Factbook on the ITTP with Financial Support and the Health, and Governments Should Carefully Regulate the Provision of Data

THE FACTBOOK ON THE Francesco Calderoni ILLICIT TRADE IN TOBACCO Marco De Simoni PRODUCTS Serena Favarin Susanne Lehmann directed by: Ernesto U. Savona ISSUE 5 GERMANY

Germany

Francesco Calderoni Marco De Simoni Serena Favarin Susanne Lehmann

Series: The Factbook on the Illicit Trade in Tobacco Products Issue 5 Series editor: Ernesto U. Savona

Transcrime – Joint Research Centre on Transnational Crime Università Cattolica del Sacro Cuore di Milano – Università degli Studi di Trento Milan office (headquarters): Largo Gemelli, 1 – 20123 Milano (Italy) Phone: +39 02 7234 3715 / 3716; Fax: +39 02 7234 3721 www.transcrime.it www.transcrime.it

2013 ISBN 978-88-8443-460-9

Suggested Citation: Calderoni Francesco, Marco De Simoni, Serena Favarin and Susanne Lehmann. Germany. The Factbook on the Illicit Trade in Tobacco Products 5. Trento: Transcrime – Università degli Studi di Trento, 2013. © 2013 Transcrime – Joint Research Centre on Transnational Crime

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the author.

Cover Attribution: Luis Echanove Creative Commons License Graphic project: Anna Maria Stefani and Damiano Salvetti – Transcrime

TABLE OF CONTENTS

Transcrime 1

The factbook on the illicit trade in tobacco products 3

Acknowledgments 5

Executive summary 7

Introduction 13 Why focus on the ITTP in Germany? 13 What can be found in this report? 14

Chapter 1: The five drivers 16 Society and economy 17 Legal market 23 Regulation 31 Crime environment 39 Enforcement 45

Chapter 2: The four components 52 The demand 53 The supply 56 The products 60 Modus operandi and geographical distribution 66

Chapter 3: Framing the components in the drivers 72 Introduction: The four key factors 73 Economic accessibility 74 Availability 75 Profitability 76 Risk 77

Conclusions 79

References 83

TRANSCRIME

Transcrime is the Joint Research Centre on Transnational The Centre also plays an important role in the support Crime of Università Cattolica del Sacro Cuore of Milan and development of educational activities at Università and the University of Trento. The Centre, directed Cattolica del Sacro Cuore of Milan. Its principal aim is to by Ernesto U. Savona, Professor of Criminology at achieve close integration between scientific innovation Università Cattolica, represents the multiannual union and academic education. In particular, since the academic between experience and innovation in the field of year 2005/06, Transcrime has managed a MA programme criminological research. dedicated to crime and security (until academic year 2012/13 the curriculum Crime&Tech: Crime Sciences 1 There are offices in Milan and in Trento. In each and Technologies for Security within the MA in Applied office there is a team of researchers and secretariat/ Social Sciences; since the 2013/14 academic year The factbook on the illicit trade in tobacco products management personnel. Transcrime aims at being Curriculum POLISI: Policies for security within the MA in a national and international point of reference in the Public Policy). In addition, the Centre has contributed to criminological research panorama. the development of the International Ph.D. programme in Criminology, coordinated by Professor Savona, The vision of the Centre is to increase knowledge in which is currently the only doctoral course dedicated to the criminological field and in the prevention of crimes, Criminology in Italy. developing innovative ideas and cutting–edge techniques. Transcrime is an independent academic centre. It Transcrime combines its experience in applied research pursues an autonomous research agenda, which may be with the consolidated scientific tradition of Università developed also through contracts and funding by private Cattolica del Sacro Cuore in Milan and University and public local, national and international institutions. of Trento, mixing a practice-oriented approach with The source of funding is always made public through a profound understanding of criminal phenomena. Transcrime’s website. GERMANY Through this experience, it developed a solid network of relationships in the academic field, institutions, international organisations and businesses.

Official website: www.transcrime.it 2 THE FACTBOOK ON THE ILLICIT TRADE IN TOBACCO PRODUCTS

This report is part of the project the Factbook on the has been developed for a wide readership ranging Illicit Trade in Tobacco Products (henceforth ITTP). from policymakers, through academics, to interested stakeholders, the intention being to provide a support The project has been developed by Transcrime after to develop knowledge–based debates and policies on the Round Table on Proofing EU Regulation against the the ITTP. Illicit Trade in Tobacco Products hosted by Università Cattolica of Milan, on 5 May 2011. During the Round The information gathered for this report originates Table, participants (researchers and policymakers with from academic literature, grey literature, open sources, experience in the field of the illicit trade in tobacco questionnaires and interviews with experts and 3 products) agreed on a research agenda concerning the stakeholders. There are few studies on the ITTP in

ITTP (Transcrime 2011b). Items 3 and 6 of the research Germany. Furthermore, information of law enforcement The factbook on the illicit trade in tobacco products agenda focused on the need for better analysis of the action comes mainly from the German Customs, while tobacco market taking account of its dual nature (i.e. other law enforcement agencies, although involved in legal and illicit) and on how licit and illicit markets vary the fight against the ITTP, provide more limited data. In across different countries and regions. Given these addition to the these issues, the data–gathering phase considerations, Transcrime has developed the Factbook of the project encountered major difficulties due to the on the ITTP, a multi-annual research plan providing number of sources, institutions and stakeholders involved. detailed analyses of the ITTP and of its relations with the legal market and other socio-economic and political The results of the report do not claim to be exhaustive, factors in a number of countries around the world. nor an accurate reflection of criminal practices. They provide an initial assessment of the ITTP in Germany and The aim of the Factbook is to provide an innovative a starting point for future research. instrument able to shed light on the complex mechanisms behind the ITTP in different countries. As a concerned stakeholder in the fight against the illicit GERMANY This report focuses on Germany. trade in tobacco products, Philip Morris International (PMI) welcomed Transcrime’s initiative to develop the Tobacco consumption is undoubtedly a danger for human Factbook on the ITTP with financial support and the health, and governments should carefully regulate the provision of data. However, Transcrime retained full tobacco market. Illicit tobacco avoids state regulation and control and stands guarantor for the independence of taxation and may jeopardise tobacco control policies. the research and its results. Information and data for the The Factbook will contribute to raising awareness study have been collected by Transcrime and have not about the global importance of the ITTP and about been shared with PMI. the strategies available to prevent it. The Factbook 4 ACKNOWLEDGEMENTS

5 The factbook on the illicit trade in tobacco products

Special thanks go to Klaus Von Lampe, John Jay College of Criminal Justice, Klaus Ehrenfried Schmidt, ACMI and CEO ProtoSecure GmbH, Wolfgang Schmitz, Zollkriminalamt, Jürgen Storbeck, former Director of Europol and former General Director of the police of the State of Brandenburg (Germany). GERMANY 6 EXECUTIVE SUMMARY

This report provides the country profile of the project THE FIVE DRIVERS The Factbook on the Illicit Trade in Tobacco Products. It focuses on Germany, where illicit trade in tobacco •• Society and economy: Germany is a federal republic products is not a political priority and there are no official composed of 16 states (Länder) and one of the estimates. Nevertheless, German Authorities, and biggest world economies. The main effect of the 2009 especially German Customs are aware of the problem of recession was the rise of debt, whilst unemployment cigarette smuggling. fell even during the crisis. GDP growth rebounded soon in 2010, and household expenditure on WHAT CAN BE FOUND IN THIS REPORT? non–durable goods, including tobacco, has been 7 constant in recent years. However, regional

This report is organised into three chapters: differences between Eastern and Western Länder are The factbook on the illicit trade in tobacco products still marked. •• Chapter one deals with the five drivers of the ITTP: society and economy, the legal market, regulation, the •• Legal market: the tobacco market is an important crime environment and enforcement. The drivers are sector of the German economy. Germany is the first important areas whose structures may positively exporter of cigarettes in the world, and exports have or negatively impact on the ITTP. To enable grown in the past decade. The tobacco industry comparison with other country profiles, five employed 10,057 people in 2011. However, national indicators have been selected for each driver. The sales have fallen and consumers have shifted to data for the driver indicators come from comparable cheaper products. sources (latest available years). When possible, the report provides the most up–to–date data from •• Regulation: regulation of the tobacco market is national sources. medium in Germany. Tax incidence, as a share of

the final retail price, is high in Germany, if compared GERMANY •• Chapter two focuses on the four components of the with the global average. However, compared with ITTP: demand, supply, products, modus operandi and high–income OECD members it is medium. Tax level, geographical distribution. expressed in monetary terms (international dollar per 1,000 sticks) is high. Supply chain control is medium. •• Chapter three identifies the key factors of the The regulation on tobacco consumption and sales and ITTP in Germany and frames the drivers in the on marketing and promotion is medium. Furthermore, components, analysing how different elements of the many European requirements were applied with delay drivers influence the components of the ITTP. or at minimum levels. The country has invested a low per capita amount of resources in tobacco control policies. Executive Summary

•• Crime environment: crime rates have slightly FRAMING THE COMPONENTS IN THE increased, while fear of crime has decreased. DRIVERS Consumption of cannabis, cocaine and heroin is constant and average compared with levels in other The four key factors of the ITTP developed countries, whilst other drugs, such as amphetamines, are increasingly popular. Organised The report identifies four key factors of the ITTP in crime, corruption and informal economies are low. Germany. The key factors are the crucial elements through which the five drivers determine the features •• Enforcement: Germany has high levels of law of the four components. This chapter analyses how the enforcement, but action against the ITTP is interaction between the drivers and the components medium–low. Cooperation between institutions and impact or may impact on the ITTP through these four key tobacco manufacturers is usually set at European factors (Figure 1, p.9). level, as well as the legal duty for producers not to facilitate smuggling. There are different law •• Economic accessibility: the price of illicit tobacco, enforcement agencies involved in the fight against and particularly its relative price compared to the the ITTP. In particular, the Zollkriminalamt (Customs price of legal products. Criminal Office) considers illicit tobacco as a priority and has undertaken several joint actions with • German consumers have not significantly cut their authorities in neighbouring countries and the tobacco expenditure in tobacco, showing a downtrading trend industry. towards cheaper products as a reaction to increasing price (see Legal Market, p.23). Therefore, the THE FOUR COMPONENTS OF THE ITTP demand for ITTP products may increase through their economic accessibility. •• The demand: the main causes of the demand for illicit 8 tobacco are low prices and availability. In Germany, • The government has announced a five–year plan illicit cigarettes cost half the legal price. Furthermore, of tax increases in tobacco products (Euromonitor proximity to low price markets makes illicit products International 2012). Since tax increase result in higher easily available. retail price, illicit products become more economic accessible, boosting their demand. •• The supply: the supply of illicit tobacco is mainly driven by the opportunity to make very high profits •• Availability: easiness for both smugglers and with relatively low risks. There is a variety of actors consumers to obtain illicit tobacco products. involved in the ITTP. • Germany has more than 1,300 km of common borders •• The products: there are no official estimates of with Poland and the Czech Republic. These countries the illicit tobacco market, which makes it difficult to have lower retail prices for tobacco products. Indeed, assess the extent of the ITTP. However, there are EPS show a higher prevalence of non–domestic some unofficial estimates. The main illicit products packs along these borders. are contraband cigarettes. The market share of illicit whites is smaller but nevertheless significant. • Poland and the Czech Republic joined the Schengen area in December 2007 and their entry seems to •• Modus operandi and geographical distribution: have favoured smuggling activities towards Germany inland roads are the main smuggling routes, and (Locke 2010). Indeed, in 2006, nearly a quarter of some ports play an important role, also as European all counterfeit and contraband cigarettes stemmed hubs. Germany is often a transit country from Eastern from Poland and the Czech Republic. In 2012, the to Western Europe. Proximity to the Polish and Czech proportion more than doubled, reaching 80% (KPMG borders correlates with a larger share of 2012; KPMG 2013). non–domestic tobacco products. Executive Summary

Figure 1. Main interactions between the drivers and the components Source: Transcrime elaboration Increase of the ITTP Decrease of the ITTP society & economy Change of the ITTP geographical position lower price neighbours

legal market price differentials downtrading trend Increase of the ITTP regulation taxation

crime environment street sellers Decrease smuggling routes of the ITTP ethnic relationships

low corruption 9 The factbook on the illicit trade in tobacco products enforcement Change DE–PL–CZ cooperation of the ITTP

• The geographical position between East and West • The tax level expressed in monetary terms (total taxes Europe makes Germany both a destination and a per 1,000 cigarettes) may encourage suppliers of illicit transit country for ITTP. Indeed, according to Customs tobacco through the higher profitability of this activity. press releases, a considerable number of intercepted Indeed, the higher the taxes, the greater the potential illicit cigarettes is intended for more profitable Western profit for smugglers. In Germany, the monetary markets, such as France or the UK. amount of taxes per 1,000 sticks is high (see The supply, p.56). GERMANY • Contexts of the informal economy, like street markets, facilitate the selling of illicit tobacco • The lower retail prices of tobacco products in Eastern products (Joossens et al. 2000; Antonopoulos 2009). neighbouring countries stimulates ITTP making In Germany, informal street markets are located bootlegging and smuggling profitable activities. especially in Berlin, where people may easily find illicit Nevertheless, the increasing price of tobacco products cigarettes (Von Lampe 2005). in Poland may change the picture in the near future.

•• Profitability: the ability of the ITTP to generate •• Risk: the threat of detection/accusation/conviction profits that exceed its operational costs. and the sanctions imposable to the actors involved in the ITTP. Executive Summary

• Cooperation among German and foreign enforcement The ITTP is a complex problem not limited to an issue authorities may significantly diminishes the of law enforcement and criminal justice policy alone. effectiveness of anti–ITTP actions increasing the Notwithstanding German Customs efforts, the ITTP risk of detection for smugglers. Notably, Germany seems to have increased over recent years. Additional has recently increased its collaboration with Polish preventive measures, such a national public awareness and Czech agencies (Hauptzollamt Dresden 2013; campaign, are necessary. Effective action against the Zollfahndungsamt Dresden 2013; Koschyk 2013). ITTP requires comprehensive strategies including criminal law, administrative sanctions, and other indirect measures • The German motorway system may favour the transit aimed at reducing crime opportunities. and arrival of illegal ITTP products. Indeed, there are several consolidate smuggling routes, Indeed The evolution of the project showed that countries have Autobahn A2 and A12 are known under the name very different situations in relation to the available data on “Warschauer Allee” (Warsaw Avenue) since they are the ITTP. In some cases, the quality of the available data the most important smuggling routes from Eastern is low and there are no official, regularly updated, data. Europe into Germany (DKFZ 2010; Teevs 2010). Inevitably, this may affect the quality and reliability of the results. In these cases, institutions, businesses and other • Ethnic and kinship relationships among ITTP players stakeholders concerned by the ITTP should consider how facilitate tobacco smuggling activities. Indeed, in to improve the data collection on illicit tobacco. This will Germany, the distribution of illicit tobacco relies result in an improvement in the knowledge of the ITTP on personal contacts. These networks affect the and, in turn, in better tobacco control policies, since quite prevalence of ITTP by diminishing the risk for the often the impact of specific policy measures upon crime actors involved (Von Lampe 2003). may be overlooked due to the lack of reliable data.

• The retail distribution of contraband cigarettes in Following the completion of the first phase of the project 10 Germany is commonly associated with street selling focused on collecting facts and data through the country by Vietnamese vendors in the eastern parts of the profiles, Transcrime will perform a comparative analysis of country (Von Lampe 2006), while the main suppliers the selected countries. This will provide additional insights are Polish (see The supply, p.56). in the complexity of the ITTP and allow for the elaboration of policy recommendations. CONCLUSIONS

There are no official estimates of ITTP in Germany, although some unofficial estimates are available. Despite the lack of official data, contraband cigarettes seem to be widely available in Germany, especially in the Eastern part. In bordering states, it is difficult to disentangle smuggling, bootlegging and legal cross–border purchases. Historical and geographical conditions are the main causes of the diffusion of these products.

The results of this study demonstrate the need for more data and research. The main questions to address concern the demand for illicit tobacco and the types of products. First, the drivers of the demand are relatively unknown in Germany, since no consumer survey has been conducted on illicit consumption. Second, distinguishing between non–domestic legal and illegal cigarettes is an important challenge. 11 The factbook on the illicit trade in tobacco products GERMANY DENMARK North Sea Baltic Sea

Kiel Schleswig–Holstein Mecklenburg–Vorpommern Schwerin Hamburg

Bremen Branderburg Lower Saxony Berlin POLAND Hanover Potsdam NETHERLANDS Magdeburg Saxony Anhalt North Rhine–Westphalia

Düsseldorf Dresden Erfurt BELGIUM Hesse Thuringia Saxony

Wiesbaden Mainz CZECH REPUBLIC Rhineland–Palatinate Saarland Bavaria Saarbrücken

Stuttgart FRANCE

Munich Baden–Württemberg

12 SWITZERLAND AUSTRIA

Location: Population: 81,726,000 (2011) Germany, officially the Male: 40,078,925 (49.0%) Federal Republic of Female: 41,647,075 (51.0%) Germany, is in Western Growth Annual Rate: -0.1% (2011) and Central Europe. It Age Structure: (0–14) 13.4%; (15–64) 66.0%; (65+) 20.6% borders with North Sea, Fertility Rate: 1.39 children born/woman (2010) Denmark and Baltic Sea to Life expectancy at birth (years): 80.0 (2010) the North, Poland and the GDP: US$3,570,555,555,556 (2011) Czech Republic to the East, GDP growth: 3.0% (2011) Austria and Switzerland Inflation consumer price:2.3% (2011) to the South, France, Income level: High Luxembourg, Belgium and the Netherlands to the West. The country consists of 16 states, and its capital and largest city is Berlin. Germany covers an area of 357,021 square kilometres.

Source: The World Bank INTRODUCTION

WHY FOCUS ON THE ITTP IN GERMANY? Finally, there are no official estimates on the illicit tobacco in Germany and there is an overall lack of information. Germany is a key country for the European and world Besides the law enforcement agencies directly involved in economy. Also for the tobacco sector, Germany is the the fight against the ITTP, there are a few studies on this world leading exporter of cigarettes. Despite the strong topic in Germany. manufacturing capacity, different sources suggest that German illicit market has increased over the last decade. Given the lack of information, this report relies on The current situation is due to a number of factors. unofficial sources, grey literature, interviews with experts, law enforcement authorities reports and press releases. First, Germany is a very important hub for the cigarette Notably, this report analyses Customs press releases trade in general and this may reflect also on the ITTP. since they are the most specific publicly available source The country is at the heart of Europe and it borders with on illicit tobacco. Nevertheless, the contribution of the nine countries (Denmark, Netherlands, Luxembourg, other German law enforcement authorities is relevant and France, Switzerland, Belgium, Austria, Czech Republic further studies may assess in a greater detail their action and Poland). The geographical position, the transport against the ITTP. infrastructures (ports and highways) and the role in 13 the tobacco manufacturing industry make Germany an Unofficial sources and Customs press releases show a major prevalence of contraband cigarettes. Also important joint for the world tobacco trade. The factbook on the illicit trade in tobacco products illicit whites account for a large proportion of the trade. Second, Germany is a bridge between Eastern and Generally, Eastern Germany reports a higher incidence of Western Europe and this applies also to the ITTP. The non–domestic tobacco products. removal of border controls along Germany’s nearly 1,300 kilometres of borders with Poland and the Czech Tobacco is a dual market consisting of a legal and an Republic in 2007 went along with a rise in criminality illegal part (Figure 2). The two sides of the market are in the bordering regions mainly due to the prosperity connected with each other: actions affecting one side of differential. Eastern Germany is close to low–price the market influence the other side as well. countries for tobacco products, notably Poland. Furthermore, there are consolidated smuggling routes between these two countries.

Third, there are regional disparities across German states Figure 2. The dual tobacco market GERMANY which may stimulate the ITTP. Years after the unification, the Eastern Länder still have lower socio–economic legal market conditions. In these states, the general attitude towards smuggling of goods, including illicit tobacco, is more overlap in lenient, due to economic difficulties and socio–cultural demand patterns. The proximity of the less wealthy states to illegal market countries with lower prices of tobacco products further increases the opportunities for the development of the ITTP. Introduction

The ITTP comprises different activities and products: Studies on the ITTP in Germany are limited in number. Moreover, there are no official data on prevalence, Smuggling (or contraband): the unlawful movement demand for, and consumption of illicit products. This or transportation of tobacco products (genuine or entails that the actual dynamics of the illicit market and counterfeit) from one tax jurisdiction to another without its structure have to date been largely under–researched. the payment of applicable taxes or in breach of laws The main sources used by this study are Customs press prohibiting their import or export (Joossens and Raw releases, Federal police reports and data on illicit tobacco 2008). products seizures, KMPG and Euromonitor International data, empty pack surveys commissioned by the tobacco Counterfeiting: the illegal manufacturing of a product industry, interviews with experts, and media news. All bearing or imitating a trademark without the owner’s non–official sources are treated with caution in order to consent. Illegally manufactured products can be sold minimise the impact of their possible bias. in the source country or smuggled into another country (Joossens and Raw 2008). WHAT CAN BE FOUND IN THIS REPORT?

Bootlegging: the legal purchase of tobacco products in This report is organised into three chapters. a low-tax country and the illegal resale of these products in a high-tax country. Bootlegging concerns individuals Chapter 1 is composed of five subsections analysing the or small groups who smuggle smaller quantities of five drivers of the ITTP: cigarettes, taking advantage of tax differentials, with the 1) society and economy aim of making extra income (Hornsby and Hobbs 2007). 2) legal market 3) regulation Unbranded tobacco: manufactured, semi-manufactured 4) crime environment and even loose leaves of tobacco (also known as “chop- 14 5) enforcement chop” (Geis 2005)), illegally sold by weight (e.g. in large plastic bags, also known as “baggies”), with no labelling The drivers are important areas whose structures may or health warnings and consumed in roll-your-own influence the ITTP positively or negatively. Transcrime cigarettes or in empty cigarette tubes (Walsh, Paul, and selected the drivers based on a review of the literature on Stojanovski 2006). the ITTP and discussions with stakeholders and experts. Each subsection provides information on the key aspects Cheap Whites or Illicit Whites: cigarettes produced of each driver. legally in one country, but normally intended for smuggling into countries where there is no prior legal market for To enable comparison with other country profiles, them. Taxes in production countries are normally paid, each driver has four key indicators. The data for the while they are avoided/evaded in destination countries drivers’ indicators come from different sources to ensure (Allen 2011). the comparability among different countries to the latest available years (e.g. World Bank, WHO, UN). When Illegal manufacturing: cigarettes manufactured possible, the report provides the most up–to–date data for consumption, which are not declared to the tax from national sources. For four indicators, Transcrime authorities. These cigarettes are sold without tax and may has elaborated composite indicators (see Regulation be manufactured in approved factories or illegal covert and Enforcement, p.31 and p.45). Composite indicators operations (Joossens et al. 2010). assess the presence of specific policy measures in the country and range from 0 (no measure is present) to 5 (all measures are present). A higher value on the composite indicators does not always imply a better situation. Their purpose is rather to assess the intensity of policy measures in a specific field. The information used for the assessment is drawn from the literature, official sources (reports, websites, legislation) and experts. Introduction

Chapter 2 analyses the illicit trade in Germany, dividing it into its four components of the ITTP:

1) the demand 2) the supply 3) the products 4) the modus operandi and geographical distribution.

Chapter 3 combines the results of the two previous chapters to identify the four key factors of the ITTP and show how the various elements of the drivers influence the illicit trade.

15 The factbook on the illicit trade in tobacco products GERMANY 16 SOCIETY & ECONOMY

17 The factbook on the illicit trade in tobacco products

Germany is a federal republic and one of the biggest world economies. Although public debt rose as a consequence of the 2009 recession, unemployment fell and GDP growth rebounded in 2010. Households did not cut their expenditure on non–durable goods, including tobacco. However, regional differences among Eastern and Western Länder are still marked.

Low–income and low–social groups have higher GERMANY smoking prevalence rates. Society & Economy

5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 High % 11.3 0.30 4.8 32 Adult Population 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 86.6% 8.7 7.8 7.6 7.2 Population aged 15+ 4 out of 193 countries 6.0 Source: The World Bank (2011)

2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009

80.3 80.6 91,683 Low % 88,218 86,583 83,916 84,466 83,439 210.3 212.6 148,354 136,315 138,640 122,124 126,292 135,404 5.3 5.74 75.8 74.1 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 5.55 11.3 0.30 4.8 High 32 0.29 4.7 4.6 13.2 10.4 10.4 Income Inequality 12.9 29 0.30 8.7 7.8 7.6 2008 7.2 2010 6.0 GINI coefficient after taxes 20 out of 34 countries Tax % final retail price Source: OECD 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010 (late 2000s) 15 1.05 16.1 16.3 16.1 2005 2006 2007 2008 2009 2010 201114 1m4 id-2000s 1la4te-2000s 2005 2006 2007 02.90808 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2016.009 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 0.84

7.9 8.0 7.9 8.0 79.0* 80.3 80.6 91,683 88,218 86,583 Low 83,916 84,466 83,439 210.3 212.6 148,354 0.9 0.8 136,315 138,640 122,124 126,292 135,404 0.2 0.2 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 5.74 75.8 74.1 Value Rank 5.55 5.3 Opioids Cocaine HighCan %na bis 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 Education System0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 2008 2010 29 4.8%303.2 303. 4 300.2 8.7 299.0 300.7 298.2 296.07.6 7.8 24.7 24.4 24.4 24.8 Tax % final retail price7.2565,237 Education expenditure 6.0 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010 18 17.9 21 out of 157 countries as % of GDP 354,402 343,091 Source: The World15 Bank 1.05 (2010) 16.1 16.3 16.1 191,985 195,776 14 14 14 0.98 16.0 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 02.80405 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009 8.0 8.0 7.9 7.9 79.0* 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 80.3 80.6 91,683 Low % 88,218 0.9 86,583 83,916 84,466 0.8 83,439 210.3 0.2 212.6 0.2 148,354 2008 2009 2010 2011 2012 136,315 138,6402102025,1242006 2007 2008 2009 2010 126,292 135,404 2011 2012 2002 2003 2004 2005 2006 2007 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 Value R5a.n0k 5.1 11.3 0.30 4.8 75.8 Op7io4i.d1s Cocaine 3C2annabis 0.29 4.7 4.6 153.2.55 510.4.74 10.4 12.9 29 High % Migration 8.7 7.8 303.2 303.4 300.2 13.2%7.6 7.2 300.7 298.2 299.0 296.0 6.0 24.7 24.4 24.4 24.8 2008 565,2372010

International17.9 migrant stock Tax53 % final out retail price of 213 countries 354,402 343,091 2007 2008 2009 201as0 2%011 of20 12population2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010 (2010) 191,985 195,776 2005 2006 2007 2008 2009 2010 2011 mid-2000sSource:late-2000 Thes 2 0World05 200 6Bank2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009 15 1.05 16.1 16.3 16.1 14 14 14 0.98 16.0 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 0.84 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 80.3 80.6 8.0 8.0 91,683 88,218 7.9 7.9 79.0* 86,583 83,916 84,466 83,439 210.3 212.6 Low % 148,354 136,315 138,640 122,124 126,292 135,404 0.9 0.8 0.2 0.2 2008 2009 2010 2011 2012 5.55 5.74 75.8 74.1 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 Opioids Cocaine Cannabis 0.30 4.8 32 High % 0.29 4.7 4.6 Unemployment 13.2 10.4 10.4 12.9 2008 2010 29 8.7 6.0% 303.4 7.6 7.8 299.0 300.7 303.2 300.2 298.2 29Tax6.0 % final retail price7.2 565,237 2007 2008 2009 2010 201214.72012 24.42007 2240.40Total8 20029 4unemployment.82010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$,6.0 PPP 25 20out08 2of010 34 countries 17.9 rate (% of labour force) 354,402 343,091 15 1.05 16.1 16.3 16.1 14 14 14 0.9Source:8 OECD 16.0 15.6 15.3 13 0.92 4.8 4.8 (2011)191,985 195,776 0.88 0.86 0.84 2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009 7.9 8.0 7.9 8.0 79.0* 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 80.3 80.6 91,683 88,218 86,583 0.9 0.8 Low % 83,916 84,466 83,439 210.30.2 212.6 0.2 2008 2009 2010 14280,31514 2012 Last national available data (2012): 5.5% (Destatis 2013) 136,315 138,6402010252,1242006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 126,292 135,404 Value Rank Opioids Cocaine Cannabis 5.55 5.74 75.8 74.1

303.4 299.0 300.7 303.2 300.2 298.2 296.0 24.7 24.4 24.4 24.8 2008 565,2372010

17.9 Tax % final retail price 354,402 343,091 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010 191,985 195,776

15 1.05 16.1 16.3 16.1 14 14 14 0.98 16.0 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 0.84 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 7.9 8.0 7.9 8.0 79.0*

0.9 0.8 0.2 0.2 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank Opioids Cocaine Cannabis

303.4 299.0 300.7 303.2 300.2 298.2 296.0 24.7 24.4 24.4 24.8 565,237

17.9 354,402 343,091

191,985 195,776

2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 Chapter 1: The Five Drivers

•• Germany is one of the biggest world economies • Germany is one of only three OECD countries, and has one of the highest Human Development together with Israel and Poland, to have recorded a Indexes. reduction in unemployment rates during the 2007–2009 economic crisis. Indeed, unemployment • Germany has 82,726,000 inhabitants and one of the fell by nearly 1% (OECD 2011a). largest adult populations in the world. The country ranks 4th out of 193 countries for the proportion of the • The German economy has been more resilient population aged over 15 (World Bank 2012). to the global financial crisis than other developed economies. In fact, the UK, the USA and Germany • Germany is a UN, EU, G8 and NATO member, and are the only OECD economies where wealth has it is the fourth world economy after USA, China and recovered its 2007 level in constant exchange rate Japan (World Bank 2012). The standards of living terms (Shorrocks, Davies, and Lluberas 2011). are high, and Germany has a prominent role in the European Union and in the global arena. • The public debt has increased by almost 20% of GDP since 2007, reaching 83% of GDP in 2010 (OECD • In Germany, the average person earns US$27,692 per 2012c). year, while the OECD average is US$22,387 per year (OECD 2012d). •• Household expenditure has increased in the past decade in Germany (Figure 3). • According to the Human Development Report (UNDP 2011), Germany has the 9th highest Human Figure 3. Household final consumption expenditure, PPP (constant 2005 International $) Development Index (HDI) with a score of 0.905. Source: Transcrime elaboration on World Bank data

