Issue 74 Wednesday 13 February 2008 Geneva

Building Support for Global Control Strong start to negotiations

Inside this issue must be maintained

International trade 2 he FCA congratulates the Par- Licensing laws ties on progress they have All agreed licensing was neces- made so far. Having decided Respuestas 4 T sary but there was much discussion yesterday to continue to meet in ple- about exactly how it would operate. nary, drafting and negotiation of the Africa 5 Some Parties in particular had con- illicit trade Protocol got off to a cerns about the feasibility of operat- strong start. ing licensing at retail level in their Transnational crime 6 The Parties powered their way jurisdictions. through discussions on General Obli- Track and trace Middle East ‘dark gations, Licensing, Know Your Cus- 8 There was support for spot’ tomer procedures, Tracking and Trac- an international track- ing, Record Keeping, ing and tracing sys- Security and Preven- tem, but understand- tative measures, and able concerns were Today started on Internet raised by various Par- Sales. ties about the need to ensure that standards 14.15 — Salle 4 Views on the for such a system template were equally applica- The Chair made ble to developing as Technical briefing on clear he wanted to well developed coun- illicit trade in give everyone a tries. Support may be tobacco products chance to air their needed to enable de- general views on the veloping countries to template in order to reap the benefits of an feed into the specific international tracking drafting which needs “We want to ensure that by the and tracing system. It to take place before end of this week there is was suggested that it INB 2, later this enough substance in our hands would be helpful to year. Parties gave for the Chair to come forward have a working group detailed comments with a written text for discus- at the next INB to on all of these ele- sion at INB-2. That’s my in- look at tracking and Since the opening of the first ments of the Proto- tention.” tracing in more detail. working group for the Frame- col. Drafting the Protocol work Convention on Tobacco On the overall template, Ghana, The Chair responded that he ap- Control on 25 October 1999, for the Afro group, expressed hope preciated the need to take account of for a consensual outcome by the end 36,062,891 the differing needs of differing coun- of the process, based on the template. people have died from tobacco- tries in drafting the text of the related diseases. This view was generally supported. (Continued on page 2) (At 9am 13 February 2008)

Today’s Weather: Sunny but a tad much the same as yesterday. High 9ºC Low –3ºC No reason why international trade laws should weaken the Protocol

Benn McGrady, a lawyer specialising in international trade law and , argues that a protocol on illicit trade in tobacco products should, if anything, enhance the synergies between the elimination of illicit trade and the WTO regime.

Discussions over the past two days protocol as a consequence of the internalised via taxation in the cost have included the possible relationship effect of the WTO covered of the goods. Accordingly, the between a protocol on illicit trade in agreements. notion that taxation measures are tobacco products and international This conclusion is consistent enforceable is a fundamental trade agreements such as assumption underlying those covered by the WTO. economic theories WTO agreements prohibit relating to the benefits various kinds of conduct of trade. In addition, which restrict trade. transaction costs are However, these prohibitions reduced where relative are qualified by general uniformity in exceptions that allow Parties regulation exists. to pursue a range of public A protocol that policy objectives, such as the facilitates the elimination of illicit trade. standardisation of For example, Article XX international systems (d) of the General Agreement to govern illicit trade on Tariffs and Trade (GATT) is likely, therefore, to permits WTO Members to minimise the burden impose measures that are upon international necessary to secure compliance with with the approach taken in trade when compared to the use of laws or regulations, such as tax or multilateral legal instruments approaches to a problem that differ customs laws or regulations. governing illicit trade in other from one jurisdiction to another. This exception means that it is not goods. These instruments include In this context, a protocol on possible to conclude that measures to measures that may be restrictive of illicit trade in tobacco products eliminate illicit trade will necessarily trade. For example, Article 10 of should enhance the synergies violate the WTO covered agreements the Protocol against the Illicit between the elimination of illicit even if they appear to be trade Manufacturing of and Trafficking trade and the WTO regime. restrictive. Specific measures should in Firearms, Their Parts and The Protocol should seek to not, therefore, be omitted from a Components and Ammunition, enhance decision-making in the supplementing the United Nations context of the WTO. The terms of Convention against Transnational the Protocol should highlight the Organised Crime, imposes import regulatory purpose and the (continued from page 1) and export licensing requirements effectiveness of the measures it Protcol and that “the objective of the that are contrary to Article XI includes. Such language would protocol is to achieve certain ends…. but (quantitative restrictions) of the reinforce the necessity of particular there may be discretion in how individ- ual countries achieve these results.” GATT. The inclusion of this measures as means of enforcing tax The FCA supports the need for ap- provision is premised upon the and customs laws and regulations. propriate flexibility. But, as South Af- assumption that exceptions in Additionally, depending upon the rica declared so eloquently, the strong Article XX of the GATT extend eventual content of the Protocol, it terms of the template must not be wa- protection to the measures. could provide that its terms prevail tered down or we risk undermining the Economic theories of over those of trade agreements in effectiveness of the Protocol. South Af- international trade also support the the event of any conflict. rica reminded us that the tobacco indus- adoption of an international system try will exploit any loopholes to our to eliminate illicit trade in tobacco Benn McGrady will be speaking cost. The tobacco epidemic is a public products. at Wednesday’s lunchtime briefing health disaster killing 5.4 million people Trade in goods with negative at 14.15 hours in Salle 4. each year and illicit trade in tobacco externalities (such as tobacco defrauds governments of billions of dol- products) may produce economic lars of annual revenue. losses if these externalities are not

