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Fighting Illicit Trade in Tobacco Products

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Fighting Illicit Trade in Tobacco Products Fighting Illicit Trade in Tobacco Products September 2018 Visit pmi.com | stopillegal.com Fighting Illicit Tobacco Trade Contents Overview ................................................................. 3 Understanding illicit tobacco trade ................... 4 Combatting illicit tobacco trade ......................... 7 Conclusion ............................................................16 2 Fighting Illicit Tobacco Trade Overview Philip Morris International (PMI) is committed to combatting the illicit trade in tobacco products; from the criminal networks that smuggle cigarettes across borders, to illegal operations in poorly monitored free trade zones. These activities have severe consequences for governments, legitimate businesses, and people around the world. We aim to eradicate the illicit tobacco effective licensing regimes, enhanced trade by collaborating on a comprehensive tracking and tracing systems, strong strategy that channels all of our efforts. know-your-customer guidelines, and strict Meaningful partnerships are required, labelling requirements. We also illustrate and bring together the knowledge and the ways stakeholders can unite efforts. experiences of all relevant key stakeholders, For the campaign against illicit tobacco including policymakers at the national trade to be effective, the rules cannot be level, international organizations, law just theoretical. They require enforcement. enforcement authorities, and the legitimate National governments should sign up to tobacco industry. international agreements and treaties, and As a responsible corporate citizen, rigorously and meaningfully implement PMI supports public, private and non- their requirements. governmental initiatives to combat illegal As a business, we have long led the fight tobacco operations and other related against the illicit tobacco trade. No industry, crimes. We hope to work with as many allies however, can win this fight on its own; we as possible to implement impactful solutions need to harmonize and enhance efforts. to jointly stamp out these activities. By working together, we can accelerate progress on protecting society from illegal In this document, we outline several tobacco products, and related crimes. strategies for tackling the illicit tobacco problem. These include tougher enforcement To find out more about how to fight illicit of laws in Free Trade Zones (FTZs), trade, visit https://www.stopillegal.com/ 3 2016 Fighting Illicit Tobacco Trade Understanding Illicit Tobacco Trade Illicit tobacco trade is among today’s greatest global challenges, affecting not only our industry but also governments and ordinary people. It misleads consumers, deprives public authorities of tax revenue and funds organized crime and terrorism. 1 in 10 The International Criminal Police Organization (INTERPOL) estimates cigarettes that illicit cigarette trade accounts for 11.6% of global cigarette is illegal consumption. That amounts to 657 billion cigarettes per year.1 A Worldwide Scourge The problem is truly global in scope, sparing no region or country. Latin America and Canada On average, 15.6% of cigarettes consumed in Latin America and Canada are illicit, representing a volume of almost 40 billion cigarettes. If legally purchased, these cigarettes would mean $4.6 billion in additional tax revenue each year. Most of these illicit cigarettes are Illicit Whites – cigarettes made for smuggling.2 1 INTERPOL, Countering Illicit Trade in Tobacco Products, Legal Handbook Series, 2014, p.9. These statistics are derived from 84 countries around the world. 2 KPMG, Project EOS 2016, A study of illicit cigarette consumption in Latin America and Canada, pg. 8. 4 2016 Fighting Illicit Tobacco Trade Europe Europe also suffers from the illegal trade of tobacco products. About 9% of total consumption of cigarettes in Europe is illicit, according to annual research by KPMG. That Asia represents 48 billion cigarettes a year and $12 billion in lost tax revenues.3 In Asian markets such as Brunei, Hong Kong, Macao, Malaysia and Pakistan, at least one in every four cigarettes consumed is the product of illegal trade. In Indonesia, Pakistan and the Philippines, more than half of all illegal cigarettes are domestically produced.4 Eastern Europe, Middle East and Africa. In North Africa, illicit tobacco trade accounts for 20% of cigarette consumption. That equals 13 billion cigarettes and an annual loss in tax 3 KPMG, Project SUN: A study of the illicit cigarette market in the revenues of USD $565 million. More than half European Union, Norway and Switzerland, 2016, p.7. 