• Germany ranks 124th out of 136 countries in income 1,540 50% 19 45% inequality (CIA 2012a). Moreover, it ranks 20th out 1,520 40% of 34 OECD countries for the GINI index after taxes 1,500 The factbook on the illicit trade in tobacco products (OECD 2012a). 35% 1,480 30% 1,460 25% • The top 20% of the population earns more than four n 1,440 B 20% times as much as the bottom 20% (OECD 2012e). 1,420 15% 10% 1,400 •• Germany has been less affected by the global 5% 1,380 financial crisis than other European countries. 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 • In the last decade, GDP growth was slightly negative 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25 in 2003 (-0.4%) and heavily negative in 2009 (-5.1%). In the other years, the German economy grew well • Housing, energy, and maintenance of the dwelling above EU average. Pre–crisis real GDP levels were historically constitute the highest spending again reached in the second quarter of 2011 (OECD 3.0% category of German households. In 2010 housing 2.7

Social security GERMANY 2012c). costs represented5% 2% 34.1% of private consumption 5% 2.5% expenditure. Food, beverages and tobaccoGener al services • Unemployment is low and decreasing. Indeed, total represented8% 14.1% of expenditure in 2010,Other ethexpe samenditure 2.0% 1.6 unemployment as percentage of labour force was share as transport-related costs Schools, institutions 1.5% 6.0% in 2011 (down from 10.4% in 2004) and the (Destatis–Statistisches Bundesamt 2010). 11% 55% of higher education, country ranked 25th out of 34 (World Bank 2012). In other education 1.0% 0.6 2012 unemployment was 5.5% (Destatis–Statistisches After the French, the Germans are theP topens ishopperons 0.5 • 0.4 Bundesamt 2013). 0.5% 0.3 in the12% OECD in terms of time. The FrenchDebt spend 32 minutes per day shopping, while Germans spend 31 0.0% Science, research, minutes (OECD 2011a). cultural Both sexes Male Female Aged 12-17 Aged 18-25

250,000

200,000 1,200 ) s k c i t

s 150,000 1,000 n m (

e 100,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

s e t t

0 e

a r 400 g C i 2012 200 Production Sales Import Export

0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% 80% 80%

c Berlin 60% t i 60% s Brandenburg, e

m Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% n – d 6 –2011) Bav aria o 0 n 0 f o

( 2 Thuringia, Saxony

20% n e

o 20% c t i n a i e r d i

0% a c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c r Schleswig–Holstein, Hamburg, -20% cigarettes equivalent) P e Bremen, Lower Saxony North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales -40% 40% 38 0% 5% 10% 15% 20% 25% 30% 35% 40% 37 34 34 Non–domestic packs incidence (2006) 35% 34 34 33 30% 27 27 26 26 27 25% 23 24 24 22 19 20% 25% 16 15 15% 14 12 11 10% 9 20% 7 5 5% 3 15% 0% 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 20 25 30 35 40 45 50 55 60 65 70 75 and 10%

Male Female 5% 60% 55 54 53 50 0% 50% 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 40% Euromonitor Kpmg EPSs 36 34 31 32 30% 27 26 100% 14 19 25 20% 17 33 27 14 7 12 80% 45 10 9 10% 61 12 6 15 27 60% 26 20 0% 9 19 11 18-39 40-59 60+ 18-39 40-59 60+ 40% 10 11 Male Female 14 53 4 48 44 46 Low-social status Mid-social status High-social status 20% 35 36 21

60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 54% Poland Czech Republic Russia Other countries 47 46 47

90% Poland Czech Republic Spain Other countries

80%

70%

60% 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

as % of TIRSP (Tax Inclusive Retail Selling Price) 20%

as % of WAP (Weighted Average Price) 15%

10%

250 5%

199 0% 200 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 € Counterfeit Marlboro over total non-domestic Marlboro packs

o f 100

86 n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

6% 60% 5% 4.8 4.8 50% 4% 40% 3% 30% 2% 20% 0.9 0.8 1% 0.2 0.2 10% 0% Opioids Cocaine Cannabis 0% 2005 2006 2007 2008 2009 2010 2011 Drug report 2011 Drug report 2012 Western Länder Germany Eastern Länder Society & Economy

Table 1. Household expenditure on tobacco Source: Transcrime elaboration on Destatis–Statistisches Bundesamt data

Average household expenditure on tobacco per month € %

1998 14 5.5

2003 18 6.5

2008 18 6.2

• Average monthly household expenditure increased •• Social security accounts for more than half of

in both absolute2001 and percentage2002 2terms003 from20 199804 to 2005 20public06 2expenditure007 2008 (Figure2009 4). 2010 2011 2012 Cigarettes (mn 2003; it was nearly143,578 constant 146,16 3from 1 320034,968 to 2008113,41 (Table4 9 6 ,970 93 ,673 91,68 3 88,21 8 86,58 3 83,91 6 84,46 6 83,439 sticks) 1). •• Public spending on education in Germany is Cigars (mn units) 1,778 2,571 2,509 3,132 3,651 5 ,4medium–high,88 6,41 1 but4,97 4low in3, 8comparison1 2 3,96 7 with4,1 1similar 8 4,044 • Low–income is correlated with higher tobacco countries. HRT (Tonnes) 14,727 16,321 19,473 25,149 34,036 23 ,641 23,99 8 23,73 3 25,21 2 26,24 2 27,36 3 27,658 consumption in Germany. Indeed, in low–income households (i.e. with a monthly income of up to • Education expenditure over GDP was 4.8% in 2010.

Su€1,300),pply chain the con tsharerol ind iofca t smokersor is 33%; in Germany ranked 21stValu eout of 157 countries (World 1) Tmedium–incomehe retail of tobacco p householdsroducts is subje (monthlyct to licensi nincomeg from Bank 2012). Considering0 points only OECD countries, 2) T€2,600he manu tofac €4,500)ture of tob aitc ciso p24%,roduc tands is s u19%bject tino l ihouseholdscensing Germany spent only1 p o4.8%int of GDP on education in 1,540 50% 3) There is a mandatory system of customer identification and verification applied 2008, significantly below the OECD average of 5.9%. with an income of over €4,500 (Laue 2010). 0.5 points to the supply c hain of tobacco products 45% 1,520 As a result, Germany ranked 30th among 36 countries 4) There is a tracking and tracing system for tobacco products 0.5 points 40% •• 1High,500 levels of social security characterise the (OECD 2011b). 5) Absence of free–trade zones for tobacco products 0.5 points 35% 1,480 German welfare state. 30% 20 1,460 • Nevertheless, the average2 5student% in Germany scored

n To1b,4a4c0co consumption and sales indicator Value • B More than half of public expenditure is devoted to 510 for reading literacy, mathematics20% and sciences, 1) Ban on smoking in public places 1 point 1social,420 security, which is financed by generous social higher than the OECD average15% of 497 in 2009 (OECD

2) Ban on smoking in workplaces 10% 0 points 1security,400 contributions that in 2009 represented a 2012e). However, the average difference in results, 3) Ban on the sale of tobacco products from vending machines 0 points between the top 20% and bottom5% 20%, is 125 points, 4) 1Pproportion,3ro8h0ibition of tofob a39%cco s aofle stotal to m intaxors revenues in 2009 1 point 0% (OECD 2012c). which is much higher than the OECD average of 99 5) 1B,3a6n0 on smoking in bars, cafés and restaurants 0.51 p9o8i9nts 1993 1997 2001 2004 2008 2010 2011 points and one of the largest gaps among the OECD 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 countries (OECD 2012e). Aged 12-17 Aged 18-25 TFigureobacc o4. m 2010arket ipublicng an dexpenditure promotion ibynd functionalicator areas Value 1Source:) Ban oTranscrimen tobacc oelaboration sponso ronsh 2013ip an Destatis–Statistischesd advertising on r aBundesamtdio, TV, bdataroadcasted programmes and in print media 1 point •• Public spending on health in Germany is relatively 2) Ban on billboards and outdoor advertising 1 point 3) Ban on the display of tobacco products at points of sale high. 0 points 3.0% 4) Ban on free distribution of tobacco samples 1 point 2.7 2% Social security 5) Mandatory p5ic%torial health warnings 0 points • Health spending accounted2.5% for 11.6% of GDP in 2010, 5% General services higher than the OECD average of 9.5%. Germany 8% Other expenditure ranked 9th among OECD 2countries.0% in health spending 1.6

Anti–ITTP action indicator Schools, institutions per capita, with US$4,3381.5% perValu persone in 2010 11% 55% of higher education, (adjusted for purchasing power parity, OECD average 1) National Action Plan against the ITTP other education 0 points was US$3,268 per capita)1.0% (OECD 2012b). 0.6 2) Cooperation agreements between national public boPdeines iaonds tobacco companies to prevent and control the ITTP 0.5 points 0.5 0.4 0.5% 0.3 12% 3) National campaign against the various forms of the DITeTbPt • On average, life expectancy0. 5at p obirthints reached 80.19 0.0% Science, researc h, years in 2012. Women live almost five years longer 4) Legal obligation on tobacco manufacturers not to facilitate smuggling 0.5 points Both sexes Male Female cultural than men (82.58 years in 2012). The country ranks

5) Official legal estimates of the size of the ITTP 28th out of 220 countries (CIA0 po i2012b).nts Aged 12-17 Aged 18-25

250,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2E0u0,r0o0m0onitor 3.3% 3.4% 3.7% 4.5% 5.4% 5.6% 5.9% 6.7% 7.6% 8.1% 8.2% 711.8.1%% 1,200 )

k KPMG 10.6% 9.7% 10.8% 12.0% 12.5% 13.1% 11.1% c i t

s 150,000 1, 000 n EPSs 14.9% 16.9% 22.6% 19.7% 19.1% 21.1% 21.8% 20.6% m (

e 1 00,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

s e t t

0 e

a r 400 g C i 2012 200 Production Sales Import Export

0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% 80% 80%

c Berlin 60% t i 60% s Brandenburg, e

m Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% n – d 6 –2011) Bav aria o 0 n 0 f o

( 2 Thuringia, Saxony

20% n e

o 20% c t i n a i e r d i

0% a c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 54% Poland Czech Republic Russia Other countries 47 46 47

90% Poland Czech Republic Spain Other countries

80%

70%

60% 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

as % of TIRSP (Tax Inclusive Retail Selling Price) 20%

as % of WAP (Weighted Average Price) 15%

10%

250 5%

199 0% 200 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 € Counterfeit Marlboro over total non-domestic Marlboro packs

o f 100

86 n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

•• Germany is a multicultural society. • A regional comparison showed that people living in cities and in the new Länder depended more heavily • Migration stock as percentage of the total population on minimum social security benefits in 2006. With was 13.2% in 2010 (in 2005 it was 12.9%). The the highest receipt rate of 20.1%, every fifth Berlin country ranked 53rd out of 213 countries (World Bank inhabitant received benefits to secure basic livelihood. 2012). Baden–Württemberg and Bavaria reported the lowest rates, respectively 5.7% and 5.3% of the population • The most important immigration countries are Poland, (Haustein 2008). Turkey, Russia, Romania, Serbia, Montenegro and Italy. Emigration occurs towards Poland, Turkey, Italy, Serbia and Montenegro, Romania and Greece In conclusion, Germany passed through the (Destatis–Statistisches Bundesamt 2006). Global Financial Crisis rather undamaged in comparison with other European countries. Families with migrant backgrounds are common in • Moreover, it has a strong welfare system. Germany. In 2010, 2.3 mn families with at least one However, social differences persist between parent with foreign roots and with children under 18 East and West Germany. years old were resident in Germany. They represented 29% of the 8.1 mn families with minor children. This share has increased by 2% since 2005 (Galster and Haustein 2012).

• Nearly a fifth of families with minor children and a migrant background are of Turkish origin. Families who came to Germany from the former Soviet Union, 21 among them mainly ethnic German repatriates, rank second with 16%, followed by families with roots in former Yugoslavia (9%). Southern European The factbook on the illicit trade in tobacco products countries, where guest workers were recruited in the past (Portugal, Spain, Italy and Greece) account for 8% of migrant families (Galster and Haustein 2012).

•• Germany has marked regional inequalities.

• The poverty risk differs between the East and the West of Germany. In 2007, whilst in the new Länder (i.e. former East Germany, including Berlin) 19.5% of the population was at risk of poverty, the rate was markedly lower in West Germany (excluding Berlin) with 12.9%. Notably, in the Eastern Land of

Mecklenburg–Vorpommern, 24.3% of the population GERMANY was at risk of poverty, whilst in the Southern Land of Baden–Württemberg the percentage was only 10.0% (Mertel 2009).1

1. According to the European Union, the at–risk–of–poverty rate is defined as the share of persons having to make do with less. 22 LEGAL MARKET

23 The factbook on the illicit trade in tobacco products

The tobacco market is an important sector of the German economy. Germany is the first exporter of cigarettes in the world, and exports have grown over the past decade. The tobacco industry employed 10,057 people in 2011. However, national sales have fallen and consumers are shifting to cheaper products. GERMANY Legal Market

5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 High % 0.29 4.7 4.6 13.2 10.4 10.4 1Smokers2.9 29 8.7 7.8 29% 7.6 7.2 Current smoking of any tobacco 6.0 product (age–standardised rate) 36 out of 147 countries Source: WHO–Country reports (2009) 2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009

80.3 80.6 91,683 88,218 86,583 Low % 83,916 84,466 83,439 210.3 212.6 148,354 Last national available data (2012): Smokers (18+) (Deutsche Krankenversicherung 2012) 136,315 138,640 122,124 23% 126,292 135,404

5.55 5.74 75.8 74.1 Affordability Low 2008 2010 1.5% Tax% % of final annual retail price per capita income 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010 135 out of 168 countries needed to buy 100 packs of the 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 cheapest cigarettes 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 15 1.05 16.1 16.3 16.1 (2010) 8.7 14 14 14 0.98 Source: Tobacco Atlas 16.0 15.6 15.3 13 0.92 4.8 4.8 7.6 7.8 0.88 0.86 0.84 7.2 6.0 7.9 8.0 7.9 8.0 79.0*

High 0.9 Last0.8 available data (2012): (Euromonitor International 2012, International Monetary Fund 2012) 0.2 0.2 1.2%2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank Opioids Cocaine Cannabis 80.3 80.6 91,683 Large 88,218 86,583 Market Size 83,916 84,466 83,439 212.6 303.4 210.3 300.7 303.2 300.2 298.2 83,439 299.0 296.0 148,354 138,640 24.7 24.4 24.4 24.8 565,237 135,404 136,315 122,124 1265,.2392 Cigarette85.8 86 .0retail86.2 8volume6.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 17.9 0.29 4.7 4.6 12 out of 2091 3.2countries10.4 10.4 75.8 74.1 354,402 343,091(mn sticks) 12.9 5.55 5.74 29 24 8.7 Source: Euromonitor International 7.6 7.8 191,985 195,776 7.2 (2012) 6.0 2008 2010

Tax % final retail price 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010

2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 Small20082009 2010 2011 2006 2009 15 1.05 16.1 16.3 16.1 14 14 14 0.98 16.0 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 0.84 80.3 80.6 91,683 88,218 86,583 7.9 8.0 7.9 8.0 79.0* 83,916 84,466 83,439 210.3 212.6 148,354 Positive 5.3 136,315 138,640 85.8 86.0 86.2 86.3 86.4Balance86.5 86.6 of Trade 5.0 135,4045.1 122,124 11.3 0.30 126,292 4.8 03.92 0.29 4.7 4.6 13.2 122,12410.4 10.4 0.8 12.9 0.2 209.2 5.74 8.7 75.8 74.1 2008 2009 2010 2011 2012 5.55 7.8 Cigarette exports–imports 2005 2006 2007 2008 207.609 2010 7.2 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank 1 out of 72 countries6.0 (mn sticks) Opioids Cocaine Cannabis Source: Euromonitor International 2008 2010 (2012) 303.4 Tax % final retail price 299.0 300.7 303.2 300.2 298.2 296.0 2007 2008 2009 2010 2011 2012 204.077 200284.42009 240.140 201124.82012 2008 2010 Tax per 1,000 sticks/Int.$, PPP565,237 2008 2010 2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009 17.9 354,402 343,091 15 1.05 16.1 16.3 16.1 14 14 14 0.98 16.0 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 0.84 80.3 80.6 Negative 191,985 195,776 91,683 88,218 86,583 83,916 84,4667.893,4398.0 7.9 8.0 79.0* 210.3 212.6 148,354 136,315 138,640 122,124 126,292 135,404 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 75.8 74.10.9 0.8 Price 5.55 5.74 0.2 0.2 High 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 Int.$,2011 PPP2012 5.742002 2003 2004 2005 2006 2007 Value Rank Price of a pack of 2008 21Opi2o0id 1s0outCoc aofine 166Cannabi scountries the most sold brand Tax % final retail price 303.4 2007 2008 2009 2010 (Int.$,2011 20 12PPP)2007 2008 2009 2010 2011299.20031200.7 303.22008 32001.20 298.2Tax296 per.0 1,000 sticks/Int.$, PPP 2008 2010 24.7 24.8 (2010)565,237 Source: WHO24.4 24.4 15 17.9 1.05 16.1 16.3 16.1 14 14 14 0.98 354,402 343,09116.0 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 0.84 191,985 195,776 7.9 8.0 7.9 8.0 79.0* Low Last available data (2012): (Euromonitor International 2012, International Monetary 2004 2005 2006 2007 2008 2009 2010Int.$, PPP 6.32 2007 2008 2009 2010 2011 2004 2005 2006 200702.9008 2009 201.80 Fund 2012) 0.2 0.2 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank Opioids Cocaine Cannabis

303.4 299.0 300.7 303.2 300.2 298.2 296.0 24.7 24.4 24.4 24.8 565,237

17.9 354,402 343,091

191,985 195,776

2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25%

n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

Chapter 1: The Five Drivers 3.0% 2.7 Social security 5% 2% 2.5% 5% General services

8% Other expenditure 2.0% TOBACCO MARKET •• The value of the tobacco market in Germany.1.6 Schools, institutions 1.5% •• 1Germany1% is the first world55% exporter ooff hcigarettes.igher educati on, • In 2012 the sales of tobacco products reached a other education 1.0% Indeed, the production of cigarettes has slightly value of €24.6 bn. In volume, the German market size 0.6 Pensions 0.5 0.4 increased in the past decade, even if national was 83,439 mn sticks in the0 .5%same year. The German 12% 0.3 sales have fallen (Figure 5). Debt market is one of the largest in the world (12th out of 0.0% Science, research, 209 countries) (Euromonitor International 2013). cultural Both sexes Male Female Figure 5. National production, sales, imports and exports of cigarettes • The German tobacco industry employed 10,057Aged 12-17 Aged 18-25 Source: Transcrime elaboration on Euromonitor International data people in 2011 (Deutscher Zigarettenverband 2012a). 250,000 • Germany is also a minor producer of tobacco. Indeed, 200,000 1,200

) the country held nearly 0.2% of the global plantations s k c i

t of tobacco in 2008. Two southern states

s 150,000 1,000 n

m (Rhineland–Palatinate and Baden–Württemberg) (

e 100,000 t

account for about three–quarters) of the land under t

s 800 e k c a r i t

g tobacco cultivation (Geist et al. 2009). s

C i

50,000 n

m 600 (

s e t

•• The German subsidiaries oft the four

0 e

a r 400

multinationals, Philip Morris,g Reemtsma (Imperial C i 2012 Tobacco), British American Tobacco, and Japan 200 Production Sales Import Export Tobacco International dominated the cigarette market. 0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 25 • 10Germany0% was the first cigarette exporting country in • Philip Morris is the market leader with a 37.5% 2010, when 181.11 bn cigarettes were exported (165 volume share in 2012. Marlboro is the8 0leading% brand The factbook on the illicit trade in tobacco products 8according0% to Euromonitor) (Eriksen, Mackay, and of cigarettes, even if its share declined from 2008

c Berlin 6Ross0% 2012). to 2012 owing to the price–sensitivityt i 6 of0% consumers. s Brandenburg, e

In 2012, Marlboro’s market share m was 21.7% Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% n – d • British American Tobacco (BAT) has two production (Euromonitor International 2013). 6 –2011) Bav aria o 0 n 0 f o

sites in Germany, in Bayreuth and Bremen. The ( 2 Thuringia, Saxony

20% n e

o 20% c t i former factory is the second largest BAT production • Reemtsma (Imperial Tobacco), withn a market share of

a i e r d i

0% a c v Baden–Württemberg site in the world. Also Philip Morris has two production nearly 25.8%, saw a slight erosion of its volume share n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland

sites in Germany, one in Berlin and one in Dresden. from 2010 to 2011, after that its strongc volume share n a e p

HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c The company’s second largest production unit increased in 2010 when it took overr the distribution Schleswig–Holstein, Hamburg, -20% cigarettes equivalent) P e Bremen, Lower Saxony in Europe is located in Berlin. It employs around of the Gauloises and Gitanes brands. From 2011 to North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales 1,400 people and had a production volume of 63 bn 2012, it kept constant. John Player Special-40% is the 40% 38 0% 5% 10% 15% 20% 25% 30% 35% 40% 37 cigarettes in 2009 (Euromonitor International 2012). second most popular cigarette brand after Marlboro, 34 34 Non–domestic packs incidence (2006) 35% 34 34 33 with a share of 9.8%. It increased its volume share

30% GERMANY • Exports of cigarettes27 have increased in the past between 2006 (4.4%) and 2012 (9.8%) (Euromonitor 27 26 26 27 25% 23 24 decade. Germany24 exported more than 80% of International 2013). 22 19 20% national production in 2012 (Figure 5). Furthermore, 25% 16 15 15% the country has the biggest14 balance of trade (exports • British American Tobacco, with a market share 12 11 10% minus imports in volume). With a positive9 value of of 18.3%, was the third company20% in 2012. The 7 5 5% 138,640 mn sticks it ranked 1st out of 72 countries in3 company’s key brands, Pall Mall and Lucky Strike, are 2012 (Euromonitor International 2013). seen as value–for–money brands15% and were among 0% 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 the leading cigarette brands in 2012 (Euromonitor 20 25 30 35 40 45 50 55 60 65 70 75 and International 2013). 10%

60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 54% Poland Czech Republic Russia Other countries 47 46 47

90% Poland Czech Republic Spain Other countries

80%

70%

60% 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

as % of TIRSP (Tax Inclusive Retail Selling Price) 20%

as % of WAP (Weighted Average Price) 15%

10%

250 5%

199 0% 200 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 € Counterfeit Marlboro over total non-domestic Marlboro packs

o f 100

86 n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

8% Other expenditure 2.0% 1.6 Legal Market Schools, institutions 1.5% 11% 55% of higher education, other education 1.0% 0.6 Pensions 0.5 0.4 0.5% 0.3 12% Debt • Japan Tobacco International (JTI) has only a minimal • According to the 2009 German Microcensus, smoking 0.0% presence in Germany (4.8%). JTI’s key brands in the prevalence was 25.7%. Around 85% ofS cconsumersience, resear ch, cultural Both sexes Male Female German market are Camel and Winston (Euromonitor are regular smokers; 15% are occasional smokers Aged 12-17 Aged 18-25 International 2013). (Destatis–Statistisches Bundesamt 2012a).

• Pöschl Tabak is an independent German tobacco 25 0• ,00Cigarettes0 are widespread in Germany. Indeed, manufacturer which is the major seller of snuff tobacco. 96% of smokers consume cigarettes (or hand rolling 200,000 1,200

It has a market share of 95% in Germany and around ) tobacco, hereinafter HRT), 3% cigars and cigarillos, s k c i 50% worldwide (Euromonitor International 2012; t and just 1% pipes. Shishas (water pipes) are smoked

s 150,000 1,000 n

Pöschl Tabak 2012). m by 2% of young men aged 15 to 20, and by 1% of the (

e 100,000 t )

t women in that age group (Laue 2010). s 800 e k c a r i t g

•• Mainstream sales channels are dominant in s

C i

50,000 n

HRT sales in cigarettes equivalent over total sales m 600 Germany. • (

s e t

(cigarettes and HRT cigarettes equivalent) after an t

0 e

a r 400 • Food retailers dominate the distribution of cigarettes in increase from 2003 to 2005 was nearly constant at g C i Germany, with a volume share of 38% in 2011 (PMG 30% (Figure 6). 2012 200 2012). As for cigars, specialist tobacconists prevail Production Sales Import Export Figure 6. Share of HRT sales (2003–2011) because of the expert advice that they offer as part of 0 Source: Transcrime elaboration on KPMG 2012 data their service (Euromonitor International 2012). 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% • Vending machines have a sizeable volume share 80% 80% in cigarettes (11% in 2011 (PMG 2012)). However,

c Berlin the importance of this channel has diminished. The 60% t i 60% s Brandenburg, e

m Mecklenburg–Vorpommern,

tobacco legislation of 2007 required ID checks to buy o 26 Saxony Anhalt 40% 40% n – d 6 –2011) Bav aria

cigarettes. This has negatively affected the market o 0 n 0 f o

( 2 Thuringia, Saxony

share of vending machines. Furthermore, vending

20% n e

o 20% c t i n

machines in streets, which were once common sight in a i e r d i

0% a c v Baden–Württemberg

Germany, have largely disappeared due to legislation n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c

to protect children from smoking. In 2011, restaurants, n a e p

HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c r Schleswig–Holstein, Hamburg, pubs, clubs, and food outlets were the main sites of -20% cigarettes equivalent) P e Bremen, Lower Saxony vending machines (Euromonitor International 2012). North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales -40% 40% 38 Note: HRT volumes have been calculated at one stick per 0.75 0% 5% 10% 15% 20% 25% 30% 35% 40% • The Internet is not a significant distribution37 channel 34 grams.34 Non–domestic packs incidence (2006) in Germany.35% Nevertheless,34 some German companies34 33 30% offer cigarettes through their online shops (Euromonitor 27 27 26 26 27 25% 23 24 • In 2009,2 80%4 of regular cigarette smokers consumed International 2012). 22 an average of 5 to19 20 cigarettes per day, while heavy 20% 25% 16 15 TOBACCO15% CONSUMPTION smokers (i.e. people smoking14 more than 20 cigarettes 12 per day) represented 14% of regular cigarette11 10% 9 20% 7 smokers (Laue 2010). 5 •• Tobacco5% sales are declining in Germany. 3 15% 0% • The age–standardised15 to 20 to smoking25 to rate3 0was to 29%35 tino 2009.40 to 4•5 tTheo share50 to of heavy55 to smokers60 to decreased65 to 70 from to 18%75 in Germany ranked20 36th25 out of 31470 countries35 (WHO40 45 501999 to55 14% in6 2010.0 However,65 7 the0 share75 of thosean d 10% 2011a). Male smoking 5 to 20Fe cigarettesmale a day slightly increased 5% 60% (from 74% to 80% in the same period) (Laue 2010). 55 • Eurostat’s tobacco54 53 survey of 2012 registered a 50 0% 50% •• The price of cigarettes in Germany is smoking prevalence of 26% for Germany (EU average 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 medium–high, while the RIP (Relative Income of 428%).0% The country ranked 19th out of 27 Members 36 Euromonitor Kpmg EPSs (European Commission 2012). Price) is low. 34 31 32 30% 27 26 100% 14 19 25 20% 17 33 27 14 7 12 80% 45 10 9 10% 61 12 6 15 27 60% 26 20 0% 9 19 11 18-39 40-59 60+ 18-39 40-59 60+ 40% 10 11 Male Female 14 53 4 48 44 46 Low-social status Mid-social status High-social status 20% 35 36 21

60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 54% Poland Czech Republic Russia Other countries 47 46 47

90% Poland Czech Republic Spain Other countries

80%

70%

60% 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

as % of TIRSP (Tax Inclusive Retail Selling Price) 20%

as % of WAP (Weighted Average Price) 15%

10%

250 5%

199 0% 200 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 € Counterfeit Marlboro over total non-domestic Marlboro packs

o f 100

86 n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

2003 18 6.5

2008 18 6.2

Table 2. Sales of tobacco by category and volume (2001–2012) Source: Transcrime elaboration on Euromonitor International 2012 data

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201 2

Cigarettes (mn 143,578 146,163 134,968 113,414 9 6,970 93 ,673 91,68 3 88,21 8 86,58 3 83,91 6 84,46 6 83,439 sticks)

Cigars (mn units) 1,778 2,571 2,509 3,132 3,651 5 ,488 6,41 1 4,97 4 3,81 2 3,96 7 4,11 8 4,044

HRT (Tonnes) 14,727 16,321 19,473 25,149 34,036 23 ,641 23,99 8 23,73 3 25,21 2 26,24 2 27,36 3 27,658

• SuThepply German chain con tpricerol in dofic aat o packr of the most sold brand of • The German marketVa islue experiencing both a 1)cigarettes The retail of tisob amongacco prod theucts highestis subject worldwide.to licensing Indeed, in downtrading and a 0switching–to–cigars points trend. Indeed, 2)2010 The m an upackfactur ecost of to International$bacco products is s5.74,ubjec t andto lic ethensin countryg the consumption of1 cigarettespoint has declined, while

3) There is a mandatory system of customer identification and verification applied ranked 21st out of 166 (WHO 2012a). cigars and HRT sales0.5 phaveoints shown high growth rates to the supply c hain of tobacco products (Table 2). 4) There is a tracking and tracing system for tobacco products 0.5 points • In 2011, cigarette prices increased by an average of 5) Absence of free–trade zones for tobacco products 0.5 points 4% due to tax rises introduced in May 2011. Taxes • Between 2001 and 2011, cigarettes sales declined were also raised for HRT (Euromonitor International by 41.2% while cigars recorded high growth, more

To2012).bacco cInon 2013,sumpti othen a npriced sale sof in thedica packtor of the most sold than doubling their sales. Also HRTValue sales greatly

