PROHIBITION, ILLICIT ALCOHOL AND LESSONS LEARNED FROM LOCKDOWN TRACIT.ORG ACKNOWLEDGMENTS This report, Prohibition, Illicit Alcohol and Lessons Learned from Lockdown, was prepared by TRACIT, under the supervision of Jeffrey Hardy, TRACIT Director-General and with principle research and editorial input from Louis Bonnier, Suriya Padmanaabhan, and Esteban Giudici. FOR MORE INFORMATION This report is available online in PDF format, along with an Executive Summary and ancillary documentation. 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LAYOUT Graphic design and production by KAH Design Studios (www.kahdesignstudio.com) ABOUT TRACIT The Transnational Alliance to Combat Illicit Trade (TRACIT) is an independent, private sector initiative to drive change to mitigate the economic and social damages of illicit trade by strengthening government enforcement mechanisms and mobilizing businesses across industry sectors most impacted by illicit trade. © TRACIT, 2021 Transnational Alliance to Combat Illicit Trade One Penn Plaza, Suite #6295 New York, NY 10119 USA www.TRACIT.org PROHIBITION, ILLICIT ALCOHOL AND LESSONS LEARNED FROM LOCKDOWN TABLE OF CONTENTS Executive Summary ............................................................................................................................2 Chapter 1: Introduction ......................................................................................................................6 Chapter 2: Lessons learned from lockdown .....................................................................................9 Lesson 1: Supply restrictions incentivize illicit markets and criminal activity .......................9 Lesson 2: Beware of associated consumer health risks ........................................................... 13 Lesson 3: Prohibition sidelines legitimate businesses and depresses formal job opportunities ............................................................................................................ 16 Lesson 4: Prohibition sidelines legitimate businesses and depresses formal job opportunities ............................................................................................................ 18 Chapter 3: How can lockdown lessons help shape the recovery .................................................. 21 Chapter 4: Conclusions and recommendations .............................................................................24 Notes ................................................................................................................................................... 27 PROHIBITION, ILLICIT ALCOHOL AND LESSONS LEARNED FROM LOCKDOWN 1 EXECUTIVE SUMMARY Lessons learned from lockdown The paradox of prohibition policy In pursuit of various social, religious, health, The highly contagious and lethal nature of or economic objectives governments have COVID19 forced governments worldwide to imposed a long history of regulatory controls rapidly implement measures to stem the spread on the producers and consumers of alcoholic of the virus. In pursuit of social-distancing beverages. Minimum age purchase restrictions objectives, closing large parts of economies, are probably the most renowned and common. implementing work- and school-from-home Dry laws and other forms of supply restrictions restrictions, and even imposing personal stay- are probably the at-home quarantines quickly became the new most notorious. For "The sentiment in 1933, normal. At the same time, governments were immediately following the most part, the the repeal of Prohibition challenged to keep alive industries that they had failure of America’s in the US, was that bone locked down, buoy the economy and maintain experiment with dry “prohibition will prove employment for millions of people who might Prohibition has unsuccessful in controlling otherwise be forced into the already swollen discouraged alcohol consumption unless ranks of the unemployed. such a system has behind governments from it overwhelming public Achieving public health goals while avoiding imposing them. support. Even then it will the economic and social consequences clearly That is until the tend to carry in its trail presented a paradox to policymakers rarely if ever onset of the global the […] lawlessness which witnessed before. COVID19 pandemic, marked prohibition.” And further, “The criminal Within this mixed bag of emergency measures is when several elements arising from countries opted for Prohibition must be the case of forced restrictions on the production, some form of dry stamped out at all costs." 1 sale and consumption of alcoholic beverages, law on alcoholic otherwise known as dry laws and collectively a beverages as a tool to mitigate the impact of the modern version of prohibition. virus. Whether or not dry laws were effective in addressing the pandemic itself is not the purpose of this report. The ambition here is to analyze the economic and social impacts of dry laws beyond public health objectives, specifically those consequences associated with illicit trade. The findings are intended to yield valuable lessons from the experience with COVID19 prohibitions, which can be applied to shaping future policymaking at the intersection of alcohol regulation, illicit trade and public welfare. 2 TRACIT.ORG As this report shows, well-intentioned but imposed prohibition measures on alcohol. misconceived prohibition policies generated a Furthermore, in South Africa the Institute for number of negative health-related externalities Security Studies reported an increase in criminal and promoted the development of illicit markets, activity and that criminal networks active during plunging entire industries into a financial abyss the pandemic had added illicit alcohol to other and reducing much-needed government revenue. illegal products they offer clandestine customers, such as narcotics. This trend was repeatedly A step too far observed in most places where dry laws were Looking across these experiences, although the imposed, consequently, boosting criminal activity origin, purpose, jurisdiction and duration of and shifting markets further into the control of the bans differed widely, a commonality was illicit actors. that the bans were accompanied by a number Lesson 2: Beware of associated consumer of unintended consequences, most of which health risks conveyed negative impacts to economy and society beyond public health objectives. So, while Perhaps the most alarming consequence of lockdown and social distancing may have had alcohol prohibition measures was the exposure some success in limiting the control of the virus, of consumers to health risks associated with toxic this report reveals that dry laws, for the most illicit alternatives. Beyond the fact that these illicit part, were a step too far. In those countries with substitutes do not comply with sanitary, quality complete bans (prohibition), the consequences and safety regulations, the most hazardous are have been more harmful (to consumers) and contaminated with toxic chemical additives. damaging (to the economy) than policymakers In the worst cases, people died from consuming anticipated. illicit beverages as a substitute or as a perceived Lessons learned from lockdown remedy to COVID19. In other cases, they were driven to engage in harmful behaviors, such as This report delineates four lessons that compel a alcohol looting and panic buying, all of which renewed urgency to combat illicit trade in alcohol. undermine social distancing objectives and their Lesson 1: Supply restrictions incentivize illicit exposure to the COVID19 virus. markets and criminal activity Therefore, the sombre lesson about prohibition Sudden restrictions in access to legal alcohol and illicit alcohol is found in the collective harm, create a downward shift in supply that causes serious injury and reported death counts. increases in the demand for illicit substitutes and Lesson 3: Prohibition reduces tax collections incentivizes illicit suppliers to enter the market and constrains budgets to meet that new demand. In the case of outright Taxes collected on alcohol at various points along bans/dry laws, consumers are prevented from the legitimate supply chain are traditionally purchasing legal products and pent-up demand an important source of revenue for many has no other option than to shift entirely to illegal governments. Consequently, a fiscal priority is to markets. stop the revenue leakages associated with the sale This report provides evidence on both and consumption of untaxed illicit alcohol. consequences. For example, customs and police During the