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Cigarette Smuggling

World ignores WHO’s treaty on illegal tobacco trade

Aug 26th, 2016
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http://www.washingtonexaminer.com/world-ignores-whos-treaty-on-illegal-tobacco-trade/article/2600245

The World Health Organization is still struggling to get countries to adopt a treaty committing countries to wipe out illegal trade in tobacco products, nearly four years after the international health body adopted it and asked countries to ratify it.

The treaty, adopted in November 2012, doesn’t require most countries to do what they already do to stop illicit trade in tobacco products, and generally requires that they put in place “effective” measures to meet that goal.

But it’s mostly been met with yawns from WHO members. As of this year, 54 countries have signed onto it, but almost four years after the signing ceremony, just 19 countries have taken steps to implement it.

Many of them are smaller countries, like Burkina Faso, Congo, Gabon, Latvia and Turkmenistan. The European Union has approved it, but most individual member countries still have to ratify it before that means anything.

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The U.S. is not a signatory.

The lack of interest forced the WHO to once more delay the implementation of the treaty this November in India. Under the treaty, 40 countries have to ratify it before it can be implemented.

A WHO official explained in mid-August that while a meeting to mark the implementation of the treaty “cannot be held in India” this November, he was hoping that other countries would soon ratify the deal. “Countdown to the Protocol entering into force is very much closer than the figures might at first indicate,” said Dr. Vera da Costa e Silva.

Skeptics of the treaty aren’t so sure. David Williams, president of the Taxpayers Protection Alliance, say the WHO has been fighting tobacco for the last several years, at a time when many think the WHO should stick to its more traditional missions.

“The WHO is struggling right now,” he told the Washington Examiner. “They’re not very popular. People want them to focus on Zika, focus on Ebola.”

Williams’ group was one of several who criticized the WHO back in June for pushing against tobacco so hard that it issued a direct warning people in Syria that smoking will kill them — right in the midst of its bloody, five-year civil war that has killed and displaced hundreds of thousands of people.

“Syrians are fleeing for their lives yet these appalling unelected puritans think now is the time to tell them not smoke,” said one critic of the WHO from the United Kingdom.

Williams added that the WHO’s efforts to crack down on tobacco use in general are likely leading to increased trade in black market tobacco products.

“When you have an organization that wants to tax this product, the black market wants to take advantage of that,” he said. “Guys, you created this problem.”

For now, the WHO is likely to continue pressuring smaller countries to ratify the deal, in the hopes that larger countries follow. But it’s not clear whether or when the group will reach the 40 countries needed to implement it.

The day Pravin Gordhan took on big (illegal) tobacco

Aug 25th, 2016
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Gordhan and his colleagues’ investigations of the illicit tobacco trade – which appears to involve top politicians and businessmen – is possibly the reason they’re being targeted now.

http://www.citizen.co.za/1263756/the-day-pravin-took-on-big-illegal-tobacco/

Finance Minister Pravin Gordhan must be wondering whether one of his old plans while he was in charge of the SA Revenue Service (Sars) – combating the illegal tobacco trade in South Africa – was worth it.

Because that is apparently where the nightmare he finds himself in now began.

While Gordhan will not be reporting to the Hawks this afternoon, it appears as if former Sars deputy commissioner Ivan Pillay, together with former group executives Pete Richter and Johan van Loggerenberg, will be knocking on Brigadier Nyameka Xaba’s door, where they will be informed of their rights under the constitution and the charges against them.

Pillay, Richter and Van Loggerenberg will be kept in separate rooms as, one by one, they are informed of their rights under the constitution and the charges against them.
Van Loggerenberg has urged the public not to overreact to speculation.

“As early as 31 July 2014, Sars was on record that the initial attacks on Sars, me and investigative units that I managed, were driven by persons associated with the tobacco industry,” Van Loggerenberg told The Citizen.

“I have continuously offered my cooperation to the authorities since as early as 2014. I have nothing to hide and deny any wrongdoing. As stated before, I have no doubt that if the Hawks conduct their investigations without fear or favour, the truth shall ultimately triumph.”

Gordhan and the others have to decide if they are willing to answer questions or make a statement, or simply inform Xaba they wish to testify in court.

The “rogue unit” narrative at Sars has been well documented and discredited. However Van Loggerenberg’s claim the tobacco industry was behind the destabilisation of Sars is startling.

Sars wars: where there’s smoke

If the Hawks need more information, it needs to look at pending court action between independent cigarette manufacturer Carnilinx and British American Tobacco (BAT), Forensic Security Services (FSS) and eight other respondents.