1)brand Ban on wentsmoki nupg in to pu International$blic places 6.32.2 increased; indeed, they nearly doubled1 point in the last 2) Ban on smoking in workplaces 0 points decade (Table 2). 3) Ban on the sale of tobacco products from vending machines 0 points • 4)In Pr oMayhibiti o2012,n of tob theacco price sales tofo m ain o20–sizers pack of Marlboro 1 point 5)was Ban o€5.26,n smoki nag pricein bars ,which cafés a ranksnd rest aGermanyurants 11th out of • German consumers did not exhibit0.5 p aoi nshiftts to low and 35 European countries, including Turkey (Deutscher ultra–low tar cigarettes. The share in volume sales of Zigarettenverband 2012b). Furthermore, according these two categories was around 18% of total sales 27 Tobacco marketing and promotion indicator Value to the ratio of the Marlboro price to GDP per capita, from 2003 to 2011 (Euromonitor International 2012). 1) Ban on tobacco sponsorship and advertising on radio, TV, broadcasted programmes and in print media 1 point

2) BaGermanyn on billboa rranksds and 22ndoutdoo rout adv eofrt is28ing European countries, 1 point The factbook on the illicit trade in tobacco products 3) Bawithn on tah escore displa yamounting of tobacco pr otodu 68%cts at pofoi nthets o fEuropean sale GERMANY EXHIBITS A GREAT0 points VARIETY

4) Baaveragen on free d (PMIistribu tFieldion of toForcebacco sandamp leGlobals Insight 2013). OF PACK SIZES 1 point 5) Mandatory pictorial health warnings 0 points • In 2010, the relative income price (RIP), i.e. the German cigarettes packs come in many varieties. percentage of per capita GDP needed to purchase The industry calls packs containing 19 sticks

Anti100–ITT Ppacks action ofin dtheicat ocheapestr cigarettes, was 1.5 %. Normal, those with 22 to 24 sticksValue Big, and those Germany ranked 135th out of 168 (Eriksen, Mackay, with more than 26 sticks per pack Maxi. In 2011, 1) National Action Plan against the ITTP 0 points 19–stick packs had the largest share of all cigarette and Ross 2012). 2) Cooperation agreements between national public bodies and tobacco companies tpacko prev esizes,nt and calthoughontrol the I TtheirTP volume0.5 poi nsharets declined

3•) NaThetiona percentagel campaign aga ofins tper the vcapitaarious f oGDPrms o fneeded the ITTP to significantly in the review period.0.5 po intBigs packs were the purchase 100 20–cigarettes packs of the cheapest second most popular pack size in 2011. 4) Legal obligation on tobacco manufacturers not to facilitate smuggling 0.5 points brand was 1.5% in 2010 (135th out of 168 countries). Pack size is used for several purposes. The main is 5) OfInfic ia2013,l legal eits twentimates down of the stoize 1.2%. of the I3TTP 0 points to create product differentiation at GERMANY points–of–sale. Moreover, pack size is useful • According to the ‘Big Mac Index of Cigarette 2001 2002 2003 2004 2005 2006 2to00 7react 2to00 tax8 increases2009 without2010 changing2011 retail2012 Affordability’ – which calculates the number of prices. Indeed, after the first tax rises in May 2011, Euromonitor 3.3% 3.4% 3.7% 4.5% 5.4% 5.6% 5.9% 6.7% 7.6% 8.1% 8.2% 711.8.1%% cigarettes that can be bought for the price of a Big companies raised the prices of their products by a KPMMacG hamburger within the country – in 2006, Germany10 .6% 9.7% 10.8% 12.0% 12.5% 13.1% 11.1% certain amount, while large pack sizes and vending EPSs 14.9% 16.9% 22.6% 19.7% 19.1% 21.1% 21.8% 20.6% ranked 27th out of 34 with 18 cigarettes for one Big packs were reduced by one cigarette (Euromonitor

Mac based on the most popular price category (Scollo International 2012). 2008).4

2. Transcrime calculations on Euromonitor International, 4. The first country in this ranking is the one where fewer International Monetary Fund and Industry data. cigarettes are needed in order to buy a Big Mac. It is therefore 3. See note 2. the country where cigarettes are least expensive. 1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25%

n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

8% Other expenditure 2.0% 1.6 Schools, institutions 1.5% 11% 55% of higher education, other education 1.0% 0.6 Pensions 0.5 0.4 0.5% 0.3 12% Debt 05.0%0% 1,540 Science, research, 45% Both sexes Male Female 1,520 cultural 40% Aged 12-17 Aged 18-25 1,500 35% 1,480 30% 250,000 1,460 25%

n 1,440 B 20% 200,000 1,200

) 15%

s 1,420 k c i

t 10%

s 150,001,0400 1,000 n 5% m (

1,380 s

e 100,000 0% t ) t

s 800 e 1,360 k 1989 1993 1997 2001 2004 2008 2010 2011 c a r i t g s

C i 1,340

50,000 n 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25 m 600 (

s e t t

0 e

a r 400 g C i 2012

3.0%200 Production Sales Import Export 2.7 Social security 5% 2% 5% 2.5% 0 General services 98 99 00 01 02 03 04 05 06 07 08 09 10 11 8% 2.0% 100% Other expenditure 1.6 80% Schools, institutions 1.5% 80% 11% 55% of higher education,

other education 1.0% c Berlin 60% t i 60% s Brandenburg, e 0.6 Pensions 0.5 m Mecklenburg–Vorpommern,

o 0.4 0.5% Saxony Anhalt 40% 12% 40% 0.3 n – d Debt 6 –2011) Bav aria o 0 n 0 f

0.0% o ( 2 Thuringia, Saxony

20% Science, research, n e

o 20%

c Both sexes Male Female t i

cultural n a i e r d i

0% a c v Baden–Württemberg Aged 12-17 Aged 18-25 n i e Legal Market

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c r Schleswig–Holstein, Hamburg, 250,000 -20% cigarettes equivalent) P e Bremen, Lower Saxony Figure 7. Smoking prevalence per gender and age group (2009) North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales Source: Transcrime elaboration on Destatis–Statistisches Bundesamt data 200,000 1,200 -40% ) s

40% 38 k 0% 5% 10% 15% 20% 25% 30% 35% 40% c

37 i t

s 150,000 35% 34 34 34 34 1,000 Non–domestic packs incidence (2006) n 33 m (

30% s

e 100,00207 27 27 t ) 26 26 t s 800 e 25% 23 24 24 k c a r i

22 t g s

C i

50,000 19 n 20% 25% m 600 ( 16 15 14 s

15% e t

12 t

0 11 e 9 10% 20a r % 400 7 g

5 C i

5% 3 2012 15% 200 0% Production Sales Import Export 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 20 25 30 35 40 45 50 55 60 65 70 75 and 10% 0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Male Female 100% 5% 60% 54 55 80% 53 80% 50 0% • 5Pack0% size is a strategy used by multinationals to avoid • Several studies report that smoking is more common 45 20c 01 2002 2003 2004 2005 2006 2007 2008 B2e0rl0in9 2010 2011 2012 60% 44 t i 60% 41 s Brandenburg, industry restrictions (see Box Germany exhibits a in socially disadvantaged groups than in socially e

40% m Euromonitor MeckleKnpbmurg–g VorpommeErnP, Ss 36 34 o Saxony Anhalt great variety of pack sizes, p.27). 40% privileged ones (Lampert 2010; Nocon, Keil, and 40% n – d 31 32 6 –2011) Bav aria o 0 n

30% Willich 2007; Pfeiffer-Gerschel, Hammes, and 0 26 27 f 100% o ( 2 Thuringia, Saxony

20% n Rummel 2012). The risk of smoking is 2.3 times e •• Socio–demographic and economic variables play o 20% 14 c

t i 19 n

a 25 i 20% 17 e 27 r d 33 higher among women and 1.9 times higher among i

a significant role in tobacco consumption. 0% a 7

14 c 80% v Baden–Württemberg

12 n 45 i e

2003 2004 2005 2006 2007 2008 20109 2010 2011 g 0% men with low levels of education compared with s

10% k t a Hesse, Rhineland–12Palatinate, Saarland 6c 1 n

6 a 27

e 15

people from the high education group. The differences p • Gender. In general, men (30.5%) smoke more than HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT 60% c r Schleswig–Holstein, Ham26burg, -20% 20 0% inci geducationarettes equiv aemergelent) even more clearly when the P e 9 Brem1e9n, Lower Saxony women (21.2%). Furthermore, men smoke more 11 28 North Rhine–Westphalia 18-39 40-59 60+ focusHR1T8 -s3 ais9les on (cig heavyarettes e smokersquiv4a0le-5n9t)/C i(Robertgarettes s aKochles 60 Institut+ for every age group considered according to the 40% 10 11 -40% Male 2011). Female 14 420090% Microcensus (Figure38 7) (Destatis-Statistisches 0% 5% 10% 15% 20% 25% 30% 35%5340% 37 48 44 46 Bundesamt 2012a). 34 34 20% 4 Non–domestic packs incidence (2006) 35% L3o4w-social status 34 Mid-social statu3s3 High-social status 35 36 • Low social–status groups are associated with higher 30% 21 27 27 27 • Age. Men in the 25–30 and2 630–35 age groups record26 smoking prevalence, except for people aged over 60 0% 602%5% 23 24 24 22 the highest50 share of occasional and regular smokers, (Figure 8). Similarly, lower income level is associated 2006 2007 2008 2009 2010 2011 2012 52 19 20% 25% 54% Poland Czech Republic Russia Other countries 44.4% and16 42.5%47 46 respectively. According to the 47with higher smoking prevalence15 for every age group, 15% 14 12 2009 Microcensus, 9% of people41 older than 65 were with the sole exception40 of people aged11 over 60 (Figure 401%0% 39 9 20% 9, p.29). 36 7 smokers (Figure 7) (Destatis–Statistisches34 Bundesamt 35 5 5% 2012a). 31 3 30% 15% 0% 100% 22 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 90% 19 20% 27 20 25 30 35 40 17 4515 50 55 60 65 70 75 and 10% 14 15 80% 42 42 10 47 Figure 8. Smoking prevalence by social status (2003) 10 51 49 10% Male Female 70% 5 Source: Transcrime elaboration on Lampert 2010 data 5% 60% 60% 34 55 31 9 9 0% 54 53 18-39 40-59 60+ 18-39 40-59 60+ 50% 8 8 50 0% 6 50% 40% Male 44 45Female 2001 2002 2003 2004252005 2006 2007 2008 200293 2010 220011 2012 41 30% 27 25 40% Low-income Mid-income High-income Euromonitor Kpmg EPSs 36 20% 34 38 37 31 32 26 26 10% 24 20 30% 27 16 26 100% 0% 14 100% 19 2006 2007 2008 2009 202150 2011 2012 20% 17 33 27 14 7 12 80% Poland 45 Czech Republic Spain Other countries 90% 10 9 10% 61 12 6 15 27 80% 60% 26 20 0% 9 19 11 18-39 40-59 60+ 70% 18-39 40-59 60+ 40% 10 11 Male Female 14 60% 53 30% 4 48 44 46 Low-social status Mid-social status High-social status 20% 35 36 50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 21 0% 60% as % of TIRSP (Tax Inclusive Retail Selling Price) 20% 50 2006 2007 2008 2009 2010 2011 2012 52 as % of WAP (Weighted Average Price) 15% 54% Poland Czech Republic Russia Other countries 47 46 47 10% 41 40 40% 39 36 5% 34 250 35 31 30% 199 0% 200 100% 182 22 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 90% 19 20% 150 202107 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 17 15 127 14 15 80% 42 42 €

47 Counte1r0feit Marlboro over total non-domestic Marlboro pa4c9ks o f 100 10 51 10% 86 70% 5 n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 60% 22 31 34 9 0% 10 9 1 1 3 1 3 3 50% 8 8 18-39 40-59 60+ 0 18-39 40-59 60+ 6 40% Male Female 25 23 20 30% 27 25 Low-income Mid-income High-income 20% 38 37 100 % 24 26 26 10% 16 20 2005 2010 90 % 0% 110.80% 80 % e

c 2006 2007 2008 2009 2010 2011 2012 n

1.6 e 70 % d

i Poland Czech Republic Spain Other countries

90% c

n 60 % i 1.4 c i

t 50 % s

80% e 1.2 40 % o m 710% 30 % o n– d R² = 0.2799 0.8 N 20 % 60% 10 % 0.6 30% 0 % 05.40% 251%0,000 20,000 30,000 40,000 50,000 60,000 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 0.2 Gross domestic product at current prices per capita at NUTS 2 level as % of TIRSP (Tax Inclusive Retail Selling Price) 20% (2010) 0 as % of WAP (Weighted Average Price) 15%

10%

250 5% 6% 199 0% 200 60% 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 5% 4.8 4.8 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 50% € 4% Counterfeit Marlboro over total non-domestic Marlboro packs

o f 100 86 40% n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 3%50 22 30% 1 10 1 3 1 3 3 0 2% 20% 0.9 0.8 1% 0.2 0.2 10% 0% 100 % Opioids 2005 Co2c0a1in0e Cannabis 900 % 1.8 80 % 2005 2006 2007 2008 2009 2010 2011 e

Drug report 2011 Drug report 2012 c n

1.6 e 70 % Western Länder Germany Eastern Länder d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

8% Other expenditure 2.0% 1.6 Schools, institutions 1.5% 11% 55% of higher education, other education 1.0% 0.6 Pensions 0.5 0.4 0.5% 0.3 12% Debt 0.0% Science, research, cultural Both sexes Male Female Aged 12-17 Aged 18-25

250,000

200,000 1,200 ) s k c i t

s 150,000 1,000 n m (

e 100,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

s e t t

0 e

a r 400 g C i 2012 200 Production Sales Import Export

0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% 80% 80%

c Berlin 60% t i 60% s Brandenburg, e

m Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% n – d 6 –2011) Bav aria o 0 n 0 f o

( 2 Thuringia, Saxony

20% n e

o 20% c t i n a i e r d i

0% a c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

Male Female 5% 60% 55 54 53 50 0% 50% 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 40% Euromonitor Kpmg EPSs 36 34 31 32 30% 27 26 100% 14 19 25 20% 17 33 27 14 7 12 80% 45 10 9 10% 61 12 6 15 27 60% 26 20 0% 9 19 11 18-39 40-59 Chapter60+ 1: The Five Drivers18-39 40-59 60+ 40% 10 11 Male Female 14 53 4 48 44 46 Low-social status Mid-social status High-social status 20% Figure 9. Smoking prevalence by income status (2003) 35 36 Source: Transcrime elaboration on Lampert 2010 data 21

60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 54% Poland Czech Republic Russia Other countries 47 46 47

41 40 40% 39 36 34 35 31 30% 100% 22 90% 19 20% 27 17 15 14 15 80% 42 42 10 47 10 51 49 10% 70% 5 60% 31 34 0% 9 9 50% 8 8 18-39 40-59 60+ 18-39 40-59 60+ 6 40% Male Female 25 23 20 30% 27 25 Low-income Mid-income High-income 20% 38 37 24 26 26 10% 16 20 0% 100% 2006 2007 2008 2009 2010 2011 2012 • Ethnic groups. In general, ethnic minorities and Poland Czech Republic Spain Other countries migrants are more likely to smoke than Germans. 90% In conclusion, tobacco sales and consumption are declining in Germany. The tobacco market is Different propensities towards smoking reflect 80% national tastes. Indeed, Greeks are twice more likely experiencing a downtrading trend, i.e. smokers to smoke than Germans (Lampert 2010). 70% are switching to cheaper brands and different products (HRT and cigars). Males smoke more 60% • East–West Germany. Mecklenburg-Vorpommern than females at every age group. Low 30% 29 and Berlin have the highest smoking prevalences, 50% socio–economic and low income status are 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 33.8% and 33.2% respectively, whilst Western Länder correlated with higher smoking consumption. as % of TIRSP (Tax Inclusive Retail Selling Price) 20% such as Bavaria and Baden-Wurttemberg rank at the These correlations are generally more marked The factbook on the illicit trade in tobacco products as % of WAP (Weighted Average Price) 15% bottom. The lowest smoking prevalence has been for heavy smokers. 10% reported in Saxony, 24.6% (Lampert 2010). Germany is also an important producer of 250 cigarettes, with slightly increasing volumes 5% 199 0% 200 in the last decade. The country is exporting 182 a growing share of its production and this Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 confirms12 7the importance of the tobacco sector € Counterfeit Marlboro over total non-domestic Marlboro packs

o f 100

for the8 national6 economy. n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

100 % GERMANY 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

31 The factbook on the illicit trade in tobacco products

Regulation of the tobacco market is medium in Germany. Considering all world countries, tax incidence and tax level in monetary terms are high in Germany. Supply chain control, regulation on tobacco consumption and sales, and on marketing and promotion are medium. Furthermore, some EU regulations have been implemented mildly. The country has invested a low per capita amount of GERMANY resources in tobacco control policies. 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 8.7 7.8 7.6 7.2 Regulation 6.0

2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009

80.3 80.6 91,683 High % High 88,218 86,583 Taxation 83,916 84,466 83,439 210.3 212.6 148,354 136,315 138,640 122,124 126,292 Tax135,4 0as4 % of the final retail 74.1 % price of the most sold brand5.55 5.74 75.8 74.1 31 out of 181 countries 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 Tax per 1,000 sticks in Int.$, 8.72008 2010 Int.$, PPP 212.6 7.8 PPP of the most sold brand 7.6 7.2 17 out of 164 countries Tax % final retail price 6.0 2007 2008 2009 2010 2011 2012 2007 2008Source:2009 2 0WHO10 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP (2010)2008 2010

Low % Low 15 1.05 16.1 16.3 16.1 14 14 14 0.98 (European16.0 15.6 Commission15.3 2013) 13 2005 2006 200Last7 02.0920 8available2009 2010 data (2013): 73.6%240.804 200 5–2 0Int.$,06 240.807 20 08PPP2009 20 10229.82011 2 006 2009 2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 0.88 0.86 0.842005 2010

7.9 8.0 7.9 8.0 79.0* 80.3 80.6 High 91,683 88,218 86,583 Government Action 83,916 84,466 83,439 210.3 0.9 212.6 0.8 US$ 80.6 148,354 138,640 0.2 0.2 135,404 136,315 122,124 2008 2009 2102610,292011 2012 2005 2006Government2007 2008 2009 expenditure2010 on 2011 2012 2002 2003 2004 282005 out2006 2 0of07 106 countries Value Rank 75.8 74.1 tobacco5.55 control5.74 not includingOpioids Cocaine Cannabis the control on the ITTP per (last available year) 1,000303.4 inhabitants (US$) 299.0 300.7 303.2 300.2 298.2 296.0 2008 2010 24.7 24.4 24.4 24.8 Source: WHO–Global Tobacco 565,237Epidemic Tax % final retail price 17.9 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$,354,402 PPP343,091 2008 2010

191,985 195,776 Low 15 1.05 16.1 16.3 16.1 14 14 14 0.98 16.0 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 0.84 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 7.9 8.0 7.9 8.0 79.0* Tobacco Supply Control* 0.9 0.8 2.5/5 points 0.2 0.2 2008 2009 2010 2011 2012 Composite indicator measuring 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 (2013) Value Rank the presence of specific policy 32 Opioids Cocaine Cannabis 2.5 measures in the country 2 303.4 Source: Transcrime elaboration 299.0 300.7 303.2 300.2 298.2 296.0 24.7 24.4 24.4 24.8 565,237 1

17.9 354,402 343,091

191,985 195,776

2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 Tobacco Consumption and Sale Control* 2.5/5 points (2013) Composite indicator measuring 2.5 the presence of specific policy 2 measures in the country Source: Transcrime elaboration 1

Tobacco Marketing and Promotion* 3/5 points

Composite indicator measuring 3 (2013) the presence of specific policy 2 measures in the country Source: Transcrime elaboration 1

* The indicator should not be interpreted as if a higher value is always better than a lower value.The objective is rather to synthetically assess the intensity of policy measures in a specific field. 1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25%

n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

250,000

200,000 1,200 ) s k c i t

s 150,000 1,000 n m (

e 100,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

s e t t

0 e

a r 400 g C i 2012 200 Production Sales Import Export

0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% 80% 80%

c Berlin 60% t i 60% s Brandenburg, e

m Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% n – d 6 –2011) Bav aria o 0 n 0 f o

( 2 Thuringia, Saxony

20% n e

o 20% c t i n a i e r d i

0% a c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

Male Female 5% 60% 55 54 53 50 0% 50% 45 Chapter 1: The Five Drivers 44 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 40% Euromonitor Kpmg EPSs 36 34 31 32 30% 27 26 100% 14 19 •• Regulation of the tobacco market is medium. •• Tax incidence in Germany is high compared to all 25 20% 17 33 27 14 7 Germany has a less stringent regulation world countries, but medium relatively to1 2OECD 80% 45 10 9 compared10% to other European countries. members only. 61 12 6 15 27 60% 26 20 0% 9 19 • In 2010, Germany ranked 26th among 31 European • According to the WHO, in 2010 tax incidence on the 11 18-39 40-59 60+ 18-39 40-59 60+ countries on the Tobacco Control Scale (TCS) final retail price of the most popular brand accounted 40% 10 11 Male Female (Joossens and Raw 2011).5 Overall, tobacco control is for approximately 74.1% of its final retail price. The 14 53 4 48 44 46 less strict than in otherLow- sEuropeanocial status countries. However, Mid-soccountryial status ranked 31st out of 191H countriesigh-social st a(WHOtus 20% 35 36 some Länder (e.g. Bavaria) have recently adopted 2011c). In 2013 tax incidence was 73.6% (European 21 smoke–free60% legislations. Similarly, the World Health Commission 2013). 0% 50 2006 2007 2008 2009 2010 2011 2012 Organisation (WHO) report reviewing52 country policies 54% Poland Czech Republic Russia Other countries on tobacco control47 4highlights6 the lack of some control • However,47 Germany ranked 18th out of 31 41 40 measures40% in Germany (WHO 2011b). high–income39 OECD members for tax incidence on 36 34 tobacco products35 (WHO 2011b). 31 30% •• German regulation must comply with international 100% 22 requirements and standards. • Overall tax incidence slightly increased from 1993 90% 19 20% 27 17 15 to 2010, passing from 71% to 75% (Figure14 10).15 In 80% 42 42 10 47 10 51 49 • In 12003,0% Germany signed the WHO Framework December 2010, the German Government approved 70% 5 Convention on Tobacco Control, an international a 5–year plan of tax increases. The first increase was 60% 31 34 0% 9 9 treaty establishing a number of obligations for on 1st May 2011 (Euromonitor International 2012). 50% 8 8 18-39 40-59 60+ 18-39 40-59 60+ 6 6 40% participants (WHO 2003). Male Female 25 23 20 Figure 10. Tax incidence as a share of the final retail price, most 30% 27 25 Low-income Mid-popularincome brand of cigarettes (1993–2012)H igh-income 20% 38 • As a Member State of the European Union, Germany Source: Transcrime elaboration on the European Commission–Directorate General Taxation 37 and Customs Union Tax policy data. 24 26 26 has to implement EU legislation. Since the EU’s 10% 16 20 33 0% competence is more limited in the field of health, most 100% 2006 2007 2008 2009 2010 2011 2012 EU provisions are focused on the tobacco market and

The factbook on the illicit trade in tobacco products Poland Czech Republic Spain Other countries the development of a common market among the 27 90%

EU Member States (Transcrime 2011a). However, 80% these measures inevitably affect also health issues and tobacco control in general. 70%

60% •• Regulation and control policies are usually set up 30% 50% 25% at Länder level within the federal framework. 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

as % of TIRSP (Tax Inclusive Retail Selling Price) 20% • In 2007, Germany introduced a smoking ban in as % of WAP (Weighted Average Price) 15% public buildings and restaurants. However, regulation fell under the jurisdiction of each Land. Therefore, Note: 2011 and 2012 data do not refer to the final retail price of 10% the most popular brand of cigarettes but to the weighted average implementation varies from state to state: indeed, in 250 5% price. They must therefore be treated with caution since they are Baden–Württemberg all food outlets are smoke–free 199 0% not20 0directly comparable. but the owners have the option to provide separate 182 GERMANY Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 smoking rooms. In Bremen, smoking is allowed in 127 € Counterfeit Marlboro over total non-domestic Marlboro packs restaurants up to 75 square metres in size with only o f 100

86 n 67 one room (Euromonitor International 2012). M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

5.The TCS was developed to assess the level of national 6.The WHO report is based on the MPOWER package of regulations in the six tobacco control policies identified by the measures developed by the WHO. MPOWER is an acronym World Bank, comprising higher taxation of tobacco products, of the six policy measures, which include: monitor tobacco use 100 % bans in public and work places, bans on advertising and and prevention policies; protect people from tobacco smoke; 2005 2010 90 % promotion, consumer awareness, warning labels, and quitting offer help to quit tobacco use; warn about the dangers of 1.8 80 % help (World Bank 2011). tobacco; enforce bans on tobacco advertising, promotion and e c n

sponsorship,1.6 and; raise taxes on tobacco (WHO 2008). e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

1998 14 5.5

2003 18 6.5

2008 18 6.2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201 2

Cigarettes (mn 143,578 146,163 134,968 113,414 Regulation9 6,970 93 ,673 91,68 3 88,21 8 86,58 3 83,91 6 84,46 6 83,439 sticks)

Cigars (mn units) 1,778 2,571 2,509 3,132 3,651 5 ,488 6,41 1 4,97 4 3,81 2 3,96 7 4,11 8 4,044

HRT (Tonnes) 14,727 16,321 19,473 25,149 34,036 23 ,641 23,99 8 23,73 3 25,21 2 26,24 2 27,36 3 27,658 Table 3. Germany’s regulation on supply chain control Source: Transcrime elaboration

Supply chain control indicat or Value 1) The retail of tobacco products is subject to licensing 0 points 2) The manufacture of tobacco products is subject to licensing 1 point

3) There is a mandatory system of customer identification and verification applied 0.5 points to the supply c hain of tobacco products

4) There is a tracking and tracing system for tobacco products 0.5 points 5) Absence of free–trade zones for tobacco products 0.5 points

Note: the indicator should not be interpreted as if a higher value is always better than a lower value. Its purpose is rather to synthesiseTobacc othe co intensitynsumptio ofn a policynd sal emeasuress indicat o rin a specific field. Value 1) Ban on smoking in public places 1 point •• 2Concerning) Ban on smoki ntaxg in wlevel,orkpla cexpressedes in monetary • There is a mandatory system of0 pcustomeroints

3amount) Ban on t hpere sa l1,000e of tob asticks,cco prod utaxationcts from ve isnd ihigh.ng machines identification and verification applied0 points to the supply 4) Prohibition of tobacco sales to minors 1 point chain of tobacco products (Point 3 of Table 3). This 5) Ban on smoking in bars, cafés and restaurants 0.5 points • In 2010 total taxes per 1000 cigarettes of the most system has been agreed within the OLAF (European

sold brand accounted to International$ 212.6; the Anti–Fraud Office) agreements. Specifically, tobacco Tocountrybacco ma rankedrketing a n17thd pro outmot iofon 164indic (WHOator 2011d). In manufacturers must prevent criminalsValue from obtaining

1) B2013,an on ttheyobacc roseo spon toso rInternational$ship and advertisi n229.8g on ra d(Europeanio, TV, broad casted programmtheires an products.d in print me dInia order to do so, 1they poin tmust ensure to 2) Ban on billboards and outdoor advertising 1 point Commission 2013). sell their products to legitimate clients only (European 3) Ban on the display of tobacco products at points of sale 0 points Commission 2004; European Commission 2007; 4) Ban on free distribution of tobacco samples 1 point ••5 ) MGermanandatory pinvestmentsictorial health wa rinnin tobaccogs control policies European Commission 2010a; European0 points Commission are low compared to the population. 2010b).

34 • In 2010, the German Government spent Anti–ITTP action indicator • The largest tobacco manufacturersValue have US$6,591,716 on tobacco control, equal to an agreements with the EU Commission requiring 1) National Action Plan against the ITTP 0 points expenditure of nearly US$80.6 per 1,000 inhabitants. tracking and tracing systems (Point 4 of Table 3).

2) CGermanyooperation rankedagreeme n28thts bet wouteen of na 106tiona l countries.public bodie sIn an d tobacco companies Indeed,to preven tto an addressd control th thee ITT problemP 0.5 ofpo incontrabandts and

Australia expenditure was US$1,779, more than counterfeit cigarettes, the European Commission has 3) National campaign against the various forms of the ITTP 0.5 points 20 times the German amount, and in France it was signed legally binding and enforceable agreements

4) LUS$675,egal obliga tmoreion on tthanobacc eighto man utimesfacture rthes no tGerman to facilitat eamount smugglin g with the world’s four largest tobacco0.5 points manufacturers.

5) O(WHOfficial le 2011a).gal estimates of the size of the ITTP One of the main obligations is0 thepoin tsimplementation of a tracking system to help law enforcement authorities •• Germany has a medium level of supply chain (European Commission 2004; European Commission

control (2.520 points01 2out002 of 5,2 0Table03 3).2004 2005 2006 22007;007 European2008 Commission2009 2010 2010a;201 European1 2012

Euromonitor 3.3% 3.4% 3.7% 4.5% 5.4% 5.6% 5Commission.9% 6.7% 2010b).7.6% Furthermore,8.1% 8in.2 %the German711.8.1%%

•K PTheMG retail of tobacco products is not subject to 10.6% 9market,.7% PMI10.8% applies12.0 the% Codentify12.5% 1technology3.1% 11. 1%(CVS).

