Nigeria: Illicit Trade in Tobacco Products - Stubbing Out an Unending Scourge

Source from:  This Day 07/06/2015

Dominated globally by organised crime, the illicit tobacco trade could be said to be a frightening tripod that damages legitimate business, undermines public health and facilitates the supply of tobacco to young people. The criminality involved, including the use of the proceeds to fund other crimes, has a devastating effect on individuals and communities worldwide.

One may argue that illicit tobacco trade has largely been fueled by over-regulation and over -taxation of the legitimate producers of tobacco products. Government tax policies, which result in excessively high retail prices, are the key drivers of the growth of the illegal trade in tobacco products. Weak laws, penalties and inadequate enforcement, whether from limited resources and training or conflicting priorities, are also important factors which encourage the illegal trade.

Plain packaging of tobacco products is one of stringent measures propagated by anti-tobacco groups to curtail further spread of smoking. Also known as homogenous packaging, it requires the removal of colours, imagery, corporate logos and trademarks, while also denying tobacco manufacturers the latitude to differentiate their products from that of competition.

Australia is the first country to mandate plain tobacco packaging with Ireland and United Kingdom ultimately overcoming the hurdle by becoming the second and third countries passing legislation that cigarettes and other tobacco products be sold in plain packaging, free of colourful logos and other branding that is believed by some, to be encouraging tobacco use.

The Australian plain packaging law has been challenged by some countries at the World Trade Organisation (WTO) for being in breach of existing WTO agreements on intellectual property rights and it will be interesting what the outcomes of these legal challenges are.

The Australian plain packaging regime, which pioneers the repression of cigarette branding, is a very good example of the stringent regulation paving way for illicit trading in tobacco products. As claimed by pro-tobacco lobbyists, plain packaging is a motivation for promoters of illicit trade to advance in their nefarious business. In a study published by KPMG in 2013, counterfeit tobacco sales in Australia rose to almost 14 per cent of the Australian market shortly after the plain packaging law was introduced. KPMG further states in the report that illicit sales not only deprive Australia of hundreds of millions in lost tax revenue, they also increase law enforcement costs in reaction to greater criminal black market activity.

In most countries, tobacco is considered an ideal product for tax revenues as demand is relatively inelastic. Today, all countries impose at least a tax on tobacco products, which in most cases is paid in the country of consumption. The tobacco industry is, no doubt, an important revenue source for governments.

The global footprint of smuggling has changed, as criminals exploit emerging international and political factors. Cheap, factory-produced cigarettes have become increasingly available for large-scale smuggling. Smaller volume and higher frequency smuggling through non-traditional routes have also increased.

For example, in 2011, over 60 per cent of cigarettes (as against 36 per cent in 2006) sold in New York were smuggled from another state, according to the Mackinac Centre for Public Policy, a free-market think tank, thereby reinforcing the Bureau of Alcohol, Tobacco and Firearms' (ATF) estimated lost government revenue at more than $5 billion a year.

A report published in Sun Herald, Australia reveals that black market in fake cigarettes cost the Australian economy $1.1billion in lost tobacco excise revenue and Goods and Service Tax. It undermines legitimate business and is dominated by internationally organised criminal groups often involved in other crimes such as drug smuggling and people trafficking.

Cigarettes are among the most commonly traded products on the black market due to high profit margins, relative ease of production and movement and low detection rates and penalties. Sadly, the shadowy nature of this trade makes the scale hard to estimate.

How big is the problem?

In 2000, when the illicit market share for cigarettes was 22 per cent and 61 per cent for hand-rolling tobacco, the Customs and Excise in the United Kingdom introduced stringent measures such as high taxation to tackle the problem. Still, the problem remains significant. In 2013-14, the illicit market shares were 10 per cent for cigarettes and 39 per cent for hand-rolling tobacco. The illicit trade in tobacco products makes it more affordable and accessible to people in low-income groups, as well as children, as cigarettes are usually sold at lower prices.

As the products are not subjected to legal restrictions and health regulations aimed at halting the use of tobacco, including warnings on packaging, there is a knock-on effect on health. In yet another report by KPMG International, it was stated that involvement in Australia's illegal tobacco market is perceived by organised crime groups as a low risk, high profit activity which large profits can be made with minimal risk of detection or significant penalties.

According to Tobacco Underground, a project of the International Consortium of Investigative Journalists, illicit trafficking in tobacco is a multi-billion dollar business, which can be seen in counterfeiting businesses in China to warlords in Pakistan.

The UN Security Council's investigative body found that millions of pounds in illicit tobacco revenues are reaching al-Qaeda, the Taliban and other terrorist organisations around the world. Smugglers operate across multiple borders and continents, and quickly adapt their operations to take advantage of new opportunities that result from changes in taxation and regulation.

For example, a report published in a Taiwan peer-reviewed journal for health professionals in tobacco control states that smugglers no longer imitate international brands, but merely create their own brands such as "Mo-Shen', 'Fu-qi (good fortune) and 'Shan' (the Chinese fir) to suit the needs of illicit buyers in the country.

The report further states that in Africa, counterfeit cigarettes and 'illicit whites' have become more prominent in recent years in the illicit market. Libyan 'illicit whites' (where an estimated 80 per cent of cigarettes consumed are illegal) are produced in Luxembourg and Bulgaria and imported through Dubai to Togo and Benin. The report revealed that most smokers in Africa cannot afford more expensive international brands, but are eager to buy new brands at low price.

In view of the spectrum of illicit activities, there is no single solution, which will eradicate this growing problem. No government, regulatory body, law enforcement agency, or manufacturer - acting alone - can eliminate the illegal trade in tobacco products.

However, a concerted effort by all stakeholders, such as governments, regulatory and law enforcement agencies and tobacco companies is required to stub-out the consuming ember of illicit trade in tobacco products. Ultimately, it is imperative for governments to lead this fight so that effort by other key stakeholders will not be futile. Strong government engagement and prioritisation are required for success in fighting illegal trade in Nigeria and elsewhere. Enditem