Former police officer and FSS investigator Daniel van der Westhuizen states on behalf of Carnilinx in its founding affidavit he was the project manager of operation “Knysna”, which was dedicated to disrupting Carnilinx’s operations.

In the affidavit, he claims stakeholders in the project were the “South African Police, Department of Priority Crimes Investigation, Crime Intelligence Gathering, Asset Forfeiture Unit, Sars, Customs, and the Traffic Control Policing Unit.”

He further claims BAT agents were paid up to R5 000 for disturbing Carnilinx operations.

“BAT SA paid an amount in excess of R150 million to the spies, through FSS,” said Van der Westhuizen, referring to “spies” recruited by FSS.

Van der Westhuizen stated further that if BAT SA were investigated properly, authorities “may well recover tens of billions of rands which are due to the fiscus.”

Spy games

According to a letter from former Fair Trade Independent Tobacco Association (Fita) chairperson Belinda Walter’s attorney in May 2014, it was between December 2012 and January 2013 that Walter was introduced to BAT, and the Tobacco Institute of SA (Tisa) and their private security firm FSS, and then subsequently to BAT United Kingdom.

“As a direct result of Ms Walter’s relationship with representatives of the State Security Agency (SSA),” Walter then entered into an agreement with BAT.

“Walter would provide BAT with information of and concerning the business operations, illicit and/or criminal activity of independent cigarette manufacturers who were clients of Ms Walter and/or members of the Fita (of which Ms Walter was the chairperson from its formation until November 2013),” the letter to Ewan Duncan of BAT declares.

For her work, Walter was to be paid £3 000 per month by BAT “to provide and share such information” with BAT, which would “be used by BAT in conjunction with SSA and other South African law enforcement agencies in order to combat criminality in the tobacco and cigarette industries”.

In the subsequent letter to BAT, Walter threatens to sue BAT for nonpayment of £5 000, and was also going to sue the SSA for misrepresentation, “as BAT, SSA, and the other South African law enforcement agencies were not sharing the information for the purposes alleged …” and “BAT required the information for purposes of industrial espionage” the letter continued.

Shortly afterwards, Walter was allegedly approached by members of Sars’ Tobacco Task Team and offered immunity from prosecution in exchange for dropping the civil action against BAT and the SSA.

However, in June 2014, rumours of a “rogue unit” within Sars began hitting the media.

Walter, a lawyer by profession, was allegedly paid in “Travelex” cards, which meant no cash trail for Sars and therefore no tax.

Then in July 2014, Walter’s SSA alleged handler told Walter “he represented interests of people who sought to replace the leadership of Sars and minister of finance”. The claim was circulated to various people within Sars on email by Walter on July 20, 2014.

At the time, Nhlanhla Nene was finance minister and Ivan Pillay the acting Sars commissioner.

In September, Tom Moyane was parachuted in as Sars boss after the crescendo of “rogue unit” articles grew.

The denials

“The illicit tobacco trade in South Africa, which accounts for nearly a quarter of the overall market, is a growing problem for our consumers and our business. For several years, we have endeavoured to assist the law enforcement agencies in their efforts to combat this illicit trade,” BAT said in a statement to The Citizen.

“We are currently involved in litigation with certain manufacturers, who have made claims that some of our activities went beyond our legitimate interest in combating the illicit trade.

“We are conducting an investigation with the assistance of an external law firm and if we were to find that illegal activity had occurred, we would, of course, take appropriate action. However, given that our investigation is ongoing and that some of the allegations are the subject of legal proceedings, it would not be appropriate for us to comment any further on them,” BAT stated.

Numerous attempts to engage Walter on the allegations proved fruitless.

Rot starts at the top

In a report entitled “Project Broken Arrow”, by an unnamed SA Revenue Services (Sars) official, it is brought to the attention of its former group executive Johann van Loggerenberg (JVL) and former deputy commissioner Ivan Pillay (IP) that there were efforts by “certain individuals”, who wished to destabilise and disorganise the organisation.

These “individuals” wanted to damage the reputation and stability of the targeted functionaries and that of Sars as a state institution, according to the document as seen by The Citizen.

The official claims to have met on several occasions in 2009 with former Sars employee Mike Peega (MP).

“…He duly informed me of his intentions to merge with other individuals in order to ‘expose’ and possibly ‘take care’ of JVL and a host of other significant individuals in the NRG [National Research Group],” it states.