EPlicensingSs (Point 1 of Table 3). 14.9% 16.9% 2It2 consists.6% 19 .of7% an encrypted,19.1% 21 serialised.1% 21.8 12–character% 20.6% number used to identify and authenticate each pack of • The manufacture of tobacco products, as well cigarettes (Joossens 2011). as their export or import, is subject to licensing in Germany according to paragraph 5 and 6 of the Tabaksteuergesetz (Tobacco Tax Act) and paragraph 4 and 5 of the Verordnung zur Durchführung des Tabaksteuergesetzes (Regulation on the implementation of the Tobacco Tax Act) (Point 2 of Table 3). Average household expenditure on tobacco per month € %

1998 14 5.5

2003 18 6.5

2008 18 6.2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201 2

Cigarettes (mn 143,578 146,163 134,968 113,414 9 6,970 93 ,673 91,68 3 88,21 8 86,58 3 83,91 6 84,46 6 83,439 sticks)

Cigars (mn units) 1,778 2,571 2,509 3,132 3,651 5 ,488 6,41 1 4,97 4 3,81 2 3,96 7 4,11 8 4,044

HRT (Tonnes) 14,727 16,321 19,473 25,149 34,036 23 ,641 23,99 8 23,73 3 25,21 2 26,24 2 27,36 3 27,658

Supply chain control indicat or Value 1) The retail of tobacco products is subject to licensing 0 points 2) The manufacture of tobacco products is subject to liceChapternsing 1: The Five Drivers 1 point

3) There is a mandatory system of customer identification and verification applied 0.5 points to the supply c hain of tobacco products

4) There is a tracking and tracing system for tobacco products 0.5 points

Table5 )4. A bGermany’ssence of fre regulatione–trade zo nones tobaccofor tobac consumptionco products and sales 0.5 points Source: Transcrime elaboration

Tobacco consumption and sales indicat or Value 1) Ban on smoking in public places 1 point 2) Ban on smoking in workplaces 0 points 3) Ban on the sale of tobacco products from vending machines 0 points 4) Prohibition of tobacco sales to minors 1 point 5) Ban on smoking in bars, cafés and restaurants 0.5 points

Note: the indicator should not be interpreted as if a higher value is always better than a lower value. Its purpose is rather to synthesiseTobacco m theark intensityeting and ofpr opolicymotio measuresn indicator in a specific field. Value 1) Ban on tobacco sponsorship and advertising on radio, TV, broadcasted programmes and in print media 1 point 2) Ban on billboards and outdoor advertising 1 point

•3 ) BTherean on t haree di snopla yFree of tob aTradecco pro dZonesucts at p whereoints of stobaccoale • According to federal regulations, 0employers points must 4) Ban on free distribution of tobacco samples 1 point products can be handled, stored or manufactured. take measures to protect non–smoking employees 5) Mandatory pictorial health warnings 0 points Nevertheless, BASCAP (Business Action to Stop from tobacco–related health risks. If necessary,

Counterfeiting And Piracy) identifies the Port of employers must issue a general smoking ban (or (Point 5 restricted to the workplace area) (Point 2 of Table 4). Hamburg as a problematic free trade zone Anofti– TableITTP a c3,tio p.34).n indic aIndeed,tor this port has been identified At Länder level, employers mustValu eadopt all necessary

1) Nasat ireceivingonal Action PChineselan agains tcounterfeit the ITTP products destined for measures to protect non–smoking0 point semployees Western and Eastern Europe (BASCAP 2012). Most effectively. The amendment in 2008 specified that a 2) Cooperation agreements between national public bodies and tobacco companies to prevent and control the ITTP 0.5 points of the tobacco products (counterfeit or smuggled) ban on smoking in the workplace is one of the ways

3) Nseizedational cinam Hamburgpaign again saret the bound various forform others of the European ITTP to provide protection. In workplaces0.5 point sopen to the public

4) Lmarketsegal oblig a(Zollfahndungsamttion on tobacco manufa cHamburgturers not to 2012b; facilitate smuggling (i.e. primarily the hospitality sector,0.5 poin butts also other Zollfahndungsamt Hamburg 2010; Hauptzollamt areas where smoking by customers and visitors is 5) Official legal estimates of the size of the ITTP 0 points Hamburg-Hafen 2011b). allowed) the employers’ obligations are more limited. 35 The Federal Government has prohibited smoking in

•• Tobacco regulation2001 2 0on02 consumption2003 20 0and4 sales2005 is 2006 government2007 2008 buildings,2009 on public2010 transport2011 (including2012 The factbook on the illicit trade in tobacco products taxis), and at public transport stations (WHO 2012b). Eumediumromonitor (2.53.3 %points3 .out4% of 5,3.7 Table% 4).4.5% 5.4% 5.6% 5.9% 6.7% 7.6% 8.1% 8.2% 711.8.1%%

KPMG 10.6% 9.7% 10.8% 12.0% 12.5% 13.1% 11.1% • The Federal Government has jurisdiction over all • Vending machines have a sizeable volume share of EPSs 14.9% 16.9% 22.6% 19.7% 19.1% 21.1% 21.8% 20.6% federal matters (Point 1 of Table 4). According to the cigarettes sales, although the channel has gradually

Law on protection from passive smoking (Gesetz lost the important position that it occupied prior to the zum Schutz vor den Gefahren des Passivrauchens) tobacco legislation introduced in 2007, which obliges enacted in July 2007, smoking is prohibited in consumers to swipe their ID or bank cards in order to government buildings, public transport vehicles, buy cigarettes (Point 3 of Table 4). Vending machines and public railways with the exemption of properly in streets, which used to be common in Germany, marked places. In March 2007 Germany’s 16 Länder have largely disappeared because of legislation to concluded a framework agreement with the Federal protect children from smoking. Since 2011, vending Government on introducing a smoking ban in the machines are present mostly in restaurants, pubs, areas where the states have responsibility (Land, clubs and food outlets (Euromonitor International GERMANY local institutions, educational facilities, health care 2012). facilities, cultural institutions, sport facilities, hospitality venues, and other public places). Each Land had to enact the law through its own legislature. As a result, smoking is now banned in indoor workplaces, public transport, indoor public places and, as appropriate, other public places (WHO 2012b). Average household expenditure on tobacco per month € %

1998 14 5.5

2003 18 6.5

2008 18 6.2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201 2

Cigarettes (mn 143,578 146,163 134,968 113,414 9 6,970 93 ,673 91,68 3 88,21 8 86,58 3 83,91 6 84,46 6 83,439 sticks)

Cigars (mn units) 1,778 2,571 2,509 3,132 3,651 5 ,488 6,41 1 4,97 4 3,81 2 3,96 7 4,11 8 4,044

HRT (Tonnes) 14,727 16,321 19,473 25,149 34,036 23 ,641 23,99 8 23,73 3 25,21 2 26,24 2 27,36 3 27,658

Supply chain control indicat or Value 1) The retail of tobacco products is subject to licensing 0 points 2) The manufacture of tobacco products is subject to licensing 1 point

3) There is a mandatory system of customer identification and verification applied 0.5 points to the supply c hain of tobacco products

4) There is a tracking and tracing system for tobacco products 0.5 points 5) Absence of free–trade zones for tobacco products 0.5 points

Tobacco consumption and sales indicat or Value 1) Ban on smoking in public places Regulation 1 point 2) Ban on smoking in workplaces 0 points 3) Ban on the sale of tobacco products from vending machines 0 points 4) Prohibition of tobacco sales to minors 1 point 5) Ban on smoking in bars, cafés and restaurants 0.5 points Table 5. Germany’s regulation on tobacco marketing and promotion Source: Transcrime elaboration

Tobacco marketing and promotion indicator Value 1) Ban on tobacco sponsorship and advertising on radio, TV, broadcasted programmes and in print media 1 point 2) Ban on billboards and outdoor advertising 1 point 3) Ban on the display of tobacco products at points of sale 0 points 4) Ban on free distribution of tobacco samples 1 point 5) Mandatory pictorial health warnings 0 points

Note: the indicator should not necessarily be interpreted as if a higher value is always better than a lower value. Its purpose is rather to synthesise the intensity of policy measures in a specific field.

Anti–ITTP action indicator Value

1) National Action Plan against the ITTP 0 points • The legal age for the purchase of tobacco •• Tobacco marketing and promotion regulation is 2) Cooperation agreements between national public bodies and tobacco companies to prevent and control the ITTP 0.5 points products has increased from 16 to 18 since medium (3 points out of 5, Table 5).

3) NSeptemberational camp a2007ign ag a(Pointinst the 4va ofrio uTables form s4, of p.35).the ITT PThere 0.5 points Since 2006, the of public events, which 4) Lise gnoal o minimumbligation on tageobac cforo m theanu fconsumptionacturers not to fa cofilit atobacco,te smuggli ng • sponsorship0.5 points have a cross–border effect, as part but minors aged below 16 may not consume it in has been banned 5) Official legal estimates of the size of the ITTP 0 points public. There are fines of up to €50,000 for selling of an EU directive (Point 1 of Table 5). Sponsorship tobacco products to minors in Germany (Euromonitor of music events, as well as events attended by young people, is strictly forbidden. Tobacco companies International20 2012).01 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 cannot contribute financially to programmes with Euromonitor 3.3% 3.4% 3.7% 4.5% 5.4% 5.6% 5.9% 6.7% 7.6% 8.1% 8.2% 711.8.1%% the aim of promoting their brand or name. This also • Complete free smoke legislation is in place only KPMG 10.6% 9.7% 10.8% 12.0% 12.5% 13.1% 11.1% in Saarland and Bavaria (Point 5 of Table 4, p.35). includes sponsorship of radio, television, internet

EPSs 14.9% 16.9% 22.6% 19.7% 19.1% 21.1% 21.8% 20.6% The Länder have jurisdiction over smoking bans or any other media. Sponsorship of sports events 36 in bars and restaurants. Almost all German states or any advertising or marketing related to sports is allow exceptions to their smoking bans in bars and generally illegal. It is not permitted to use well–known restaurants. For example, North Rhine–Westfalen figures, such as athletes and celebrities, in tobacco allows bars to have separate smoking rooms. Since advertising and promotions. Furthermore, all forms March 2009, bars with a size of 75 square metres or of advertising that present smoking as harmless less are exempt from the smoking ban as long as no or healthy, or in relation to physical performance one under the age of 18 is allowed entry and the bar are forbidden (Euromonitor International 2012). does not serve hot meals. Furthermore, Der Spiegel Nevertheless, it is allowed to advertise tobacco reported that bans on smoking in bars were being products in cinemas after 6 p.m (DKFZ 2012), very weakly controlled by the authorities, and that in although this possibility is little exploited by the some places the ban was not observed at all (Wiesel tobacco industry. 2009). Indeed, Germany has a low score for smoke–free legislation compliance because only • Nearly all forms of tobacco advertising and half of the respondents in a recent survey had not sponsorship are prohibited in Germany (Point 2 seen a person smoking in a bar 6 months before the of Table 5). The advertising ban became effective in interview. Germany ranked 18th out of 28 European December 2006. Prior to that date there were threats countries (Joossens and Raw 2011; Euromonitor of legal action by both the EU and Germany. Germany International 2012). revised its position after a recommendation at the European Court of Justice (ECJ) to dismiss a German challenge to the European Union directive banning tobacco advertising in print, on radio and the internet (Euromonitor International 2012). 1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25%

n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

250,000

200,000 1,200 ) s k c i t

s 150,000 1,000 n m (

e 100,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

s e t t

0 e

a r 400 g C i 2012 200 Production Sales Import Export

0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% 80% 80%

c Berlin 60% t i 60% s Brandenburg, e

m Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% n – d 6 –2011) Bav aria o 0 n 0 f o

( 2 Thuringia, Saxony

20% n e

o 20% c t i n a i e r d i

0% a c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 54% Poland Czech Republic Russia Other countries 47 46 47

90% Poland Czech Republic Spain Other countries

80%

70%

60% Chapter 1: The Five Drivers 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

as % of TIRSP (Tax Inclusive Retail Selling Price) 20%

Figure 11. Marketing andas promotion% of WAP ( Wexpenditureeighted Ave rbyag emain Price categories) 15% (2005 and 2010) In conclusion, regulation of the tobacco market 10% Source: Transcrime elaboration on DKFZ 2012 based on industry self–reports is medium in Germany. Supply chain control, 250 regulation on consumption and5% sales, and on

199 marketing and promotion are0% of medium level. 200 182 Several European requirements, suchQ1 Q as2 textualQ3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 health warnings, have been set at the minimum € Counterfeit Marlboro over total non-domestic Marlboro packs

o f 100

86 level. Each Land has competence on n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 smoke–free legislation, making a uniform 22 1 10 1 3 1 3 3 control policy difficult. 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

In Germany, n 60 % • the display of tobacco products at i 1.4 c i

t 50 % points of sale is not banned (WHO 2012b) (Point 3 s e 1.2 40 % of Table 5, p.36). Moreover, the promotion of tobacco o m 1 30 %

products on posters at points of sale is allowed (DKFZ o n– d R² = 0.2799 N 20 % 0.82012). 10 % 0.6 0 % • 0.4The free distribution of tobacco samples is 10,000 20,000 30,000 40,000 50,000 60,000

0.2banned in Germany (WHO 2010) (Point 4 of Table 5, Gross domestic product at current prices per capita at NUTS 2 level (2010) 37 0p.36).

• German law does not require pictorial health The factbook on the illicit trade in tobacco products warnings on tobacco packages (WHO 2012b) 6%(Point 5 of Table 5, p.36). However, to be in 60% compliance with EU Tobacco Products Directive 5% 4.8 4.8 2001/37/EC (TPD), Germany has had to implement 50% 4%several general specifications and marketing/sales 40% restrictions on tobacco products. In fact, textual health 3% warnings are mandatory and have to be printed on 30% 2%30% of the front, 40% of the back, and 10% of one 20% side of the pack. Adjectives0.9 like0.8 “Light” or “Mild” 1% are not permitted. Claims that tobacco production 0.2 0.2 10% 0%is ecologically sustainable are prohibited. Finally, GermanyO optedpioids for the lowestCoca ipossiblene degreeCann aofbis 0% 2005 2006 2007 2008 2009 2010 2011

regulation whenDru itg rimplementedeport 2011 theDru EUg re pDirectiveort 2012 GERMANY 2001/37/EC. For instance, Germany set the minimum Western Länder Germany Eastern Länder size for textual (not graphical) health warnings.

•• Tobacco marketing and promotion of tobacco industry changed their structure after regulatory changes.

• Printed media practically disappeared from 2005 to 2010, while promotion and outdoor advertising increased in absolute values (Figure 11). 38 CRIME ENVIRONMENT

39 The factbook on the illicit trade in tobacco products

Crime rates have slightly increased after years of decreasing pattern, while fear of crime has decreased. Consumption of cannabis, cocaine and heroin is constant and average compared to levels in other developed countries, while other drugs, such as amphetamines, are increasingly popular. Organised crime, corruption, and informal

economies are marginal issues. GERMANY 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 8.7 7.8 7.6 7.2 6.0

2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009

80.3 80.6 91,683 88,218 86,583 83,916 84,466 83,439 210.3 212.6 148,354 136,315 138,640 122,124 126,292 135,404 Crime Environment 5.74 75.8 74.1 5.3 5.55 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 8.7 7.8 2008 2010 7.6 7.2 Tax % 6.0final retail price 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010

15 1.05 High 16.1 16.3 16.1 14 14 14 0.98 16.0 15.6 15.3 20Corruption05 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 123006 2007 2008 2009 2010 0.92 2005 2010 2004 2005 2006 2007 42.08082009 2010 42.0811 2006 2009 79.0* 0.88 0.86 0.84 Corruption 7.9 8.0 7.9 8.0 79.0* 80.3 80.6 91,683 13 out of 176 countries Perception88,218 86,583 Index 83,916 84,466 83,439 Source: Transparency 210.3 212.6 0.9 0.8 148,354 138,640 0.2 0.2 135,404 136,315 122,124 (2012) International 126,292008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank 5.74 75.8 74.1 5.55 Opioids Cocaine Cannabis

303.4 2008 2010 299.0 300.7 303.2 300.2 298.2 296.0 Low 24.7 24.4 24.4 24.8 565,237 Tax % final retail price 2007 2008 2009 2010 2011 2012 2007 200187.9 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010 354,402 343,091

191,985 195,776 15 1.05 16.1 16.3 16.1 High 14 14 14 0.98 16.0 15.6 15.3 Homicides 13 0.92 4.8 4.8 0.88 0.86 0.84 0.84 2007 2008 2009 2010 2011 7.9Homicide8.0 7.9 8rate.0 79 .per0* 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 100,000 inhabitants 175 out of 187 countries Source: UNODC 0.9 0.8 (last0 .2available0 .year)2 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 Op1i1.3oids Cocaine Cannabis 0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 8.7 303.2 303.4 300.2 7.6 7.8 299.0 300.7 298.2 296.0 7.2 Low 24.7 24.4 24.4 24.8 565,237 6.0

17.9 354,402 343,091

191,985 195,776 2005 2006 2007 2008 2009 2010 2011 Organizedmid-2000s late-200 0s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009 High Crime Index 20.21 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 80.3 80.6 91,683 88,218 86,583 102 out of 156 countries 83,916 84,46406 83,439 Composite Organized 210.3 212.6 148,354 Crime Index 136,315 138,640 122,124 126,292 135,404 (last available year) Source: Van Dijk (2008), 75.8 74.1 “The World of Crime” 5.55 5.74 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 8.7 2008 2010 7.8 7.6 7.2 Low Tax % final retail6.0 price 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010

15 1.05 16.1 16.3 16.1 14 14 14 0.98 16.0 15.6 15.3 13 0.92 4.8 4.8 High High High 2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 200Drugs7 2008 2009 2010 0.88 200.586 02.08140 2004 2005 2006 2007 20082009 2010 2011 opioids2006 200 90.2

7.9 8.0 7.9 8.0 79.0* Annual prevalence of cocaine 0.8 80.3 80.6 91,683 88,218 86,583 opioids (15–64), cocaine 0.9 83,916 84,466 83,439 210.3 212.6 0.8 cannabis 4.8 and cannabis (18–64) use 0.2 0.2 148,354 138,640 2008 2009 2103150,4024011316,3210512 122,124 opioids: 73 out of 132 countries 126,292 Source:2005 20 06 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank UNODC–World5.55 5.74 Drug Report75.8 74.1 Opioids Cocaine Cannabis cocaine: 31 out of 99 countries cannabis: 56 out of 139 countries 303.2 303.4 300.2 299.0 300.7 298.22209068.0 2010 24.7 24.4 24.4 24.8 565,237 Low Low Low Tax % final retail price (last available year) opioids cocaine cannabis 17.9 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 354,40220343,09108 2010

191,985 195,776 15 1.05 16.1 16.3 16.1 High 14 14 14 0.98 16.0 15.6 15.3 13 0.92 Shadow4 .8Economy4.8 0.88 0.86 0.84 15.3 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 7.9 8.0 7.9 8.0 79.0* Indicator of the presence 17 out of 162 countries of market–based activities0.9 that escape0.8 the (2007) 0.2 0.2 2008 2009 2010 2011 2012 official estimates of GDP 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Value Rank Source: Schneider, Buehn, MontenegroOpioids (2010),Cocaine “NewCannab is Estimates for the Shadow 303.2 303.4 300.2 299.0 300.7 298.2 296.0 Low 24.7 24.4 24.4 24.8 Economies565,237 all over the World”

17.9 354,402 343,091 * Corruption perception index ranged from 0 to 10 until 2011. Since 2012, it ranges from 0 to 100. Highly corrupted countries occupy low 191,985 195,776 positions in this rank.

2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25%

n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

1,540 50% 45% 3.0% 2.7 1,520 Social security 5% 2% 40% 1,500 2.5% 5% 35% General services 1,480 30% 8% Other expenditure 2.0% 1,460 25% 1.6

n 1,440 Schools, institutions 1.5% B 20% 11% of higher education, 1,420 5155%% other education 1.0% 10% 1,400 0.6 Pensions 0.5 5% 0.4 0.5% 1,380 12% 0.3 0% Debt 1,360 1989 1993 1997 2001 2004 2008 2010 2011 0.0% Science, research, 1,340 Both sexes Male Female 99 00 01 02 03 04 05 06 07 08 09 10 11 cultural Aged 12-17 Aged 18-25 Aged 12-17 Aged 18-25

250,000

3.0% 2.7 Social security 200,000 5% 2% 1,200 )

s 2.5%

5% k

General services c i t

s 150,000 1,000 8% n 2.0%

Other expenditure m ( 1.6 s

e 100,000 t ) t

s 800 Schools, institutions e 1.5% k c a r i t 11% of higher education, g 55% s

C i

50,000 n other education 1.0% m 600 (

Pensions 0.6 s 0.5 e t

0.4 t 0 0.5% 0.3 e

12% a r 400

Debt g C i

0.0% 2012 Science, research, 200 cultural Production Sales ImportBoth sexesExport Male Female Aged 12-17 Aged 18-25 0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

250,000 100% 80% 200,000 80% 1,200 ) s k c Berlin c

t i 60% i 60% t s Brandenburg,

s 150,000 e 1,000 n

m Mecklenburg–Vorpommern, o m

( Saxony Anhalt 40%

s 40% n – d 6 –2011)

e Bav aria

100,000 o t 0 ) t n s

800 0 e f k o c a r ( 2 Thuringia, Saxony i

20% t g n e s

o 20% C i c t i 50,000 n n a i e m 600 r ( d i

0% a s c v Baden–Württemberg

e n i t e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s

0 e k

t a Hesse, Rhineland–Palatinate, Saarland c a r

400 n a g e p c

HRT sales (cigarettes equivalenC i t)/Total sales (cigarettes and HRT r

2012 Schleswig–Holstein, Hamburg, -20% cigarettes equivalent) P e Bremen, Lower Saxony 200 Production Sales Import Export North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales -40% 40% 38 0 0% 5% 10% 15% 20% 25% 30% 35% 40% 37 98 99 00 01 02 03 04 05 06 07 08 09 10 11 34 34 Non–domestic packs incidence (2006) 35% 34 34 33 100% 30% 27 27 26 26 27 80% 80% 25% 23 24 24 22 19 20% c Berlin 25% 60% t i 60% 16 s Brandenburg,

15e 15% 14

m Mecklenburg–Vorpommern,

12 o 11 Saxony Anhalt 40% 10% 9 40% 20% n – d 6 –2011) Bav aria o 7 0

n 5 0 5% f o 3

( 2 Thuringia, Saxony

20% n e

o 20% 15% c t i

0% n a i e r d i 0% 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65a to 70 to 75 c v Baden–Württemberg

n i e

2003 202004 2005 252006 203007 2008 325009 204100 2011 45 50 55 60 65 7g 0 0% 75 and 10% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

HRT sales (cigarettes equivalent)/Total sales (cMigalreettes and HRT Female c r Schleswig–Holstein, Hamburg, -20% 5% cigarettes equivalent) P e Bremen, Lower Saxony 60% 55 North Rhine–Westphalia HRT sales (5c4igare5t3tes equivalent)/Cigarettes sales 50 -40% 0% 50% 40% 38 45 0% 5% 10% 15% 20% 25% 30% 35% 40% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 37 44 41 35% 34 34 34 34 Non–domestic packs incidence (2006) 40%33 Euromonitor Kpmg EPSs 36 34 30% 27 27 27 31 32 26 26 30% 25% 23 24 24 26 27 22 100% 14 20% 19 19 20% 17 25% 27 25 16 33 14 15 14 7 15% 12 80% 45 12 10 9 10% 11 10% 9 20% 61 12 7 6 15 27 5 60% 26 5% 3 20 0% 9 19 15% 11 0% 18-39 40-59 60+ 18-39 40-59 60+ 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 40% 10 11 Male Female 20 25 30 35 40 45 50 55 60 65 70 75 and 10% 14 53 48 46 20% 4 44 Male FemaLleow-social status Mid-social status High-social status 35 36 5% 21 60% 54 55 53 60% 0% 50 50 0% 2006 2007 2008 2009 2010 2011 2012 50% 52 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 54% Poland Czech Republic Russia Other countries 41 47 46 47 40% 36 41 Euromonitor Kpmg EPSs 34 39 40 31 32 40% 35 36 30% 27 34 26 1003%1 30% 14 19 100% 25 20% 17 22 33 27 14 7 90% 19 20% 12 80% 45 27 10 17 15 9 14 15 80% 42 42 10% 61 12 10 47 6 10 15 27 51 49 10% 5 60% 26 70% 20 0% 9 19 60% 11 31 34 18-39 40-59 60+ 0% 18-39 40-59 60+ 9 9 40% 50% 8 8 18-39 40-59 60+ 18-39 40-59 610+ 11 6 Male Female 14 40% Male Female 53 25 23 20 48 4 44 46 30% 27 25 Low-social status Mid-social status High-social status 20% 35 36 Low-income Mid-income High-income 20% Chapter 1: The Five Drivers 21 38 37 26 26 10% 24 20 60% 0% 16 50 2006 2007 2008 2009 2010 2011 2012 0% 52 100% 2006 2007 2008 2009 2010 2011 2012 54% Poland Czech Republic Russia Other countries 47 46 47 90% Poland Czech Republic Spain Other countries 41 CRIMINAL TRENDS40 DRUG CONSUMPTION AND MARKETS 40% 39 36 34 35 80% 31 30% •• Crime figures have fallen in Germany, and police •• Drug use is medium in Germany100% (Figure 13). 22 70% solved a record–breaking number of crimes in 90% 19 20% 27 17 15 2010. 14 15 • 60The% results of the last Epidemiological80% Survey 42 42 10 47 30% 10 51 49 10% on Substance Abuse (ESA)70 carried% 5 out in 2009 50% 25% • According to official statistics, in 2010 5.99 mn crimes showed93 94 that95 9 6about97 98 a99 quarter00 016002% of03 the04 0adult5 06 0 population7 08 09 10 11 12 31 34 0% 9 9 were committed (a 1% increase from the previous in Germany had had experience50% with drugs. The 8 8 20% 18-39 40-59 60+ 18-39 40-59 60+ as % of TIRSP (Tax Inclusive Retail Selling Price) 6 year). Violent crimes passed from 201,243 in 2010 to proportion of adults who had40% taken drugs in the Male Female as % of WAP (Weighted Average Price) 25 23 20 15% 197,030 in 2011 (a 2.1% drop) (Bundeskriminalamt previous 12 months was still30% 5%, and 3% had used 27 25 Low-income Mid-income High-income 10% 20% 2012b). drugs in the previous 30 days. Cannabis38 is3 7still by far 24 26 26 5% 25the0 most commonly used illicit10% drug (Pfeiffer-Gerschel, 16 20 • The rate of crimes solved in 2011 was 54.7%, Hammes,199 and Rummel 2012).0% 0% 100% 200 a slight decrease from 2009, when it was 56% 182 2006 2007 2008 2009 2010 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 Poland Czech Republic Spain Other countries 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 90(Bundeskriminalamt% 2012b). •• The prevalence127 of cocaine, cannabis and € Counterfeit Marlboro over total non-domestic Marlboro packs o f 100amphetamines is considerable. The use of heroin, 86 80% n 67 • Drug offences have increased by 2.4%, driven by M 52 Counterfeit L&M over total non-domestic L&M packs 50LSD and crack is limited (Pfeiffer–Gerschel, 70% 22 amphetamines and derivatives related offences Hammes, and Rummel 2012).1 10 1 3 1 3 3 0 (+19.9% from the previous year) (Bundeskriminalamt 60% 2012b). • Overall, first–time drug users30% increased to 18,621

50% individuals (+3%) in 2010. Nevertheless,25% first–time 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 • The homicide rate has decreased over the past 15 users of heroin and cocaine decreased by nearly 11% 100 % as % of TIRSP (Tax Inclusive Retail Selling Price) 2005 2201%0 90 % years from 1.7 homicides per 100,000 inhabitants each. Also ecstasy use decreased (-38%) prolonging 1.8 80 % as % of WAP (Weighted Average Price) 15% e in 1995 to 0.8 in 2010 (Figure 12). According to the c the trend of 2009 (Bundeskriminalamt 2010). 41 n 1.6 e 70 % d i

last available UNODC data, Germany ranks 175th 10% c

n 60 % i 1.4 c i out of 187 countries in the homicide ranking, in which • The prevalence of opioids was 0.2% in 2009 (Figure t 50 % s 250 5% The factbook on the illicit trade in tobacco products e countries with the highest homicide rates occupy the 1.213). Germany ranked 73rd out of 127 countries 40 % 199 0% o m 200 top18 positions.2 1(UNODC 2012a). 30 % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 o n– d R² = 0.2799 N 20 % 150 0.8 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 10 % € • The percentage of people who feel threatened by •0 .6Cocaine consumption was medium–high,Count ewithrfeit Maa rlboro over total non-domestic Marlboro packs

o f 100

86 0 % n 67 M crime was below 530%2 in 2005. According to the last 0.4prevalence use of 0.8% in 2009 (FigureCou n13).terfe iGermanyt L&M over t otal non-domestic L&M packs 10,000 20,000 30,000 40,000 50,000 60,000 50 periodic report on crime (Bundesministerium des 22 0.2ranked 32nd out of 106 (UNODC 2012a). 1 10 1 3 1 3 3 Gross domestic product at current prices per capita at NUTS 2 level 0Innern–Bundesministerium der Justiz 2006), this (2010) 0 figure exhibited a decreasing trend from 1991 to 2005. Figure 13. Prevalence of cannabis, cocaine and opioids use, (2011-2012) Figure 12. Homicide rate per 100,000 inhabitants (1995–2010) Source: Transcrime elaboration on UNODC 2011100 and % 2012 World Drug Report data Source: Transcrime elaboration on UNODC2005 Homicide2010 Statistics 2012 6% 90 % 1.8 80 % 60% e c

5% n 4.8 4.8 1.6 e 70 % d i

c 50% n

60 % GERMANY i 1.4 c

4% i t 50 % s 40% e 1.2 40 % 3% o m 1 30 % 30% o n– d R² = 0.2799 0.8 2% N 20 % 10 % 20% 0.6 0.9 0.8 1% 0 % 0.4 0.2 0.2 10,000 20,000 30,000 40,000 50,000 60,000 10% 0% 0.2 Gross domestic product at current prices per capita at NUTS 2 level 0% Opioids Coca(2in0e10) Cannabis 0 2005 2006 2007 2008 2009 2010 2011 Drug report 2011 Drug report 2012 Western Länder Germany Eastern Länder

Figure 14. Lifetime prevalence of cannabis consumption for young CRYSTAL METH people aged 12–17 and 18–25 Source: Transcrime elaboration on Die Bundeszentrale für gesundheitliche Aufklärung data

