Cigarette Smuggling

fctc.org

28th June 2009

The illicit trade in cigarettes costs governments $40.5 billion in lost revenue every year, with losses falling disproportionately on low and middle income countries, and the benefits of international action are likely to far outweigh the costs, latest research has shown.

Released for the opening of the third intergovernmental negotiating body on the Protocol on the Illicit Trade in Tobacco Products (INB-3) in Geneva today,  the reports “How eliminating the global illicit cigarette trade would increase tax revenue and save lives” by the International Union Against Tuberculosis and Lung Disease, and “Cost Benefit Analysis of the FCTC Protocol on Illicit Trade in Tobacco Products” by Paul Johnson and others, for ASH UK, add to mounting evidence that the costs of smuggling and other forms of illicit trade in tobacco are counted not only in the millions of lives lost but also in billions of government revenue lost through inaction.

“The case for coordinated worldwide action against tobacco smuggling and other forms of illicit trade in tobacco has never been stronger,” said Laurent Huber, director of the Framework Convention Alliance (FCA) a global alliance of more than 350 non-government organisations working on the global tobacco treaty. “There is no denying that government delegates arriving in Geneva today are faced with a week of difficult negotiations in the face of the global illicit tobacco trade. But they cannot leave this meeting justifying in action by saying it was too difficult – the costs are simply too great.”

The ASH UK report shows the potential financial and health benefits to the UK of a strong illicit trade protocol. It also provides a methodology that other researchers can use to measure the possible impact of the protocol in their own country. It provides powerful evidence in favour of a strong protocol, suggesting once again that it could lead to major advances in public health and to significant increases in tax revenues to governments across the world.

The International Union Against Tuberculosis and Lung Disease report, the most authoritative report yet produced on the extent of the global illicit trade in cigarettes, includes:

• Updated country level estimates of the illicit cigarette market around the world, using 2007 data or as close to 2007 as available;
• Evidence that higher income countries,where cigarettes are more expensive, have lower levels of cigarette smuggling than lower income countries, contrary to the tobacco industry claim that the overall level of smuggling is dependent on cigarette price;
• Evidence that the burden of cigarette smuggling falls disproportionately on low and middle income countries,where the majority of the world’s tobacco users live; and
• Estimates of the number of lives saved and revenue gained globally in the future if smuggling was eliminated. The report shows that 11.6 per cent of the global cigarette market is illicit, equivalent to 657 billion cigarettes a year and $40.5billion in lost revenue.

According to the report, if this illicit trade was eliminated, governments would gain, in principle immediately, at least $31 billion, and from 2030 onwards save over160,000 lives a year, resulting from an overall increase in cigarette price of 3.9 per cent and a consequent fall in consumption of 2.0 per cent. In just six years over a million lives would be saved, the vast majority of them in middle and low income countries.

The Illicit Trade Protocol is the first agreement to be negotiated under the Framework Convention on Tobacco Control (FCTC), the first global health treaty. Since the opening of the first working group for the FCTC on 25 October,1999, according to WHO estimates, 43,504,658 people will have died from tobacco-related diseases as of 9am, Monday June29, Geneva time.

The FCA believes that the protocol is essential to international progress on tobacco control.Smuggling and other forms of illicit trade in tobacco undermine national attempts to control tobacco use, particularly through taxation on tobacco products.Fighting smuggling and other forms of illicit trade in tobacco saves lives, helps fight organised crime and raises money.

