illicit tobacco trade the business perspective€¦ · greece, ireland, lithuania, malta, poland...
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ILLICIT TOBACCO TRADETHE BUSINESS PERSPECTIVE
Ec. PhD. MIHAI IVASCU
Member of the Various Interests Group
European Economic and Social Committee
WORLDWIDE STATUS
>480 billion cigarettes are
sold illegally worldwide
every year
Tax losses for governments
are estimated around $35
billion yearly*
* according to British American Tobacco (http://www.bat.com/theman)
ILLICIT TOBACCO TRADE IN THE EU*
Over 47 billion cigarettes in the EUcome from C&C (counterfeit &contraband) sources
Approximately 9% of the totalconsumption in the EU is illicit
Consumption of C&Cs tobaccoincreased in Poland, Romania,Slovakia, Slovenia, Croatia and Greece
*Data according to Project SUN (KPMG 2016)
TOP EU COUNTRIES BY C&C VOLUME
*Data according to Project SUN (KPMG 2016)
C&C CONSUMPTION IN EU MEMBER STATES (1)
9% of total consumption in the EU
Illicit cigarettes produced outside the
EU accounted for 86% of the C&Cs
Illicit whites (cigarettes manufactured
legally, but sold illegally) account for
97% of OLAF seizures
*Data according to Project SUN (KPMG 2016)
Types of C&Cs
C&C CONSUMPTION IN EU MEMBER STATES (2)
C&C consumption accounts for more than 10% of
total consumption in 11 EU Member States:
Latvia: over 20% of total consumption
Greece, Ireland, Lithuania, Malta, Poland and Romania:
between 15 and 20% of total consumption
Estonia, Finland, France and UK: between 10 and 15% of
total consumption
*Data according to Project SUN (KPMG 2016)
COUNTRIES OF ORIGIN AT EASTERN EU BORDER
Eastern neighboring countriesaccount for more than a half ofillicit tobacco consumption inthe EU
Ukraine
Belarus
Russia
Moldova
Huge legislative differences compared to EU
Eg. In Ukraine and Belarus cigarette smuggling is not a crime, it is consideredand administrative violation
AVERAGE PRICE OF CIGARETTES
Low taxation of local
producers mean very low
production costs for the non-
EU countries, encouraging
illicit trade
Price differences are the main
factor contributing to the
high traffic of cigarettes
average price in the four non-
EU eastern neighbours is €
0.70 Euro / 20 cigarettes
average price in EU is €4.64 !!!
Average price of 20 cigarettes, January 2017 (Project SUN)
IMPACT ON REVENUES
Estimated revenue loss, as
taxes, for national governments
at EU level
More than €10 billion/year
Estimated revenue loss for
businesses:
More than €3 billion/year
ILLICIT TOBACCO - CONSUMERS IMPACT
Health issues
Tobacco produced in unauthorized factories across andoutside the EU does not meet the minimum sanitarystandards imposed by EU regulations.
Incentive for tobacco consumption
Lower prices for tobacco products and the lack of conformitycontrol on sale points impacts EU and national authoritiesefforts in addressing tobacco consumption, especially amongyoung people.
ORGANISED CRIME GROUPS
C&Cs represent a major source of
financing for organized crime in the
EU and in neighboring areas.
OCGs face considerably lower risks
compared to other forms of crime
The profits achieved can be as much as
those attached to higher-risk crime
Groups involved in illicit cigarette
trade are very flexible using:
free trade zones (FTZ)
postal and courier services
Excisable goods transiting the EU etc.
Organized crime groups (OCGs) are usually behind the illicit cigarette trade and use all tools made available by technological advances (including
social media).
TERRORISM FINANCING
Conflicts in the Middle East and North
Africa are making smuggling a very
profitable source of income for terrorist
groups because of the penetrable
borders and lack of material and
manpower of the security forces in some
regions
*Data according to Project Sun (KPMG 2015, 2017) &The Global Initiative against transnational organized crime
At world level, tobacco smuggling is ranked third, after drugs and human
trafficking
More than three quarters of all cigarettes smoked in Libya are illicit
Illicit cigarette traffic in Maghreb represented over $565 million in lost tax
revenues in 2016.
CITIZENS PERSPECTIVE
74% of Europeans smoking C&Cs do it becausethey are cheaper
2016 Eurobarometer shows that lower pricesdetermine three quarters of C&Cs consumers topurchase illicit tobacco products!
Only 14% of Europeans see illicit tobacco tradeas a financing source for organized crime
Perceptions mainly point out to illegal drugs,prostitution and human trafficking as mainfunding sources for organized crime.
*Data according to Special Eurobarometer 443 (2016)
ADDRESSING ILICIT TOBACCO TRADE
CITIZENS’ PERSEPECTIVE
Better macroeconomic conditions favor decreases inconsumption of illegal tobacco products
Economic growth, reduced unemployment and the increase ofincome showed that fewer consumers turned to illegal tobaccoproducts in 25 EU Member States.
Better understanding of organized criminality could lowerEuropeans’ use illegal tobacco products
Increasing levels of association between illegal tobacco trade andorganized crime among Europeans could nudge consumers intoturning less towards illegal tobacco products.
*Data according to Project Sun (KPMG 2016)
ADDRESSING ILLEGAL TOBACCO TRADE
SOLUTIONS IDENTIFIED BY THE BUSINESSES
1. Better coordination among different authorities
National level: Customs authorities, tax authorities, localand national police forces need to enhance theircoordination in order to better address illegal trade.
EU level: national authorities and EU entities – Frontex,OLAF, Europol, police forces etc. – need to harmonizedatabases and have real time information on illicit tobaccotrade activities at EU borders.
ADDRESSING ILLEGAL TOBACCO TRADE
SOLUTIONS IDENTIFIED BY THE BUSINESSES
2. Better surveillance of EU’s
external borders
Investment in technological
equipment
Human Resources training and best
practice sharing
Canine squads – sniffer dogs
Common communication platform at
EU level
ADDRESSING ILLEGAL TOBACCO TRADE
SOLUTIONS IDENTIFIED BY THE BUSINESSES
3. Enforcement and ratification of WHO Framework
Convention of Tobacco Control (FCTC)
EU Member States need to ensure a full enforcement of the
FCTC protocol in order to provide more efficient means to address
illicit tobacco trade.
As a leverage in trade talks with Eastern neighbors, the EU
should require FCTC protocol enforcement as a means to tackle
supply chains outside the EU (especially Belarus!)
ADDRESSING ILLEGAL TOBACCO TRADE
SOLUTIONS IDENTIFIED BY THE BUSINESSES
5. Rapid adjustment to new technologies Organized crime uses new technologies (including drones) to
smuggle tobacco products into the EU
4. Implementation of theTobacco Products Directive– Track and Trace System
The correct and timelyimplementation of Art. 15 and 16 iscritically important
Ensures complete and clear alignmentwith the FCTC Protocol
ADDRESSING ILLEGAL TOBACCO TRADE
SOLUTIONS IDENTIFIED BY THE BUSINESSES
6. EU Strategy on Illicit Trade
The EU Commission presented in 2013 a communication ontackling illicit tobacco trade; in May 2017 a report on thiscommunication has been published
Efforts must be intensified, in particular related to cheap whites
Awareness must be raised among citizens, regarding the threatsposed by illegal tobacco
As illicit tobacco trade has become in the recent years animportant source for financing terrorist organisations, a coherentstrategy at EU level is paramount
Thank you for your attention!
Ec. PhD. MIHAI IVASCU
Member of the Group III, EESC