1,540 Crystal meth is a synthetic, cheap, and easily 50% producible drug with high addictive potential. 45% 1,520 The product is usually smuggled from the Czech 40% 1,500 Republic to Germany and it is first sold in the 35% 1,480 border region, especially on Vietnamese markets. 30% 1,460 However, the drug is expanding in other parts of 25% n 1,440 B 20% Germany, notably Nürnberg, Dresden and Leipzig. 1,420 15% In 2011, 17 kg of crystal were confiscated in 10% 1,400 Germany, and in 2012 the amount increased to 23 5% 1,380 kg. This development is alarming since only 1 gram 0% 1,360 of crystal provides 40 consumer units (N24 2013; 1989 1993 1997 2001 2004 2008 2010 2011 1,340 Die Welt 2013). In March 2013, the 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25 Czech–German “Operation Poustevnik” transnational project identified a group of smugglers and dealers and confiscated several •5 0%The overall prevalence of amphetamine use was 1,540 drugs, money, and a methamphetamine laboratory 3.0%45%0.70% in 2009, and Germany ranked 38th out of 1,520 2.7 2% (ZollfahndungsamtSocial secu rDresdenity 2013). Smugglers were 5% 40%115 countries (UNODC 2012a). The prevalence of 1,5005% reported to use tourists for cross–border smuggling 2.5% General services 35%amphetamine use was 2.7% among 18–25 year olds 1,480 by attaching crystal meth to the undersides of their 8% Other expenditure 23.0%0%in 2011 (Figure 15). 1,460 cars together with a GPS–sender, a tactic which 25% 1.6 n 1,440 allows theS substancechools, instit utoti obens located afterwards (Die 1.5% B •2 0%A large number of German Crime Commission 11% 55% of higher education, 1,420 42 Zeit 2013). Vietnamese sellers started to sell crystal 15% other education 1.0%investigations has concerned the smuggling of smaller meth in the Czech Republic after Czech customs 10% 0.6 1,400 Pensions quantities of drugs imported0.5 from the Netherlands into 0.4 clamped down on cigarette smuggling across the 0.5%5% 0.3 1,38102% Debt Germany by consumers or small–scale dealers during German/Czech border (Fuchs and Hölzl 2011). 0% 1,360 0.0%procurement trips (Bundeskriminalamt 2010). Science, research, 1989 1993 1997 2001 2004 2008 2010 2011 1,340 cultural Both sexes Male Female 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25 Aged 12-17 Aged 18-25 • Cannabis is the most commonly used drug, with Figure 15. Annual prevalence of amphetamine use among 12–17 and 18–25 years old (2011) a consumption rate of 4.8% among the 18–64 250,000 Source: Transcrime elaboration on Pfeiffer–Gerschel, Hammes, and Rummel 2012 data population in 2009 (Figure 13, p.41). The country 3.0% 200,000 ranked 56th out of 139 (UNODC 2012a). Furthermore, 2.7 2% Social security 1,200

) 5% s cannabis prevalence is widespread, especially among k 5% 2.5% c i General services t

s 150,000 younger people. Indeed, life–time prevalence in 1,000 n 8% m 2.0%

( Other expenditure cannabis consumption for people aged 18 to 25 has s 1.6 e 100,000 t ) t

s 800 e exhibited an increasing trend in recent years (Figure Schools, institutions 1.5%k c a r i t g

of higher education, s

11%

C i 55%14). 50,000 other education n 1.0%m 600 (

s 0.6 e

Pensions t 0.5 t

0 • There has been a significant increase in the use e 0.4 0.5% 0.3 12% a r 400 of crystal Dmethamphetamineebt (+76%) and crack g C i 2012 0.0% (+72%) (seeScie nBoxce, rCrystalesearch, Meth). First–time users of 200 Production Sales Import Export Both sexes Male Female amphetaminecultur aandl LSD increased by nearly 11% in 2010. The use of other drugs was also on the increase 0 Aged 12-17 Aged 18-25 98 99 00 01 02 03 04 05 06 07 08 09 10 11 (+4%) (Bundeskriminalamt 2010). 25010,000%0 80% 2008,000%0 1,200 ) s c

k Berlin

t i 60% c 60% s i

t Brandenburg, e

s 150,000

1,000m Mecklenburg–Vorpommern, n o

m Saxony Anhalt

( 40% 40% n – d 6 –2011) s Bav aria o e 100,000 0 t n ) t 0 s 800f e k o

( 2 Thuringia, Saxony

c a r 20% i n t g e

o 20% s c

t i C i n

50,000 n a i e r m 600 d i ( 0% a

c v Baden–Württemberg

s n i e e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s t k

0 e

t a Hesse, Rhineland–Palatinate, Saarland c n a r

400 a e g p

HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c r C i Schleswig–Holstein, Hamburg,

2012 -20% cigarettes equivalent) P e Bremen, Lower Saxony 200 North Rhine–Westphalia PHrRoTd uscatlieosn (cigarettes eSqauleivsalent)/CigaImreptoterts sales Export -40% 40% 38 0 0% 5% 10% 15% 20% 25% 30% 35% 40% 37 98 99 00 01 02 03 04 05 06 07 08 09 10 11 34 34 Non–domestic packs incidence (2006) 35% 34 34 33 30% 100% 27 27 27 26 26 80% 25% 23 24 24 80% 22 20% 19 25% c Berlin 16 60% t i 60% 14 15 s Brandenburg, 15% e

12 m Mecklenburg–Vorpommern,

11 o 9 Saxony Anhalt 10% 40% 20% 40% n – d 7 6 –2011) Bav aria o

5 0 n 0

5% 3 f o

( 2 Thuringia, Saxony

20% n

15% e

o 20% 0% c t i n a i e r d

15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 i

0% a c v Baden–Württemberg

n i e 20 25 30 35 40 45 50 55 60 65 70 75 and 10%

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e

Male Female p HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c r Schleswig–Holstein, Hamburg, 5% -20% 60% cigarettes equivalent) P e Bremen, Lower Saxony 54 55 North Rhine–Westphalia 53 HRT sales (cigarettes equivalent)/Cigarettes sales 50 0% 50% -40% 40% 38 44 45 2001 2002 200%03 520%04 210%05 21050%6 20207%202058%200390%2010352%011402%012 4137 34 34 Non–domestic packs incidence (2006) 4305%% 34 34 33 Euromonitor Kpmg EPSs 36 34 30% 31 32 27 27 27 30% 26 26 27 25% 23 24 24 26 100% 22 14 19 19 2200%% 17 25% 27 25 33 7 16 14 15 80% 15% 14 12 45 9 12 10 10% 11 9 61 12 10% 6 20% 15 27 7 5 60% 26 20 05%% 3 9 19 15% 11 0% 18-39 40-59 60+ 18-39 40-59 60+ 40% 10 11 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 Male Female 14 20 25 30 35 40 45 50 55 60 65 70 75 and 10% 53 4 48 44 46 Low-social status Mid-social status High-social status 20% 35 36 Male Female 5% 21 60% 55 60% 54 53 0% 50 50 0% 2006 2007 2008 2009 2010 2011 2012 50% 52 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 54% 47 44 Poland Czech Republic Russia Other countries 46 41 47 40% 36 41 40 Euromonitor Kpmg EPSs 40% 39 34 31 32 36 34 35 30% 27 26 31 100% 30% 100% 14 19 20% 22 17 27 25 90% 19 33 20% 14 80% 27 7 17 15 12 45 9 1410 15 80% 42 42 10% 10 4172 10 6 61 51 4297 10% 70% 5 15 60% 26 0% 60% 20 19 34 9 31 11 9 9 0% 40-59 18-1389-39 404-509-59 606+0+ 18-1389-39 40-59 606+0+ 50% 8 8 40% 10 11 6 Male Female 40% Male Female 14 25 23 2530 25 30% 2478 46 20% 4 44 LoLwo-win-csoomcieal status MMidi-din-scocmiael status HHigihg-hi-nscoocmiael status 35 36 20% 38 21 37 24 26 26 10% 16 20 60% 0% 0% 50 100% 2006 2007 2008 2009 2010 2011 2012 52 2006 2007 2008 2009 2010 2011 2012 54% Poland Czech Republic Russia Other countries 47 46 47 90% Poland Czech Republic Spain Other countries 41 40 40% 39 36 34 80% 35 31 30% 70% 100% 22 90% 19 20% 27 17 15 60% 14 15 80% 42 42 30% 10 47 10 51 49 10% 70% 5 50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 60% 31 34 0% 20% 9 9 as % of TIRSP (Tax Inclusive Retail Selling Price) 50% 8 8 18-39 40-59 60+ 18-39 40-59 60+ 6 as % of WAP (Weighted Average Price) 4015%% Male Female 25 23 20 30% 27 25 Low-income Mid-income High-income 10% 20% 38 37 250 5% 24 26 26 10% 16 20 199 0% 200 0% 100% 182 2Q0106 Q2 200Q73 Q24008Q1 2Q0209 Q3201Q04 Q21011 Q2 20Q132 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 90% 127 Poland Czech Republic Spain Other countries € Counterfeit Marlboro over total non-domestic Marlboro packs o f 100

86 n 80% 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 70% 1 10 1 3 1 3 3 0

60% 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 100 % 2005 2010 as % of TIRSP (Tax Inclusive Retail Selling Price) 9020 %% 1.8 80 % e

as % of WAP (Weighted Average Price) c 15% n

1.6 e 70 % d i c 10% n 60 % i 1.4 c i

t 50 % s 5% 250 e 1.2 40 % o m 199 0% 2100 30 % 182 o n– d Q1 Q2 Q3 Q4 R²Q 1= 0.2Q7299 Q3 Q4 Q1 Q2 Q3 N 20 % 01.850 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 10 % €

0.6 Counterfeit Marlboro over total non-domestic Marlboro packs o f 100 0 %

86 n 0.4 67 10,000 20,000 30,000 40,000 50,000 60,000 M 52 Counterfeit L&M over total non-domestic L&M packs 50 0.2 22 Gross domestic product at current prices per capita at NUTS 2 level 1 10 1 3 1 3 3 0 (2010) 0

100 % 6% 2005 2010 90 % 60% 1.8 80 % e

4.8 4.8 c

5% n 1.6 e 70 % d

i 50% c

n 60 % i 41%.4 c i

t 50 % s 40% e 1.2 40 %

3% o m 1 3030 %

o n– d R² = 0.2799 20%.8 N 20 % 20% 10 % 0.6 0.9 0.8 1% 0 % 10% 0.4 0.2 0.2 10,000 20,000 30,000 40,000 50,000 60,000 0% 0.2 Opioids Cocaine Cannabis 0G%ross domestic product at current prices per capita at NUTS 2 level (2010) 0 2005 2006 2007 2008 2009 2010 2011 Drug report 2011 Drug report 2012 Western Länder Germany Eastern Länder

•• The illicit drugs market is the main source of revenue for organised crime. In conclusion, crime rates have slightly increased, but crime is not the main concern of • In 2011, nearly 40% of investigations detected the Germans. The country has low corruption, and involvement of organised crime groups in drug the informal economy is small. There are few trafficking and smuggling (Bundeskriminalamt 2012a). structured organised crime groups engaged in drug trafficking. Drug use in the country is • Total drug seizures decreased in 2010. However, medium and stable, although the consumption increases were recorded for amphetamine/ of amphetamines is increasing. Small and methamphetamine and biogenous drugs informal drug–smuggling networks are common (Bundeskriminalamt 2010). in Germany.

•• Drug use is correlated with crime.

• The detection rate for drug–related offences is high (94.7%), but police discover only a small percentage of cases. Moreover, in 2011, 7.9% of all solved cases were suspected of having been committed under the influence of drugs (Bundeskriminalamt 2012b).

ORGANISED CRIME AND CORRUPTION

•• Germany has a very limited presence of organised crime, and corruption is low. 43

• Germany ranks low on the composite organised crime The factbook on the illicit trade in tobacco products index, scoring 20.21 and occupying 102nd position out of 156 countries. Low positions signal limited organised crime presence (Van Dijk 2008, 165–166).

• In general, most investigations concern German and Turkish OC groups, while Italian OC groups, notably the Italian ‘Ndrangheta mafia, occupy third place. (Bundeskriminalamt 2012a).

• Corruption is low. Indeed, Germany ranked 13th out of 176 countries with a score of 79 in the Corruption Perceptions Index. High positions signal limited corruption (Transparency International 2012). GERMANY

• Germany’s shadow economy is small. It ranked 17th out of 162 countries in a study measuring shadow economies in 1999–2007. Countries ranked first if they had low levels of shadow economy (Schneider, Buehn, and Montenegro 2010). 44 ENFORCEMENT

45 The factbook on the illicit trade in tobacco products

Law enforcement is generally high, while German action against the ITTP is medium–low. Cooperation between public bodies and tobacco manufacturers is usually set at European level, as well as the legal obligation on producers not to facilitate smuggling. Nevertheless, German Authorities, notably the Zollkriminalamt (Customs Criminal Office), are aware of the problem of illicit tobacco and have GERMANY undertaken several joint actions with the authorities of neighbouring countries. 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.0 5.1 11.3 0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 8.7 7.8 7.6 7.2 6.0

2005 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009

80.3 80.6 91,683 88,218 86,583 83,916 84,466 83,439 210.3 212.6 148,354 136,315 138,640 122,124 126,292 135,404 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 5.74 75.8 5.704.1 5.1 11.3 5.55 0.30 4.8 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 8.7 7.6 7.8 2008 2010 7.2 6.0 Tax % final retail price 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010

15 2010.055 2006 2007 2008 2009 2010 2011 mid-2000s late-2000s 2005 2006 2007 21060.81 21060.39 21061.10 2005 2010 2004 2005 2006 2007 20082009 2010 2011 2006 2009 14 14 14 0.98 16.0 15.6 15.3 13 0.92 4.8 4.8 0.88 0.86 0.84

7.9 8.0 7.9 8.0 79.0* 80.3 80.6 91,683 Enforcement 88,218 86,583 83,916 84,466 83,439 210.3 212.6 148,354 138,640 0.1935,404 136,3105.8 122,124 126,292 0.2 0.2 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 20052.552003 52.07044 2005 2006 2750.087 74.1 5.3 85.8 86.0 86.2 86.3 86.4 86.5 86.6 Value Rank 5.0 5.1 11.3 0.30 4.8 Opioids Cocaine Cannabis 32 0.29 4.7 4.6 13.2 10.4 10.4 12.9 29 8.7 2008 2010 7.8 303.4 7.6 7.2 299.0 300.7 303.2 300.2 298.2 296.0 High Police24.7 24.4 24.4 24.8 565,237 6.0 Tax % final retail price 2007 2008 2009 2010 2011 2012 2007260.02008 2009 2010 2011 2012 2008 2010 Tax per 1,000 sticks/Int.$, PPP 2008 2010 17.9 Police personnel 354,402 343,091 15 1.0546 out of 81 countries 16.1 16.3 16.1 rate per 100,000 14 14 14 0.98 191,985 195,776 16.0 15.6 15.3 13 0.92 4.8 4.8 2005 2006 2007 2008 2009 2010 2011 minhabitantsid-2000s late-2000s 2005 2006 2007 2008 2009 2010 2005 2010 2004 2005 2006 2007 20082009 2001.08820101 .86 02.08046 2009 (last available year) Source: UNODC 7.9 8.0 7.9 8.0 79.0* 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 80.3 80.6 91,683 88,218 86,583 83,916 84,466 83,439 210.3 212.6 0.9 0.8 0.2 0.2 148,354 138,640 135,404 136,315 122,124 2008 2009 2010 2011 2012 126,292 2005 2006 2007 2008 2009 2010 2011 Low 2012 2002 2003 2004 2005 2006 2007 Value Rank 5.55 5.74 75.8 74.1 Opioids Cocaine Cannabis

303.4 2008 2010 299.0 300.7 303.2 300.2 298.2 296.0 24.7 24.4 24.4 24.8 565,237 High Judiciary Tax % final retail price 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2008 201170.9 24.82008 2010 Tax per 1,000 sticks/Int.$, PPP 354,402 343,091 Professional judges 13 out of 73 countries 191,985 195,776 15 1.05 16.1 16.3 16.1 14 14 14 rate 0per.98 100,000 16.0 15.6 15.3 13 0.92 4.8 4.8 inhabitants 0.88 0.86 0.84 2004 2005 2006 2007 2008 2009 2010 2004 2(last005 20 available06 2007 2008 year)2009 2010 2007 2008 2009 2010 2011 7.9 8.0 7.9 8.0 79.0* Source: UNODC

0.9 0.8 0.2 0.2 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 Low Value Rank Opioids Cocaine Cannabis

303.4 299.0 300.7 303.2 300.2 298.2 296.0 24.7 24.4 24.4 24.8 Tobacco Products 565,237 17.9 195,776 sticks Seizures 354,402 343,091

191,985 195,776 (2011) 46 Quantity of seized cigarettes in sticks per 2004 2005 2006 2007 2008 2009 2010 200100,0004 2005 2006 inhabitants2007 2008 2009 2010 2007 2008 2009 2010 2011 Source: German Customs

Penalty for ITTP 10 years Likely maximum penalty for an hypothetical of imprisonment serious case of ITTP Source: Transcrime elaboration

Anti–ITTP Action* 1.5/5 points Composite indicator measuring the presence of (2013) specific policy measures in the country 1.5 Source: Transcrime elaboration 1

LAW ENFORCEMENT IN GERMANY • The vast majority of the inmates of German penal institutions are men (approximately 94% as of March •• In Germany, law enforcement is high compared 2012). About 38% of them, or 21,900 persons, were with the level in other countries. The police under 30 years old; 13% (7,400 persons) were aged personnel rate is average; the rate of judges is over 50 (Destatis–Statistisches Bundesamt 2012b). high; and the prison population has decreased, possibly because of a change in sentencing • The rate of crimes solved was 56% in 2010, practices. Crimes solved have reached record registering a slight increase from the 55.6% in 2009. rates. The 2010 level was a record high (Chelsom–Pill and Hallam 2011). • The police personnel rate per 100,000 inhabitants was 296 in 2010 (UNODC 2012b). This is an average level THE FIGHT AGAINST THE ITTP IN compared with those in other countries, and it has GERMANY been constant over the years. Germany ranks 46th out of 81 countries. •• Anti-ITTP action in Germany is medium–low, with 1.5 points out of 5 (Table 6, p.48). • Each German state is largely autonomous and has its own constitution. The police system comprises the •• The main bodies involved in the fight against the German Federal Police (Bundespolizei) subordinate ITTP are: to the Ministry of Interior (Bundesministerium des Innern) and the Federal Criminal Investigation Office • The Zollkriminalamt (Customs Criminal Office), (Bundeskriminalamt). Moreover, each Land has its which coordinates customs investigations and own state police (Landespolizei). monitors trade. Its main tasks are to uncover violations of EU market regulations, illegal technology 47 • The rate of judges per 100,000 inhabitants was 24.8 exports, drug trafficking and money laundering. in 2010. Germany ranked 13th out of the 73 countries The factbook on the illicit trade in tobacco products surveyed by UNODC (UNODC 2012b). The figure has • The Bundeszollverwaltung (Federal Customs been constant in recent years. Service) is an executive and fiscal administrative unit of the German Government and part of the Finance • The prison population continues to decline. This Ministry. Among its tasks are the monitoring of may be due to a change in sentencing practices: the cross–border movements of goods with regard to 10 years suspension of (the remaining period of) sentences compliance with tax and customs laws, and the or imprisonment in default of payment of a fine prevention of illicit practices. of imprisonment (Destatis–Statistisches Bundesamt 2012b). • The Bundeskriminalamt (Federal Criminal Police • In 2010, the total prison population rate was 70,827 Office) acts as information and communication centre inmates, i.e. 86.1 inmates per 100,000 inhabitants of the German police. The BKA provides support to (in 2003, 80,829 inmates and an incarceration rate of the police forces of the federation and of the states 98) (UNODC 2012c). More than half of the countries in connection with the prevention and prosecution of in the world have a prison population rate below 150 crimes that involve more than one German state and GERMANY per 100,000 inhabitants (Walmsley 2011). Germany that are of international significance or otherwise of ranked 81st out of 110 countries for prison population considerable significance. Moreover, it is the main in 2010. The International Centre for Prison Studies player in fighting international organised crime. has ranked Germany 164th out of 221 countries surveyed (ICPS 2012).7 • The Bundespolizei (Federal Police) has a broad range of responsibilities at land borders and sea ports, at airports and stations, and on trains, and thus in all major search areas nationwide. It is particularly 7. The ranking is compiled using data from the United Nations committed to combating cross–border crime: indeed, it Survey on Crime Trends and the Operations of Criminal Justice Systems (CTS), taking the last available year from 2004 to 2010 was originally called the “Federal Border Police”. into account. Average household expenditure on tobacco per month € %

1998 14 5.5

2003 18 6.5

2008 18 6.2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201 2

Cigarettes (mn 143,578 146,163 134,968 113,414 9 6,970 93 ,673 91,68 3 88,21 8 86,58 3 83,91 6 84,46 6 83,439 sticks)

Cigars (mn units) 1,778 2,571 2,509 3,132 3,651 5 ,488 6,41 1 4,97 4 3,81 2 3,96 7 4,11 8 4,044

HRT (Tonnes) 14,727 16,321 19,473 25,149 34,036 23 ,641 23,99 8 23,73 3 25,21 2 26,24 2 27,36 3 27,658

Supply chain control indicat or Value 1) The retail of tobacco products is subject to licensing 0 points 2) The manufacture of tobacco products is subject to licensing 1 point

3) There is a mandatory system of customer identification and verification applied 0.5 points to the supply c hain of tobacco products

4) There is a tracking and tracing system for tobacco products 0.5 points 5) Absence of free–trade zones for tobacco products 0.5 points

Tobacco marketing and promotion indicator Value 1) Ban on tobacco sponsorship and advertising on radio, TV, broadcasted programmes and in print media 1 point Enforcement 2) Ban on billboards and outdoor advertising 1 point 3) Ban on the display of tobacco products at points of sale 0 points 4) Ban on free distribution of tobacco samples 1 point 5) Mandatory pictorial health warnings 0 points Table 6. Measures against the ITTP in Germany Source: Transcrime elaboration

Anti–ITTP action indicator Value

1) National Action Plan against the ITTP 0 points

2) Cooperation agreements between national public bodies and tobacco companies to prevent and control the ITTP 0.5 points

3) National campaign against the various forms of the ITTP 0.5 points

4) Legal obligation on tobacco manufacturers not to facilitate smuggling 0.5 points

5) Official legal estimates of the size of the ITTP 0 points

Note: the indicator should not be interpreted as if a higher value is always better than a lower value. Its purpose is rather to synthesise the intensity of policy measures in a specific field. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Euromonitor 3.3% 3.4% 3.7% 4.5% 5.4% 5.6% 5.9% 6.7% 7.6% 8.1% 8.2% 711.8.1%%

•K PTheMG Landespolizei (State Police) operates under 10.6% • Once9.7% a year10.8% the Ministry12.0% of12 Finance.5% 13 organises.1% 11.1% a

EPtheSs sole jurisdiction of each German state with1 4.9% 16.9% press22.6% conference19.7% 1to9.1 review% 21 action.1% taken21.8% during20.6% the criminal investigation departments and their own previous year in the fight against the illicit trade of Landeskriminalamt. Its role against the ITTP is various product categories, including illicit tobacco important especially in border States. (Bundesministerium der Finanzen 2012).

• The Bundesnachrichtendienst (Federal • The German, Polish and Czech authorities have Intelligence Service) acts as an early warning signed several border collaboration agreements system to alert the German Government to (see Box Combating illegal trade–Transnational 48 threats against German interests from abroad. It Cooperations, p.49). depends heavily on wiretapping and the electronic surveillance of international communications. It •• There are regular meetings between national collects and evaluates information on a variety of public bodies and tobacco companies to prevent areas: international terrorism, weapons proliferation and control the ITTP (Point 2 of Table 6). and illegal transfer of technology, organised crime, weapons and drug trafficking, money laundering, • The only written agreements between tobacco illegal migration and information warfare. industry and public bodies are at European level. Indeed, the European Commission has signed • The Gemeinsame Ermittlungsgruppe Rauschgift legally binding and enforceable agreements with (Joint drug investigation team) is a joint team tobacco manufacturers. The four largest tobacco between the Polizei and the Zoll specialised in the manufacturers agreed to finance the EU and the fight against drug trafficking, but also against ITTP. countries participating in the agreement and to prevent their products from falling into the hands of • The Staatsanwalt (German public prosecutors) criminals. Notably, they must supply only quantities play a key role in each proceeding. Indeed, they required by the legitimate market, ensure that they sell decide whether to start, continue or stop the only to legal clients, and implement a tracking system proceedings, based on the police findings. Essentially, (European Commission 2004; European Commission they are the director of all criminal investigations. 2007; European Commission 2010a; European Commission 2010b). •• There is no national action plan against the ITTP (Point 1 of Table 6). • However, the tobacco industry meets regularly with the ZKA to discuss the latest trends in the illicit cigarettes trade. Chapter 1: The Five Drivers

• In 2004, the German tobacco industry, supported COMBATING ILLEGAL by the German Customs Union, distributed flyers TRADE–TRANSNATIONAL against cigarette smuggling at the Polish and Czech COOPERATIONS borders. The flyers reported the import regulations for cigarettes (RP 2004). Operation Poustevnik is a cooperation, ongoing since summer 2011, between the Dresden Customs Investigation and the Czech Customs Administration •• Germany is a Party to the WHO Framework to combat smuggling and organised crime Convention on Tobacco Control (FCTC). (Zollfahndungsamt Dresden 2013). • Germany signed the FCTC on 2003. The Treaty is a 2011 German–Czech control Speedway I entered into force on 2005. Article 15.1 of the operation on both sides of the border. Officials found Convention states that “parties recognise that 50% more cases than the year before with involving to elimination of all forms of illicit trade and crystal meth issues in 31 days of intensive car controls development and implementation of related national (Koschyk 2013). law are essential components of tobacco control”; Speedway II lasted from July to December 2012. thus Germany “shall promote and strengthen public Officials searched 10,000 persons and 5,000 cars awareness of tobacco control issues, using all and confiscated 900 grams of crystal meth, 3.5 kg of available communication tools” (WHO 2003). marijuana, 400 grams of hashish, 34,000 cigarettes, and 5,000 fireworks (Koschyk 2013). • The German Government has not yet signed the WHO Protocol to Eliminate Illicit Trade in Tobacco Hofer Dialog is a cooperation between the German Products. However, Germany participated in the Seoul and Czech police and customs which began in 2012. Conference that approved the Protocol in November The main task is to combat drug smuggling in border 2012. areas. The authorities plan to include Poland in the 49 cooperation (BR 2013). •• There is no legal obligation beyond the EC The factbook on the illicit trade in tobacco products In regard to Polish-German Cooperations, agreements on tobacco manufacturers not to the Customs Office of Dresden has started close facilitate smuggling (Point 4 of Table 6, p.48). collaboration with the Polish border Customs Department of Niederschlesien. In January 2013, • The prohibition on facilitating smuggling is not a joint customs inspections detected 63,000 cigarettes general requirement provided by the law. Only public- and more than 40 kg of illegal tobacco. In March, private agreements are in place, such as those 15,440 cigarettes and 5.4 kg tobacco were confiscated between the European Commission and the main (Hauptzollamt Dresden 2013). tobacco manufacturers (European Commission 2004; European Commission 2007; European Commission •• There are public awareness campaigns in place, 2010a; European Commission 2010b). mainly funded by the tobacco companies (Point 3 of Table 6, p.48). •• There are no official yearly estimates of the ITTP in Germany (Point 5 of Table 6, p.48). • Schwarzrauche–Eine Miese Nummer (black GERMANY smoke–a bad number) is a campaign launched by • There are no official and publicly available estimates Phillip Morris and BTWE (the German association on the amount of illicit tobacco products. of tobacco retailers) on June 2008 to persuade consumers not to buy counterfeit and contraband cigarettes. The focus of the campaign is to highlight the negative effects of consuming untaxed cigarettes in Germany. Enforcement

HYPOTHETICAL CASE

A criminal organization composed of eleven members used a house in the periphery of a large city as an illicit factory for the production and distribution of tobacco products. For at least sixteen months, with a clear division of tasks and functions among them, the members of the organization illegally manufactured tobacco products (cigarettes and hand–rolling tobacco); packed them in packaging bearing false trademarks of legitimate brands (produced by the same organization); distributed the products to various wholesalers and retailers; and sold the illicit products through a network of bars and street sellers. No tax or duty was ever paid on these products. The law enforcement agencies seized a total of ten tons of illegal tobacco products stocked inside the house. All the members of the organization had previous records for fraud, forgery and illicit trade in tobacco products. They could not justify their incomes through any form of employment, suggesting that the illicit business was their sole source of income. Penalties

In theory, there are several offences applicable to the above case:

• Trademark infringement. According to section 14 § 4 no. 1, § 2, § 3 no. 2, section 14 § 2, § 3 no. 2, section 143, section 143 a of the Trademark Act; article 9 § 1 clause 2, § 2, article 101 § 2 of the Community Trademark Regulation, the penalty is from 6 months to 10 years of imprisonment in qualified cases (large–scale and organised crime).

• Distribution of imitations of tobacco products. Section 17 § 1 no. 2a and no. 5b, in connection with section 52 § 1 no. 10 of the Preliminary Tobacco Code, imposes a fine or up to 1 year of imprisonment.

• Forgery of tax stamps. According to section 148 § 1 no. 3 of the Penal Code, the penalty is a fine or up to 5 50 years of imprisonment.

• Tax evasion (first sale). According to sections 370 § 1, 4, 374 § 1, 2 of the Fiscal Code, 5, 15 § 1, 2 of the Code on Tobacco Taxes, the penalty is from 6 months to 10 years of imprisonment in qualified (large–scale and organized crime) cases.

• Tax evaded goods (resale). Sections 370 § 1, 3, 4 of the Fiscal Code, 5, 15 § 1, 2 of the Code on Tobacco Taxes impose from 6 months to 10 years of imprisonment in qualified cases (large–scale crime, abuse of an official’s position, using falsified documents and organized crime having the purpose of evading tax on a continuous basis).

• Criminal organization. According to section 129 (1) and (4) of the Criminal Code, the eleven members have formed an organization with the purpose to commit criminal offenses. The qualification of forming a criminal organization under section 129 of the CC implies that there is a decision–making by the group and that each member of the organization subjects itself to the will of the group. The penalty for being a member in a criminal organization ranges between a monetary fine and imprisonment of up to five years. If a member of the group is a leader, or if for any other reason the forming of the criminal organization is regarded as particularly grave, the minimum penalty is 6 months of imprisonment.

