You need to active Javascript on your
BusinessDay
Nigeria's leading finance and market intelligence news report.

Tackling global illegal tobacco trade holds aces for economy, health

The trade of illegal tobacco has continued to undermine public health objectives, contribute to underage smoking and fund organised crime and terrorist activities.

Illegal trade costs $40billion to $50 billion in lost global tax revenue every year that could be invested in essential services.

Illegal traffickers do not pay taxes, they profit from their criminal activity by introducing cheaper illegal products to the market, encouraging certain consumers to switch from legal cigarettes.

According to the World Bank, the global illegal tobacco trade is already worth an estimated $40-$50 billion each year.

The International Chamber of Commerce predicts that global counterfeit trade will reach $4 trillion by 2022, primarily fuelled by e-commerce.

According to recent research and analysis by Alvarez & Marsal, a global professional services firm notable for its work in turnaround management and performance improvement of a number of large, high-profile businesses, price increases driven by taxation result in less affordable cigarettes.

The analysis further reveals that if cigarettes become 10 percent more expensive relative to incomes, on average illegal trade grows by seven percent. Therefore, affordability remains the primary reason that consumers seek out cheaper illegal options.

Nigeria is also not an exception as some illicit tobacco products such as cigarettes, shisha, and smokeless tobacco – are untaxed and unregulated, with no health warnings, packaging or labelling requirements making them cheaper and more readily available to young people.

In 2019, the Nigerian government sent a delegation including officials from the ministries of health and finance, the Federal Inland Revenue Service and the Nigerian Customs Service to Kenya.

The aim was to understudy the East African country’s application of its track and trace system in tackling the illicit tobacco trade.

“Affordability and accessibility lead to increased use, this downward spiral into poverty and illness because of money spent on tobacco, and additional money spent on treating its ill-health effects has dire health and economic consequences,” the World Health Organisation (WHO) noted.

More troubling is that COVID-19 threatens to undo years of progress in tackling illegal trade. For instance, in the U.K., for instance, one in six legal smokers switched to consuming illegal tobacco during spring 2020’s lockdown.

The United Nations Office on Drugs and Crime (UNODC) has warned that Covid-19 has created new opportunities for organized crime to profit. Often the ‘front door’ is illicit tobacco sales but behind that is a more sinister business of trafficking and modern slavery – UNODC.

Recent reports by JTI show that the production and supply of illegal products have been blunted rather than extinguished, criminals have become more resourceful, by leveraging technology and social media.

According to the KPMG report, across the 30 European countries (EU, UK, Norway and Switzerland) 34.2 billion cigarettes smoked in 2020 were illegal, which represents 7.8 percent of total cigarette consumption in the EU and the tax loss for governments c.€8.5 billion.

There is a high increase in counterfeit tobacco products in France, which accounts for the European country with the highest illicit cigarette trade incidence – 32 percent at the end of last year, the KPMG EPS survey shows.

It is therefore against these trends that global stakeholders and industry experts moved to address these challenges at the recently virtual JTI 2021 Global Tobacco and Nicotine Forum (GTNF 2021).

Speaking during the forum themed, ‘Anti-Illicit Trade and Getting to Net-Zero: Sustainable Strategies to Stamp Out Illegal Trade of Tobacco Products, Ian Monteith, global anti-illicit trade operations director at JTI said criminals have and continue taking advantage of COVID with continental differences.

Monteith explained that they recognize that unemployment increased and purchasing power disposable income was reduced; these organized criminals are highly adaptable, creative, exploiting public anxiety and enriching themselves not just from tobacco but other products such as PPE, alcohol and pharma.

He said even counterfeit COVID vaccines have been identified in Asia.

For him, COVID has not prevented criminals from profiting; it rather put pressure on consumers’ purchasing power and pushed them to turn to illegal products.

Read also: Nigeria gets $400m credit from World Bank for COVID-19 vaccination

Impact on society

No doubt illegal trade impacts everyone: farmers, millions of retailers, and hundreds of thousands of suppliers to consumers. The loss of revenue to law-abiding people is significant, as is the impact on consumers lured into buying sub-standard products.

Ian Monteith hinted that some consumers believe illegal tobacco is a victimless crime. “We need to inform them of the broader social impact of buying illicit products from criminal groups. Many of these groups also traffic people and weapons, with far-reaching consequences for society,” Monteith added.

Sergio Miranda, sergeant and specialist in contraband investigation in the Quebec police force (Sureté de Québec) said pre-Covid, there were illegal factories in Eastern Europe but with the closing of borders and better regulation with limited travel, organized crime gangs could not use their normal supply chain.