“This would ultimately include the then commissioner of Sars and now Finance Minister Pravin Gordhan.

“MP spoke of a number of interested individuals inside Sars who are more than willing to combine efforts to target IP and JVL.

“It must be borne in mind that, although the aforementioned names of people were identified, NO other way of corroboration was actually done.

“The aforementioned individuals have allegedly met on a number of times at different locations before I could be approached.”

President Jacob Zuma in the report is often referred to as ‘old man’.

In an alleged timeline of events it is states:
• August 2009, a call was received from MP to meet.
• “MP came to my house and he told me that there were highly influential people that would like to meet with me.”
• The official then alleges that MP was referring to the late Leonard Radebe (LR), Mabheleni Ntuli (MN) and Bizoski Manyike (BM).

He continues:
• The following day… he came back to my house… at around 8am and he was driving a greenish Volvo SUV.
• He told me we were to meet with LR and BM for a discussion.
• We met LR alone at the House of Coffees in Silver Lakes at exactly 10 in the morning…
• BM did not show up.

Iraqi mission staff fined over cigarette smuggling

Aug 23rd, 2016
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http://www.swissinfo.ch/eng/society/up-in-smoke_copy-of-iraqi-mission-staff-fined-over-cigarette-smuggling/42392164

Two officials working at the Iraqi diplomatic mission in Geneva have received stiff fines for a huge cigarette smuggling scam. Some 600,000 packets of cigarettes were sold on the black market in northwest France.

The two Iraqi permanent mission staff members were fined CHF170,000 ($177,000) and CHF120,000 for the cigarette smuggling ring, which owed CHF2.4 million in unpaid tax.

The Federal Customs Administration on Monday confirmed a SonntagsZeitung report which stated that they had abused privileges normally reserved for diplomats and illegally resold duty-free cigarettes in France over a three-year period.

As smuggling has a seven-year statute of limitations, almost a third of the volume could not be sanctioned. The federal authorities also rejected a request from the Iraqi mission to reduce the fine of one of the employees, who has since been fired.

According to the customs office, the smugglers ordered the cigarettes from a firm in northern Germany which specialises in duty-free deliveries for diplomats, embassies and international organisations. They were then sent to a delivery firm in French-speaking Switzerland.

The goods were subsequently transported to a rented warehouse in Ferney-Voltaire in France, not far from Geneva Airport. From there the cigarettes were sent to the city of Rennes in northwest France, where they were resold on the streets.

The smugglers ordered cigarettes not only on behalf of the Iraqi mission, but also on behalf of the permanent missions of Hong Kong, Bahrein, Saudi Arabia and Oman.

Swiss police were tipped off when the Hong Kong Chamber of Commerce complained to the Swiss authorities that unknown individuals had ordered cigarettes on their behalf.

As cigarette prices rise, so does smuggling

Aug 16th, 2016
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After the government raised cigarette prices from 2,500 won ($2.27) a pack to 4,500 won in January 2015, the number of tobacco products illegally distributed in Korea rose significantly.

The government caught 3.64 billion won worth of cigarettes smuggled into the country last year, the Korea Customs Service (KCS) said. The figure soared to 6.66 billion won this year through June.

“In the past, most of the illegally distributed cigarettes came from those given to sailors or workers at ports, but there are more smuggling cases reported after the price increase,” said an official at the customs service.

The government distributes duty-free cigarettes to sailors and foreign workers at dockyards at cheap prices since the workers often travel abroad. Since the amount of tobacco given to them was sizable, the workers profited by selling them to stores that illegally sell cigarettes.

However, cheating has become more sophisticated and systematic, including smuggling using shipping containers, since the price of cigarettes has gone up. Smuggling Korean cigarettes from overseas has risen since the government’s price hike.

In fact, the price of a pack of cigarettes only accounts for 26 percent of the retail price, or just 1,182 won. Another 54.5 percent of 4,500 won are taxes and the remaining government charges are used to promote health across the country.

Park Myung-jae, a lawmaker from the ruling Saenuri Party, said tax losses from illegally distributed or smuggled tobacco products are projected to reach to between 70 billion won and 210 billion won this year. “Tobacco consumption in Korea is around 3.75 billion packs a year and experts estimate that up to 1.7 percent of the total tobacco consumed here in Korea is illegally distributed,” he said.

Assuming the rate of illegally distributed tobacco products to be 0.6 percent, yearly losses from tax evasion reaches 74.6 billion won in 2016, and the amount rises to 186.4 billion won if 1.5 percent of merchants evade taxes.

