Post on 25-Mar-2020
3
Measurement is not straightforward
Empty
Pack
Surveys
Market
Reports
Modelled, multi
data source
reports
Methods of measurement range from:
Robust Best estimate
Overall trend and direction of travel most informative
5
Not all Non Duty Paid is illegal
NON DUTY PAID
DUTY FREE SALES
CROSS-BORDER SHOPPING
ILLEGAL / ILLICIT
COUNTERFEIT ILLICIT WHITES AND
UNBRANDED SMOKING TOBACCO
GENUINE CONTRABAND
LEGAL
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Illicit Product
Unlawful movement of genuine tobacco products from one tax jurisdiction to
another without the payment of applicable taxes or in breach of laws prohibiting
its import or export.
genuine contraband
7
Illegal manufacturing where product bears a trademark without the owner’s
consent. Counterfeit products can be sold in the source country or smuggled into
another country.
Illicit Product counterfeit
8
These products are typically produced for the purposes of smuggling into
countries where there is no prior legal market for them. Legally produced in
source country but illegally sold at destination.
Illicit Product illicit whites
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Illicit Whites
Graph source: Project Sun 2014
Quote source: Home Affairs Committee Tobacco Smuggling Report 2014
HMRC note that illicit
whites “represent the
most significant threat to
legitimate trade and
tobacco revenues in the
UK from large scale
organised criminality.”
a growing problem
0.2 0.5 1.2 1.5
2.1
0.7
2.6 2.7 2.2 2.0 1.5
1.7
0.4
1
1.9
0.9
1.5 1.6
1.5 0.5 0.5
1.0 0.9 0.8
0.9 0.2 0.7
0.9
0.2
0.2
0.1
0.7
0.4 0.8
0.8
0.2
0.1
0.7
0.2
0.4
0.8
1
0.8
0.2 0.3
0.6
0.9
0.7
0.1
1.2
1.2
2.3
4.8
6.7
7.7
8.7
0
5
10
15
20
2006 2007 2008 2009 2010 2011 2012 2013
Volu
me (
bn c
igare
ttes)
Other
Premier
Minsk
RGD
Raquel
NZ
Gold Mount
Ducal
American Legend
Jin Ling
Fest
Consumption of illicit white brands 2006 -2013
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It’s all about the money
Industry and trade Government
(Tax incidence) ~83%
driven by high excise
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HIGH
EXCISE
SUPPLY
Criminals able to
make money
£1,300 per
case
£65,000 per
white van
£6,500
per car
£1.1m per
container
DEMAND
Consumers want to
save money
£4.00
£9.03
£6.72
It’s all about the money demand vs supply driven
13 Social Acceptability
Weak Border Controls
Black Market Infrastructure
Lenient Penalties
Excise & Price Differentials
It’s all about the money facilitators
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Follow the money……
F iji A UD 9 . 2 9 A u st r a l i a
A UD 15 . 9 6
N e w Z e a l a n d A UD 15 . 2 8
V anua t u A UD 8 . 7 6
S a m o a A UD 5 . 6 5
T o ng a A UD 5 . 0 3
P apua N e w G u in e a A UD 5 . 3 7
J apa n A UD 4 . 8 3
Tai w a n A UD 3 . 1 0
S ou t h K o r e a A UD 2 . 6 9
P h i l ip p in e s A UD 1 . 2 6
I nd ia A UD 2 . 2 9
C h ina A U D 2 . 6 6
S r i Lan k a n / a
B ang la d e s h A UD 2 . 2 6
M y an m a r A UD 2 . 0 7 Lao s
A UD 1 . 8 2
Th a i l an d A UD 3 . 0 7
S in g apo r e A U D 10 . 2 9
M a la y s ia A UD 3 . 9 9
V ie t na m A UD 1 . 0 8
C a m bod ia A UD 1 . 1 2
I ndone s ia A UD 1 . 4 3
Duty & price differential
creates opportunity for
arbitrage
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Undermines Public
Health Objectives
Deprives economy of excise revenue
Harms legitimate business
Funds organised crime & terrorism
Undermines public health objectives
The impact
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Role of Government
BALANCED
Excise Policy
Health
Revenue Combatting
Crime
Smart Regulation
Deterrent Penalties
Strong Enforcement
Improved Collaboration
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Supporting treaty to the Framework Convention on
Tobacco Control – aims to curb illicit trade
Protocol contains potentially effective measures to address
transnational illicit trade:
licencing regime; reporting regime for duty suspended product;
T&T; control of manufacturing within Free Trade Zones;
regime of offences & sanctions
Must be implemented consistently to be effective
Role of Government
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Corporate Position
The prevention and elimination of tobacco smuggling and counterfeiting is one of our
major business priorities. We must never engage in or facilitate illicit trade activities.
We must ensure that we only conduct business with companies and individuals that are
reputable. We must work with governments, regulators and law enforcement authorities
to prevent the illicit trade of our products.
The illicit trade of tobacco products has a damaging effect on our company. It is contrary
to our commercial interests and harms our business reputation. It materially diminishes
the legitimate markets in which we operate to compete for market share.
Role for Imperial Tobacco
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Support Law Enforcement
Engage with Stakeholders
Supply Chain
Integrity
Imperial’s Anti Illicit Trade Strategy
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Know your
Customer
Commensurate
Supply
Compliance
Checks Track & Trace
Anti Money
Laundering Staff Training
Supply Chain Integrity
24
Technical &
forensic support
Training on
industry matters
Practical assistance
(sniffer dogs)
Intelligence
Effective working
relationships
Support Law Enforcement
25
Partner with trade bodies
Provide views
to government Educate on T&T
Raise awareness
through media
Engaging Stakeholders
27
Machine 18
May 2012 – Hungary Law Enforcement
Authorities make seizure
Cigarette making & packing machine
ITG confirmed as “Machine 18”
Counterfeit Regal, Superkings KS & Classic
2002-2012: UK 472m sticks or £145m loss
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ITG intel leads to largest EU seizure of product from China
160m sticks (incl. Marlboro, L&M and West)
Destined for France, Germany and Holland
Potential revenue loss c €26m
Loss in revenue to manufacturers of c €9m
Chinese counterfeit
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Plain Packs….a Perfect Storm….
He punched the air as he mocked
PM Cameron, cheering: “Plain
packaging…I support the UK
Government”
They told our team how the switch
to plain packaging will make their
fraudulent trade easier, cheaper
and more difficult to detect.
failing to strike the balance
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Moving forward
Suppliers – look to better control of leaf and non
tobacco materials
Consumers – look to improve awareness of
consequences i.e. social costs and criminality
Government – appreciation of the need to
administer balanced policy and effective regulation
International – effective, consistent and joined-up
approach
awareness and education key
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Summary
Strong financial incentives create the market for illicit
Duty/price variance across borders drives the problem
Regulation can improve traction and tighten legitimate environment
BUT….the key is to tackle the illegal environment
A multi faceted, multi party approach is needed
Balanced approach from legislators is key
An issue that can be managed