2 ALLIANCE BULLETIN, INB-1, 13 February 2008 “Know Your Customer?”

John College III, former US Customs and law enforcement officer, applies his frontline experience to moving forward international efforts against the illicit tobacco trade

What do we mean by “Know Your Customer?” • Routine installation, training, or maintenance Simply put, this is a policy of due diligence directed services are declined by the customer. towards high risk industry customers. Two examples • Delivery dates are vague, or deliveries are planned familiar to many are the financial and arms industries. for out of the way destinations. Banks and other financial institutions exercise due diligence with clients to ensure they are not laundering • A freight forwarding firm is listed as the product's criminal proceeds or supporting international terrorism. final destination. Financial institutions report suspicious transactions to • The shipping route is abnormal for the product and government agencies who analyze these reports in destination. Financial Intelligence Units. Arms manufacturers and • Packaging is inconsistent with the stated method brokers industry, working with various government of shipment or destination. agencies, verify the end users of military equipment When questioned, the buyer is evasive and especially sales to prevent the illicit diversion of weapons and unclear about whether the purchased product is for other military equipment. domestic use, for export, or for re-export. Various international conventions recommended suspicious transaction reporting. The indicators of suspect transactions are commonly referred to as “Red Flags.” Here are some examples of “Red Flags” that may be useful in the detection of suspicious transactions in tobacco products supply chain:

Red Flags • The customer or its address is similar to one of persons or entities found on the many lists maintained by parties to various international conventions, such as persons sought by Interpol, the International Court of Justice, as well as entities and persons embargoed by the United Nations. • The customer or purchasing agent is reluctant to offer information about the end-use of the item. • The product's capabilities do not fit the buyer's line of business. (Such as an order for packaging equipment for a bakery.) • The item ordered is incompatible with the technical level of the country to which it is being shipped. (Such as cigarette tubes shipped to a country that has no cigarette industry.) • The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing. • The customer has little or no business background. • The customer is unfamiliar with the product's performance characteristics but still wants the product.

ALLIANCE BULLETIN, INB-1, 13 February 2008 3 Los problemas globales requieren una res- puesta internacional

