InternationalStatusoftheIllicitTobaccoTradeandkeydevelopments

LUKJOOSSENSBeirut8November2018

Legalcigarette sales:1980-2013(source:TobaccoAtlas)

LesssmokersexceptinAfroandEmro

Illegalsales:Lackofreliabledata

ØItisestimatedthatoneinevery10cigarettesgloballyisillicit.

ØGrowingevidencethatindustrysponsoredestimatesaretoohigh.

ØGrowingevidencethatindustrysponsoredestimatesuseuncertainorunknownmethodology

AcademicversusIndustryestimatesoftheillicitcigarettemarket(%)

Country Year Academic% Industry%

HongKong 2012 12 36

India 2016 3 20

Columbia 2016 3,5 20

Source:BMJTobaccoControlJournal

Industry dataarealways alarming

Press releasesoftheBelgianTobaccoIndustry:

• 21/11/2012:Cigarettecontraband,an increasingproblem

• 2/2/2015:Theillegalcigarette trade:anincreasing problem.

• 28/5/2015:Apersistentandincreasing problem.

Tobaccoindustry datashowadecrease ofillicit tradeinBelgium from 10%in2009to5%in2014.

2009 2010 2011 2012 2013 2014

9,9% 5,9% 5,9% 7,5% 7,6% 5,1%

According totheir owndata,Illicit trade isdecreasing in2014,butisstill described asagrowing problem.

Source: Joossens L, Merriman D, Ross H, Raw M, 2009

Theglobalillicitcigarettetrade

• 11.6%oftheglobalcigarettemarketisillicit

• Theburdenofillicittradefallsmainlyonlowandmiddleincomecountries

World Bank income group

Illicit market share

Revenue lost to government (US$)

WORLD 11.6% 40.5 billion

High income 9.8% 17.6 billion

Low and middle income

12.1% 22.9 billion

DollarValueofillicitmarkets

Cocaine Europe & N. America* 72 billionCigarettes** 40,5 billionHeroine Europe* 33 billionCounterfeit products Europe* 8,2 billionMigrant smuggling Latin America*

6,6 billion

Illicit Timber South East Asia* 3,5 billion

Source:UNODC*andJoossens,2009**

Legalpriceandillicittrade(2007)

World Bank income group

Average legal price per pack (US$)

Illicit market share

Low income 1.13 16.8%

Middle income 1.89 11.8%

High income 4.91 9.8%

"TheGlobalizationofCrime:ATransnationalOrganizedCrimeThreatAssessment"

ThisreportbytheUnitedNationsOfficeonDrugsandCrimelooksatmajortraffickingofproductssuchasillicitdrugs(cocaineandheroin),firearms,counterfeitproductsandstolennaturalresources.Oneofthemainconclusionsisthatbecausetransnationalorganizedcrimemarketsareglobalinscale,strategiestoaddressthemshouldalsobeglobal.

ProvenanceofillegalcigarettesintheEUin2010-11(source:OLAF)

CigarettesmugglingroutestoAfrica

Source:UNODC2009

Illicitflowsoftobaccoproductsin2016(sourceWCO)

Themodusoperandi:disappearingcontainersduringinternationaltransport.

Ø Containersoftendisappearin“freezones”.GoodsintroducedinafreezonearegenerallynotsubjecttousualCustomscontrols.Duetothelackofcontrolinsomefreezones,thegoodsmayleavethezonesunnoticedwithacoverload.

Ø Freezonesmayalsohavemanufacturingfacilitiesdestinedfortheillegalcigarettemarket.

Ø Today,over3,000activefreezonesexistin135countries.

Freezones“Moreeffectiveactionsandco-ordinationatthenationalandinternationallevelsareurgentlyneededtoensurethatfreezonesarenotunderminedbyillicitactivities.”

OECD,WCO,WTO,INTERPOL,EUROPOL,OLAF,UNODC,WHO.2018

Freezones

”Freezonescanbeusedfortheproductionandsmugglingof“illicitwhites”.FreezonesintheUAE,suchasJebelAliFreeZonebecomewellknownsourcesofillicitwhitestoauthorities.”OECD,2018

Whataretheidentifiedformsofillicittradein“high–risk”foreignfreezones?N=10

Interpolreport2014

Althoughcreatedtoimproveandincreaseinternationalcommercialactivities,freetradezonescanbemisusedbycriminalgroupstotrafficingoods,includingalcohol,tobaccoandenergyproducts.

Mostimportantcigaretteseizurein2016(source:WCO)

ØJordanCustomsreportedtheseizureatAqabaseaportof11containerspackedwith117millioncigarettes(amixofdifferentbrands).

ØTheshipmentwasdeclaredascomingfromGermany,althoughotherinformationsuggestedtheroutingwasJebelAli– Germany– Aqaba.