More Information:

Link to “How eliminating the global illicit cigarette trade would increase tax revenue andsave lives”: http://www.fctc.org/index.php?option=com_content&view=article&id=291:inb3-report-saving-revenue-and-saving-lives&catid=222:meeting-resources&Itemid=230

Link to “CostBenefit Analysis of the FCTC Protocol on Illicit Trade in Tobacco Products”:

www.ash.org.uk/illicittradeprotocol/CBA

The FrameworkConvention Alliance- www.fctc.org

17 Jun 09 – www.customs.gov.hk

HK cigarette smuggling Seizures Cases Slightly Up (9.1% Above 2008) After Tax Increase But Also Due To Increased Allocated Manpower By Customs Dept

http://www.customs.gov.hk/eng/statistics_dutiable_e.html

20 April 2009

The Government has today taken another significant step in the fight against tobacco smuggling as Exchequer Secretary to the Treasury, Angela Eagle today signed anti-smuggling agreements with two international tobacco manufacturers.

The agreements – with Philip Morris International (PMI) and Japan Tobacco International (JTI) – complement the legislation that the Government introduced in 2006, requiring all tobacco manufacturers to help prevent smuggling through careful control of their supply chains.

The Exchequer Secretary Angela Eagle, said:

“These agreements are an important new element in the fight against tobacco smuggling. In the last decade we have halved the size of the illicit cigarette market in the UK and by signing these agreements, we are demonstrating that we are determined to continue working with tobacco manufacturers to tackle smuggling.”

Since the UK’s first Tackling Tobacco Smuggling strategy was published in 2000, HM Revenue & Customs and the UK Border Agency have:

• reduced the proportion of illicit cigarettes from 21% in 2000 to 13%;
• seized more than 14 billion cigarettes and more than 1000 tonnes of hand rolling tobacco in the UK and abroad;
• broken up 370 criminal gangs involved in large-scale smuggling;
• prosecuted more than 2,000 people and issued more than £35m worth of confiscation orders.

Notes for Editors

1. Under the new agreements, PMI and JTI are committed to working with the European Commission, the UK Government and customs authorities across the EU to tackle the smuggling and counterfeiting of their products. They will do this through measures which include Know Your Customer rules and track-and-trace technology. The agreements also require PMI and JTI to make payments to the UK authorities if their genuine products are seized by HMRC.

2. Further details of the two agreements can be found in the following European Commission press releases:

• European Commission and JT International (Japan Tobacco) sign 15-year Agreement to combat contraband and counterfeit cigarettes
• European Commission and Philip Morris International sign 12-year Agreement to combat contraband and counterfeit cigarettes

3. The Government announced its intention to conclude negotiations on signing these agreements at the time of the 2008 Pre-Budget Report, when it publishedTackling Tobacco Smuggling Together: An Integrated Strategy for HM Revenue and Customs and the UK Border Agency (HMRC website). This document sets out the Government’s record on and future plans for tackling tobacco smuggling.

4. In April 2009 HM Revenue & Customs established inland detection teams to target the illegal trade in tobacco, alcohol, and oils. (HMRC Press Notice no. NAT 29/09) The UK Border Agency operates detection functions at UK borders having brought together officers staff from HM Revenue & Customs, the Border and Immigration Agency and Foreign and Commonwealth Office visas. UKBA began operation on 3 April 2008 and was officially launched by the Home Secretary at Gatwick Airport. Its formation was announced in November 2007 (Home Office Press Notice no. 178/2007).

Brussels

13 March 2009

The European Anti-Fraud Office (OLAF) announced today that one of the principal suspects in a major international cigarette smuggling investigation has been indicted by the courts in the USA for his part in defrauding European taxpayers of several million EURO in taxes and customs duties.

The indictment in the US brings OLAF a step closer to concluding a six year investigation which has spanned 9 Member States and several countries in Central and South America as well as the USA.

The suspect, who is alleged to have played a pivotal role in shipping illicit cigarettes from Miami to a number of countries in the EU, has been released on bail and is currently under house arrest pending trial.

OLAF-Director General Franz-Hermann Brüner underlined that this is a very complex case which has led to significant losses to the European Community and Member States’ budgets.  Bringing this major fraud to an end has undoubtedly prevented losses of several hundred million EURO to the European taxpayer. He stated that cooperation with U.S. Immigration and Customs Enforcement (ICE) and the Department of Justice could not have been better. “In 1997, the European Commission and Member States signed an Agreement on Cooperation in Customs Matters with the United States of America. This case is an excellent example of the Agreement in operation and demonstrates the commitment of all the parties to the Agreement to work together to combat international organised crime.”