El Convenio Marco para el Control región. auditoria y / o investigación del Tabaco de la Organización El gran desafío que hoy enfren- 6. Medidas contra el blanqueo de Mundial de la Salud ha sido defi- tan los países para desarrollar un capitales. nido por la comunidad internacio- protocolo eficaz es definir que La FCA ve el desarrollo de este nal como una respuesta global para medidas deben integrar el mismo. Protocolo como un proceso que un problema mundial: la epidemia Desafortunadamente la indus- requiere un dialogo e intercambio de tabaquismo tria tabacalera ya está tratando de de información entre países. Por El comercio ilícito de los pro- influenciar la posición de los paí- esta razón es importante que no se ductos del tabaco es también un ses. Por ejemplo, la intervención elimine, prematuramente, ninguno problema global que afecta a todos de Honduras durante la plenaria, de los elementos del Modelo de los países y ninguno, en forma donde se opuso a casi todas las protocolo sobre el comercio ilícito aislada puede resolverlo efectiva- más importantes estrategias del de los productos de tabaco pro- mente. Modelo de los expertos, es suma- puestos por el grupo de expertos. En este comercio ilícito están mente similar a la posición de la La eliminación de uno de estos involucrados grupos criminales British American Tobacco en Cen- elementos disminuirá la eficacia internacionales; incluso, como lo troamérica. del Protocolo y por lo tanto, su mencionó el representante de la Afortunadamente la mayoría de efectividad para salvar vidas y au- Organización Mundial de Adua- los países aquí presentes apoyan mentar los recursos financieros en nas, este comercio, subvenciona fuertemente el Modelo presentado nuestros países. actividades terroristas. por los expertos y sugieren que se La ONI 1 es el momento para Los productos contrabandeados mantengan todos sus elementos. que ustedes, delegados de Latino y falsificados se movilizan a través Dentro de las medidas del Mo- América, manifiesten un fuerte de las fronteras, implicando que lo delo de los expertos , la FCA des- compromiso, manteniendo todos que un país haga o no para el con- taca: los elementos del Modelo y otor- trol del comercio ilícito de estos 1. La concesión de licencias para guen al Presidente del ONI el man- productos puede afectar a otros poder vigilar y controlar a quien dato para desarrollar un texto que países. participa en el negocio del tabaco, servirá como base de negociación Cuando los países decidieron con lo que se facilitará el cumpli- para la ONI 2, donde las negocia- negociar un Protocolo sobre Co- mento de las leyes. ciones sobre cada una de las dispo- mercio Ilícito reconocieron que la 2. Conocer claramente los siciones se desarrollarán en mayor cooperación internacional es esen- procedimientos aduaneros, para profundidad. cial para combatir este problema. asegurarse que los participantes en Finalmente, la FCA confía ple- Ninguno de nuestros países, a el negocio del tabaco sólo reali- namente en que el arduo trabajo pesar de los esfuerzos nacionales y zarán transacciones con personas y que UDS están desarrollando cul- regionales, ha podido controlar entidades legítimas minará en el 2010, con un efectivo efectivamente este tema, los ex- 3. Establecer fuertes sanciones Protocolo sobre Comercio Ilícito pertos estiman que entre un 15 a financieras para disuadir a los fa- del Tabaco. 20 por ciento del mercado de ciga- bricantes de facilitar el comercio rrillos es cubierto por el comercio ilícito y asegurarse que los fabri- Laurent Huber, Director ilegal, sea bajo la forma de contra- cantes tengan un control sobre la Eduardo Bianco, Director para Lati- bando o falsificación, Sólo en la cadena de suministro de sus pro- noamérica. Laura Salgado, Coordinadora Re- región del MERCOSUR se estima ductos. gional. que 73 mil millones de cigarrillos 4. Desarrollar un sistema de ilegales se comercializan anual- seguimiento y rastreo que permitan mente lo que afecta a recaudación a las autoridades controlar el movi- fiscal. miento de los productos del tabaco La aprobación por parte de la a través de la cadena de suministro ONI y la posterior aplicación por y distinguir entre productos lega- los países, de un fuerte protocolo les y falsificados. sobre comercio ilícito será una 5. Mantener el registro de to- excelente herramienta que nos per- das las transacciones y que las mitirá frenar este grave problema autoridades policiales tengan acce- económico y sanitario en nuestra so a esta información para fines de

