Tobacco smuggling has become an increasing problem in Britain. This has occurred as mainly domestic brands (Regal, Superkings and Benson & Hedges) have become available to smuggling networks outside Britain and have been brought back illegally into the country. Counterfeit cigarettes also form part of the smuggled trade. Customs & Excise estimate that the contraband cigarette market in Britain has increased from around 3% in 1996-7 to 22% in 2000 and that lost revenue from smuggled cigarettes increased from £1bn in 1998 to £2.9 billion in 2000.1
It is estimated that one in five cigarettes smoked in the UK and almost 80% of hand-rolling tobacco are smuggled into the country. Globally, a third of legal cigarette exports disappear into the contraband market. Comparisons of world cigarette imports and exports for 1996 suggest that over one third (400 billion cigarettes) of exports (1,107 billion) currently go 'missing.'2
The main problem in Britain is not 'tourist' cross border shopping or bootlegging but large-scale container fraud. The phenomenon of tobacco smuggling into the EU is also strongly linked to actions by organised criminal rings. According to figures from HM Customs & Excise, 75% of cigarette smuggling is undertaken by criminal gangs and involves freight consignments of millions of cigarettes.3
In 2000, £120 million of revenue was lost from smuggling of tobacco by internet, parcel or air passengers, £470 million from cross channel smuggling of cigarettes but £2300 million from container smuggling of illicit cigarettes.4 Over 70% of cigarettes smuggled into the UK come in huge freight consignments, often from China and the Far East, the Baltic, the Balkans and Southern Africa.5
Most tobacco smuggling is the result of organised large-scale container smuggling
The Tobacco Industry
The tobacco industry benefits from smuggling in several ways. Smuggling stimulates consumption directly, through the street sale of cheap cigarettes, and indirectly it is used as a political and lobbying tool. The tobacco industry points to the high level of tobacco smuggling, argues that smuggling is caused by price differentials and lobbies governments to reverse tobacco tax increases which have been introduced to protect public health.
The tobacco industry attempts to use the evidence of smuggling as a lever to lobby for tax reductions
Tobacco companies appear to encourage smuggling by exporting to markets where their brands are not smoked. A large proportion comes back to the UK, with half the contraband cigarettes seized at UK ports made in Britain by British firms. Export figures for Imperial Tobacco and Gallaher show that they are selling huge quantities of cigarettes to countries such as Cyprus, Luxembourg and Belgium where there is no domestic market for them.6 One striking example is that of the state of Andorra with a population of around 70,000. In 1997, UK exports to Andorra rose to 1520 million - meaning that either each Andorran (including children and non smokers) was smoking 60 British cigarettes a day in 1997 or the cigarettes were being smuggled back out of Andorra. The tobacco industry could not fail to be aware of what was happening to their cigarettes.7 Customs are 'vigorously engaged' in dialogue with the tobacco manufacturers. In these discussions Customs are looking to secure the voluntary agreement of the manufacturers to exercise tight control over their export sales to minimise the chances of that product being smuggled back into the UK.
In public, the tobacco industry has adopted a morally ambiguous approach towards the question of escalating tobacco smuggling, arguing that what dealers do with their (legally sold and bought) cigarettes is not their business.8 However, there is increasing evidence becoming available about the direct involvement of tobacco companies in the illegal transit of tobacco and many tobacco companies are now being taken to court facing allegations of involvement in tobacco smuggling.
In the UK, the Trade and Industry Secretary of State Stephen Byers announced in October 2000 that he was launching an investigation into one of the largest UK tobacco companies, British American Tobacco (BAT), who had been accused of complicity in smuggling illegal tobacco. As part of an inquiry into the UK tobacco industry by the House of Commons Health Select Committee, documents were revealed which suggested that BAT actively control the sale and marketing of illegal tobacco.9 During the inquiry, the deputy chairman of BAT Kenneth Clarke stated:
"We act, completely within the law, on the basis that our brands will be available alongside those of our competitors in the smuggled as well as the legitimate market,"
an acknowledgement that BAT supplies cigarettes knowing that they are likely to end up on the black market.
The select committee made a formal recommendation that the Department of Trade and Industry should undertake an investigation of BAT's involvement in smuggling, stating:
'The allegations made against BAT in regard to smuggling are extremely serious and merit careful investigation. If they prove to be substantiated, the case for criminal proceedings against BAT should be considered.'
In recent months, Canada, Columbia and Ecuador have filed lawsuits against US tobacco companies for smuggling. In November 2000 the European Union filed a civil lawsuit in an U.S. court against the tobacco companies Philip Morris, RJ Reynolds and Japan Tobacco, alleging that the US companies were involved in smuggling cigarettes into the EU. The EU stated that cigarette smuggling costs its 15 member nations billions of dollars in lost tax revenues each year.10 The European Union has since been joined in the legal action by Italy, Germany, Spain, France, The Netherlands, Belgium and Finland.
Major tobacco companies face allegations of involvement in smuggling
Spanish authorities have made significant progress in controlling organised smuggling and have reduced the market share of smuggled cigarettes in Spain from 30% to 7% in six years. Their success was not due to controlling distribution at street level, but rather to reducing the supply into the country at 'container level' through intelligence, customs activity and co-operation and technology.11 Spain worked closely with authorities in France, Britain and Andorra and the European Anti Fraud Office (OLAF) to reduce the supply of cigarettes from the major source, Andorra. Actions included sealing the Andorran border, civil guard brigades patrolling valleys and hills to make smuggling more difficult and political pressure on the Andorran government by the EU and its member states that persuaded it to create new legislation making it illegal to smuggle tobacco into neighbouring countries.
In light of the global nature of tobacco smuggling, experts agree that there needs to be an international strategic approach to smuggling rather than a country-by-country, case-by-case response. Joossens & Raw recently called for the control of tobacco export and transit 'by mechanisms similar to those for arms control'12 The World Health Organisation is currently co-ordinating the development of an international tobacco control treaty, the Framework Convention on Tobacco Control [FCTC] which aims to tackle global tobacco control issues such as tobacco advertising and smuggling. Draft protocols for the FCTC state:
"The Parties to this Convention [are] 'Deeply concerned about the illegal transboundary traffic in cigarettes andother tobacco products and [recognise] that coordinated action is necessary to eradicate illicit traffic."13
The illegal traffic of tobacco products operates on a global scale and needs to be regulated by international treaty
Introduction
Context
UK Government Policy
Scotland
Conclusions
Recommendations
References
Appendix