On a recent visit to a small grocery store that sells foreign snacks and nutritional supplements in Namdaemun Market in Jung District, central Seoul, a store owner in her 50s was asked for cigarettes. She went to the other side of her store where boxes were stacked. Inside of the covered box, there were some 50 cartons of cigarettes. Outside of the box, “Made in Japan” and “Busan” were written in English.

“Korean tobacco is 34,000 won and it is 37,000 won for foreign one,” she said. “If you can’t find the one you want then I will bring it from the back.”

A reporter purchased a carton of Korean cigarettes for 34,000 won and another carton of a foreign brand for 37,000 won, some 25 percent cheaper compared to the retail prices around the country.

One tobacco company in Korea looked at those products and said they all were legitimate cigarettes and not fake ones, but noted that they are distributed illegally. In Korea, cigarette merchants must have licenses to sell and cannot sell for less than 4,500 won a pack.

Illegally distributed tobacco products are being sold at various places, including Namdaemun Market, Gukje Market in Busan, Yankee Market and Chinatown in Incheon. It is hard to find them through a web search, but stores’ locations and business hours are introduced in smokers’ communities on the internet. An industry insider said that the number of communities is growing as more smokers are seeking to buy tobacco at lower prices since the price hike.

Customs officials said they caught eight people who smuggled 1.41 million packs of cigarettes worth about 6.4 billion won last Tuesday. The smugglers didn’t report the cigarettes that were in the containers they were moving.

“We were surprised that such a method was actually used since we doubted this would ever happen when the government announced its plan to raise the price,” an official at the KCS said.

An industry insider, who has been dealing with illegally distributed tobacco for about 20 years, said the cheating methods are becoming more sophisticated.

“In the past, the only problems we faced were fake cigarettes made in China and peddlers who hid duty-free cigarettes they bought overseas in their suitcases to bring them into the country,” he said. “After the price hike, we are finding more numbers of large-scale smuggling cases.”

According to him, the custom declaration process for containers shipped overseas is completed a few days before the actual departure date. After the declaration, smugglers remove cigarettes that were supposed to be exported legally during the time between the declaration and departure. Such smugglers ship empty containers and distribute the tobacco across the country.

“These products head to various places that sell cigarettes illegally such as nightclubs and billiards,” an industry insider said.

Furthermore, there are middlemen overseas that buy legally exported Korean tobacco during the distribution process and ship it back to Korea. According to the source, the majority of the Korean tobacco heads to Saudi Arabia first. Then it is distributed to places like the Middle East, Russia and Eastern Europe. During this process, brokers and middlemen who buy products and take charge of distributing Korean tobacco to certain countries ship it back to Korea.

KCS recently caught smugglers using a similar cheating method. According to the customs service, a 53-year-old man surnamed Cho and four others bought 776,000 packs of exported Korean cigarettes in the Philippines at low prices from November 2014 to March of this year. They shipped them in a container to Korea, claiming the containers were carrying wooden chairs.

“There were no reasons for this type of crime to occur when the price was 2,500 won,” an industry insider said. “Smugglers didn’t have any reasons to do so by taking risks to make a small profit, but they are more willing to do so now since the price went up to 4,500 won.”

According to the KCS, only about 2.5 percent to 3.5 percent of containers entering Korea are inspected at the ports. Officials use X-ray machines as well, but the cost of the machines is a few billion won, which makes it hard for the government to operate the machinery on a large scale.

“We do understand that only a few containers go through inspections, but we do have a risk management system that focuses on containers or shippers that are more likely to commit such crimes,” said an official at the KCS. The agency labels certain countries in Southeast Asia as crime-ridden spots and implements tougher measures to catch them.

“It is very rare for smugglers to get actual imprisonment even after they are caught and we believe this is the reason why smuggling cases continue to go up,” an industry insider said. The KCS, on the other hand, said that smugglers face prison terms of up to five years and fines or tax levies as well.

Meanwhile, Rep. Park Myung-jae of the Saenuri Party proposed a bill to track cigarettes to reduce illegal distribution. Park’s proposed bill includes plans to attach special barcodes and tracking devices for each pack of cigarettes.