ØThebillsofladingsuggestedtheconsignmentswerewood.

Thethreetypesofillicitcigarettesnow.

ØIllicit trade ofwellknown cigarette brands(still ongoing)

ØIllicit trade ofnewcigarette brands mainlydestined for the illegal market(manufacturedby legal companies)

ØIllicit manufactured cigarette brands (includingcounterfeitcigarettes)(variable according tothe regions)

Illicitwhites

Brandsmanufacturedlegitimatelyinonemarket,eithertaxedforlocalconsumptionoruntaxedforexport,andsoldknowinglytotraderswhotransportthemtoanothercountrywheretheproductsaresoldillegallywithoutdomesticdutypaid.(Europeancommission,2011)

CEOPMICalantzopulos 20/11/2013NewYork

“Thetobacco industry iscomplicit inillegal trade.Smuggling isone ofits businessstrategies.”

Thetobaccoindustry

Ø 50yearsofexperienceinorganisingsmuggling.

ØMorethan3billionUSDinpaymentsandfinesinEUandCanadatosettlefivesmugglinglawsuits.

Ø LawsuitagainstRJReynoldsonsmuggling chargesinvolving Colombian and Russiancrimesyndicates.

TTCInternal Documents inLebanon

“ Evidence ofthe complicity ofTransnationalTobaccoCompanies(TTCs)incigarettesmuggling extends to Lebanonand the MiddleEastwhere this trade hasespecially benefitedfrom weak governance and chronic politicalinstability.”

Source:Nakkash Rand LeeK,Tobaccocontrol,2008.

BATinternalDocumentsinAsia

“BATdocumentsdemonstratethestrategicimportanceofsmugglingacrossglobal,regional,national,andlocallevels.ParticularlyimportantinAsia,contrabandenabledaccesstoclosedmarkets,createdpressureformarketopening,andwashighlyprofitable.”

Source:CollinJandal,Tobaccocontrol,2004.

JTIhasbeenaccussedinNovember2011oforchestratingcigarettesmuggling

“AsubsidiaryofJapaneseTobaccoInc(JTI)hasbeenaccusedofsmugglingcigarettesfromCyprusintoSyria.450 000cartonsofcigaretteswereallegedlysoldtothebrotherofSyrianPresidentBasharal-Assad.”Source:OrganizedCrimeandCorruptionReportingProject(OCCRP)

TheIllicitTobaccoTradeGlobally

Illicittradeisaglobalproblem,whichneedsaglobalsolutionthroughtheWHOFCTCIllicitTradeProtocol

ØToughersupplychaincontrolsØTougherenforcementØGreaterinternationalcooperation

The SWOTanalysıs ofthe Illicit TradeProtocol(ITP)

Strenght:ınternatıonalcollaboratıonıseffectıvetocombatıllıcıt trade.Weakness:lackofexpertıseofhealthoffıcıalsandfearofthe ımplementatıon costs.Opportunıty:cigarette traceabılıty wıllbeoblıgatoryınall ITPParties ın 2023.Threat:thetobacco ındustry ısproposıngtheırowntraceabılıty system which they control.

Thestrategy oftheIndustry towardsillicit tobacco trade

UsetheillicittradeargumenttoattackØhightaxesandØtobaccoregulation

JTI-MacdonaldadinCanada(September2016)

“Plain packaging makescigarettes easier tocounterfeit.”

TheUKindependentReviewundertakenbySirCyrilChantler,April2014.

TheChantler review identified that inAustralia“hardly anycounterfeitstandardised packages havebeenfound todate”.

Furthermore,arepresentative ofone ofthetobaccomanufacturers informed SirCyril’s teamthat hiscompanyhadseen areduction incounterfeitproductfollowing theintroduction ofstandardised packaging inAustralia.

HMCustoms andRevenureport(Aug.2014)

“Theconclusion oftheHMCustoms andRevenuwasthat there wasno evidence tosuggest that theintroduction ofstandardisedpackaging would haveasignificantimpactonthesize oftheillicit market.”

UKHighCourt decision onstandardised packaging (May2016)TheKPMGreportindicates arise oftheillicitmarket inAustralia.However,this reportisfunded by thetobacco companies andKPMGitself hassaid that it isamisinterpretation tosuggest that it supportsthecontention thatplain paperpackaging could lead ofitself toanincrease oftobacco smuggling.

Conclusions

• Oneinevery10cigarettesgloballyisillicit.• Don’trelyontobaccoindustryestimates.• Illicittradeisaglobalproblemwhichneedsaglobalsolution.

• TheWHOFCTCIllicittradeprotocolmighthelp.

• Moreinternationalactionisurgentlyneededtoensurethatfreezonesarenotunderminedbyillicitactivities.