Transcript Campaign for Tobacco Free Kids Illicit Tobacco Trade Webinar

Busting the Myths
Tobacco Control and Illicit Trade
November 29th, 2011
International Legal Consortium
Campaign for Tobacco-Free Kids
Introduction
Patricia Lambert
Director
International Legal Consortium
Campaign for Tobacco-Free Kids
Questions and Answers
Type your
questions here
throughout the
webinar and
we will answer
them at the end.
John W. Colledge III
Consultant on Anti-Illicit Trade
Supervisory Criminal Investigator
(Retired)
Department of Homeland Security
and
the U.S. Customs Service
Moderator
h
Aaron Schwid
Legal Advisor
International Legal Consortium
Campaign for Tobacco-Free Kids
http://www.youtube.com/user/WelcomeToBAT
http://www.jti.com/cr_home/c
r_positions/cr_positions_anticontraband/cr_positions_anticontraband_drivers/?Culture=s
k-SK
KEY FACTORS
FACILITATING
CIGARETTE
CONTRABAND
1. High taxation
2. Inadequate law
enforcement
Fact or Fiction?
Studies show that
public health
measures increase
illicit tobacco trade.
Unreliable Sources and Misinformation
1. Think tank reports:
– Mackinac Center for Public Policy.
– Frasier Institute.
– International Tax and Investment Center (ITIC).
2. Industry Sites, e.g. Plainpack.com
3. News media
4. Misused Terms or Slang
Reliable Sources
Elements of Reliable Sources
1.
2.
3.
4.
5.
Not funded by industry
Industry involvement in illicit trade considered
Well sourced
Published dates and timeframe of data
Proper Use of Key Terms
Key Terms
 Illicit trade.
 Tax evasion.
 Contraband.
 Smuggling.
 Illegal Manufacturing.
 Counterfeit.
Concealment
Smuggling
From Border Control
Fraud
Trade or Customs
Concealment
Diversion
Contraband
From internal controls
Fraud
Internal
Counterfeit
Illegal
Manufacture
Overproduction
Non-licensed
Manufacturing
Stolen
Contraband
Tax Evasion:
Non-tax paid products.
It’s about the money –
Crime of greed, not passion
 Smuggled merchandise.
 Illegal Manufacture
 Stolen
Smuggling and Diversion
 A form of tax evasion.
 Smuggling - across int’l border
 Diversion - within national boundaries
 Concealment
 Avoiding Customs Controls
 Intermingling
 Fraud
 False Documents
 False Statements
Illegally Manufactured
 Counterfeit
 Non-licensed production
 Over-production
 Authentic trademarks
 Likely identical products
 Undeclared
Counterfeit
 A form of tax evasion. Never legal.
 Fraudulently manufacturing, altering, or
distributing a product that is of lesser value
than the genuine product.
 Trademark protection: Trade-Related Aspects
of Intellectual Property (TRIPS)
 Trends.
 History
 Volume.
 Authenticity determinations.
Slang Terms to Avoid
•
•
•
•
Bootlegging.
Large Scale/Small Scale Smuggling.
Ant Smuggling.
Cheap Whites.
Fact or Fiction?
Illicit Trade started in
the 1990s and
increased after the
FCTC came into
force.
Brief History of
Illicit Tobacco Trade
 Began immediately after the discovery of tobacco to avoid tobacco
monopolies and taxes.
 Cigarettes became a cash substitute.
 Constantly evolving schemes.
 Tobacco products used to launder crimes proceeds.
Transnational Organized Crime
 UNTOC – United Nations Convention Against
Transnational Organized Crime.
 “Organized criminal group” shall mean a
 “structured group of three or more persons,
 existing for a period of time and acting in concert
 with the aim of committing one or more serious
crimes or offences established in accordance with
this Convention,
 in order to obtain, directly or indirectly, a financial
or other material benefit”
Illicit Trade is Organized Crime
• Raises seriousness of tobacco crimes
• Additional police powers for the government, e.g. special
investigative techniques
• Seizure and forfeiture of criminal proceeds
• Other increased criminal sanctions
Fact or Fiction?