“The bill needs to be passed as early as possible in order to reduce the tax evasion from the illegally distributed tobacco,” Park said.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]

British American Tobacco ‘bribed’ police – affidavit

Aug 16th, 2016
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http://www.news24.com/SouthAfrica/News/british-american-tobacco-bribed-police-affidavit-20160816

Johannesburg – JSE-listed conglomerate British American Tobacco (BAT) and the private security firm it has contracted have been accused of running a scheme of bribing South African police officers, spying on competitors using police cameras, and even sourcing confidential business information on one of its rivals from officials in the SA Revenue Service (Sars).

The latest explosive allegations against BAT are contained in a sworn affidavit made by a former employee of Forensic Security Services (FSS), a private security outfit run by former apartheid era intelligence agent Stephen Botha.

According to the affidavit, a copy of which has been leaked online along with scores of other documents that purport to prove BAT’s unlawful spying on local competitors, BAT pays FSS about R150m a year, ostensibly to help fight the illegal cigarette trade in South Africa.

However, if the former FSS employee is to be believed, FSS, with the full blessing of senior BAT executives, had instead been running a massive unlawful spying and disruption programme aimed at ensuring it kept hold of the lion’s share of South Africa’s multi billion rand tobacco market.

Court application

The former FSS employee’s affidavit forms part of a high court application against BAT by Carnilinx, a producer and distributor of cheaper cigarette brands.

“In hindsight, the purpose of my employment was for BATSA (BAT’s South African filial) to deploy my investigative skills together with backup from corrupt SAPS and SARS officials in order to disrupt the business of BATSA’s competitors, Carnilinx being one of them,” reads an excerpt from the affidavit.

The ex FSS employee then goes on to claim, in startling detail, how BAT and FSS allegedly broke the law.

Some of the most shocking allegations contained in the affidavit include the following claims:

* BAT and FSS ran a secret bribery programme, in accordance with the strategies contained in a BAT document entitled the Project Management Plan (PMP), whereby law enforcement officials were “paid up to R5 000 a month for co-operating with FSS and BATSA in disturbing Carnilinx’s trading operations”.

The affidavit goes on to explain that police officials were often fed false information by members of FSS’s network of agents across the country, which then prompted police to harass and even arrest Carnilinx employees on suspicion of being in possession of illegal tobacco products.

“Thus, each law enforcement agent, whether it is from SARS, JMPD (Johannesburg Metropolitan Police Department) or SAPS, would be on BATSA’s informal payroll, receiving a minimum of R2 000 each per month up to R5 000 per month. Effectively, this was a bribe by BATSA to corrupt police officials who it regarded as trusted,” reads the affidavit.

* FSS ran an extensive unlawful spying programme in order to monitor Carnilinx distribution vehicles, facilities and employees. This included securing the use of an entire CCTV room at the JMPD’s CCTV monitoring facility in Johannesburg by means of an agreement with the company that manages the control rooms on behalf of the City of Johannesburg (CoJ).

“(The company running the control rooms) has made available to FSS, since approximately 2012, an entire room for FSS(‘s) sole usage which would allow FSS access to all of the City’s cameras. This then gave FSS an opportunity to obtain footage of all vehicles that were used by Carnilinx, together with their registration numbers. A special camera, camera number 5, was strategically positioned so as to allow FSS to view Carnilinx’s premises,” the ex FSS employee alleges.

* A senior SARS official, whose name is mentioned in the affidavit, was in “constant communication” with FSS staff.

“BATSA had arranged for SARS . . . to arrange regular monthly inspections at Carnilinx. During the course of the inspection, Carnilinx would deliver to SARS . . . all the production sheets, reports of production, confidential information . . . as well as sales figures,” reads the affidavit, which then goes on to claim that the SARS employee had regularly met with a FSS agent at “the Wimpy in Edenvale”, where all of Carnilinx’s business information was given to the FSS agent by the SARS official.

According to the affidavit, senior BATSA employees, all named in the document, would ultimately take possession of the Carnilinx documents.

* FSS unlawfully placed tracking devices on Carnilinx’s delivery trucks in order to track their movements. The purpose of this according to the affidavit, included “to keep a monitor on the vehicle whilst it is moving so as to communicate with the relevant law enforcement officers such as SAPS, JMPD and SARS officials to stop the truck on the highway, seize the goods and arrest the drivers”.

The ex FSS employee also explains in details how the tracking devices were put on the vehicles by a FSS operative, who is named in the affidavit, mostly at night.

“(Name of FSS employee) would wear an all-black cat suit on such occasions and all persons present with him would be required to wear gloves.”

Response

A BATSA spokesperson says the company will “under no circumstances… condone illegal behaviour”.

