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The Problem

Consequences of illicit trade

Everyone loses, except criminals

Criminals are the only ones profiting from the global problem of illegal cigarette trade. The illicit tobacco trade:

  • Takes sales away from legal businesses;
  • Robs governments of tax revenues;
  • Exposes consumers to unregulated products often manufactured in unsanitary conditions;
  • Makes it easier for minors to access tobacco products; and
  • Undermines tobacco control and harm reduction efforts

Equally worrying is the fact that the profits from illicit trade are used to fund other serious criminal activities, from drugs to human trafficking.

Speaking in Northern Ireland in 2009, John Whiting, HM Revenue and Customs Assistant Director in Criminal Investigations said:

"The huge profits reaped from the sales of illegal cigarettes are ploughed straight back into the criminal underworld, feeding activities like drug dealing and fraud . . . and means [you are] trading with criminals, and undermining honest businesses.”

Illicit tobacco trade as a threat to national security

The illicit trade in cigarettes is a multi-billion dollar global enterprise run by well-organized criminal groups. More authoritative sources are highlighting the link between illicit trade of cigarettes with not only criminal, but terrorist activity.

At the 2009 International Law Enforcement Intellectual Property Crime Conference, Ronald K. Noble, INTERPOL Secretary General, stated:

“Paramilitary groups and organized crime rely on counterfeiting – especially of cigarettes – to reap huge profits and even to fund terrorist activities.”

Experts have also said illegal cigarette trafficking is a source of funding for terrorist group Islamic State (ISIS). According to crime expert Professor Louise Shelley in a recent article to Foreign Affairs:

“Oil is not ISIS’ only source of revenue… Still more funding comes from the sale of counterfeit cigarettes, pharmaceuticals, cell phones, antiquities, and foreign passports.”

According to the US State Department the global illicit tobacco trade is a problem which:

“fuels transnational crime, corruption, and terrorism. As it converges with other criminal activities it undermines the rule of law and the licit market economy, and creates greater insecurity and instability in many of today’s security “hot spots” around the world.”

Source: Department of State, Department of Justice, Department of the Treasury, U.S. Department of Homeland Security, Department of Health and Human Services. The Global Illicit Trade in Tobacco, A Threat to National Security, Washington, DC, 2015.

Christian Eckert, France’s Minister of Budget, also recognized the link between terrorism and illicit trade in an interview in 2014:

“What is clearly evolving is to involve Customs in the fight against terrorism. It is demonstrated and known that many jihadists are involved in petty crime (counterfeit, contraband of tobacco, drugs).”

Damage to legitimate business

A study conducted by Frontier Economics, a leading European economics consultancy, reported that 2.5 million jobs have been lost in the G20 countries due to counterfeiting and piracy of a wide range of consumer products, including brand name luxury goods and tobacco.

In the legal tobacco supply chain, manufacturers, suppliers, wholesalers, distributors, and retailers are all impacted by illicit trade. Manufacturers suffer considerable financial losses as well as long-term damage to their brands, which they have invested time and money to build. Wholesalers, distributors, and retailers lose out because reduced demand for legal products leads to fewer sales. Small shops not only lose the sale of cigarettes, but also the sale of other items adult smokers usually buy when in their shops.

According to the Canadian Convenience Stores Association, in the two Canadian provinces of Ontario and Quebec - 2,300 convenience stores have closed down, largely due to their inability to compete with the low prices of contraband cigarette offerings.

Billions in lost tax revenue

The World Health Organization (WHO) estimated that global illicit trade amounted to 600 billion cigarettes in 2006, equivalent to approximately 11% of global tobacco consumption. This comes at a cost to governments and taxpayers of US$40-50 billion annually in lost tax revenues. These resources could have been used to fund other services such as public safety and education programs. The European Commission estimates that in 2015 the illicit trade in cigarettes resulted in tax loss of €11.3 billion within the European Union.

Source: PMI Estimates & Framework Convention Alliance

Source: PMI Estimates & Framework Convention Alliance

Minors have access to illegal tobacco

In July 2010, the European Anti-Fraud Office (OLAF) stated:

“Illegal trade in tobacco undermines public health initiatives to curb tobacco consumption by making cheap cigarettes available in an unregulated environment where they may be sold to vulnerable groups such as minors.”

A study by the Canadian Centre for Addiction and Mental Health reported that 43% of secondary school smokers in the province of Ontario smoked contraband cigarettes. In Ireland, a 2010 report revealed that children as young as 10 were being exploited by criminal gangs to sell smuggled cigarettes.