''Cheap whites'': The New Trend Dominating Tobacco Black Markets

Source from:  euractiv.com 10/08/2016

Tobacco smugglers have found new ways of expanding their illegal activities and now focus on a trend called "cheap whites", which is raising new challenges for European regulators and Europol.

The illicit tobacco trade is a global issue accounting for an estimated 10.4% of the cigarette market worldwide. In addition to being a major funding source for organised crime, the cost to European tax revenues is estimated to amount to €11.3 billion a year (See background).

The European Commission is addressing the issue as part of the Tobacco Products Directive (TPD), and has ratified the World Health Organisation's Protocol to Eliminate Illicit Trade in Tobacco Products (FCTC).

The executive has also made several bilateral agreements with the tobacco industry in order to control the cigarette supply chain and clamp down on cigarette smuggling. But in July, the EU executive decided to end an anti-smuggling deal with tobacco firm Philip Morris International PMI. A separate agreement with Japan Tobacco International (JTI) expires in 2022, and deals with British American Tobacco (BAT) and Imperial Brands both end in 2030.

The "cheap whites"

Traditionally, the illicit tobacco trade has been dominated by counterfeiting, but "illicit whites" are an emerging trend. These cigarettes may be legally produced but are then smuggled and traded illegally.

At a EurActiv.com workshop supported by the Slovak Presidency of the EU last week (27 September), Alvise Giustiniani, Vice President of the Illicit Trade Strategy and Prevention at Philip Morris International, said that "cheap" or illicit "whites" were the fastest growing sector of the illicit tobacco trade, now accounting for 35% of the market in the EU.

"Arguably, it is the success of the policies implemented under Cooperation Agreements between the major manufacturers and the European Union and its members that have driven the criminals involved to move away from contraband and counterfeit into cheap whites," he stressed.

Dana Meager, State Secretary of the Ministry of Finance Government of the Slovak Republic, believes that illicit trade is driven by demand.

"Consumers want to buy cheap products and save money and criminals want to take advantage of high taxes which they do not pay to make high profits with low risk of being caught and penalised," she told EurActiv, adding that smugglers are extremely flexible and adapt to the market demand.

"The issue of illicit whites smuggling is one of the examples. Out of more than 600 million cigarettes seized with the support from OLAF in 2015, almost all were illicit whites," she stated.

"Innovative" organised crime

Meager cited a number of examples indicating the "innovative" ways that smugglers found in order to continue their criminal activities.

For instance, there is a new trend at the Ukraine-Slovakia border with the use of drones crossing the border nearly each night.

"There are also, let's say, more traditional ways of smuggling such as unmanned rubber boats with contraband floated down the border rivers Uh, and Tisa, or illegal crossing of green border by groups of carriers," she noted.

She also mentioned an illegal underground tunnel 700 meters long connecting the Slovak territory with the Ukrainian. The tunnel, she explained, measured around one metre in diameter and varied in depth between three and six metres below ground.

"It was equipped with tracks and a trolley for transporting goods," she explained, saying the seized goods were 'Jin Ling' cigarettes. "Based on intelligence, it was established that the tunnel was used 2-3 times per week which corresponds to an estimated tax evasion of €50 million per year," she said, adding that as the warning labels on the seized cigarette packing were written in English, it is to be assumed that the cigarettes "were not destined for the Slovak market".

The case of Belarus

According to a KPMG study, Belarus is the primary source of illicit cigarettes in the EU. Particularly, there were in excess of 5 billion "illicit White Belarussian" cigarettes consumed in 2015 in the EU alone.

In addition, there is a significant flow of illicit Belarussian cigarettes to Eastern Europe, primarily Ukraine, Moldova, and Russia.

The study found that there were two domestic manufacturers of tobacco products in Belarus, the state-owned Grodno Tobacco Factory Neman (GTFN) and the private owned Tabak Invest, which in addition to their own brands, also produce under license or contract with international companies.

GTFN brands represent more than 1 in 10 illicit cigarettes consumed in the EU, causing estimated tax losses during the period 2011-2015 in excess of €3 billion.

In February 2016, the EU lifted most sanctions against Belarus, after what was considered to be an improvement in the country's human rights record.Enditem