Mr Brüner also emphasised the excellent cooperation that OLAF had received from the authorities in the European countries targeted by the fraudsters. “In particular, I would like to thank the Irish Revenue’s Customs Service for their outstanding cooperation from the outset.

I would also like to thank the Spanish Guardia Civil and the German Customs Investigation Service (ZKA) for the vital role they have played in the investigation. This case is a truly outstanding example of international cooperation”.

A press release of 6 March 2009, issued by the United States Attorney for the Southern District of Florida and the Special Agent in Charge, U.S. Immigration and Customs Enforcement [ICE], Office of Investigations, Miami stated the following (names of principal deleted):

INDIVIDUAL INDICTED AS PART OF A LARGE SCALE

CIGARETTE SMUGGLING AND MONEY LAUNDERING OPERATION

R. Alexander Acosta, United States Attorney for the Southern District of Florida, and Anthony V. Mangione, Special Agent in Charge, U.S. Immigration and Customs Enforcement (ICE), Office of Investigations, announced that [X]. was arraigned on an Indictment returned by a federal grand jury in Miami yesterday, on charges of conspiracy to commit mail fraud and wire fraud in violation of 18 U.S.C. § 1349, mail fraud in violation of 18 U.S.C. § 1341, and smuggling goods out of the United States in violation of 18 U.S.C. § 554.  [X], who had been arrested pursuant to a complaint on February 19, 2009, was released pending trial on bond on February 20, 2009.

According to the Indictment and an affidavit filed with the complaint, the investigation revealed that an organization smuggling cigarettes out of the Port of Miami operated out of Spain, Great Britain, Ireland and Miami, Florida.  [X] ran the Miami portion of the operation.  [X] arranged for the purchase of hundreds of cases of cigarettes from Panama and the transportation of those cigarettes into the Port of Miami.  [X] then arranged for the purchase of other cargo, such as wood flooring and building insulation material, to be used as cover loads to conceal the cigarettes which were re-packed with the cover load material.  Under the direction of [X], false bills of lading were prepared that only declared the cover load material.  These bills of lading were presented to the shipping companies and overseas customs services.  Customs duties and taxes were based on the falsely declared cargo, thus no duties or taxes were paid on the cigarettes. Information contained in the affidavit includes that on two separate occasions, [X] transported approximately 13.3 million cigarettes in shipments, one to Dublin, Ireland and one to Felixstowe, Great Britain.  Based upon the false bills of lading, custom duties and taxes paid on these shipments were approximately, $2,900 and $2,500, respectively.  The true customs duties and taxes that should have been paid on these shipments were $2.1 million each.

Mr. Acosta thanked Immigration and Customs Enforcement, Office of Investigations, and the European Anti-Fraud Office based in Brussels, Belgium for their joint outstanding work on this case.  Extensive assistance was provided by law enforcement agencies from Ireland, Great Britain, Germany and Spain as well as the U.S. Department of Justice, Organized Crime and Racketeering Section, Criminal Division.  The case is being prosecuted by Assistant U.S. Attorney Cynthia Stone.

Message from Clear The Air:

Tobacco smuggling is currently punishable under the Dutiable Commodities Ordinance with a fine of $1,000,000 and 2 years’ imprisonment, and under the Import and Export Ordinance with a fine of $2,000,000 and 7 years’ imprisonment. If counterfeit cigarettes are involved, the offender is also liable to a fine of $500,000 and 5 years’ imprisonment under the Trade Descriptions Ordinance. Enhanced sentence and confiscation of crime proceeds, under the Organized and Serious Crimes Ordinance are applicable if the offences are classified by the court as an organized crime.