The company says it is “currently involved in litigation with certain manufacturers, who have made claims that some of our activities went beyond our legitimate interest in combating the illicit (tobacco) trade”.

“We are conducting an investigation with the assistance of an external law firm and if we were to find that illegal activity had occurred, we would, of course, take appropriate action,” says the spokesperson.

The company did not want to provide detailed comment on the allegations raised in the affidavit.

“. . . given that our investigation is ongoing and that some of the allegations are the subject of legal proceedings, it would not be appropriate for us to comment any further on them.

In a statement issued by its media office, Sars maintained that it “considers any alleged act of corruption, whether perceived or actual, in a serious light”. It did not respond in detail to queries around the Sars officials’ alleged involvement in providing Carnilinx’s business information to BATSA.

“The department will not dignify any enquiry based on information which you are unlawfully in possession of with a response,” said SAPS spokesperson Brigadier Mashadi Selepe.

“Any such allegations will be investigated by the authority competent to do so in accordance with the laws of our country,” added Selepe.

JMPD spokesperson Wayne Minnaar said only staff of the company that operated the CCTV facility and JMPD officers were allowed access to its CCTV rooms.

“The JMPD does not tolerate any form of bribery or corruption, as officers are expected to conduct themselves in a professional and proper manner at all times,” said Minnaar.

The FSS was approached for comment, but had not responded by time of publication.

* This article was updated at 14:30 on Tuesday to add the JMPD’s response.

Reject tobacco industry’s claims about tobacco taxes that increases tobacco smuggling, one of its business strategies

Aug 13th, 2016
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‘The tobacco industry is complicit in illegal trade. Smuggling is one of its business strategies.’ – WHO Director-General Dr. Margaret Chan, once stated at the 16th World Conference on Tobacco or Health.

http://www.asiantribune.com/node/89364

According to the Article 6 of the Framework Convention on Tobacco Control (FCTC), the most effective approach to controlling the spread of tobacco use is through policies that directly reduce the demand for it. There are many valuable ways of going about this, from advertising bans to public smoking prohibitions, but the most potent and cost-effective option for governments everywhere is the simple elevation of tobacco prices by use of consumption taxes.

The tobacco industry claims that “Higher tobacco taxes will increase smuggling. Tax increases on tobacco products will lead to increased smuggling, illegal cigarette production and related criminal activity.”

If any other person brings in the same argument to obstruct the proposal of the President Maithripala Sirisena, submitted recently to the Cabinet, to increase tax on cigarettes at 90 percent, can we just ignore that the tobacco industry is ‘not behind this deal’?

Why this person is soft-hearted towards this multi-billion industry, when poor people are down trodden?

The truth behind this lame excuse is the following;

Tobacco taxes are not the primary reason for cigarette smuggling and cigarette tax avoidance.

A recent study of illicit trade in Europe reinforced earlier findings that factors other than price influence illicit trade.

These include:

How easy it is for smugglers to operate in a country, including the cost;

The participation of the tobacco industry;

How well crime networks are organized;

The likelihood of being caught, and the punishments, and

Corruption levels.

Many countries have significantly increased tobacco taxes without experiencing changes in smuggling/illicit productions.

Experience shows that these illegal activities can be controlled by legislative or regulatory means (e.g. use of prominent tax stamps, serial numbers, special package markings, health warning labels in local languages) and by customs and law enforcement (e.g. improving corporate auditing, better tracking systems, and good governance) and stronger penalties for violators. Revenue generated by a tax increase can finance these activities.

Higher tobacco taxes produce higher tax revenues.

The demand for tobacco products is inelastic, which means that the proportionate reduction in demand for tobacco is smaller than the proportionate size of tax increase.

So, even though demand is reduced when taxes and prices increase, the higher tax rate will result in overall increases in tax revenues.

Crackdown by Hong Kong customs nets illegal cigarettes worth HK$57 million

Aug 10th, 2016
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Customs officers made this year’s largest seizure of contraband in the city on Tuesday, with an estimated value of HK$7.3 million

Contraband cigarettes worth more than HK$57 million have been confiscated by Hong Kong Customs in 12 cases of tobacco smuggling from the mainland so far this year, a customs official said on Wednesday.

Details were revealed by assistant superintendent Lau Yuk-lung ,who heads the Customs division investigating illicit cigarettes, after customs officers made this year’s largest seizure of contraband in the city on Tuesday.