4 Oxford Economics, Asia Illicit Tobacco Indicator 2015, p.10. of these illegal cigarettes come from Free Trade 5 KPMG, Illicit cigarette trade in the Maghreb region (excluding Zones in the United Arab Emirates.5 Mauritania), 2017, p.3. 5 Fighting Illicit Tobacco Trade The Impact of Illicit Trade Various authorities and experts, including the U.S. Department of State, describe illicit tobacco as a low-risk, high-reward criminal activity that fosters a culture of corruption and bad governance. Evidence suggests that not only criminal organizations, but even terrorist groups exploit the black market for tobacco as a lucrative source of income. In the new global reality, illicit tobacco trade can even finance acts of terror. We all must do more to combat illicit trade. That includes governments passing the necessary laws, and rigorously enforcing them, legitimate tobacco companies ensuring they do business only with trustworthy partners that will not divert their products, and consumers being aware of direct and indirect consequences of them purchasing illicit products. 7 US State Department, The Global Illicit Trade in Tobacco: A Threat to National Security, p.3 8 Idem. 6 Fighting Illicit Tobacco Trade Combatting Illict Tobacco Trade PMI has fought long and hard to combat illegal tobacco trade. We have helped establish high supply chain compliance standards throughout the world, and have closely collaborated with governments and key stakeholders in the fight against illicit trade. In this paper, we outline what we believe to be effective strategies for tackling the illicit tobacco trade, in each of the below key pillars. Effective Licensing Product Meaningful Enhanced Application control and regimes tracking and due diligence international of deterrent monitoring that focus tracing based and record- cooperation sanctions to of Free Trade on tackling on open and keeping among law illicit traders. Zones. illicit trade, recognized requirements. enforcement not adding international authorities. cumbersome standards, regulation encouraging for law- broader abiding legal application operators. beyond tobacco products. 7 Fighting Illicit Tobacco Trade FREE TRADE ZONES (FTZS) The absence of widely applied tracking and tracing systems makes it easier for criminals to engage in illicit tobacco trade. Any company dealing with tobacco products in an FTZ should adhere to the following standards: • Introduce a meaningful licensing scheme. • Require tracking and tracing solutions that apply to all tobacco products, even if they are manufactured in, or transit through the FTZ, and involve unique, secure and non-removable identification markings on all unit packets of tobacco products. • Due diligence and record-keeping practices that attest proper business relationships, accurate inventory controls, and sales practices in line with the requirements in destination markets. • Product labelling that complies with the regulations in destination markets. Much of the world’s illicit tobacco trade products incurs the same sanctions in takes place in Free Trade Zones (FTZs). FTZs their respective countries, regardless of are areas of economic activity that are not whether the offense takes place outside or confined within a given customs territory. inside an FTZ, and that these sanctions are By their nature, FTZs facilitate trade and consequently applied. remove administrative burden. Cooperation between the authorities at the These territories can serve as areas national and international level, as well as where criminals re-package and re-label collaboration with the private sector, must shipments, free of meaningful oversight. be prioritized to comprehensively tackle illicit trade. The objective should be to achieve National customs authorities should be a level playing field, where all legitimate empowered to control and supervise daily participants in the tobacco supply chain are activities in FTZs, allowing them to audit empowered and expected to operate in line books and records, and validate that goods with high compliance standards. comply with all necessary requirements at local and international levels, including For a more detailed understanding of with the requirements of their country of PMI’s view on Free Trade Zones please ultimate destination. Authorities should click here for link to our position paper ensure that trafficking in illicit tobacco ‘Fighting Illicit Trade: Free Trade Zones’ 8 Fighting Illicit Tobacco Trade LICENSING The adoption of national licensing schemes for cigarette manufacturers and manufacturing equipment is a critical component of an effective strategy to fight illicit tobacco production and trade. Licensing requirements should be Authorities should seize and destroy proportionate and practical, allowing law- tobacco manufacturing machines without abiding entities to readily adopt them. a valid license. Above all, the requirements should be We believe it is unnecessary to require
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