Provided that various criminal acts were committed by the eleven individuals as members of a criminal organization, a court would only impose one sentence according to the case law of the Federal Supreme Court and not several sentences, which would then lead to an aggregate sentence. For determining the penalty, if several offenses were committed, the court, according to section 52 (2) of the Criminal Code, considers the most severe penalty. Since the most severe penalty is provided for a grave tax evasion, the maximum likely penalty is 10 years of imprisonment. 1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25% n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

8% Other expenditure 2.0% 1.6 Schools, institutions 1.5% 11% 55% of higher education, other education 1.0% 0.6 Pensions 0.5 0.4 0.5% 0.3 12% Debt 0.0% Science, research, Chapter 1: The Five Drivers cultural Both sexes Male Female Aged 12-17 Aged 18-25

250,000 Figure 16. Seizures of smuggled cigarettes Source: Transcrime elaboration on Bundeszollverwaltung year statistics from 1998 to 2011 In conclusion, law enforcement against the 200,000 1,200 ITTP is medium–low. Several agreements and ) s k c i duties accomplish European standards, while t

s 150,000 1,000 n at national level the Zollkriminalamt is aware m ( s e 100,000 t of the problems of ITTP. Criminal law also does ) t

s 800 e k c a r i not seem to deter the ITTP since penalties t g s

C i 50,000 n are relatively mild for small–scale smugglers. m 600 (

s e

t Indeed, the penalty is usually a fine the first time t

0 e

a r 400 smugglers are caught. Nevertheless, penalties g C i

2012 for large scale smugglers are more severe. 200 Production Sales Import Export

0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% •• German seizures of illicit cigarettes have 80% 80% decreased in recent years after a fluctuating trend (Figure 16).

c Berlin 60% t i 60% s Brandenburg, e

m Mecklenburg–Vorpommern, • On o 21 December 2007, PolandSaxon yand Anha lthet Czech 40% 40% n – d 6 –2011) Bav aria o 0

Republicn entered the Schengen Area. Passport 0 f o

( 2 Thuringia, Saxony

20% n

checkse were consequently abolished on the

o 20% c t i n a i e

bordersr with Germany. Stationary customs stations d i

0% a c v Baden–Württemberg

n i e were removed in 2004, and in 2007 so too were 2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a

bordere controls (Locke 2010). According to the p 51 HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c r Schleswig–Holstein, Hamburg, -20% cigarettes equivalent) ZollkriminalamtP e (Customs CriminalBrem Office),en, Lower Sa xthereony are currently 60 mobile control units.8 North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales The factbook on the illicit trade in tobacco products -40% 40% 38 0% 5% 10% 15% 20% 25% 30% 35% 40% 37 34 34 •• The German FiscalN oCoden–dome (Abgabenordnung)stic packs incidence (2006), the 35% 34 34 33 German Act on the Protection of Trade Marks and 30% 27 27 26 26 27 other Symbols (MarkenG) an the German Criminal 25% 23 24 24 22 Code (Strafgesetzbuch) are the main instruments 20% 19 25%which regulate smuggling and counterfeiting (see 16 15 15% 14 12 11 Box Hypothetical Case, p.50). 10% 9 20% 7 5 5% 3 15% 0% 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 20 25 30 35 40 45 50 55 60 65 70 75 and 10%

Male Female 5% 60% GERMANY 55 54 53 50 0% 50% 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 40% Euromonitor Kpmg EPSs 36 34 31 32 30% 27 26 100% 14 19 25 20% 17 33 27 14 7 12 80% 45 10 9 10% 61 12 6 15 27 60% 26 20 0% 9 19 8. Interview conducted11 with Mr. Wolfgang Schmitz on 25 March 18-39 40-59 60+ 18-39 40-59 60+ 2013. 40% 10 11 Male Female 14 53 4 48 44 46 Low-social status Mid-social status High-social status 20% 35 36 21

60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 54% Poland Czech Republic Russia Other countries 47 46 47

90% Poland Czech Republic Spain Other countries

80%

70%

60% 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 as % of TIRSP (Tax Inclusive Retail Selling Price) 20% as % of WAP (Weighted Average Price) 15%

10%

250 5%

199 0% 200 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 € Counterfeit Marlboro over total non-domestic Marlboro packs o f 100

86 n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

THE DEMAND

•• An important cause of the demand for illicit • The increase of price differentials between The factbook on the illicit trade in tobacco products tobacco is the price differential between licit and non German duty–paid and German duty paid illicit products and between domestic and products and between retail prices in Germany and non–domestic products (Figure 17 and Figure 18, neighbouring countries coincided with the growth of p.54). the German black market (Von Lampe 2005).

• The demand for illicit tobacco is mainly due to its •• However, price differentials alone cannot explain affordability, particularly in relation with genuine the high share of the illegal market in some products. The lower the affordability of genuine particular regions. tobacco (expressed in Price relative to income – % of per capita GDP to buy 100 packs), the higher • The German black market is more than proportionally the incentives for illicit products. Illicit tobacco may concentrated in Berlin and its surrounding area. Price cost up to half the price of genuine products, since it differential alone cannot explain this geographical evades taxation. The higher the share of taxes out of concentration. Favourable conditions under which the retail selling price, the higher the potential savings demand meets supply play an important role. The GERMANY for consumers of illicit tobacco. availability of illicit products is therefore an important cause of the demand for illegal products in certain • Price increases have a substantial effect on smokers. areas (Von Lampe 2005). Indeed, smoking behaviour changes because people reduce their consumption and/or switch to cheaper tobacco products (Hanewinkel, and Isensee 2007). However, an empirical study did not find a substitution effect between tax and untaxed cigarettes in Germany (Effertz and Schlittgen 2012). The four components

Figure 17. European Marlboro prices in euros per 20 cigarettes (July 2012) Source:Marlboro Transcrime price elaborationin Euro per on 20 GMBH cigarettes PMG data in July 2012 FIN MarlboroLess price than in € Euro2 per 20 cigarettesFrom €4.01 in July to € 62012 FI5N.40 LessFrom than € 2.01€2 to €3 FromFrom €4.01 €6.01 to to€6 €9 5.40 FromFrom €2.01 €3.01 to to€3 €4 FromMore € 6.01than to € 9€9 NOR SW E 1 2.1 7 6.25 EST From €3.01 to €4 More than €9 NOR SW E 1 2.1 7 6.25 ES3T.20 3.20 RUS LVA RU1S.61 LV3A.1 3 3.1 3 1 .61 DNK LTU 2.69 DN5.K68 LTU 5.68 2.69 IRL BLR IR9L.1 0 0.90 GR B BLR 9.1 0 9.31 POL 0.90 GR B NLD 2.91 9.31 POL NL5D.68 DEU 2.91 BE5L.68 UKR 5.26 DEU5.26 1 .1 8 BEL CZE UKR 5.26 L UX 5.26 1 .1 8 CZ3E.36 SVK ROU 3.47 FRAL U4X.60 3.36 SVK RO2.U86 3.47 FR6A.204.60 AUT HUN 2.86 6.20 CHE AU4T.50 HU2N.76 CH6E.58 4.5S0VN HRV 2.76 SV3N.40 2.91 6.58 ITA HRV 3.40 2.91 5.00 BIH SRB ITA 1 .79 1 .51 5.00 BIH SRB 1 .79 1 .51 BG R 2.56 ALB MKDBG R 1 .64 2.56 ALB MK1D.94 1 .64 1 .94 PRT ESP GR C 4.20 4.50 PRT ESP GR3C.70 4.20 4.50 3.70

CYP CY4P.50 4.50

54 Figure 18. Cheapest brand prices in euros per 20 cigarettes (July 2012) Source: Transcrime elaboration on GMBH PMG data

Cheapest brand price in Euro per 20 cigarettes in July 2012 FIN Cheapest brand price in Euro per 20 cigarettes in July 2012 Less than €2 From €4.01 to €6 FI3.83N 3.83 LessFrom than € 2.01€2 to €3 FromFrom €4.01 €6.01 to to€6 €9 NOR SW E From €2.01 to €3 From €6.01 to €9 From €3.01 to €4 More than €9 NO9.1R 4 SW4.94E EST From €3.01 to €4 More than €9 9.1 4 4.94 ES2.30T 2.30 RUS LVA RU0.51S LV2.21A 2.21 0.51 DNK LTU 2.00 DN4.91K LTU 4.91 2.00 IRL BLR IR7.95L 0.25 GR B BLR 7.95 7.57 POL 0.25 GR B NLD 2.25 7.57 POL NL4.81D DEU 2.25 BE4.81L UKR 4.21 DEU4.13 0.28 BEL CZE UKR 4.21 L UX 4.13 0.28 CZ2.25E SVK ROU 2.52 L U3.60X 2.25 SVK RO2.19U FRA 3.60 AUT 2.52 HUN 2.19 FR5.70A 3.60 HU2.1N 6 CHE AUT 5.70 3.60 2.1 6 CH4.57E SVN HRV SV2.80N 1 .79 4.57 ITA HRV 2.80 1 .79 4.30 BIH SRB ITA 1.12 0.80 4.30 BIH SRB 1.12 0.80 BG R 2.07 ALB MKDBG R 0.79 2.07 ALB MK0.59D 0.79 0.59 PRT ESP GR C 3.50 3.55 PRT ESP GR2.90C 3.50 3.55 2.90

CYP CY2.95P 2.95 Note: Prices for UK and Ireland refer to recommended retail prices. Prices for Cyprus, Estonia, Latvia, Lithuania, Malta, Romania, Slovenia and Sweden refer to maximum retail prices. Norway is a free pricing market. Monthly fixed rates as at July 2012. 1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25% n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

250,000

200,000 1,200 ) s k c i t

s 150,000 1,000 n m ( s e 100,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

s e t t

0 e

a r 400 Chapter 2: The four components g C i 2012 200 Production Sales Import Export

Figure0 19. Correlation between 2006 non–domestic incidence and 98 99 00 01 02 03 04 05 06 07 08 09 10 11 •• Information on the profiles of illicit tobacco users non–domestic incidence variation from 2006 to 2011 is scarce. 100% Source: Transcrime elaboration on EPSs data. 80% 80% • No comprehensive research on the profiles of illicit tobacco users has been conducted in Germany. c Berlin 60% t i 60% s Brandenburg, e Nevertheless, a broad picture emerges from an

m Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% analysis of newspaper articles, reports, and on n – d 6 –2011) Bav aria o 0 n

0 line forums. The typical illicit tobacco user seems f o

( 2 Thuringia, Saxony

20% n e

o 20% to be a regular smoker (often a heavy one), male, c t i n a i e r d

i low–income, low–educated. Age varies from the 0% a c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s adolescent attracted by illegal products to the k

t a Hesse, Rhineland–Palatinate, Saarland c n a e

p low–income retiree (DKFZ 2010; Repinski 2008; HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c r Schleswig–Holstein, Hamburg, -20% cigarettes equivalent) P e Bremen, Lower Saxony Frankfurter Allgemeine 2012; Knut 2012). North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales -40% 40% 38 0% 5% 10% 15% 20% 25% 30% 35% 40% 37 34 34 Non–domestic packs incidence (2006) 35% 34 34 33 30% Note: Länder are aggregated according to the 7+1 27 27 27 26 26 “Nielsen–Gebiete”, which is a classification of the Länder taking 25% 23 24 24 22 account of social, structural, demographic and commercial 19 20% 25% conditions. The yellow points represent the four Länder with the 16 15 15% 14 highest growth rates in non–domestic packs incidence from 2006 12 11 to 2011. The grey points refer to the four Länder with the lowest 10% 9 20% 7 5 four growth rates. 5% 3 15% 0% •• The penetration of illicit tobacco is 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 55 20 25 30 35 40 45 50 55 60 65 70 75 and 10% self–reinforcing.

Male Female The factbook on the illicit trade in tobacco products 5% • The increase in consumption of untaxed cigarettes 60% 55 54 53 in Germany is a self–reinforcing effect (Bräuninger 50 0% 50% and Stiller 2010). Indeed, the higher the share of 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 non–domestic packs in 2006 EPS, the larger the 40% percentageEu rincreaseomonitor in non–domesticKpmg incidenceEPSs from 36 34 31 32 2006 to 2011. 30% 27 26 100% 14 19 The yellow points (Figure 19) indicate25 the highest 20% 17 • 33 27 14 7 12 80% 45 10 growth rates of non–German packs collected9 from 10% 61 12 6 2006 to 2011. Three of them15 ranked first in the27 2006 60% 26 non–domestic packs20 incidence, while the fourth 0% 9 19 11 18-39 40-59 60+ 18-39 40-59 60+ ranked fifth. The reverse applies for the grey points. 40% 10 11 Male Female 14 53 GERMANY 4 48 44 46 Low-social status Mid-social status High-social status 20% 35 36 21

60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 54% Poland Czech Republic Russia Other countries 47 46 47

90% Poland Czech Republic Spain Other countries

80%

70%

60% 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 as % of TIRSP (Tax Inclusive Retail Selling Price) 20% as % of WAP (Weighted Average Price) 15%

10%

250 5%

199 0% 200 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 € Counterfeit Marlboro over total non-domestic Marlboro packs o f 100

86 n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

•• The supply of illicit tobacco is mainly influenced • The supply of illicit tobacco is due to its profitability, by profitability. namely to the evasion of the high taxation on tobacco products. • The difference between illegal products prices •• The tax level expressed in monetary terms (total and legal retail prices provides an incentive for tax taxes per 1,000 cigarettes) may provide incentives avoidance. A large share of this difference is the profit for suppliers of illicit tobacco at international level. of illegal suppliers (Von Lampe 2005). This is most relevant to large–scale smuggling (counterfeits and illicit whites). The higher the taxes, • Buying cigarettes in a neighbouring low–price country the greater the potential profit for smugglers. and selling them in a high–price country like Germany •• The tax incidence (tax as % of the final retail price) is lucrative. The amounts of the price differential and provides incentives for the suppliers of illicit tobacco of the transport costs involved affect the profitability, at national level. This is most relevant to the illicit while the proximity to low–price market affects the manufacturing and wholesale/retail distribution of opportunity to engage in this activity (Merriman, illicit tobacco products within national borders. Yurekli, and Chaloupka 2000).

• However, the emergence of a cigarette black market in Germany has deep historical and social roots, dating back to the fall of the Iron Curtain (see Box Origin and development of the German cigarette black market, p.57). Chapter 2: The four components

ORIGIN AND DEVELOPMENT OF THE GERMAN CIGARETTE BLACK MARKET

The origin and the development of the cigarette black market can be dated back to January 1989, when the visa obligation for Polish citizens was abolished. One of the effects was a chaotic and anarchic increase in cross–border trade. Several Poles started selling a broad range of products on German streets. Illegal cigarettes were among those goods (Von Lampe 2005).

In June 1990, the two German states signed a treaty agreeing on a currency union. The open sale of contraband cigarettes started in other parts of Eastern Germany, while the police authorities undertook firm and successful action to limit the open market in West Berlin. As a result, the number of cigarettes seized by the Customs Service rose from nearly 24 million in the Federal Republic of Germany in 1989 to 260 million in unified Germany in 1991 (Von Lampe 2005).

In the summer of 1991, up to one third of the cigarettes consumed in the territory of the former Democratic Republic of Germany were allegedly illegal (Von Lampe 2005).

Initially, Polish traffickers controlled all the stages of the black cigarette market. However, after 1991, they approached former Vietnamese guest workers, who had been recruited by the former Eastern Germany socialist government but had been made unemployed by industrial reconstruction following the collapse of the socialist regime. These Vietnamese replaced Poles in the retail distribution of illicit cigarettes (Von Lampe 2005).

•• The supply side of the ITTP is composed of small, • At horizontal level, groups are usually based on simple and undifferentiated groups. strong ties, such as kinship, marriage or friendship, whilst vertical relationships, such as buyer–seller or • The cigarette black market in Germany seems to employer–employee, are based on weak ties or even 57 be composed of low–density networks formed by lack any basis in pre–existing contacts (Von Lampe

small, simply–structured enterprises and individual 2003). The factbook on the illicit trade in tobacco products entrepreneurs. These small groups or individuals generally perform relatively simple tasks. Indeed, •• Two ethnic groups (Polish and Vietnamese) complicated and sophisticated structures are not dominate the illegal cigarette market, especially necessary to satisfy the demand for illegal tobacco in Berlin and East Germany. The contraband products. The supply side of the illicit trade in cigarettes are mainly supplied by Polish tobacco products does not generally involve complex traffickers. technology, nor does it require complex skills (Von Lampe 2003). • Originally, Eastern European groups, especially Polish, directly controlled all the phases of the illicit • In Berlin, sales points are generally divided among supply chain. They purchased or recovered cigarettes, various “families”, who sell or lease their spots to smuggled them into the country and sold them other individuals such as interim dealers or final directly. The Poles soon involved Vietnamese in this sellers. The value of the location is determined by illegal trade and started providing them with illegal GERMANY the amount of potential customers and by its safety. cigarettes (see Box Origin and development of the Each sales point usually has one or two sellers. German cigarette black market). Couriers and supervisors may control one or more sales points depending on their proximity. According to an investigation commissioned by Philip Morris, the protection price of a point is between €200 and €500 per month (ECIS Investigations 2011). The four components

• Today, the Polish groups usually supply illicit products, • In Germany, the press and media have devoted a while Vietnamese groups occupy the intermediate great deal of attention to black–market actors in and retail levels. The typical case, according to law terms of ethnicity. Press releases, media reports and enforcement agencies and case studies, involves official statements regularly underline the nationality Polish smugglers supplying Vietnamese wholesale or of offenders. The fact that the supply of contraband retail dealers (Von Lampe 2005; Bundeskriminalamt cigarettes is largely dominated by Eastern Europeans, 2011; Bundeskriminalamt 2012a). mostly from Poland, and that the retail level in East Germany is controlled by Vietnamese is a recurrent • A review of German Customs press releases has theme in general descriptions (Birger 2012; Der confirmed the dominant role played by Polish Tagesspiegel 2008; Die Welt 2010). Another important groups. Nevertheless, other nationalities account driver of media attention is violence (Lang 1995; Haak for a large share of smuggling cases, several of and Schnedelbach 2002; Leyendecker 2010). Indeed, which have involved German, Lithuanian, Russian, violent confrontations between sellers and extortion Belarusian, Serbian or Bosnian actors (Hauptzollamt gangs have induced reactions by the media and the Frankfurt (Oder) 2012a; Zollfahndungsamt Essen authorities (Von Lampe 2003; Von Lampe 2006). 2012; Hauptzollamt Frankfurt (Oder) 2012c; Zollfahndungsamt Hanover 2012a; Hauptzollamt •• Organised crime groups engaged in the supply Erfurt 2012b; Hauptzollamt Karlsruhe 2012). of illicit tobacco are usually not engaged in other criminal activities. •• The retail distribution of contraband cigarettes in Germany is commonly associated with street • According to Bundeskriminalamt (Federal Police selling by Vietnamese vendors in the Eastern Office) investigations, group structures display little parts of the country (Von Lampe 2006). differentiation, either vertically or horizontally. This

58 seems also to be case when criminal labourers are • Former Vietnamese guest workers, who had become employed. These are usually hired only to perform unemployed in the course of industrial restructuring, one specific task for a certain delimited period, so substituted the Poles in retail sales in East Germany. that it is difficult to consider them as members of Their involvement gave rise to a vertical differentiation long-standing organised crime structures. However, according to ethnicity (Von Lampe 2003). the lack of differentiation was more evident in the past (Von Lampe 2003; Bundeskriminalamt 2011; • Ethnic differentiation is helpful in selling practices: Bundeskriminalamt 2012a). because of their easily recognizable appearance, Vietnamese sellers can be more easily identified by • In 2011, the Bundeskriminalamt conducted 45 customers, thereby facilitating the first contact with anti–organised crime operations regarding tax and potential buyers (Von Lampe 2003). customs offences (51 in 2010). The majority of these investigations involved cigarette smuggling (Bundeskriminalamt 2011; Bundeskriminalamt 2012a).

• The proportion of groups investigated that focused only on one specific type of crime was approximately 73.3 % in 2011. However, this proportion has considerably decreased in recent years. (92% in 2007) (Bundeskriminalamt 2011; Bundeskriminalamt 2012a). Chapter 2: The four components

•• Illicit tobacco is sold through various channels.

• Open sellers usually operate at fixed locations. The most common are spots where demand can be more easily met: outside a supermarket, or near a train or metro station. Sometimes orders are taken for home deliveries. Further popular locations for the sale of contraband cigarettes, common to both East and West Germany, are flea markets. Even informal distribution channels in network ties between friends, relatives or work mates are relevant for the selling of illegal tobacco products (Von Lampe 2006; Evert 2011).

•• Selling practices and group organisations may be influenced by enforcement countermeasures.

• The weakness of law enforcement during the period of political transition of the former German Democratic Republic favoured the wide diffusion of the illegal market, while the strong reaction of the authorities successfully halted the growth of the black market in West Berlin (Von Lampe 2005).

• According to the case analysis conducted by Von 59 Lampe (2003), the structure of the groups involved in the black market is generally simple. However, in the The factbook on the illicit trade in tobacco products past confrontations between Vietnamese seller groups and rival Vietnamese extortion gangs ended in violence, attracting the attention of the media and law enforcement agencies. The outcome of such violence was a strong law–enforcement campaign against the illicit trade in tobacco products (Lang 1995; Haak and Schnedelbach 2002; Leyendecker 2010). Simple seller groups reacted by changing their structure. Notably they increased their complexity in order better to protect their assets such as cigarettes and cash (Von Lampe 2003). GERMANY THE PRODUCTS

•• The lack of official updated estimates of the illicit • The tobacco industry regularly conducts empty pack tobacco market makes it difficult to assess the surveys (EPSs) to estimate the number of extent of the ITTP. non–domestic cigarette packs found in Germany. Use of EPSs data requires especial care when • Official data are only sporadically made public during investigating the ITTP. Firstly, the surveys focus on official speeches or press releases. According to the cigarettes and exclude HRT. They analyse packs most recent data of this type, one in every six German and not single butts. EPSs identify non–domestic cigarettes was illegal in 2004 (Von Lampe 2006). products, which include cigarettes legitimately purchased (e.g. by travellers). Furthermore, EPSs do •• However, various unofficial estimates have been not identify domestic contraband cigarettes. This may produced. lead to underestimation of the size of the illicit tobacco market. German EPSs are conducted using a method • Euromonitor International estimates the size of the slightly different from the one employed in other illicit cigarettes market as a percentage of the total European countries. Furthermore, there has been a cigarette market.9 Estimates ranged between 3.3 % debate on the reliability of this method (see Box The and 8.2 % from 2001 to 2011, exhibiting a constant Empty Pack Surveys (EPSs), p.61). increase. In the decade considered, the incidence of illicit cigarettes more than doubled. In 2012, the estimate was 7.8% (Table 7, p.61).

9. Euromonitor sources for estimating the illicit trade include the how porous borders are, how high unit prices are, whether a trade press, customs offices, interviews with manufacturers and market is a conduit for cigarettes versus actual consumption. retailers, as well as local knowledge of the market – for example Chapter 2: The four components

Average household expenditure on tobacco per month € %

1998 14 5.5

2003 18 6.5

THE2 0EMPTY08 PACK SURVEYS (EPSs) 18 6.2

The German estimation is based on the monthly collection of empty cigarette packs in selected recycling facilities. A total of 12,000 cigarette packs are classified and used to estimate non–domestic incidence. EPSs conducted in

other European 2countries001 2employ002 a 2slightly003 different2004 method:2005 they2 0collect06 packs2007 on 2the008 streets200 and9 in 2public010 bins201 in1 201 2

Cselectedigarettes ( mareas.n 143,578 146,163 134,968 113,414 9 6,970 93 ,673 91,68 3 88,21 8 86,58 3 83,91 6 84,46 6 83,439 sticks) Twenty–two collection points were chosen for the German sample. The combination of the 22 points formed Ctheigar sseven (mn un “Nielsen-Gebiete”its) 1,778 2,57, 1which 2is,5 0a9 classification 3,132 of3 ,the651 Länder5 ,4 8taking8 6 account,41 1 4of,9 7 social,4 3 ,structural81 2 3, 9and6 7 4,11 8 4,044 demographic conditions, as well as the commercial characteristics. Packages were selected by employees in HRT (Tonnes) 14,727 16,321 19,473 25,149 34,036 23 ,641 23,99 8 23,73 3 25,21 2 26,24 2 27,36 3 27,658 the respective recycling facilities, put into bags indicating the location of the recycling centre, and then centrally

analysed. Supply chain control indicat or Value There has been a scientific debate on the methodology of German EPSs. Prof. Dr. Michael Adams and Dr. Tobias 1) The retail of tobacco products is subject to licensing 0 points Effertz, two economists at the University of Hamburg, have criticised the selection of the 22 collection points on the 2) The manufacture of tobacco products is subject to licensing 1 point grounds that many collection points were situated close to borders with countries offering lower priced cigarettes, 3) There is a mandatory system of customer identification and verification applied 0.5 points suchto thase stheupp lyCzech c hain o fRepublic, tobacco pro Poland,ducts Luxembourg and Austria. Moreover, the researchers stressed the proximity of several4) There icollections a tracking apointsnd trac intog sAutobahnystem for to bA2acc ando pro dA12.ucts These are known under the name0 “Warschauer.5 points Allee” (Warsaw Avenue)5) Absenc eas of amongfree–trad ethe zon mostes for toimportantbacco prod usmugglingcts routes to and through Germany (DKFZ0.5 po i2010;nts Teevs 2010).

Consequently, the German cigarette association commissioned the Hamburg Institute of International Economics (HWWI)Tobacco toco nreviewsumptio then an study´sd sales in methodology.dicat or In their report (2010), Prof. Dr. Michael Bräuninger andVal uDr.e Sven

Schulze1) Ban on mentionedsmoking in pu bdifficultieslic places concerning the representation of singular Nielsen–Gebiete given that1 po entireint Länder

were2) Ba nnot on sincluded.moking in w Nevertheless,orkplaces they concluded that the selection of collection points, as well as0 the poin projection,ts did 3) Ban on the sale of tobacco products from vending machines 0 points not produce biased results. Indeed, the sample had some desirable properties: for instance, it correctly predicted 4) Prohibition of tobacco sales to minors 1 point the shares of different brands in the German tobacco market. 5) Ban on smoking in bars, cafés and restaurants 0.5 points 61

Tobacco marketing and promotion indicator Value The factbook on the illicit trade in tobacco products • Notwithstanding these limitations, EPSs may provide • KPMG conducts an annual study for PMI and OLAF 1) Ban on tobacco sponsorship and advertising on radio, TV, broadcasted programmes and in print media 1 point 2) dataBan o nuseful billboa rfords a analysingnd outdoor a dthever tillicitising cigarettes market. as part of EU agreements. KPMG1 panalysesoint many 3) Indeed,Ban on th etime displ acomparisonsy of tobacco pro danducts withinat points stations of sale analysis different sources, including tobacco0 po salesints data, 4) areBan oalmostn free d isneutraltribution toof tothesebacco sproblems.amples German EPSs consumer surveys, and EPSs. Packs1 poin tare catalogued 5) fromManda 2005tory pi ctotor i2012al hea ltshowh warn ianngs increase in the proportion as legal domestic, legal non–domestic,0 points and counterfeit of non–domestic packs from 14.9% to 20.6% (Table & contraband, in order to disentangle the origins of 7). packs collected in Germany. The proportion of the

Anti–ITTP action indicator packs classified as counterfeitVa lu& econtraband provides the estimate of illegal market penetration in Germany 1) National Action Plan against the ITTP 0 points (KPMG 2013). Also KMPG data, partially based on

2) Cooperation agreements between national public bodies and tobacco companies to prevent and control the ITTP EPSs, estimated an increase 0in.5 thepoin tillicits share from

3) National campaign against the various forms of the ITTP 2006. 0.5 points

4) Legal obligation on tobacco manufacturers not to facilitate smuggling 0.5 points GERMANY

5) Official legal estimates of the size of the ITTP 0 points Table 7. Estimates of the size of the German illicit cigarette market. Percentages of the total market Source: Transcrime elaboration on Euromonitor International, EPSs and KPMG data

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Euromonitor 3.3% 3.4% 3.7% 4.5% 5.4% 5.6% 5.9% 6.7% 7.6% 8.1% 8.2% 711.8.1%%

KPMG 10.6% 9.7% 10.8% 12.0% 12.5% 13.1% 11.1%

EPSs 14.9% 16.9% 22.6% 19.7% 19.1% 21.1% 21.8% 20.6%

1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25% n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

8% Other expenditure 2.0% 1.6 Schools, institutions 1.5% 11% 55% of higher education, other education 1,540 50% 1.0% 0.6 45% Pensions 0.5 1,520 0.4 0.5% 12% 40% 0.3 1,500 Debt 35% 1,480 0.0% 30% Science, research, cultural Both sexes Male Female 1,460 25% Aged 12-17 Aged 18-25 n 1,440 B 20%

1,420 15% 250,000 10% 1,400 5% 1,380 200,000 0% 1,200 )

1,360 s

k 1989 1993 1997 2001 2004 2008 2010 2011 c i t

s 150,000 1,340 1,000 99 00 01 02 03 04 05 06 07 08 09 10 11 n Aged 12-17 Aged 18-25 m ( s e 100,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

3.0% s e

2.7 t t 2% Social security 0 e

5% a r 400 5% 2.5% g General services C i 2012 8% 200 Other expenditure Production Sal2e.0%s Import Export 1.6 Schools, institutions 1.5% 0 The four components 11% 55% of higher education, 98 99 00 01 02 03 04 05 06 07 08 09 10 11 other education 1.0% 100% 0.6 Pensions 0.5 0.4 80% 0.5% 0.3 12% Debt 80% • All the sources considered report an increase in 0.0% • Most c of the press releases by German CustomsBerlin Science, research, 60% t i 60% s Brandenburg, the share of illegal tobacco products, even if it is e cultural Both sexes Male Female refer to cases of cigarettes smuggling. In Germany m Mecklenburg–Vorpommern, differently estimated. The growth rate of the market o Saxony Anhalt 40% Aged 12-17 Aged 18-25 unlawful 4movement0% from neighbouring tax jurisdictions n – d 6 –2011) Bav aria o 0 n

share between 2005 and 2011 ranged from about 0

is facilitatedf by price differentials, proximity, and o

( 2 Thuringia, Saxony

20% n 46% (Euromonitor) to nearly 25% (EPSs and KPMG) e

o 20%

geographicalc configuration. Indeed, Germany has t i

250,000 n a i e r d

(Table 7 p.61 and Figure 20). i 0% more a than 1,300 km of common borders with Poland c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% 200,000 s

and thek Czech Republic. 1,200 t a Hesse, Rhineland–Palatinate, Saarland c n ) a e s p c k HRT sales (cigarettes equiv••al enThet)/Tot astructurel sales (cigar eoftte sthe and illicitHRT tobacco market in r c Schleswig–Holstein, Hamburg, i t -20% s 150,000 cigarettes equivalent) P e Bremen, Lower Saxony 1,00Germany.0 n • It seems that a concentration of source countries

m North Rhine–Westphalia (

HRT sales (cigarettes equivalent)/Cigarettes sales s occurred in Germany from 2006 to 2012 (KPMG 2013) e 100,000 t

) -40% t

s 800 e According to Customs press releases, smuggled 40% 38 k • (Figure 21). Nearly0% 5% half1 0of% illegal15% cigarettes20% 25% come30% 3from5% 4 0% c a r i t

g 37 s

C i 34 34 cigarettes, originating from both very large and very Non–domestic packs incidence (2006) 50,000 35% 34 34 33 n neighbouring Poland (53%). The Czech Republic

m 600 (

small–scale smuggling operations, are the main types 30% s (27%) and Russia (7%) play an important role. Other e

27 27 27 t 26 26 t 0 e of illicit tobacco products. Illicit whites and counterfeits 24 24 countries had a 61% share in 2006, which decreased 25% 23 a r 400

22g

C i are less common, but their share is not negligible. to 14% in 2012.