Miranda said the crime gangs moved their factories into Europe. “If we particularly look at Belgium and the Netherlands, there have never ever been illegal factories in those countries. But the criminals have gone there because they’re targeting the high financial markets of the UK and Ireland,” he said.

Modern-day slavery

Monteith said there is a new trend of debt bondage, as young people are forced into crimes in payment for debts their parents or guardians owe.

According to the Center for the Analysis of Terrorism, for the past 10 years, the counterfeiting or smuggling of tobacco products have been the fastest-growing source of revenue for terrorist groups.

Key drivers of illegal tobacco trade

Experts have said the principal driver of illicit trade is demand and criminal profit.

For Dina Razvan, Romanian Police Sub-Commissioner, directorate of Preventing and Countering Illegal Migration and Cross Border Crime, affordability is the primary reason that consumers seek out cheaper illegal options.

Razvan explained that criminals are exploiting subsequent profit opportunities as enforcement gaps facilitate the trade of illicit tobacco products.

He further explained that taxation and consequent cigarette pricing can create demand for illegal tobacco and, as a result, encourage the development of illegal supply chains.

Ian Monteith opined that Illegal trade is driven by Middle Eastern and Asian crime gangs.

Monteith pointed out that seizures of illicit tobacco crops by the ATO increased by 220 percent (up from 41 tonnes in 2019 to 131 tonnes).

There has been a record of huge illicit tobacco importation, tons of tobacco and millions of cigarettes.

He said it was estimated in 2020 that 2.2 million kilograms had been consumed legally; representing approximately $2.9 billion in excise duty, adding that pressure is mounting for the development of an improved legislative and enforcement framework.

Ways to tackle illegal tobacco trade

Experts have said vigorous enforcement and robust deterrents are essential to combat illegal trade.

They also suggest that cooperation with enhanced intelligence sharing, between LE problems supported by the private sector, is also key.

Also speaking at the forum, Lawrence Hutter, senior advisor, Alvarez & Marsal said governments need to be cognizant of the risks of fiscal and public health policies that can inadvertently expand opportunities for organized criminal workers and open up new avenues for consumers seeking cheaper tobacco products.

Hutter however noted that steady and predictable increases in tobacco taxes help mitigate these risks.

He said collaboration is also key to tackling illegal trade.

“Successfully tackling illegal trade can only be achieved through coordinated efforts involving all of the key stakeholders. Taxation policies and enforcement can help policymakers deliver proportionate and targeted programs that respond to the specific circumstances, which are different from markets,” he explained.

One important action is to educate consumers that with every illegal pack they buy they support criminal groups. Global community campaigns are required, Ian Monteith said.

“Information between relevant government agencies and LEAs is needed at both an international and national level, along with a desire to increase the fines and punishments for those caught producing, distributing, and selling illegal tobacco products.

“Better cooperation means stepping up enforcement at borders, improving intelligence sharing between the tobacco industry and LEAs; simultaneously, governments must explore fiscal measures that allow consumer confidence to grow and avoid the temptation to spend on illicit products,” Monteith said.

In its operations in Nigeria, he said JTI has made anti-illicit trade one of her major objectives, scaling up awareness and always being ready to partner with relevant agencies of the government such as the Nigeria Customs Service in the collective fight against illicit products, contrabands and smuggling activities.

He explained that strong enforcement with reasonable and moderate taxation are the essential preventative ingredients as governments are aware that sudden and extreme tax rises do not work.

He stressed that a combination of Public/Private partnerships cooperation & collaboration can help to stop organized crime groups in their tracks and alleviate the human and financial toll their activities inflict on society.

He mentioned that Crimestoppers (CSI), a dedicated and volunteering team is playing a significant role to fight Global criminality, particularly with ammoniums reporting platform.

CSI is an ideal vehicle for any public education/engagement, particularly given its strong track record in Australia.

The Montenegrin Government adopted a decision to ban the warehousing of tobacco products in the Port of Barr, as 20 percent of EU’s illicit cigarettes come from the port.

Malaysia is an example of the positive impact these measures can have.

Malaysia has taken a whole-of-government approach to tackle illicit trade. This in concert with the private sector’s involvement – has made a measurable impact.

However, illegal trade still constitutes almost 58 percent of the market and is too early to claim success. Smugglers are adapting to the new measures. JTI Malaysia has urged the Government to maintain its policy and address the methods adopted by smugglers, such as mid-ocean offloading and road transhipments.

In addition, there is an emerging threat of illegal nicotine vape liquids in Malaysia. The government has been asked to regulate vape liquids properly to avoid harm to consumers.

Whatsapp mobile

Get real time updates directly on you device, subscribe now.