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The Problem

What is illicit trade?

A multi-billion dollar criminal enterprise

While they most often make the headlines, it’s not just luxury goods that are counterfeited or smuggled and sold illegally. Other consumer goods like medicines, cosmetics, toys, electronics and cigarettes can be widely found on the black market. In fact anything in high demand is attractive to counterfeiters and smugglers.

The Organisation for Economic Co-operation and Development (OECD) estimates that international trade in counterfeit and pirated goods amounted to US$461 billion in 2013, which is equal to nearly 2.5% of all world trade including 5% of all imports into EU.

Illicit products are often distributed through sophisticated criminal networks, evading tax and resulting in serious consequences for economies and societies worldwide. A report released by the International Chamber of Commerce (ICC) in February 2011, estimated that the global impact of counterfeiting and piracy would be US$1.7 trillion by this year.

Illegal Tobacco - easy profits for criminals

Cigarettes are among the most illegally trafficked goods in the world. The global black market for tobacco products is large and growing. The World Health Organization (WHO) estimated that in 2006, 600 billion illegal cigarettes were sold, which amount to 11% of global consumption.

Criminals are increasingly attracted to the high profit and minimal risk associated with trafficking illegal cigarettes.

"Illicit trade is demand and supply driven. Consumers want to buy cheap products and save money (demand); criminals want to take advantage of high taxes, which they do not pay to make high profits with low risk of being caught and penalized"

World Customs Journal, Volume 6, Number 2 (2012)

Illegal tobacco products fall into four categories:

Illegal tobacco products fall into four categories:

Illicit Whites – a growing problem

Over the last decade a new form of illegal tobacco product known as “illicit whites” or “cheap whites” has emerged as a growing problem in several countries around the world.

“In less than a decade, across the world, large scale smuggling of so-called “illicit whites” has increased exponentially.”

Elizabeth Allen (Former Head of UK Customs) - The explosion of Illicit Whites (June 2013)

According to the EU Commission, these are:

“Brands manufactured legitimately in one market, either taxed for local consumption or untaxed for export, and sold knowingly to traders who transport them to another country where the products are sold illegally without domestic duty paid”.

Algirdas Šemeta, European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud – Answer given to the European Parliament on behalf of the Commission (2011)

In the European Union alone, illicit whites’ share of the total illicit tobacco trade jumped from 4.3% in 2007 to 35.4% in 2015 according to the KPMG Sun Report 2015.

Illicit Whites Prevalence 2015

Illicit Whites Prevalence 2015

According to INTERPOL, illicit whites are known to be manufactured in Belarus, Vietnam, Indonesia, Philippines, India, Cambodia, Paraguay, Ukraine, Russia, UAE, Kenya and a number of Free Trade Zones (FTZs).

What makes the illicit whites problem especially difficult to tackle is that these products are usually legally produced, but illegally sold in destination markets avoiding tax and funding organized crime. Trafficking illicit whites is increasingly attractive for criminals as they can generally avoid the risks of prosecution for trademark infringements that counterfeiters face.

“As manufacturers of illicit whites are able to operate legally within a country, they have fairly sophisticated facilities where they are able to produce cigarettes of a higher quality than counterfeits. They can also avoid the litigation associated with counterfeiting activity.”

Source Interpol: Countering Illicit Trade in Tobacco Products – A Guide for Policy-Makers

“[…] today's market sees an ever-growing share of non-branded cigarettes ("cheap whites"). According to Member States' seizure data from 2013, 8 of the 10 most seized cigarette "brands" were "cheap whites". Of the more than 600 million cigarettes seized with support from OLAF in 2015, almost all were cheap whites.”

Source: European Commission (2016) “Technical assessment of the experience made with the Anti-Contraband and Anti-Counterfeit Agreement and General Release of 9 July 2004 among Philip Morris International and affiliates, the Union and its Member States”.

Counterfeit

Cigarette counterfeiting first emerged as a significant threat in the early 1990s. The volumes were relatively modest and production mainly came from Vietnam, Indonesia and China, with distribution also mainly within Asia.

In recent years however, the production of counterfeit cigarettes has spread to other countries such as the Ukraine, Russia, Poland, Lithuania, Greece, Germany, the United Kingdom, Belgium, and Argentina. 

The cigarettes, often made in squalid conditions, find their way via sophisticated distribution networks to the countries where criminals can make the most profit. These networks are often the same as those used for drugs, arms, or even human trafficking.

“Street gangs, narcotics crews, Russian and Asian organized crime networks, and terrorists are trading cigs for guns, narcotics — even humans.”

Rich Mariano, Former U.S. ATF Assistant Director, The Daily Caller, 9/2014