22 September 2013

What is it?

The illicit cigarette trade is defined as “the production, import, export, purchase, sale, or possession of tobacco goods which fail to comply with legislation” (FATF 2012) [1]. Illicit cigarette trade activities fall under 3 categories:

  1. Contraband: cigarettes smuggled from abroad without domestic duty paid
  2. Counterfeit: cigarettes manufactured without authorization of the rightful owners, with intent to deceive consumers
  3. Illicit whites: brands manufactured legitimately in one country, but smuggled and sold in another without duties being paid.

Drivers of Illicit Trade

The illicit trade of tobacco is both supply and demand driven, as consumers look to save money by evading taxes on tobacco; and suppliers want to take advantage of easy border entry, high profit margins, and weak repercussions if caught. Illegal cigarettes are priced much cheaper than legal cigarettes, and do not undergo stringent regulation in the form of health warnings, product checks, or age verification. Studies highlight that increased tobacco taxes do not dissuade consumers from smoking, rather, consumers turn to cheaper brands and illegal cigarettes [2]. Low costs of production and high levels of demand make illicit cigarettes one of the world’s most illegally trafficked goods (Allen 2011) [3]. In London alone, 85% of smuggled cigarettes were found to be counterfeit, while the UK Border Agency averages more than 1 million counterfeit cigarette seizures per day (ICC 2007)[4]. Similarly, South Africa reports the incidence of illicit cigarettes has doubled the past 3 years, accounting for 25% of the total market in 2012 [5] . Illicit cigarettes continue to dominate in Malaysia, where over 40% of all cigarettes, approximately 9 billion sticks, sold were illicit. Public tolerance and acceptance of illegal cigarettes as a norm has also factored into the continued purchase behavior among consumers, as they believe legitimate cigarettes are over-taxed and too expensive.

The implementation of the Plain Packaging Act of tobacco products in 2012 in Australia has sparked debate on its efficacy on reducing the incidence of smoking among youth. While some studies conclude that plain packaging will make cigarettes less attractive to youth, the American Legislative Exchange Council (representing tobacco companies) are currently campaigning against the sale of plain packaged cigarettes—citing lack of evidence [6]. Tobacco organisations instead posit plain packaging will ease the ability of illegal tobacco manufacturers to replicate legitimate products—resulting in higher incidences of illicit trade. While no other countries have implemented plain packaging as of yet, time will tell if this move will have positive or negative consequences in reducing youth and adult smoking [7].

Numerous reports [8] [9] , have forged links between the illegal tobacco trade and organised crime groups, whom are attracted by high consumer demand, high potential profits, and relatively low potential penalties. In Malaysia, first time offence results in up to RM100,000 fine and a 3 year sentence; with a RM500,000 fine and 5 year jail sentence for subsequent offences. Organised crime syndicates garner wide reach through diverse distribution channels in the form of small retailers and street vendors. While retailers may be charged in court if found to be in possession of cigarettes, it has been widely assumed that crime syndicates pay these fines in order to maintain cooperation with retailers, and sustain their distribution network. Evidence suggests tobacco smuggling operations are also linked to terrorist organisations such as Hamas and Hezbollah, which utilize these profits to finance terrorism around the world [10][11]. 16 Palestinian men arrested due to a cigarette smuggling scheme in New York were found to have some ties to convicted terrorists. One criminal in particular, had known financial ties to Omar Abdel-Rahman, a cleric serving a life sentence for a conspiracy to blow up New York City landmarks. Others arrested also had ties to a top Hamas official.

Similarly in Hong Kong, police arrested 1,200 individuals from a wide range of gangs for drug trafficking, illegal possession of arms, and contraband cigarettes. Operation Thunderbolt, which aims to target triads in Hong Kong and neighboring provinces, has been successful in infiltrating various branches of the gang’s operational networks.