4 ALLIANCE BULLETIN, INB-1, 13 February 2008 Tobacco Smuggling in Africa Hitler’s minister of propaganda, pany: ther erosion. As there are no Joseph Goebbels, reportedly • used third-party intermedi- legal imports… no local media claimed that if a lie were repeated aries, like Sorepex Anstatlt a Lich- is used. However, a major cam- enough times it would become tenstein-based trading company, to paign on the Africa No 1 Radio widely accepted as truth. The to- ensure that its are sold in programmes transmitted from bacco industry clearly subscribes the illegal markets: Gabon is funded from Unit II to the Nazi school of propaganda. "Our objective now is to pre- resources.” BAT (UK and The Tobacco Institute of South serve the "façade" that Export) Limited, 1990 Africa repeatedly claims that ciga- SOREPEX represents be- • condoned the concealment rette smuggling has increased in tween us and the sensitive of contraband cigarettes: South Africa as a result of in- markets of Togo, Benin, Niger "Niger: Discussion was held creases in tobacco excise taxes, (Unit I) and Equatorial Africa concerning direct imports to and that smuggling harms the in- Nigeria through Mr. Adji … dustry. In knee-jerk fashion, it re- [who] would disguise the ciga- peats the myth each year at budget rette importations by calling time, conveniently distorting the the shipment something else, truth. e.g. matches.” Meeting of The truth is that the industry BAT and SOREPEX, 1987 itself benefits from smuggling and "For the first time, Bogno will encourages it. The availability of buy 300 cartons: this is the cheap illicit cigarettes keeps many capacity of his truck, taking price-sensitive smokers – like the into account the other mer- poor and the young – . chandise which will 'hide' the When prices go up, instead of quit- cigarettes. (translated from ting they switch to lower-priced French) SOREPEX to BAT contraband cigarettes. Since the • used a small legal market cigarette manufacturers supply to justify advertising to build up both smugglers and the legal trade, illegal sales: the industry makes its profits irre- “When the issue of Unit II spective of whether end-buyers [Equatorial Africa] was dis- purchase cigarettes legally or ille- cussed where BATUKE [BAT gally. The real losers are the coun- UK and Export] wish to ap- try’s revenue and health services. point a domestic importer ena- There is ample evidence of in- bling us the provide cover for dustry complicity in smuggling. advertising and GT [general Once-secret internal tobacco in- trade – i.e., smuggling] busi- dustry documents reveal industry (Unit II), but at the same ness, Sir Patrick [Sheehy] felt practices. The documents suggest time, enable the BAT field that it was perfectly acceptable that the tobacco companies not force to take over the man- for BAT Cameroon to recom- only colluded with smugglers by agement of this important mend a domestic importer for knowingly supplying them with business." Letter from BAT BHS.” BAT internal memo, cigarettes, but also centrally organ- to SOREPEX, 1989 1991 ised the process and collecting • protected illegal markets The solution to the cigarette hundreds of millions of pounds by investing in them and found smuggling problem is not that worth of black market proceeds. ways to advertise its smuggled which is proposed by the industry The documents show that the brands in countries where these – lower excise taxes. It is instead tobacco companies monitored and brands were not legally available: action against criminals. Manufac- watched over the smuggling of “BHSF [Benson & Hedges turers and wholesalers who supply their brands in about 30 African Special Filter] has 80% share smugglers with cigarettes should countries including Benin, Camer- of imports which it has domi- be held liable for the tax losses oon, Central African Republic, nated for several years and arising from this criminal activity. Nigeria, Niger and Sudan. From enjoys country-wide distribu- Africa has much to gain from the early 1970s to at least the early tion. …The Unit II [Equatorial the early adoption and implemen- 1990s, the documents bear witness Africa] market produced a tation of the protocol on illicit to the varied roles of British valuable contribution and it is trade. American Tobacco, in smuggling intended to continue investment Dr Yussuf Saloojee operations in Africa. The com- in order to protect it from fur-

ALLIANCE BULLETIN, INB-1, 13 February 2008 5 Existing treaties on transnational crime and the proposed Protocol