The HK$7.3 million haul was discovered when officers intercepted a Hong Kong-bound container truck at Man Kam To Immigration Control Point. The import document claimed it carried more than 800 cartons of assorted goods such as metalware and clothes.

“When the container was opened for inspection, illicit cigarettes were found stashed in 160 cartons,” the assistant superintendent said.

He said initial investigations showed the consignment was intended for local consumption.

The Hong Kong driver, 28, was arrested and the truck was impounded. The driver was released on bail pending further investigations.

Lau believed the seized cigarettes were intended to supplement the illegal market after customs officers seized HK$3.8 million worth of illegal cigarettes from another cross-border truck at Lok Ma Chau border checkpoint on July 20.

“We are still investigating whether there is the same cigarette-smuggling syndicate behind the two cases,” he said.

The two cases were among 12 cross-border tobacco smuggling incidents uncovered by the Customs and Excise Department so far this year. Eleven people were nabbed in connection with the 12 cases.

Lau stressed that there was no evidence to indicate that there was an increasing trend of illegal trade of untaxed cigarettes in Hong Kong. “The situation is under control,” he added.

Meanwhile, customs officers mounted a city-wide operation against illegal cigarettes over the past two weeks.

During the operation, 47 suspected tobacco traffickers and buyers, aged from 14 to 82, had been rounded up with the seizure of HK$150,000 worth of contraband cigarettes recovered. Officers also uncovered eight warehouses used to store 450,000 illicit cigarettes worth HK$1.2 million across the city, and arrested seven people.

Under the Dutiable Commodities Ordinance, the maximum penalty for selling, buying or dealing with illicit cigarettes is a two years’ imprisonment and a HK$1 million fine.

Lau said they would continue to carry out stringent enforcement against illegal cigarette smugglers.

Members of the pubic are urged to call Custom’s 24-hour hotline on 2545 6182 to report suspected illicit cigarette activities.
________________________________________
Source URL: http://www.scmp.com/news/hong-kong/law-crime/article/2001877/hong-kong-customs-crackdown-nets-illegal-cigarettes-worth?edition=international

Police bust gang which made illegal tobacco-making machines

Aug 3rd, 2016
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http://www.shanghaidaily.com/metro/society/Police-bust-gang-which-made-illegal-tobaccomaking-machines/shdaily.shtml

SHANGHAI police have busted a seven-member gang which produced and sold illegal tobacco machines nationwide, Shanghai Television reported yesterday.

In China, tobacco production and sales are strictly under state control.

In May, local police were tipped off about a suspect surnamed Zhai in Jiading District.

Over the next two months, police discovered that Zhai and other gang members had an assembly of tobacco-making machines and sold them to other provinces like Fujian, Liaoning and Guangdong.

Police eventually busted the gang on July 12 in Shanghai and Fujian Province and seized 19 tobacco machines.

According to police, the gang had been running the business since October 2014. They bought the machine parts from other places and hired people to assemble them in Jiading. These machines were sold at prices ranging between 250,000 yuan to 400,000 yuan.

A machine of this kind can produce 2,000 cigarettes a minute. In a year, it can produce cigarettes with a value of 10 million yuan.

Price increase hurts British American Tobacco’s results

Jul 27th, 2016
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British American Tobacco (M) Bhd’s (BAT) second-quarter financial performance was hurt by the continued impact of the November 2015 excise-led price increase, as well as the reduced consumption during the fasting month.

The company remains concerned with legal volumes continuing to be impacted by the current rampant illegal cigarette trade after the unprecedented excise increase in November last year that saw consumers down-trading within the legal market.

It cited a market research done by the Confederation of Malaysian Tobacco Manufacturers last December that discovered close to one out of two packs of cigarettes sold in the country was illegal.

The company said in a press release that the total legal domestic market experienced a volume decline of 26.3% in the first half of 2016, and pursuant to that, it saw a contraction in its domestic and duty-free volumes by 28.9% versus the first half of last year.

“The overall volume reduction and its consequent escalating cost pressures resulted in a total revenue decline of 16% and gross profit of 21.5%, both when compared to the first half of 2015.

“This fall in volumes is principally driven by the steep excise increase in November 2015 and the industry has yet to see any signs of recovery,” said BAT managing director Erik Stoel in the press release accompanying the results.

The company saw its second-quarter to end June net profit declining 78.2% year-on-year (y-o-y) to RM47.72mil, while revenue also saw a y-o-y drop of 11.5% to RM962.58mil.