The World Customs Organisation (2013) highlights that while the number of illegal cigarette seizures have increased globally, the number of smuggling routes and channels continue to diversify accordingly. In Ireland, four men were recently caught transporting 9 million cigarettes with a retail value of €4.3 million, which arrived via sea freight from Malaysia. Police believe this shipment was destined for Ireland’s largest smuggling gangs, who have also been involved in armed robberies and burglaries. In the United Kingdom, cigarette smuggling has become so increasingly profitable that smuggling syndicates have turned to bribing young women to smuggle cigarettes in exchange for free summer holidays. UK border officials have revealed that close to 50 million cigarettes are seized each month from girls as young as 15, who were gifted with flights to Spain, accommodation and pocket money. Cigarette smuggling has since become one of Europe’s fastest growing forms of organized crime [12], and has been responsible for funding larger operations such as drug smuggling or people trafficking. South Africa faces similar problems with cigarette smuggling, as police report the sale of illegal cigarettes is bigger than drugs in South Africa [13].

Costs of Illicit Trade

The global scale of the illegal cigarette trade has reached an all-time high, as governments are estimated to lose over USD50 billion [14] in global government revenues each year. A Euromonitor (2011) report estimates that there are 360 billion cigarettes consumed annually (excluding China), which accounts for 10% of the global market. Euromonitor (2013) reports black market sales of cigarettes rose for the 6th year in a row, although cigarette consumption in the EU fell by 5.7% in 2012—resulting in over 12 billion Euros in lost tax revenue. Illicit cigarette trade not only deprives the government of a key source of tax revenue, but also creates an imbalance in the market for legitimate industry players who operate within stringent regulations. In Asia-Pacific (and globally) Malaysia ranks as the country with the highest share (45%) of illicit cigarettes in the total market, followed by Hong Kong (35%), and Pakistan (26.7%) in the Asian continent [15]. Although illegal cigarettes have been associated with low-income groups, its low price and accessibility also makes it attractive to smokers in general due to increasing tobacco taxes, and affordable for youths—who have lower disposable income. Tobacco Atlas (2013) estimates that if illicit trade were eliminated, $31.3 billion in tax revenue would be gained, and 164,000 premature deaths would be avoided annually due to higher average cigarette prices.

Societal Impacts of Illicit Trade

Youth Smoking

Costs of illicit trade also go beyond purely financial measures, with repercussions such as encouraging youth uptake of smoking, and increasing health risks for consumers, as illegal cigarettes are not bound by product and ingredient checks. Despite industry and government efforts to implement ID checks for tobacco sales to regulate availability, the prominence of illicit cigarette trade facilitates cigarette affordability for youth [16]; with its lower-than-market price, and provision of easy channels for purchase in the form of small retailers and online. Internet sites have since become a core channel of distribution as it allows the selling and shipping of small quantities of cigarettes undetected by Customs Officials [5]. Numerous studies [17][5] also draw a direct link between the availability of cheap illicit cigarettes and the high youth smoking rates. In Canada, illegal cigarettes accounted for 17.5% of all cigarettes smoked by adolescents (Callaghan et al. 2009), with greater prevalence in Toronto and Quebec, where 22% of Canadian high school students regularly smoke illegal cigarettes (Callaghan et al. 2009)[18]. The study adds illegal cigarettes were responsible for providing an accessible alternative to quitting [19], and for youth in particular, encourages initiation and continuation of smoking over the long term [20].

Dangerous Additives

The ICC (International Chamber of Commerce) warns counterfeit cigarettes were found to contain unsanitary ingredients (such as human feces, dead flies and mold), as well as a higher dosage of lethal substances in excess of legitimate cigarettes. Illicit cigarettes seized in Canada and the United Kingdom were found to contain five times more cadmium, six times as much lead, 160% more tar, and 133% more carbon dioxide[21]. Consumers are warned to take caution and avoid the temptation to save money by purchasing illegal cigarettes as it poses greater health risks compared to legal cigarettes.

Identifying Illicit Cigarettes

Below are some common indicators of illicit cigarette packs:

• The absence of pictorial health warnings • Poor detailing on cigarettes (print, spelling errors, inconsistent lettering) • Packs without domestic tax stamps or security marks • Packs with non-domestic tax stamps • Unlisted importer or manufacturer • Unregistered brands • Pack sizes with less than 20 cigarettes • Unusual taste • Cheap price (below market average)

Below are some links to some visual examples:

Malaysia: http://www.mysihat.gov.my/v2/promosi/images/stories/pusatmaklumat/itcreport.pdf

United Kingdom: http://get-some-answers.co.uk/what-is-illegal-tobacco.aspx

Canada: http://www.fin.gov.on.ca/en/tax/tt/faq_illegal.html

Illicit Trade Around The World

Chicago, USA (28/02/2013): Increase in illicit cigarette seizures as cigarette tax goes up $1 per pack.