High taxes are
the root cause
of illicit tobacco
trade.
Tax Increases and Illicit Trade
– Fact: Tax disparities between jurisdictions provide an opportunity for
smuggling. High taxes provide an opportunity for other forms of illicit trade.
– BUT effective enforcement mechanisms work
•
•
•
•
Effective government-controlled tracking (pro-active detection)
Effective government-controlled tracing (investigation and post-seizure analysis)
Properly staffed, trained, and resourced enforcement personnel
Adequate criminal sanctions
Example: California
• High income, large population
• Enforcement protections accompanied a tax increase
• Enhanced revenue protection
– Secure digital tax stamp
– Additional staffing
– Enhanced law enforcement powers
– Additional criminal sanctions
Example: Brazil
 Rapidly developing economy,
large population, large borders
 Enforcement protections solidified before a
major tax increase
 Enhanced revenue protection
 Secure digital tax stamp
 Additional staffing
 Enhanced law enforcement powers
 Additional criminal sanctions
Example: Arkansas





Small economy, small population
Interstate diversion bordering states with lower taxes
Enforcement protections accompanied a tax increase
Basic tracing system, but no effective tracking system
Enhanced revenue protection
 Unique asset forfeiture fund
 Additional staffing
 Enhanced law enforcement powers
 Additional criminal sanctions
Fact or Fiction?
Plain packaging will
increase illicit
tobacco trade.
Plain-Packaging and Illicit Trade
 FACT: Plain packaging has never been introduced on the market so there
is no evidence that it will increase illicit trade.
 Effective enforcement mechanisms work:
 Tracking - Digital tax system.
 Tracing - Criminal investigative techniques.
 Counterfeit.
 Trademarks.
 Graphic warnings.
 Other technologies to protect trademarks
Fact or Fiction?
Industry cannot meet
quickly changing
regulations so hole will
be filled by organized
crime.
Regulatory Changes and Illicit Trade
• Fact: Such claims encourage hoarding which is
likely to result in increased earnings for industry
and government.
• Fact: Competition in marketplace encourages
legal businesses to satisfy supply before
organized crime does.
• Fact: In countries with graphic health warnings,
organized crime did not take over market.
• Governments should include a rapid, but
practical, implementation period for all
regulatory measures.
Fact or Fiction?
Legal tobacco products
are safer than illegal
ones.
Illegal Products and Safety
• Fact: Safety allegations have not been
supported by reliable evidence – simply
unsupported statements.
• Illegal manufacturers purchase tobacco,
ingredients, key inputs and equipment from
major companies.
• Few countries regulate ingredients in tobacco
products, in part because whether certain
chemical combinations in tobacco are
dangerous is unknown.
• “High-quality” tobacco products are designed
to deliver nicotine, a known poison. When used
as intended, legal tobacco products kill.
Fact or Fiction?
Tobacco companies lose
money because of illicit
trade.
Industry Involvement
in Illicit Trade
 FACT: Counterfeit manufacturing may damage the tobacco industry;
however, existing trademark laws provide sufficient protection for the
tobacco industry.
 Government should prioritize public health and revenue (tax) protection.
 FACT: Historic and ongoing evidence of industry involvement in
illicit trade, especially smuggling and overproduction.
Industry Involvement in Smuggling
 Philip Morris International and Japan Tobacco International
entered into a legal agreement with the European Community
and 10 member states to settle litigation against them that
would have further exposed their involvement in cigarette
smuggling. (2004)
 British American Tobacco and Philip Morris International
settled its smuggling-related litigation with Canada. (2008)
 Japan Tobacco International plead guilty to violations of tax
laws and R.J. Reynolds pled guilty to criminal charges related
to cigarette smuggling in Canada. (2010)
CEO of Reynolds
American and
Fortune 500 most
powerful women
4. The possibilities of GT exploitation were considered
to be good (Ghana Cameroon). . .
7. I accept that in retrospect we may have been over
optimistic about its potential in Togo, Benin, Niger,
but the main reason for its launch in these markets was
not to exploit domestic markets but for GT opportunities.