2012 19 20% 25% 16 20Other0 15 sources seem to confirm these findings (Philip Prod1u5c%tion Sales Import Export 14 12 Morris GMBH11 2012): most non–domestic packs of • Poland and the Czech Republic joined the Schengen 10% 9 20% 7 Marlboro0 and L&M5 are genuinely non–domestic area in December 2007. Their entry seems to have 98 99 00 01 02 03 04 05 06 07 08 09 10 11 5% (smuggled or legally bought3 abroad), while only a 15increased% the proportion of cigarettes smuggled from 0% 100% small share is counterfeit. The most common illicit those countries (Locke 2010). Indeed, in 2006, 25% 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 whites80 brand% in Germany, Jin Ling, shows a volatile 80% 20 25 30 35 40 45 50 55 60 65 70 75 and 10of% all counterfeit and contraband cigarettes came incidence during EPSs. from Poland and the Czech Republic. In 2012, the Male Female c Berlin 60% t i 60% s Brandenburg, 5%

e proportion more than doubled, reaching 80% (Figure

60% m Mecklenburg–Vorpommern, 54 55 Smuggledo cigarettes Saxony Anhalt 21). 40% 53 62 40% n – d 6 –2011) Bav aria 50 o 0% 0 50% n 0 f

45 o 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ( 2 Thuringia, Saxony

20% n 41 •• Smugglede cigarettes are the more common o 20% Figure 21. Counterfeit and contraband cigarettes by country of origin, c t i n

40% a i e Euromonitor Kpmg EPSs

36 r productsd of the illicit tobacco market. percentages of the total (2006–2012) i

0% 34 a c v Baden–Württemberg

32 n i Source: Transcrime elaboration on KPMG 2013 data 31 e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s

30% k

t a 27 Hesse, Rhineland–Palatinate, Saarland

26 c n 100% a • Germanye and the UK are apparently linked to the p HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c 14 r Schleswig–Holstein, Hamburg, 19 -20% 25 cig2ar0e%ttes equivalent) 17 sameP e smuggling channels. GermanyBremen, Lo wise rat Sa xtheony same 33 27 14 7 12 North Rhine–Westphalia 80% 45 HRT sales (cigarettes equivalent)/Cigarettes sales time a destination10 country and a transit country, 9 10% -40% 61 12 notably towards the UK6 (Von Lampe 2006). 15 27 40% 38 0% 5% 10% 15% 20% 25% 30% 35% 40% 60% 26 37 20 34 34 0% Non–domestic packs incidence (2006) 9 19 35% 34 34 33 11 18-39 40-59 60+ 18-39 40-59 60+ 30% Figure 20. Estimates of the size of the German illicit cigarette 40% 11 27 10 27 26 26 27 Male market,Female percentages of the total market 14 25% 23 24 24 53 22 Source: Transcrime elaboration on Euromonitor International, EPSs and KPMG data 4 48 44 46 19 Low-social status Mid-social status High-social status 20% 35 36 20% 25% 16 15 15% 14 21 12 11 0% 10% 60% 9 20% 7 50 5 2006 2007 2008 2009 2010 2011 2012 5% 52 3 54% Poland Czech Republic Russia Other countries 47 46 47 15% 0% 41 40 15 to 20 to 25 to 30 to 35 to 40 to 45 to 4500% to 55 to 60 to 65 to 70 to 75 39 36 20 25 30 35 40 45 50 55 60 65 70 3754 and 35 10% 31 30% Male Female 100% 22 5% 60% 90% 19 55 20% 27 54 53 17 15 14 15 80% 42 42 50 0% 47 50% 10 49 10 5 51 10%44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 70% 41 40% 60% Euromonitor Kpmg EPSs 31 34 9 36 0% 34 9 50% 8 8 31 32 18-39 40-59 60+ 18-39 40-59 60+ 6 30% 27 40% 26 Male 1F0e0m%ale 25 23 20 25 14 30% 27 19 20% Low-income Mid-income High-income 27 25 17 33 20% 14 80% 7 38 37 12 45 9 26 26 10 10% 24 20 10% 12 16 6 61 27 15 0% 100% 60% 26 20 2006 2007 2008 2009 2010 2011 2012 0% 9 19 11 18-39 40-59 60+ 18-39 40-59 60+ 90% Poland Czech Republic Spain Other countries 40% 10 11 Male Female 14 80% 53 4 48 44 46 Low-social status Mid-social status High-social status 20% 35 36 70% 21 0% 60% 60% 50 2006 2007 2008 2009 2010 2011 2012 30% 52 54% Poland Czech Republic Russia Other countries 47 46 47 50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 41 40 40% 39 as % of TIRSP (Tax Inclusive Retail Selling Price) 20% 36 34 35 31 as % of WAP (Weighted Average Price) 15% 30% 100% 22 10% 90% 19 20% 27 17 15 5% 14 15 250 80% 42 42 10 47 10 51 49 10% 199 70% 5 0% 200 182 Q3 60% Q1 Q2 Q3 Q4 Q1 Q2 Q4 Q1 Q2 Q3 31 34 0% 150 9 9 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 18-39 40-59 60+ 18-39 40-59 60+ 127 50% 8 8

€ 6 Counterfeit Marlboro over total non-domestic Marlboro packs o f 100 40% 86 25 23 Male Female n 67 20 M 52 30% 27 25 Counterfeit L&M over total non-domestic L&M packs 50 Low-income Mid-income High-income 202%2 1 3108 1 337 1 3 3 0 24 26 26 10% 16 20 0% 100% 2006 2007 2008 2009 2010 2011 2012

90% Poland Czech Republic Spain Other countries 100 % 2005 2010 90 % 80% 1.8 80 % e c n

1.6 e 70 % d i

70% c

n 60 % i 1.4 c i

t 50 % s

60% e 1.2 30% 40 % o m 1 30 % 50% 25% o n– d R² = 0.2799

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 N 0.8 20 % as % of TIRSP (Tax Inclusive Retail Selling Price) 20% 10 % 0.6 as % of WAP (Weighted Average Price) 15% 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000 10% 0.2 Gross domestic product at current prices per capita at NUTS 2 level 5% (2010) 250 0 199 0% 200 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 € 6% Counterfeit Marlboro over total non-domestic Marlboro packs o f 100

86 n 67 60% M 52 Counterfeit L&M over total non-domestic L&M packs 50 5% 4.8 4.8 22 50% 1 10 1 3 1 3 3 0 4% 40% 3% 30% 100 % 2% 2005 2010 90 % 20% 0.9 0.8 1.8 1% 80 % e c

0.2 0.2 n 10% 1.6 e 70 % d i

0% c

n 60 % i 1.4 0% c

Opioids i Cocaine Cannabis t 50 % s 2005 2006 2007 2008 2009 2010 2011 1.2 e Drug report 240011 % Drug report 2012 o m 1 30 % Western Länder Germany Eastern Länder

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

250,000

200,000 1,200 ) s k c i t

s 150,000 1,000 n m ( s e 100,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

s e t t

0 e

a r 400 g C i 2012 200 Production Sales Import Export

0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% 80% 80%

c Berlin 60% t i 60% s Brandenburg, e Chapter 2: The four components

m Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% n – d 6 –2011) Bav aria o 0 n 0 f o

( 2 Thuringia, Saxony

20% n e

o 20% c t i n a i e r d

Bootleggingi 0% a

c • Non–domestic packs are only partially linked with v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s

k tourist destinations. In 2011, Spain was the most t a Hesse, Rhineland–Palatinate, Saarland c n a e p HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT •• Bootleggingc and small–scale smuggling have popular tourist destination for Germans with a market r Schleswig–Holstein, Hamburg, -20% cigarettes equivalent) beenP e a problem along the bordersBrem ewithn, Lowe rGermany Saxony share of 12.3% (Deutschen ReiseVerband 2012). North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales and Poland since the fall of the Iron Curtain (Von -40% 40% 38 Lampe 2006).0% 5% 10% 15% 20% 25% 30% 35% 40% Illicit whites and counterfeit cigarettes 37 34 34 Non–domestic packs incidence (2006) 35% 34 34 33 • Travellers may bring up to 800 cigarettes into 30% •• Jin Ling is the most common illicit whites brand. 27 27 27 26 26 Germany from all EC Member States without 25% 23 24 24 However, its presence seems to be volatile over 22 any formalities (the limit for HRT is 1 kg). Those 19 time. 20% 25% 16 15 transporting more than the above–mentioned 15% 14 12 11 amounts are suspected of intending to sell the goods. • The most popular illicit whites in Germany are Jin 10% 9 20% 7 5 Nevertheless, travellers can refute this suspicion Ling. They are mainly produced in Kaliningrad, a 5% 3 by proving that they will use the goods for private 15% Russian enclave between Poland and Lithuania, but 0% purposes (Bundesministerium der Finanzen 2013a). 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 there are other factories in Ukraine, Moldova and 20 25 30 35 40 45 50 55 60 65 70 75 and 10%The allowance from non–EC countries is 200 other parts of Russia. The cigarettes are transported cigarettes (250 grams for HRT) (Bundesministerium Male Female by sea container or by inland routes to European 5%der Finanzen 2013b). market destinations (Hauptzollamt Rosenheim 2012). 60% 55 54 53 The factory price of 10 packs is €2, whilst the street 50 0% 50% • In Germany, Marlboro cost €5.26 per 20 sticks, seller price is usually more than €20 (Evert 2011), but 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 while in Poland and the Czech Republic the price sometimes less (Hauptzollamt Rosenheim 2012). 40% is respectively €2.91Euromo nanditor €3.36 (asKpm ofg July 2012).EPSs 36 34 31 32 The cheapest brand sells at €4.13 per 20 sticks in 30% 27 • Several German Customs press releases report 26 100Germany,% while in Poland and Czech Republic it costs 14 seizures of Jin Ling packs, from small quantities 19 63 €2.19 and €2.25 respectively (Philip 2Morris5 GMBH 20% 17 33 27 (e.g. 50,000 cigarettes) up to large ones of even 14 7 12 80% 45 10 2012). 9 900,000 cigarettes (Hauptzollamt Berlin 2012; 10% 61 12 The factbook on the illicit trade in tobacco products 6 15 27 Zollfahndungsamt Essen 2012; Hauptzollamt 60% 26 • Nearly half of legal non–domestic20 packs in 2012 came 0% 9 19 Frankfurt (Oder) 2012c; Hauptzollamt Düsseldorf 11 18-39 40-59 60+ 18-39 40-59 60+ from Poland and the Czech Republic. However, the 2012c; Hauptzollamt Frankfurt (Oder) 2012b; 40% 11 share of these1 0two countries has decreased since Male Female Hauptzollamt Rosenheim 2012). Furthermore, 14 53 2006 (69%)4 (Figure 22). This4 decrease8 44 contrasts46 with German Customs estimate that, in the past, Jin Ling Low-social status Mid-social status High-social status 20% 35 36 the increase in the proportion of illegal cigarettes has been the ninth brand by share in Germany, even if 21 coming from these two countries, which more than 0% it can only be found on the black market (Hauptzollamt 60% doubled over the same period (Figure 21, p.62). 50 2006 2007 2008 2009 2010 2011 2012 Rosenheim 2012). 52 54% Poland Czech Republic Russia Other countries 47 46 47 41 Figure 22. Legal sales of non–domestic packs by country of origin. • According to EPSs, Jin Ling packs collected in the 39 40 40% Percentages of total non–domestic legal sales (2006–2012) third quarter of 2012 represented only 0.1% of the 35 36 34 Source: Transcrime elaboration on KPMG 2013 data 31 entire sample, both domestic and 30% 100% 22 non–domestic. However, the last available quarter 19 90% GERMANY 20% 27 data is extraordinary low considering the whole 17 15 14 15 80% 42 42 10 47 available historical series. Indeed, in recent years, the 10 51 49 10% 70% 5 Jin Ling share reached a peak in the second quarter 60% 31 34 0% 9 9 of 2011 with a total share of 1.6% (Philip Morris 50% 8 8 18-39 40-59 60+ 18-39 40-59 60+ 6 GMBH 2012). 40% Male Female 25 23 20 30% 27 25 Low-income Mid-income High-income 20% 38 37 24 26 26 10% 16 20 0% 100% 2006 2007 2008 2009 2010 2011 2012

90% Poland Czech Republic Spain Other countries

80%

70%

60% 30%

50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 as % of TIRSP (Tax Inclusive Retail Selling Price) 20% as % of WAP (Weighted Average Price) 15%

10%

250 5%

199 0% 200 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 € Counterfeit Marlboro over total non-domestic Marlboro packs o f 100

86 n 67 M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 1 10 1 3 1 3 3 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 40 % o m 1 30 %

o n– d R² = 0.2799 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

250,000

200,000 1,200 ) s k c i t

s 150,000 1,000 n m ( s e 100,000 t ) t

s 800 e k c a r i t g s

C i

50,000 n

m 600 (

s e t t

0 e

a r 400 g C i 2012 200 Production Sales Import Export

0 98 99 00 01 02 03 04 05 06 07 08 09 10 11

100% 80% 80%

c Berlin 60% t i 60% s Brandenburg, e

m Mecklenburg–Vorpommern, o Saxony Anhalt 40% 40% n – d 6 –2011) Bav aria o 0 n 0 f o

( 2 Thuringia, Saxony

20% n e

o 20% c t i n a i e r d i

0% a c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

Male Female 5% 60% 55 54 53 50 0% 50% 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 40% Euromonitor Kpmg EPSs 36 34 31 32 30% 27 26 100% 14 19 The four components 25 20% 17 33 27 14 7 12 80% 45 10 9 10% 61 12 6 15 27 60% 26 20 0% 9 19 Price and origin of illegal tobacco products •• Counterfeiting11 is not a negligible problem in 18-39 40-59 60+ 18-39 40-59 60+ 40%Germany, especially10 11 for the L&M brand. Male Female 14 53 •• The illegal market offers cheap tobacco products, 4 48 44 46 Low-social status Mid-social status High-social status •2 0%In 2011, German35 customs36 seized counterfeit cigarettes making it particularly attractive for consumers. for a value21 of €56,217.99. Some 87.24% of the intercepted goods came from China. The problem of • According to a survey on street selling in Berlin 60% 0% 50 2006 2007 2008 2009 2010 2011 2012 commissioned by Philip Morris, smuggled and 52 counterfeit cigarettes seems to be minor in Germany. 54% Poland Czech Republic Russia Other countries 47 46 47 Indeed, intercepted counterfeit cigarettes represent counterfeit cigarettes can be purchased at more than

41 40 0.18% of the total value of goods intercepted by half the legal price. Among the most common brands 40% 39 36 are Marlboro and L&M, which are generally sold at 34 35 German Customs (Bundeszollverwaltung 2012). 31 30% €22 per carton. These articles may bear a tax stamp 100% 22 • In the third quarter of 2012, 1.9% of Philip Morris of an Eastern European country or they constitute a 90% 19 20% 27 10 17 15 packs collected during the EPS were counterfeited. so–called duty free product (ECIS Investigations 14 15 80% 42 42 10 47 10 This was a decrease from the51 first quarter of 2010,4 9 2011). 10% 70% 5 when the proportion was 3.2%. Counterfeit L&M 60% 31 34 0% among non–domestic9 packs amounted to 21.2%9 • Some cash and carry markets in Berlin offer tobacco 50% 8 8 18-39 40-59 60+ 18-39 40-59 60+ 6 40%in the third quarter of 2012, while the proportion products of unknown origin at prices below the official 25 23 Male Female 20 ones. An investigation found that some of them 30%for Marlboro was 7.1%. The 2counterfeit7 25 risk varies Low-income Mid-income High-income 20%significantly across brands. In fact, nearly a quarter of offered Marlboro Big (8 x 24) at a price of €35.69 and 38 37 non–domestic L&M collected24 during the third26 quarter26 Marlboro Red (10 x 19) at a price of €36.60. After 10% 16 20 0%of 2012 were counterfeit. Considering all L&M packs adding sales tax (19%), the final price was €43.55 for 100% in the20 sample,06 200 4.1%7 2 0of0 8them20 were09 counterfeited2010 2011 2012 a carton of Marlboro Red, while the official sale price

90% (FigurePola n23)d (PhilipCze cMorrish Repub lGMBHic 2012).Spain Other countries was €49.00 in 2011 (ECIS Investigations 2011).

64 80% • Illicit whites are generally available at half, or more Figure 23. Counterfeit Marlboro and L&M over total non–domestic 70% packs (2010–2012) than half, the price of legal products, ranging from Source: Transcrime elaboration on Philip Morris GMBH 2012 data €2 to €2.20 per pack. Ten Jin Ling packs sell for €22 60% 30% (Evert 2011) or even for less than €20 (Hauptzollamt Rosenheim 2012). 50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 20% as % of TIRSP (Tax Inclusive Retail Selling Price) •• Brands. as % of WAP (Weighted Average Price) 15%

10% • According to German Customs press releases, the most frequently seized brands are Jin Ling, Marlboro 250 5% and L&M. Several 2012 investigations seized 199 0% 200 these brands (Zollfahndungsamt Hanover 2012a; 182 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 Hauptzollamt Frankfurt (Oder) 2012b; Hauptzollamt 127 €

Rosenheim 2012; Zollfahndungsamt Essen 2012; Counterfeit Marlboro over total non-domestic Marlboro packs o f 100

86 n 67 Hauptzollamt Landshut 2012c; Hauptzollamt Berlin M 52 Counterfeit L&M over total non-domestic L&M packs 50 22 2012). 1 10 1 3 1 3 3 0

100 % 2005 2010 90 % 1.8 80 % e c n

1.6 e 70 % d i c

n 60 % i 1.4 c i

t 50 % s e 1.2 10.40 Transcrime% had access to PMI and DZV EPSs. The former o m 1 distinguishes30 % between original and counterfeit products only for certaino n– d brands, specifically MarlboroR² = 0.27 9and9 L&M. 0.8 N 20 % 10 % 0.6 0 % 0.4 10,000 20,000 30,000 40,000 50,000 60,000

0.2 Gross domestic product at current prices per capita at NUTS 2 level (2010) 0

• According to the EPS, in the third quarter of 2012, non–domestic products (including genuine and smuggled cigarettes) accounted for 20.9% of the total sample (the figure for all quarters of 2011 was 22.1%). Breakdown by brands highlights that non–domestic L&M sales represent 19.2% of total L&M sales (decreasing from 30.1% in the first quarter of 2010). The proportion of non–domestic Marlboro packs in total Marlboro packs collected was 13.5% (stable from 13% in the first quarter of 2010). The majority of packs collected were genuine non–domestic, while only 0.7% of all Marlboro packs collected were counterfeited (Philip Morris GMBH 2012).

•• The main sources of illicit cigarettes are Eastern European countries, notably Poland and the Czech Republic.

• According to KPMG, the share of Polish counterfeit or contraband cigarettes has rapidly increased in recent years. In 2012, 53% of illicit non–domestic packs came from Poland, followed by the Czech Republic with a share of 27% (KPMG 2013).

65 • Most Marlboro non–domestic packs come from Poland (32.4%) and the Czech Republic (11.4%). The factbook on the illicit trade in tobacco products L&M non–domestic packs are sourced from Poland (28.4%), the Czech Republic (17.5%), Ukraine (12%) and Russia (5.3%) (Philip Morris GMBH 2012).

• According to German Customs press releases, also Serbia and other Balkan countries were substantial sources of illicit cigarettes in 2012 (Hauptzollamt Karlsruhe 2012; Hauptzollamt Landshut 2012b; Hauptzollamt Landshut 2012a). GERMANY MODUS OPERANDI AND GEOGRAPHICAL DISTRIBUTION

The modus operandi • Länder with good transportation links and close to low–price countries are more likely to attract illicit •• The modus operandi of the illicit tobacco trade flows and/or to be important junctures along the illicit varies according to the destination (Germany or routes. This is the case not only of East Germany but other countries), the geographical configuration also of Bavaria. of Germany, and the need to evade inspections through elaborate concealment strategies. • The most popular method of smuggling products into Germany involves transportation by car or lorry. • Except for the studies by Von Lampe, there are Ports and airports are much less commonly used, no surveys on the behaviour of importers. Most judging from their frequency of appearance in German information comes from press releases issued by Customs press releases. Bundeszollverwaltung (German Customs), the national agency most involved in the fight against the • The picture that emerges from a review of Customs ITTP. These press releases are usually focused on media reports is a broad spectrum of traditional or large–scale operations, while less attention is paid to sophisticated smuggling schemes. The sophistication small cases. For this reason, the information should of concealment in cars and lorries ranges from be interpreted with caution. contraband cigarettes being hidden in the hand luggage, food, or clothes of travellers to the use of • Germany is not only a destination, but also a transit secret compartments in cars, vans, buses and trucks country. Many intercepted illicit products are directed (Von Lampe 2006). to the UK, where the importers can benefit from a higher price differential. Indeed, half of the cigarettes seized by the German authorities were bound for the UK (Von Lampe 2003). This trend seems to be confirmed by the analysis of German Customs press releases. Chapter 2: The four components

•• Illicit smuggled tobacco products are transported •• Smuggled tobacco products are transported by lorries from their source country into hidden in cars or small vans. Germany, eluding customs inspections with false declarations or sophisticated concealment • While these methods have been consistently used methods. in bootlegging or small–scale smuggling, German customs believe that in recent years they have also • The actual smuggling takes place without avoiding been adopted by large–scale smugglers (Von Lampe customs inspections. Indeed, the transport of illegal 2006). products is accompanied by customs forms which are either forged or false declarations (Von Lampe 2005). • The concealment can take quite sophisticated forms (see Box Uncovered concealments in cars or small • Large–scale smuggling in Germany is characterised vans transporting illegal cigarettes). by concealed shipments of a considerable number of cigarettes which are hidden inside or behind UNCOVERED CONCEALMENTS ON legal goods, including furniture, food, and timber. LORRIES TRANSPORTING ILLEGAL The sophistication of concealment may involve CIGARETTES the creation of secret compartments (see Box Uncovered concealments on lorries transporting The German authorities arrested three Russians illegal cigarettes). Many of the lorries intercepted are and a German in Oldenburg (Niedersachsen), headed for the UK (Zollfahndungsamt Hanover 2012c; who were accused of 119 smuggling cases since Zollfahndungsamt Hamburg 2012b). 2007, involving 172 mn Russian cigarettes for a tax loss amounting to about €31.4 mn. The gang was suspected of having hidden the cigarettes in UNCOVERED CONCEALMENTS OF wooden boards and then selling them to customers 67 CARS OR SMALL VANS TRANSPORTING in Germany (Zollfahndungsamt Hanover 2012a). ILLEGAL CIGARETTES Near Erfurt in Thuringia, the German authorities The factbook on the illicit trade in tobacco products On the night of 13 December 2012, in Erfurt, found 180,000 cigarettes probably imported customs officials found 20,000 untaxed cigarettes from Russia. The illegal goods were hidden in with Belarusian tax bands in a car. The cigarettes plastic bags in the pallet box of a Lithuanian truck were hidden behind the side panels of the doors, (Hauptzollamt Erfurt 2012a).

in the engine compartment, in the front seat backs, In Bielefeld (North Rhine–Westphalia), investigators and in the car radio (Hauptzollamt Erfurt 2012c). inspecting a truck found one million cigarettes During a highway control in Passau, Customs with no stamps. Four pallets of cigarettes were discovered 17,200 untaxed cigarettes presumably hidden behind other pallets containing legal goods from Russia. A non–standard silicone seal was (Hauptzollamt Bielefeld 2012). suspicious. The authorities therefore inspected the vehicle more closely and found the illegal cigarettes (Hauptzollamt Landshut 2012c).

German officials stopped a small Lithuanian van GERMANY for a check near Frankfurt (Oder). They found a complete engine block and a motorcycle with a sidecar on the back of the van. The driver had removed the cylinder and the piston to create as much space as possible to conceal 17,000 contraband cigarettes (Hauptzollamt Frankfurt (Oder) 2012c). The four components

Figure 24. German route seizures by amount and year (2010–2012) Source: Transcrime elaboration on German Customs press releases

Poland " Hamburg A1 A11 Bremen "

Berlin " " Frankfurt Hanover (Oder) " A2 Netherlands Forst A13 " (Lausitz)

" Dortmund Leipzig "

Dresden "

" Cologne A4 Belgium

68 Frankfurt Czech Republic an Meine " A1

" Nuremberg

2010 2011 France Stuttgart " 2012

A8 more than 1,000,000 sticks " Munich

sticks100,001–1,000,000 sticks

10,000–100,000 sticks Switzerland Austria

•• Most interception points are on particular • On Autobahn 3 connecting the Netherlands and motorways. Austria through Germany, most smuggling cases have been detected around Cologne, Frankfurt/Main, and • A very high concentration of smuggled goods has in the region adjoining Austria, including the areas been found in the areas surrounding Berlin, around Regensburg, Straubing, Deggendorf, and Frankfurt/Oder, and Forst (Lausitz). These cities Passau. Large amounts of illicit tobacco products are situated very close to the Polish border and to have been detected in the Austrian border region Autobahn 12 and 2, better known as the “Warschauer lying along Autobahn 8 leading through Traunstein, Allee” (Figure 24). Rosenheim and Munich to Stuttgart, with Stuttgart being another concentration point of the illicit wares (Figure 24). Chapter 2: The four components

• The Czech Republic and France are connected through Germany by Autobahn 6. Increased amounts SEIZURES AT THE PORT OF HAMBURG of illegal products have been discovered along this In 2011, the Central Customs Office motorway, especially in the Czech-German border Hamburg–Port confiscated 6,650,152 illegal region of Plzen, and in the Heidelberg, Mannheim, cigarettes and 6,507,690 kg of other illegal tobacco Ludwigshafen triangle. Other concentration points products. Considering the whole of the North are around Hanover and Dortmund, situated along Federal Finance Department, seizures of more than Autobahn 2. Finally, high concentrations of smuggled 11 mn illegal cigarettes and nearly 7 mn kg of other tobacco goods have been reported on Autobahn 24 tobacco products were reported (Hauptzollamt connecting Berlin and Hamburg (Figure 24, p.68). Hamburg–Hafen 2011a).

•• Air transport is another popular method to import In 2010, 171 mn counterfeit illegal cigarettes illegal tobacco because of the increasing number imported from China were confiscated at the Port of air routes easily and cheaply connecting of Hamburg. The smuggled goods were probably numerous European and non–European cities. bound for the entire European market (Süddeutsche Zeitung 2010).

• According to the cases reported by A gang of criminals smuggling an amount of 6 Bundeszollverwaltung (Federal Customs mn cigarettes through the Port of Hamburg was Administration) press releases, there are two main uncovered in 2011. The confiscated brands “Rio” systems. The first involves one or two German and “M1” were hitherto completely unknown in citizens returning from tourist destinations – most Germany (Zollfahndungsamt Hamburg 2011). frequently Gran Canaria in Spain – with several In May 2012, the customs found 18 tons of illegal thousands of contraband cigarettes (Hauptzollamt water–pipe tobacco in what was considered to be Dresden 2011; Hauptzollamt Bremen 2012). The the biggest discovery at a German border. The fiscal 69 second system involves non–German citizens caught damage caused would have been equivalent to €1.4 during airport controls with several thousands of mn (Hamburger Abendblatt 2012). The factbook on the illicit trade in tobacco products smuggled cigarettes (Hauptzollamt Düsseldorf 2012a; Hauptzollamt Düsseldorf 2012b; Hauptzollamt Munich – Dienstsitz Sophienstraße – 2012). Some cases • Germany has a thick net of rivers and channels, regard the illegal importation of several kilograms of which may be used by smugglers. To which extent water–pipe tobacco from Middle–Eastern countries smugglers have exploited this net has not been (Hauptzollamt Düsseldorf 2012d). investigated and seizures in rivers or channels are scarce. Future research may try to understand if this is •• Sea smuggling is not common in Germany. a consequence of lack of control or if criminals simply Nevertheless, the port of Hamburg experienced prefer other routes. several cases during 2012.