Professor Neil Boister, an expert in transnational criminal law, outlines how the Protocol could be made consistent with existing legal frameworks. One of the issues raised on the first and thus has its own peculiar mate- day of the INB in plenary was rial scope. Guess what… whether the Protocol would dupli- In the development of UNTOC It’s déjà vu all over again! cate provisions in existing treaties the same issue of duplication also Listening to Japan from the floor providing for international co- came up, raised by Australia, Aus- today one could be forgiven for tria and other States. It was thinking that half a decade of FCTC decided at a very early stage negotiations had not gone by and we that the main convention were back in 2003. would deal with organised This article below is from Alli- crime but that allied, but inde- ance Bulletin 36, 17 February 2003, pendent, issues of trafficking FCTC INB 6, Geneva: humans, people smuggling “Tobacco – it’s a legal product! and small arms trafficking, “You can usually tell when someone would be dealt with in sepa- is about to sell out public health and rate protocols, each of which offer justification for a weak and has its own legal assistance inadequate treaty. They start by say- regime. ing, ‘Well, you have to accept that It is thus clear that the pro- tobacco is a legal product…’. posed Protocol on illicit trade “But the legal status of tobacco has follows an established pattern an extremely limited meaning: it of development. means that if you make it, sell it or This is entirely consistent with use it, you are not committing a the two main goals of such criminal offence. instruments: the standardisa- “It creates no additional fundamental tion of criminal offences rights that prevent governments regu- across different jurisdictions; lating it – for example by banning its and the establishment of a advertising and misleading branding. mutual assistance regime in “Many legal products are subject to respect of these criminal of- exacting legal restrictions – weapons, operation against transnational fences, in order that national dangerous chemicals, asbestos, phar- crime. boundaries do not serve to protect maceuticals, and hazardous wastes to name just a few. ‘Tobacco is a legal At a simple level, this question criminals. product’ is the classic non sequitur can be answered by reference to There is in the nature of these rolled out by tobacco apologists eve- the fact that the Parties to these instruments some overlap – one rywhere.” earlier treaties will not necessarily piece of national legislation may

become party to the FCTC or to the serve to meet treaty obligations in Japan sounded like a broken re- proposed Protocol on illicit trade, respect of a number of treaties, one cord on Tuesday, responding to al- which necessitates a new and com- set of procedures may serve many most every issue raised: “Japan does prehensive agreement. offences. But the method of inter- not support these measures.” It even The more complex answer is national society in making a com- opposed any measures at all which that of these existing treaties the munity response to crime has been would require manufacturers to con- vast majority of multilateral trea- to deal with each crime separately trol their supply chain. Rather sur- ties deal with specific forms of and to attach a particular proce- prisingly, Japan supported licensing criminality. dural regime to each – which is in principle but in practice wanted to The only “general” treaty is the what is proposed in the Template. remove the elements necessary to UN Convention on Transnational make it effective on the basis that Organised Crime (UNTOC), set- they were “not proportionate.” tled at Palermo. This convention Professor Boister will be speak- With the tobacco epidemic claiming provides, however, for the crimi- ing at Wednesday’s lunchtime 5.4 million victims a year, it is Ja- nalisation of organised criminal briefing at 14.15 hours in Salle 4. pan’s standpoint which is not propor- groups involved in serious offences tionate.