Hong Kong (15/08/2013): Customs officers seized 1.3million illicit cigarettes (total market value of $3.3million with a duty potential of $2.2million) in electric water heaters in an industrial building.

'Hong Kong (28/08/2012):' Hong Kong Police arrest 1,200 suspects on charges ranging from drug trafficking, illegal possession of arms, drugs, and contraband cigarettes.

Ireland (17/09/2013): 9 million cigarettes with an estimated retail value of 4.3 million euros were seized when 4 men were caught transporting the shipment, which arrived at Dublin Port, from Malaysia. Police believe the cigarettes were destined for one of the country’s largest smuggling gangs, which have also been involved in armed robberies and burglaries.

Madrid (21/06/2013): 16,500kg (worth 2 million Euros) of shredded tobacco was seized at an illegal cigarette factory located in an abandoned building in an industrial park.

Malaysia (2/02/2013): Sabah Customs have seized cigarettes of various brands worth RM1.7million during simultaneous raids on two houses in Semporna.

New York, USA (17/05/2013): 16 Palestinian men arrested in a scheme that may have generated $55 million in revenue from selling illicit cigarettes.

United Kingdom (23/08/2013): Haul of illegal tobacco and cigarettes with a shop value of £415,000 seized from 10 storage units in Derby.

Anti-Illicit Trade

World Health Organisation (WHO): The Protocol to Eliminate Illicit Trade in Tobacco Products This International Treaty is aimed at combatting Illegal trade in tobacco products through controlling supply chain and international cooperation. Parties commit to establishing tracking and tracing system to reduce, with aims to eradicate, illicit trade. The Protocol has been signed by representatives of all 6 WHO regions. http://www.who.int/mediacentre/news/releases/2013/fctc_20130110/en/

Get Some Answers (United Kingdom) This website created by The North England Tackling Illicit Tobacco for Better Health Programme, aims to inform and increase awareness of illegal tobacco, its impact, and consequences. The website provides forums for discussion, link to Crime Stoppers to share information, and link to National Health Service (NHS) for individuals who want to quit smoking. http://get-some-answers.co.uk/home.aspx

Don’t Get Burnt (Singapore) This campaign by Singapore Customs seeks to warn the public about the dangers and stiff penalties for activities involving illicit tobacco trade. The campaign encourages citizens to report illegal activities and educates the public about identifying illegal cigarettes through: radio networks, cable television, outdoor and print advertisements, roadshows and community engagement. Efforts resulted in a 30.4% decrease in the number of illegal cigarette buyers caught. http://www.customs.gov.sg/insync/Issue10/spreadingthemessage.html

Hong Kong United Against Illicit Tobacco (2013) This movement aims to consolidate opposition to illicit trade, educate the public to move the issue up the government’s priority list, and sell the public on the idea that illicit tobacco only benefits criminals. http://www.stopit.hk/?page_id=2&lang=en

Stop Illegal Cigarettes (South Africa) This campaign, backed by the Tobacco Institute of Southern Africa, comprises tobacco industries working together to tackle illegal cigarette trade among retailers and increasing consumer awareness. http://www.stopillegalcigarettes.co.za/campaign

