Illicit cigarette trade
The illicit cigarette trade is defined as "the production, import, export, purchase, sale, or possession of tobacco goods which fail to comply with legislation" by the intergovernmental Financial Action Task Force. Illicit cigarette trade activities fall under 3 categories:
- Contraband: cigarettes smuggled from abroad without domestic duty paid;
- Counterfeit: cigarettes manufactured without authorization of the trademark holders, with intent to deceive consumers and to avoid paying duty;
- 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. Low costs of production and high levels of demand make illicit cigarettes one of the world's most trafficked illegal goods. 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. Similarly, South Africa reports the incidence of illicit cigarettes has doubled the past 3 years, accounting for 25% of the total market in 2012. Public tolerance and acceptance of illegal cigarettes as a norm also factors into the continued purchase behavior among consumers, as they believe legitimate cigarettes are over-taxed and too expensive.Illicit cigarettes continue to dominate in Malaysia, where 34.5% of all cigarettes, approximately 7.9 billion sticks, sold were illicit. Illicit trade remains prevalent in Malaysia due to its long coast lines, which allow for shipments to be sent from neighbouring nations, such as kreteks from Indonesia, into the East Malaysian states of Sabah and Sarawak. Smugglers have also become increasingly more efficient in unloading, storing, and distributing smuggled cigarettes quickly in local villages; whilst avoiding customs officers. In Lahad Datu, Sabah, locals have become part of the problem, as they frequently purchase illicit cigarettes from illegal immigrants from the Philippines and Indonesia—who openly peddle these goods in a thriving flea market full of smuggled illicit goods. Lax law enforcement further facilitates the prevalence of illicit trade and smuggled goods in this area, as the sale of these illicit goods are responsible for sustaining the livelihood of these illegal immigrants. The low salaries of responsible law enforcement units are highlighted as a contributing factor to the lack of smuggled cigarette seizures. cigarette smugglers are notified before raids are conducted by Insiders in law enforcement, providing ample time to conceal shipments of illicit cigarettes. With less than 2% of all shipment containers checked upon arrival at ports, and low penalties for illicit smuggling, this issue will remain prevalent in Malaysia as illicit cigarette smuggling continues to be seen as a lucrative, relatively low risk activity.
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 has lobbied against the sale of plain packaged cigarettes—citing lack of evidence. 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 yet, time will tell if this move will have positive or negative consequences in reducing youth and adult smoking.
Links to organized crime
Numerous reports, have forged links between the illegal tobacco trade and organised crime groups, who 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 RM200,000 fine and 6-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. Beyond these traditional distribution channels, the resale of tobacco products on the Internet is being actively developed—enabling greater reach, more discretion, and lesser chances of being caught. In 2012, French police disrupted this trend through deleting domain names of online trading sites selling tobacco products.since the 1980s. The WCO Illicit Trade Report 2012 highlights the illicit tobacco trade represents a good opportunity for organized crime groups and/or terrorists to generate large sums of criminal profits. Billingslea wrote, terrorist groups work with organized crime groups as well as International drug trafficking organisations due to their "established trafficking routes and business contacts for the transfer of commodity for profit", He adds, known and suspected Hezbollah and Hamas members have established front companies and legitimate businesses in the cigarette trade in Central and South America. The IRA was one of the first groups to begin using cigarettes to fund their activities. Police estimate that the IRA made $100million in the past 5 years from trafficking illicit cigarettes. In the Middle East, the Kurdish Workers Party has known involvement in the trafficking of contraband cigarettes and tax stamps. The EU Commission report that the PKK has been smuggling American cigarettes into Iraq, which were then controlled by Saddam Hussein's son. The combined efforts from cigarette and oil smuggling was reported to have made Saddam Hussein as much as $2.7billion annually after 1991.
Most recently, 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 notes that while the number of illegal cigarette seizures has 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 given flights to Spain, accommodation and pocket money. Cigarette smuggling has since become one of Europe's fastest growing forms of organized crime, 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.