•• Street sellers use so–called ‘bunker flats’ to store • Ports well linked with other transport infrastructures cigarettes, and they operate in crowded locations are likely to be used for the importing of illicit products.

like railway stations. GERMANY This is especially the case of Hamburg, which is the most important German port (see Box Seizures • In more than 50 cases of smuggling cigarettes from at the Port of Hamburg). Container ports are used Eastern Europe, the illicit products were stored in to ship large quantities of illicit products originating so–called ‘bunker flats’ in Berlin. The aim of the from distant countries like China, Dubai or United bunker was to supply street sellers (Zollfahndungsamt Arab Emirates (Zollfahndungsamt Hamburg 2012b; Berlin-Brandenburg 2012a). Bunker flats may also be Zollfahndungsamt Hamburg 2012a). mobile: in this case, cigarettes are stored in a car or a small van which is parked near the seller’s operating area (Hauptzollamt Berlin 2012). The four components

• Street sellers operate in proximity to crowded places The geographical distribution in order to meet a larger number of people. Indeed, during a raid at the train station of Schöneweide in •• The consumption of illicit tobacco varies among Berlin, German customs seized nearly one million Länder. cigarettes and arrested five people (Zollfahndungsamt Berlin-Brandenburg 2012b). Other important locations • The phenomenon of widespread street selling is are supermarkets (Evert 2011). a peculiarity of the territory of the former German Democratic Republic. East Berlin constitutes the •• Assaults on trucks transporting cigarettes, largest local black market. In West Germany, the Ruhr robberies of large retailers, and diversions of region has a similar problem (Von Lampe 2006). duty–free products are not uncommon. • The EPSs show a percentage of non–domestic • Von Lampe (2003) analysed the most recurrent modi cigarettes higher than 40% in the new Länder, and operandi of illicit tobacco–market actors. Only one approaching 50% in Berlin. Considering the old case in his sample involved the diversion to the black Länder, Bavaria exhibits a proportion of 27.4%, while market of a container–load of cigarettes officially being the percentages for other states were considerably transported from the UK to Kaliningrad via Germany. lower in 2011. The Western Länder recorded a However, investigations by the German Customs constant share of non–domestic packs over the years officials discovered several similar shipments by examined, while the share of the Eastern Länder the same individuals for which the transit system increased (Figure 25). procedures were not completed.

Figure 25. Non–domestic packs by Länder (2005–2012) Source: Transcrime elaboration on EPSs data 70 Non–domestic incidence 2012 49 48 44 0 % – 20.0 % 33 33 33 36 30 20.1 % – 30.0 % 30.1 % – 40.0 %

Mecklenburg–West Pomerania, EPS 2005 % Branderburg, Saxony Anhalt EPS 2006 % EPS 2007 % 55 52 50 44 44 45 EPS 2008 % 14 12 10 12 9 10 12 11 31 EPS 2009 % 25 EPS 2010 % Sleswick–Holsatia, Hamburg, Bremen, Lower Saxony EPS 2011 % Berlin EPS 2012 %

2022 18 15 15 14 14 12 48 45 40 41 40 34 36 35 North Rhine–Westphalia

Turingia, Saxony

9 10 10 10 12 10 10 10

Hesse, Saarland, Rhineland–Palatinate

27 21 23 24 17 20 18 20

Bavaria 9 9 9 11 9 12 5 8

Baden–Württemberg 1,540 50% 45% 1,520 40% 1,500 35% 1,480 30% 1,460 25% n 1,440 B 20%

1,420 15% 10% 1,400 5% 1,380 0% 1,360 1989 1993 1997 2001 2004 2008 2010 2011 1,340 99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25

3.0% 2.7 Social security 5% 2% 2.5% 5% General services

8% Other expenditure 2.0% 1.6 Schools, institutions 1.5% 11% 55% of higher education, other education 1.0% 0.6 Pensions 0.5 0.4 0.5% 0.3 12% Debt 0.0% Science, research, 1,540 50% cultural Both sexes Male Female 45% 1,520 Aged 12-17 Aged 18-25 40% 1,500 35% 1,480 250,000 30% 1,460 25% n 1,440 200,000 B 20% 1,200 ) s k 15%

1,420 c i t

s 150,000 10% 1,000 1,400 n m (

5% s

1,380 e 100,000 t ) t

s 800 e 0% k c a r

1,360 i t g 1989 1993 1997 2001 2004 2008 2010 2011 s

C i

50,000 n 1,340 m 600 (

99 00 01 02 03 04 05 06 07 08 09 10 11 Aged 12-17 Aged 18-25 s e t t

0 e

a r 400 g C i 2012 200 Production Sales Import Export 3.0% 2.7 Social security 5% 2% 0 2.5% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 5% General services 100% 8% Other expenditure 2.0% 1.6 80% Schools, institutions 80% 1.5% 11% of higher education, 55% c Berlin other education 60% t i 60% 1.0% s Brandenburg, e

0.6 m Mecklenburg–Vorpommern, Pensions 0.5 o Saxony Anhalt 40% 0.4 40%

0.5% n – d 0.3 6 –2011) Bav aria o

12% 0 Debt n 0 f o

( 2 Thuringia, Saxony

20% n

0.0% e

o 20% Science, research, c t i n a i Both sexes Male Female e r cultural d i

0% a c v Baden–Württemberg

n i e

2003 2004 2005 2006 2007 2008 2009 201A0ged2 1021-117 Aged 18-25 g 0% s k

t a Hesse, Rhineland–Palatinate, Saarland c n a e p

HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c r Schleswig–Holstein, Hamburg, -20% 250,000 cigarettes equivalent) P e Bremen, Lower Saxony North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales 200,000 -40% 1,200

) 40% 38 0% 5% 10% 15% 20% 25% 30% 35% 40% s 37 k c i 34 34 Non–domestic packs incidence (2006) t 35% 34 34

s 150,000 33 1,000 n m

( 30% 27 27 27 s 26 26 e 100,000 t

24 ) t 25% 24 23 s 800 e

22 k c a r i t g 19 20% s

C i 25% 50,000 16 n 14 m 15600 (

15%

12 s

e 11 t t 9 20% 100% e 7 a r 400 5 g

5% C i 3 2012 15% 0% 200 Production Sales Import Export 15 to 20 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to 70 to 75 20 25 30 35 40 45 50 55 60 65 70 75 and 10% 0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Male Female 5% 1006%0% 54 55 53 80% 50 0% 805%0% 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41 c Berlin 60% t i 60% s Brandenburg,

40% e 36 Euromonitor Kpmg EPSs 34 m Mecklenburg–Vorpommern, 32 o Saxony Anhalt 40% 31 40% n – d 6 –2011) Bav aria

30% o

27 0 26 n 100% 0 f o

( 2 Thuringia, Saxony 14 20%

n 19 e

o 20% 25 20% c 27

17 t i n 33 a

i 7 14 e r 80% d

i 45 0% a 12 9 c v Baden–Württemberg 10 n i e 10%

2003 2004 2005 2006 2007 2008 2009 2010 2011 g 0% s 61 12

k 6 27 t a Hesse, Rhineland–Palatinate, Saarland 15 c n

a 60% e 26 p

HRT sales (cigarettes equivalent)/Total sales (cigarettes and HRT c 0% r Schleswig–Holstein, Hamburg, 20 19 -20% 9 cigarettes equivalent) P e Bremen, Lower Saxony 11 18-39 40-59 60+ 18-39 40-59 60+ North Rhine–Westphalia HRT sales (cigarettes equivalent)/Cigarettes sales 40% 10 11 Male Female -40% 14 53 40% 38 0% 5% 10% 15% 20% 25% 30% 35% 40% 4 48 44 46 37 Low-social status Mid-social status High-social status 20% 35 36 34 34 Non–domestic packs incidence (2006) 35% 34 34 33 21 30% 27 27 27 26 26 60% 0% 24 25% 23 24 50 2006 2007 2008 2009 2010 2011 2012 22 52 20% 54% 19 Poland Czech Republic Russia Other countries 47 46 47 25% 16 14 15 15% 41 40 12 40% 11 39 9 10% 35 36 20% 34 7 5 31 5% 30% 3 100% 15% 0% 22 90% 19 15 to 20 to 25 to 30 to 35 to 40 to 45 2to0% 50 to 55 to 60 to 65 to 70 to 75 27 17 15 14 15 80% 42 42 20 25 30 35 40 45 50 55 60 65 70 75 and 10% 10 47 10 51 49 10% 70% 5 Male Female 5% 60% 31 34 60% 0% 9 9 55 50% 8 8 54 53 18-39 40-59 60+ 18-39 40-59 60+ 6 50 0% 40% 50% Male Female 25 23 20 44 45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201230% 27 25 41 Low-income Mid-income High-income 20% 40% Euromonitor Kpmg EPSs 38 37 36 34 24 26 26 31 32 10% 16 20 30% 27 26 100% 0% 100% 14 19 2006 2007 2008 2009 2010 2011 2012 25 20% 17 33 27 14 90% 7 Poland Czech Republic Spain Other countries 12 80% 45 10 9 10% 61 12 6 80% 15 27 60% 26 20 0% 9 19 70% 11 18-39 40-59 60+ 18-39 40-59 60+ 40% 10 11 Male Female 60% 14 53 30% 4 48 44 46 Low-social status Mid-social status High-social status 20% 35 36 50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 21 as % of TIRSP (Tax Inclusive Retail Selling Price) 20% 60% 0% 50 2006 2007 2008 2009 2010 2011 2012 52 as % of WAP (Weighted Average Price) 15% 54% 47 Poland Czech Republic Russia Other countries 46 47 10% 41 40 40% 39 5% 36 250 34 35 31 199 0% 30% 200 182 100% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 22 150 90% 19 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 27 20% 17 € 15 15 14 80% 42 42 Counterfeit Marlboro over total non-domestic Marlboro packs o f 100 47 86 10 49 10 n 67 5 51 10% M 52 70% Counterfeit L&M over total non-domestic L&M packs 50 22 60% 1 10 1 31 3 1 34 3 3 9 0% 0 9 50% 8 8 18-39 40-59 60+ 18-39 40-59 60+ 6 40% Male Female 25 23 20 30% 27 25 Low-income Mid-income High-income 20% 38 37 100 % Chapter 2: The four components 2005 2010 24 26 26 10% 16 20 90 % 1.8 80 %

0% e

100% c n

1.6 2006 2007 2008 2009 2010 2011 2012 e 70 % d i c

Poland Czech Republic Spain Other countries n 60 % 90% i 1.4 c i The implementation of Schengen at the end of 2007 t 50 %Empty Pack Surveys conducted in 2004 confirmed • s • 1.2 e 80% 40 %

may be an explanation of the increase in recent o m these regional concentrations with regard to 1 30 %

years of non–domestic incidences in bordering states o n– d non–German duty paidR² cigarettes.= 0.2799 However, the 70% N 20 % 0.8 (Figure 25, p.70). differences within West Germany were not as 10 % 60% 0.6 significant as those between East and West Germany 30% 0 % 0.4 •• In Germany there seems to be a positive 10(Figure,000 27),20,0 0and0 between30,000 the40 border,000 regions50,000 along60,0 0the0 50% 25% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Polish and Czech borders and the rest of the country 0.2 correlation between non–domestic incidence and Gross domestic product at current prices per capita at NUTS 2 level 20% (2(Von010) Lampe 2006). as % of TIRSP (Tax Inclusive Retail Selling Price) 0 deprived conditions, as well as proximity to as % of WAP (Weighted Average Price) 1low–price5% markets. Figure 27. Non–domestic packs by Western and Eastern Länder 10% • According to EPSs, the proportion of non–domestic (2005–2011) 5% Source: Transcrime elaboration on EPSs data 250 6% packs is considerably higher in the Eastern Länder. 60% 199 0% 200 Proximity to4.8 borders4.8 with Poland and the Czech 182 5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Republic is a driver of this high proportion. 50% 150 2010 2012 2010 2010 2011 2011 2011 2011 2012 2012 2012 127 4% € Counterfeit Marlboro over total non-domestic Marlboro packs 40% o f 100 86 Regions with higher GDP per capita seem to have n 67 • M 52 3% Counterfeit L&M over total non-domestic L&M packs 50 lower incidences of non–domestic packs (Figure 26). 30% 22 1 10 1 3 1 3 3 0 2% Figure 26. Correlation between GDP per capita and non–domestic 20% 0.9 0.8 1% incidence (2010) 0.2 0.2 Source: Transcrime elaboration on Destatis-Statistisches Bundesamt and 2011 EPS data 10% 0% 100 % Opioids Cocaine Cannabis 0% 2005 2010 90 % 2005 2006 2007 2008 2009 2010 2011 1.8 Drug report 2011 80 %Drug report 2012 e c

n Western Länder Germany Eastern Länder

1.6 e 70 %

d 71 i c

n 60 % i 1.4 c i

t 50 % s e •• Consumption of illicit tobacco seems to reflect the The factbook on the illicit trade in tobacco products 1.2 40 % o m 1 30 % difference in smoking prevalence.

o n– d R² = 0.2799 0.8 N 20 % 10 % • Mecklenburg–Vorpommer and Berlin have the highest 0.6 0 % smoking prevalence, respectively 33.8% and 33.2% 0.4 10,000 20,000 30,000 40,000 50,000 60,000 (the male prevalence reaches respectively 40.9% and 0.2 Gross domestic product at current prices per capita at NUTS 2 level 38.3%) (Lampert 2010). At the same time, according (2010) 0 to EPSs, they record the highest shares of non–domestic packs. Nevertheless, these results • Berlin is an hour away by car or train from the should be interpreted with caution because the driver Polish border. Furthermore, the unemployment rate may be economic deprivation and not the difference in 6% 6has0% consistently been above the national average smoking prevalence, and the EPS may refer to legal 5% 4.8 4.8 in both parts of Berlin. Notably, the West Berlin sales of non–domestic cigarettes. 5unemployment0% rate has exceeded the unemployment GERMANY 4% rate in East Berlin since 1994 (Von Lampe 2005). 40% • A study on German demand behaviour has found a 3% positive relationship between contraband and legal 30% taxed cigarettes. This means that when the demand 2% 20% for legal cigarettes decreases in amount, so too 0.9 0.8 1% does the demand for untaxed cigarettes. Hence, 0.2 0.2 10% higher levels of smoking prevalence are likely to be 0% accompanied by high shares of smuggled cigarettes Opioids Cocaine Cannabis 0% 2005 2006 2007 2008 2009 2010 2011 (Effertz and Schlittgen 2012). Drug report 2011 Drug report 2012 Western Länder Germany Eastern Länder

4 Key factors

FRAMING THE COMPONENTS IN THE DRIVERS

73 The factbook on the illicit trade in tobacco products INTRODUCTION: THE FOUR KEY FACTORS The four key factors:

This chapter draws on the results of the previous •• Economic accessibility: the price of illicit tobacco, analyses and identifies the key factors of the ITTP. They and particularly its relative price compared to the constitute the opportunities that can affect ITTP. As price of legal products. any other market, also the tobacco products market creates illegal opportunities and hosts specific actors and •• Availability: easiness for both smugglers and activities. They derive from the link between drivers consumers to obtain illicit tobacco products. and components of the ITTP: drivers impact or may impact on the different components of the ITTP •• Profitability: the ability of the ITTP to generate through four key factors. Therefore, it is necessary profits that exceed its operational costs. to identify the possible interactions between drivers and components to remove any possible opportunity/ •• Risk: the threat of detection/accusation/conviction GERMANY vulnerability which may ease the action of criminal players and the sanctions imposable to the actors and shape the illicit trade in tobacco products. involved in the ITTP.

The four key factors of the ITTP are economic accessibility, availability, profitability and risk. Hereafter, four subsections analyse how the various elements of the drivers influence the demand, supply, products,modus operandi and geographical distribution of the ITTP. Framing the components in the drivers

Figure 28. Framing the components in the drivers through the economic accessibility Source: Transcrime elaboration ECONOMIC ACCESSIBILITY

society and legal regulation crime enforcement economy market environment

downtrading taxation

modus operandi & demand supply products geographical distribution

Drivers Components Increase of the ITTP Decrease of the ITTP Change of the ITTP

ECONOMIC ACCESSIBILITY •• Tax hikes and price increases make illicit (Figure 28). cigarettes more economically accessible to consumers. Notably, the government has announced •• Preferences and downtrading trends may a five–year plan of tax increases in tobacco products. increase the demand for illicit tobacco through its This may increase the demand for ITTP products economic accessibility. through their relative price compared to legal products (Euromonitor International 2012). • Several factors together may impact on the demand AVAILABILITY of ITTP. Moreover, German consumers have not (Figure 29, p.75). significantly cut their expenditure in tobacco and they have exhibited a downtrading trend towards less expensive products (see Legal Market, p.23). In this •• The German proximity to source countries of illicit scenario, demand for illicit products may increase due tobacco products affects the range of products to their economic accessibility. through their availability. Chapter 3: Framing the components in the drivers

Figure 29. Framing the components in the drivers through the availability Source: Transcrime elaboration

AVAILABILITY

society and legal regulation crime enforcement economy market environment

low price geographical neighbours position street market

modus operandi &

Nachfragedemand supply products geographical distribution The factbook on the illicit trade in tobacco products

Drivers Components Increase of the ITTP Decrease of the ITTP Change of the ITTP

• Proximity to Poland and Czech Republic, where •• Being at the centre of important East–West routes legal retail prices are lower, shapes the extent and may increase the supply of illicit products due to the products of the ITTP (see Modus Operandi and their availability. Geographical Distribution, p.66). Indeed, Germany has more than 1,300 km of common borders with • Germany is both a destination and a transit country. Poland and the Czech Republic and EPS show a Indeed, its position between East and West higher prevalence of non–domestic packs along Europe render him a natural passing point towards these borders. Poland and the Czech Republic joined Western markets. Indeed, according to Customs the Schengen area in December 2007. Their entry GERMANY press releases, a considerable number of smuggled seems to have increased the proportion of cigarettes cigarettes seized is intended for markets other than smuggled from those countries (Locke 2010). Indeed, Germany. in 2006, 25% of all counterfeit and contraband cigarettes came from Poland and the Czech Republic. •• The availability of illicit tobacco in street markets In 2012, the proportion more than doubled, reaching increases the demand for illicit tobacco through 80% (see The products, p.60). the relative easiness of finding them. Framing the components in the drivers

Figure 30. Framing the components in the drivers through the profitability Source: Transcrime elaboration PROFITABILITY

society and legal regulation crime enforcement economy market environment

low price tax incidence neighbours

modus operandi & demand supply products geographical distribution

Drivers Components Increase of the ITTP Decrease of the ITTP Change of the ITTP

• Contexts of the informal economy, like street • In Germany, the amount of total taxes per 1,000 markets, facilitate the selling of illicit tobacco products sticks is high. The tax level expressed in monetary (Joossens et al. 2000; Antonopoulos 2009). In terms (total taxes per 1,000 cigarettes) may provide Germany, large informal street markets are located incentives for suppliers of illicit tobacco at international especially in Berlin. This may favour the distribution level. This is most relevant to large–scale smuggling of ITTP products. Indeed, people may easily find illicit (counterfeits and illicit whites). The higher the taxes, cigarettes (Von Lampe 2005). the greater the potential profit for smugglers. (see The supply, p.56). PROFITABILITY (Figure 30). • The lower retail prices of tobacco products in eastern neighbouring countries (Poland and Czech republic)

•• Taxes account for a large share of the final retail stimulates bootlegging and smuggling through its price of tobacco, making it a highly profitable profitability. However, as long as these countries, product to smuggle (Merriman, Yurekli, and notably Poland, keep on increasing the prices of Chaloupka 2000). tobacco products, the situation may reverse since profitability will fall. Chapter 3: Framing the components in the drivers

Figure 31. Framing the components in the drivers through the risk Source: Transcrime elaboration

RISK

society legal crime and regulation environment enforcement economy market

ethnic smuggling cooperation relationships routes

modus operandi & demand products supply geographical distribution The factbook on the illicit trade in tobacco products

Drivers Components Increase of the ITTP Decrease of the ITTP Change of the ITTP

RISK •• Established smuggling routes may boost the (Figure 31). supply of the ITTP by diminishing the risks for the players. •• Law enforcement cooperation (or lack of) in the fight against tobacco smuggling may significantly • The German motorway system may favour the transit affect the extent and the modus operandi of the and arrival of illegal ITTP products, taking into account ITTP by increasing or decreasing the risk for the the presence of consolidated smuggling routes in actors involved. the country. Moreover, the researchers stressed the GERMANY proximity of several collection points to Autobahn • German law enforcement agencies cooperate A2 and A12. These are known under the name with neighbouring countries, thus increasing the “Warschauer Allee” (Warsaw Avenue) as among effectiveness of anti-ITTP actions. Notably, Germany the most important smuggling routes to and through has recently increased its transnational collaboration Germany (DKFZ 2010; Teevs 2010). with Polish and Czech authorities to prevent the entry and transit of illegal products. This may have a •• Ethnic and linguistic relationship may increase positive impact on law enforcement capacity (see Box the supply of ITTP decreasing the risk of being Combating illegal trade–Transnational Cooperations, detected/accused/convicted for the actors p.49) (Hauptzollamt Dresden 2013; Zollfahndungsamt involved in. Dresden 2013; Koschyk 2013). Framing the components in the drivers

• The widespread ethnic and kinship trans–border networks facilitate tobacco smuggling activities. The distribution of illicit tobacco frequently relies on personal contacts and networks because these channels are less risky. Further, ethnicity ties ITTP actors together, reducing the risk of this activity (Von Lampe 2003). Moreover, international connections of smuggle groups make their control difficult.

• The retail distribution of contraband cigarettes in Germany is commonly associated with street selling by Vietnamese vendors in the Eastern parts of the country (Von Lampe 2006).

78 CONCLUSIONS

This report has provided the German country profile • Society and economy: Germany is a federal republic of the Factbook on the Illicit Trade in Tobacco composed of 16 states (Länder), and it is one of the Products project. The ITTP is a complex phenomenon biggest world economies. The main effect of the 2009 comprising a variety of activities, products and actors. recession was the rise of debt, whilst unemployment The analysis of the illicit trade must take account of a fell even in the years of the financial crisis. GDP number of factors which may significantly influence it. growth soon resumed in 2010, and household expenditure on non–durable goods, including tobacco, This report has analysed the multiple facets of the has been constant in recent years. However, regional 79 ITTP in Germany. The information gathered originates differences among Eastern and Western Länder are from academic literature, grey literature, open sources, still marked. The factbook on the illicit trade in tobacco products questionnaires and interviews with experts and stakeholders. • Legal market: the tobacco market is an important sector of the German economy. Germany is the main Considering the limited number of previous studies and cigarettes exporter in the world and exports have the lack of data, the results of this study are provisional. grown in the past decade. The tobacco industry They offer a first analysis of the ITTP in Germany and employed 10,057 people in 2011. However, national show that more research is needed in this field. sales have fallen and consumers have shifted to cheaper products. THE FIVE DRIVERS • Regulation: regulation of the tobacco market is of Chapter 1 (The five drivers, p.16) of the report analysed medium intensity in Germany. Considering all world in detail the five drivers of the ITTP: society and economy, countries, tax incidence is high. However, compared legal market, regulation, crime environment and with high–income OECD members it is medium. Tax GERMANY enforcement. The five drivers are areas whose structures level in monetary terms is high. Supply chain control may affect the ITTP positively or negatively. is medium. The regulation of tobacco consumption and sales and of marketing and promotion is medium as well. Furthermore, many European requirements have been applied with delays or at minimum levels. The country has invested a low per capita amount of resources in tobacco control policies. Conclusions

• Crime environment: crime rates have slightly • Modus operandi and geographical distribution: increased, while fear of crime is diminishing. inland roads are the main smuggling routes, and Consumption of cannabis, cocaine and heroin some ports play an important role, also as European is constant and average compared with levels in hub. Germany is often a transit countries from Eastern developed countries, whilst other drugs, such as to Western Europe. Proximity to Polish and Czech amphetamines, are increasingly popular. Organised borders is correlated with a larger share of crime, corruption and informal economy are relatively non–domestic products. insignificant. FRAMING THE COMPONENTS IN THE • Enforcement: law enforcement is medium–low. DRIVERS Cooperation between public bodies and tobacco manufacturers is usually set at European level, as well Chapter 3 (Framing the Components in the Drivers, p.72) as the legal obligation on producers not to facilitate addressed the interactions between the drivers and the smuggling. Nevertheless, the main body engaged components of the ITTP. The analysis identified four key in the fight against ITTP seems to be aware of the factors with a fundamental role in shaping the illicit market problem of illicit tobacco and has undertaken several (economic accessibility, availability, profitability, risk). joint actions with authorities in neighbouring countries. Economic accessibility: illicit cigarettes and cheap legal THE FOUR COMPONENTS OF THE ITTP ones become more appealing due to the downtrading trend and the increasing taxes. Chapter 2 (The Four Components, p.52) discussed in detail the characteristics of the illicit trade in Germany Availability: proximity to low price countries (Poland and by framing the illicit tobacco market within its four the Czech Republic), the geographical position between components: demand, supply, products and modus East and West Europe, the presence of consolidated 80 operandi. smuggling routes boost the availability of illicit products both for smugglers and consumers. Moreover, from the • The demand: the main causes of the demand for illicit point of view of consumers, in some parts of the country, tobacco are low prices and availability. In Germany, Germans easily find illicit tobacco products from street illicit cigarettes cost half the legal price. Furthermore, sellers. proximity to low price markets makes illicit products easily available. Profitability: in Germany, the levels of tax incidence and of taxes per 1,000 sticks are high. These levels guarantee • The supply: the supply of illicit tobacco is mainly the profitability of the ITTP. At the same way, the price influenced by the opportunity to make very high profits differential between cigarettes in Germany and Eastern with relatively low risks. There is a variety of actors neighbours pushes the ITTP. involved in the ITTP. Risk: cooperation agreements among German law • The products: there are no official estimates of the enforcement agencies and Polish and Czech ones illicit tobacco market, which makes it difficult to assess increase the risk of detection for ITTP players, while lack the extent of the ITTP. Some unofficial estimates of controls in important junctures may reduce the risk. are available, however. The main illicit products Other factors make ITTP more attractive by diminishing are contraband cigarettes given their availability. the risk associated, these factors are ethnic relationship The market share of illicit whites is smaller but in the supply chain and the presence of important inland nevertheless significant. routes exploited by smugglers. However, low level of corruption affect the ITTP in the opposite way.

As pointed out in the present analysis, the ITTP is a complex phenomenon caused by several determinants. From a close analysis on the ITTP in Germany, here follow the main findings of the Factbook (Figure 32, p.81). Conclusions

Figure 32. Main interactions between the drivers and the components Source: Transcrime elaboration on EPSs data Increase of the ITTP Decrease of the ITTP society & economy Change of the ITTP geographical position lower price neighbours

legal market price differentials downtrading trend Increase of the ITTP regulation taxation

crime environment street sellers Decrease smuggling routes of the ITTP ethnic relationships

low corruption 81 The factbook on the illicit trade in tobacco products enforcement Change DE–PL–CZ cooperation of the ITTP

Socio-economic conditions in Germany shape the The German tobacco Legal market, whose prices are dimension of the ITTP. Indeed, the economic disparities highest than in Eastern neighbours, is a crucial factor between West and East Germany shapes the patterns in determining the extent of the ITTP and the demand of consumption, according to the EPSs. Moreover, the for cheaper tobacco products among Germans. Indeed, geographical proximity to lower price markets such as Germans are experiencing a downtrading trend. Lower Poland and Czech Republic impacts on the availability price of legal cigarettes in neighbouring Eastern countries GERMANY of illicit cigarettes within the country. In particular, the also favour the smuggling and bootlegging of genuine proximity to Poland favours the availability of genuine products in Germany. Notably, these characteristics smuggled cigarettes within German borders. Finally, the impact mainly on demand through economic central position between Western and Eastern Europe accessibility and on supply through profitability. makes Germany an important transit point for ITTP products. Notably, these aspects impact mainly on demand and supply through economic accessibility and availability. Conclusions

Regulatory interventions, such as plans to raise taxation • The lack of official estimates (beyond the on cigarettes, affect the relative price of illegal products KPMG Star report, recognised by EC and OLAF, when compared to legal ones. Moreover, high taxation which should be improved with the involvement of in monetary amount per 1,000 sticks makes Germany a national authorities) makes it difficult to assess profitable market for international smugglers. Notably, the prevalence of the illicit tobacco market in these aspects impact mainly on demand and supply, Germany. The availability of reliable, yearly official respectively through economic accessibility and estimates would facilitate future research in any profitability. domain concerning the illicit trade in tobacco products. Especially, correctly distinguishing between German’s “Crime Environment” features, such as a non–domestic legal and illegal cigarettes is an low corruption, consolidated smuggling routes and the important challenge for research. presence of street sellers (in determined zones of the country) shape the extent of the ITTP. Moreover, strong In conclusion, the results of the study have shown that networks are present among criminals engaged in the the ITTP is a complex and multifaceted phenomenon. ITTP. Notably, these features affect mainly supply and Individual factors, such as socio–demographic status modus operandi increasing or reducing the risk of and income, but also structural conditions (for example, engaging in the ITTP. Germany’s proximity to countries with lower–priced tobacco products) should be considered when developing Moreover, the “Law enforcement” has a significant anti–ITTP strategies. Moreover, low penalties for impact on the dimension and geographical distribution small–scale smuggling, discontent with rising taxes, of the ITTP in Germany. Effective agreements between and a generally favourable attitude towards illicit the German Customs and neighbouring countries may tobacco products among German population may be reduce illicit tobacco products flows into Germany from other important factors. Given the complexity and these entry points and increase the risk of detection for the multitude of factors involved, the ITTP cannot 82 criminals. On the other hand, lack of controls of important be reduced to a problem relating exclusively to junctures may decrease the risk of smuggling activities. law enforcement and criminal justice policy. It is Notably, these characteristics impact mainly on necessary to adopt additional, non-criminal measures modus operandi by increasing or reducing the risk of to prevent illicit consumption and to reduce the taking part in the ITTP. corrupt practices that facilitate smugglers’ activities. Finally, the government should tackle the ITTP, especially RECOMMENDATIONS FOR FURTHER in the border regions, with comprehensive strategies RESEARCH including criminal, non–criminal/administrative, and other indirect measures, The results of this study highlight that it is necessary for example through a wide–ranging situational crime to conduct further research on the ITTP. prevention approach.

• There are no surveys or studies on the demand for illicit tobacco products. Identifying the socio–economic characteristics of consumers and the reasons for illicit purchasing is fundamental for building effective strategies, preventing illicit behaviours, and reducing the demand for illicit tobacco. This is particularly of interest in order to reduce the East/West difference in the consumption of illicit tobacco products.

• The sanctions for small–scale smuggling are quite mild in Germany. Further research should assess whether this contributes to the low risks perceived by those engaged in the ITTP and whether more severe measures would have a deterrent effect. REFERENCES

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