References

  1. ^ Financial Action Task Force (2012) ‘Illicit Tobacco Trade’. FATF Report, 1-78
  2. ^ Robinson, D. (2013) ‘Smokers turning more to illicit tobacco’. The Financial Times [online] available from <http://www.ft.com/cms/s/0/578983ee-a776-11e2-9fbe-00144feabdc0.html#axzz2fVzCAL3E>
  3. ^ Allen, E. (2011) ‘The Illicit Trade in Tobacco Products and How to Tackle it’. World Customs Journal, 6(2), 121-130
  4. ^ International Chamber of Commerce (2007) ‘Counterfeit cigarettes contain disturbing toxic substances’. International Chamber of Commerce [online] available from <http://www.iccwbo.org/News/Articles/2007/Counterfeit-cigarettes-contain-disturbing-toxic-substances/>
  5. ^ a b c Allen, E. (2011) ‘The Illicit Trade in Tobacco Products and How to Tackle it’. World Customs Journal, 6(2), 121-130
  6. ^ Doward, J. (2012) ‘US free market group tries to halt sales of cigarettes in plain packets in UK’. The Guardian [online] available from <http://www.theguardian.com/society/2012/jul/15/cigarettes-plain-packets-alec-koch-brothers>
  7. ^ Hawkins, R. (2013) ‘Tobacco firm argued against plain packaging in meeting with UK government’. BBC [online] available from <http://www.bbc.co.uk/news/uk-politics-23331665>
  8. ^ Bilby, E. (2013) ‘Europe’s illegal cigarette trade grows again-report’. Reuters, available from <http://uk.reuters.com/article/2013/04/17/uk-eu-tobacco-idUKBRE93G0Q020130417>
  9. ^ Financial Action Task Force (2012) ‘Illicit Tobacco Trade’. FATF Report, 1-78
  10. ^ Alderman, J. (2012) ‘Strategies to Combat Illicit Tobacco Trade’. Tobacco Control Law Consortium
  11. ^ Brady, B. (2013) ‘NY cigarette-smuggling ring may have terror link’. CNN [online] available from <http://edition.cnn.com/2013/05/17/us/new-york-cigarette-ring/index.html>
  12. ^ Townsend, M. and McVeigh, T. (2009) ‘Gangsters prey on young women to smuggle cigarettes’. The Guardian [online] available from <http://www.theguardian.com/uk/2009/sep/06/cigarette-smuggling-uk-organised-crime>
  13. ^ Slater, C. (2011) ‘SARS confiscated R400 000 worth of illegal cigarettes in Eastleigh’. Stop Illegal Cigarettes [online] available from <http://www.stopillegalcigarettes.co.za/article/2>
  14. ^ Geocurrents (2013) ‘Global patterns of tobacco related economic issues’. Geocurrents [online] available from <http://geocurrents.info/economic-geography/global-patterns-of-tobacco-related-economic-issues>
  15. ^ The Express Tribune (2013) ‘How illicit cigarette trade dents the socio-economic fabric’. The Express Tribune [online] available from <http://tribune.com.pk/story/598337/cancer-to-society-how-illicit-cigarette-trade-dents-the-socio-economic-fabric/>
  16. ^ Konos, B. (2013) ‘Illegal tobacco trade is £20m market in south-east London’. East London Lines [online] available from <http://www.eastlondonlines.co.uk/2013/08/illegal-tobacco-trade-is-20m-market-in-south-east-london/>
  17. ^ Department of Health and Ageing (2013) ‘Plain packaging of tobacco products’. Australian Government: Department of Health and Ageing [online] available from <http://www.health.gov.au/internet/main/publishing.nsf/Content/tobacco-plain>
  18. ^ Callaghan, R. C., Veldhuizen, S. Leatherdale, S., Murnaghan, D. and Manske, S. (2009) ‘Use of contraband cigarettes among adolescent daily smokers in Canada’. Canadian Medical Association Journal, 181(6-7), 384-386
  19. ^ Mecredy, G. C., Diemert, L. M., Callaghan, R. C. and Cohen, J. E. (2013) ‘Association between use of contraband tobacco and smoking cessation outcomes: a population-based cohort study’. Canadian Medical Association Journal, 185(7), 287-294
  20. ^ Callaghan, R. C., Veldhuizen, S. Leatherdale, S., Murnaghan, D. and Manske, S. (2009) ‘Use of contraband cigarettes among adolescent daily smokers in Canada’. Canadian Medical Association Journal, 181(6-7), 384-386
  21. ^ International Chamber of Commerce (2007) ‘Counterfeit cigarettes contain disturbing toxic substances’. International Chamber of Commerce [online] available from <http://www.iccwbo.org/News/Articles/2007/Counterfeit-cigarettes-contain-disturbing-toxic-substances/>

http://www.fatf-gafi.org/media/fatf/documents/reports/Illicit%20Tobacco%20Trade.pdf

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