The company has declared a dividend of 45 sen per share, which was a decline from the 78 sen per share dividend in the same period a year ago.

EU has chance to stop illegal tobacco trade

Jul 27th, 2016
by Editor.
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The trade in illicit tobacco is a massive problem, but the European Commission has been presented with a golden opportunity to strike a blow against the smugglers. But it must look long-term, writes Eric Lequenne.

http://www.euractiv.com/section/health-consumers/opinion/eu-has-chance-to-stop-illegal-tobacco-trade/

Eric Lequenne is International Business Development Manager at Worldline.

According to KPMG, illicit tobacco accounts for up to 12% of all cigarettes and more than 58 billion cigarettes in the EU alone. Aside from the obvious public health risk of illicit cigarettes flooding the EU, there’s a huge impact on tax revenues: as much as €12.5 billion a year. Those billions could go towards schools, infrastructure or tax cuts. That hurts us all, slowing growth, reducing competitiveness and costing jobs.

Cigarettes are among the top five illegally-traded products alongside drugs, arms, fuel and diamonds. By market share, smugglers run the third-largest tobacco business in the world.

So it’s understandable why the European Commission is focused on tackling the issue through the revised EU legislation on Tobacco Products (EUTPD), adopted in 2014. It is a good example of product-specific legislation, as it aims to protect public health, while improving the internal market for tobacco and related products. In this context, the EUTPD introduces new requirements to combat illicit trade that will be made operational through implementing acts on tracking, tracing and security features, expected to be finalised in late 2017.

The tobacco industry, its suppliers, law enforcement authorities, member states, and the EU should work together to eliminate this illicit trade. Everyone agrees that Europe needs a solution that can be implemented quickly, and meets the objectives of the Tobacco Products Directive. We need a system that encourages competition – flexible and effective solutions based on common standards. This will strengthen cooperation between enforcement, manufacturers, and others in the supply chain. We also need adequate control in place, and penalties for those who fail to comply, or simply cheat.

The department leading efforts on tobacco is DG SANTE. To help reach a decision, an independent consultancy was asked to conduct a feasibility study into different possible solutions that would meet the conditions of EU legislation.

The result? A report that correctly identified the need for universal standards, but failed to properly consider the emerging Track&Trace technologies being tested in the real world. The report also failed to encourage technological progress through competition.

We thus welcome the news that DG SANTE has commissioned a further study into the options available. It’s an opportunity to get it right and come up with a future-proof solution to the problem – a solution with a fighting chance of getting ahead of the criminals who feed off the trade.

Imposing a single solution across the EU rather than defining open standards may seem superficially attractive. But the real-world implications are significant – and highly negative, if the chosen approach stifles innovation and competition among service providers. The key to fighting this battle – and winning it – is to supercharge the power of innovation. This means working with third parties to ensure the solutions compete with each other, continue to improve, and respond to changing threats – while meeting basic technical standards.

The World Health Organisation’s (WHO) Framework Convention on Tobacco Control (FCTC) and its Protocol to Eliminate the Illicit Trade in Tobacco Products provided a good model. The Protocol requires the implementation of T&T systems for tobacco products throughout the entire supply chain. But it rightly does not establish any specific global standards for implementation, since these would be impossible to apply. Instead, it requires governments to implement their own systems and work together to maximise effectiveness.

In the GSM telecoms sector, too, open standards have been effective in driving innovation, ensuring a competitive environment that hugely benefits businesses and consumers.

Many industries, including pharmaceuticals, alcohol, and luxury goods, face similar issues. They are responding with digital solutions that can effectively track, trace and authenticate products throughout the supply chain. Many of the most advanced solutions proposed by the technology and security industries today are embedded into the packs themselves, rather than being merely glued on with a physical stamp containing the security feature.

We have worked with many of the industries facing similar challenges. Worldline has seen the benefits of collaboration – essentially, taking advantage of the industries’ own expertise in fighting counterfeiting and illicit trade. We do recognise that the tobacco industry is different; some argue this industry should be excluded from participating in implementing any regulation. But we believe that leveraging their expertise can help fight the scourge of illicit trade. This should be part of a clear framework, based on independent auditing and effective controls – ensuring consistent best practice.

The directive’s acts may not be implemented until 2019. Who knows what new technology will be market-ready by this point? That’s why EU work must look beyond the prescriptive and restrictive, and take the more complex but ultimately more effective route of developing interoperable standards. The Commission now has a unique opportunity to deal a real blow to the criminals who trade in illicit tobacco.

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