ALLIANCE6 BULLETIN, INB-1, 13 February 2008 ALLIANCE BULLETIN, INB-1, 13 February 52008 complement health policy. But the The illicit tobacco trade: market remained dynamic, with various players including those lessons from Canada previously involved in smuggling, looking for ways to profit. The David Sweanor, Adjunct Professor of Law, University result was that Canada was once again ‘fighting the last war’. The of Ottawa, Canada country, ready as it was to prevent major cigarette companies Canada was in the forefront of from supplying the networks that supplying smuggling networks global efforts to use tax policy as were facilitating cigarette from Canada, missed yet another an instrument of public health in smuggling. The market had mutation as the contraband trade the 1980s and early 1990s. In a mutated but the ideas and tools shifted to new small scale ten-year period, tobacco tax available to counter the illicit trade manufacturers largely based on increases played the key role in First Nations Reserves. The reducing per capita cigarette contraband trade has once again consumption by roughly 40 per grown to nearly 20 per cent of the cent and by even more among domestic market, governments are young people. But, like any losing billions in revenue and market, the cigarette trade is public health is suffering dynamic. As taxes were increased significantly. in successive federal and As measures are eventually put provincial budgets the cigarette into place to deal with the current companies mounted a vigorous and version of the increasingly aggressive defence of they will, in the absence of the sort their interests while government of co-ordinated set of measures bodies lagged in their envisioned for the FCTC Protocol understanding of, and reaction to, on Illicit Trade, almost certainly changing market dynamics. cause yet another mutation of the By the early 1990s, Canadian smuggling business. In many ways cigarette companies had started the mutating of an illicit business shipping enormous and rapidly- can be compared to the mutations increasing quantities of cigarettes of a virus. Attacking a fast- to the United States where there mutating virus such as that causing was no domestic market of any had not kept up, and the result was HIV with a single measure that significance for Canadian-style a devastating tobacco tax reduction ‘used to work’ is almost certain to cigarettes. The market had in early 1994. fail. But an attack based on a suddenly ‘mutated’ into one that Measures were belatedly combination of measures and involved wide-scale illegal re- introduced that made it very ongoing work to further refine our importation of Canadian cigarettes. unlikely that the big cigarette interventions can show great Governments were slow to companies could once again effectiveness. recognise what was happening and undermine tobacco tax policies Canada will hopefully continue how it impacted on health and to show leadership on healthy fiscal matters. There was a general ‘fighting the last war’ fiscal policies as well as effective tendency to dismiss accusations ways to protect such policies, but about the role of cigarette through the use of cross-border will only be successful in the long companies in facilitating this shipments. Cigarette taxes term if the global community co- contraband trade and an gradually crept back to high levels operates. As WHO has long unwillingness to ‘turn off the tap’ as governments sought to once known, viruses do not respect by preventing these companies again use fiscal policy to international borders. Breaking news: Results of a groundbreaking investigative project involving investigative reporters from several nations in the Balkan states, Romania, Moldova and Ukraine, and released yesterday (12 February) in Bucharest, reveal the large-scale flow of cheap, illicit contraband through ports including Odessa, in the Ukraine. The project, entitled “Tobacco Roads”, was conducted by journalists working with the Centre for Investigative Reporting, in Sarajevo, Bosnia-Herzegovina, and the Romanian Center for Investigative Journalism in Bucharest. , and elsewhere. The products included legally produced cigarettes that were being traded and shipped illegally, as well as counterfeit products from as far away as China.

ALLIANCE BULLETIN, INB-1, 13 February 2008 7 The Middle East: illicit trade "dark spot"

Illicit trade in tobacco not only im- bat illicit tobacco will be a major step • ratification and proper imple- pedes the controlled distribution of forward, as long as it is effectively mentation of the FCTC by con- enforced by tiguous nations; its signato- • operation of an effective supervi- ries. It will sory mechanism by the WHO; offer a new opportunity • expansion of co-operation among for reducing countries in the region - espe- societies’ cially those sharing borders - in tobacco con- the field of information and secu- sumption. rity, as well as the establishment One way to of stable and more powerful cen- curb the tral governments in Iraq and Af- problem ghanistan. could be to A lack of international co- ensure coun- operation in these fields, combined tries impose with indifference, and sometimes harsh sen- with the complicity of governments tences on outside the region undoubtedly risks distributors exporting the problem to the borders and sellers of of other regions, as has been the case illicit tobacco with narcotics. products. The fight against Ali Abdolahinia, MD Research Manager the illicit Iranian Anti Tobacco Association trade throughout the Middle East needs to be integrated FRAMEWORK with other tobacco products but also allows the methods such as forging co-operation CONVENTION groups and gangs involved in this between countries in the region, im- vicious trade to garner unlimited ille- posing stringent punishments on ALLIANCE gitimate profits. Unless this situation those breaking the law and, if neces- is confronted, the trade market will sary, destroying the confiscated illicit The Framework Convention Alliance face major difficulties. International products. (FCA) is a global alliance of NGOs working to achieve the strongest security may be compromised by Containing the illicit trade in the possible Framework Convention on criminal organisations wielding their region depends on a number of im- Tobacco Control. Views expressed illegal assets. portant factors which may include, in the Alliance Bulletin are those of The drafting of a protocol to com- among other things: the writers and do not necessarily represent those of the sponsors.

Dirty Award Framework Convention Alliance Rue Henri-Christiné 5 Case Postale 567 CH-1211 Geneva Switzerland To Honduras for behaving like Japan. Representative Office: c/o ASH International 701 4th Street NW. 3rd Floor Orchid Award Washington, DC 20001 USA Tel. +1 202 289 7155 To South Africa for calling on Parties not to weaken Fax. +1 202 289 7166 [email protected] the template because the will www.fctc.org exploit any loopholes.