Recent Allegations against JTI
• Executives of Japan Tobacco International stood
by as its distributors engaged in widespread
cigarette smuggling in a dozen countries.
• When the company’s anti-smuggling unit cracked
down on smuggling routes and raised questions
about suspect distributors, JTI retaliated by
hacking into the team’s computers, firing its
leaders, and phasing out nearly a dozen
contractors who knew about the smuggling.
• Big Trouble at Big Tobacco, Organized Crime and Corruption
Reporting Project, available at:
http://www.reportingproject.net/troubles_with_big_tobacco/
Fact or Fiction?
Tobacco companies
must be involved in
designing policies around
illicit trade.
Industry Interference in Policy Making
 FACT: Industry may have a legitimate interest in preventing illicit
trade
 BUT any government interactions should follow all recommendations from
FCTC Art. 5.3 Guidelines relating to necessity and transparency
 Consultation v. Partnership distinction
 Information flow on case-by-case basis
 OECD Guidelines – Managing Conflicts of Interest in the Public Sector, available at:
http://www.oecd.org/dataoecd/54/31/48994419.pdf?contentId=48994420
 United Nations Convention Against Corruption, available at:
http://www.unodc.org/unodc/en/treaties/CAC/index.html
Who does the industry talk to?
 International Agencies
 World Customs Organization
 Interpol
 Domestic Policy Makers
 Legislators
 Ministries (Finance, Industry, Trade, Interior, & Justice)
 Enforcement Agencies
 Tax, Customs, Police, Antifraud, Anticorruption
Why does the industry
talk to these organizations?
1. Influence Legislation and Policy
2. Influence Enforcement Priorities
3. Protect the Profits
What You Can and Must Do
1. Self-education: Learn the subject matter.
Verify sources. If you still have questions,
reach out.
2. Monitor tobacco trade and taxation in your
region
3. Identify and lobby appropriate policy
makers and enforcement agencies
4. Acknowledge the role of organized crime
in tobacco, but put tobacco in context with
other commodities
What You Can and Must Do
5. Prepare counterarguments on illicit trade
arguments before proposing tax and other
public health measures.
6. Remind policymakers, media, and public of
industry’s role in illicit tobacco trade and their
profit motivation
7. Support additional funding and training of
enforcement agencies
8. Insist on transparency for any interaction
between tobacco industry and any policy
makers or enforcement agencies
Additional Resources
More information available at: http://tobaccofreecenter.org/resources/illicit_trade_smuggling
 Campbell D. Further Evidence By Duncan Campbell in Respect of Smuggling in Africa by British American Tobacco
Plc, Obstruction of Access to Evidence. UK House of Commons Health Select Committee, Inquiry into the Tobacco
Industry and the Health Risks of Smoking. London. January 15, 2000. Available at:
http://duncan.gn.apc.org/bat/Health_Committee_Evidence_2.htm. Accessed: November 30, 2011.
 The Center for Public Integrity, Tobacco Underground, The Blooming Global Trade in Smuggled Cigarettes.
available online at: http://www.publicintegrity.org/investigations/tobacco/articles/. Accessed: November 30,
2011.
 Collin J, LeGresley E, MacKenzie R, Lawrence S, Lee K. Complicity in Contraband: British American Tobacco and
Cigarette Smuggling in Asia. Tobacco Control 2004;13((Supp II)):ii96-ii111.;
 Lee K, Collin J. 'Key to the future': British American Tobacco and cigarette smuggling in China. PLoS Medicine
2006;3(7):228-37.
 LeGresley E, Lee K, Muggli ME, Patel P, Collin J, Hurt RD. British American Tobacco and the "insidious impact of
illicit trade" in cigarettes across Africa. Tobacco Control 2008;doi:10.1136/tc.2008.025999.
 U.K. Action on Smoking and Health. Submission to the House of Commons Health Select Committee. February 16,
2000. Available at: http://www.ash.org.uk/files/documents/ASH_567.pdf. Accessed: November 30,2011.
 World Bank and World Health Organization. Tobacco Control in Developing Countries. (2000)Chapter 16: Issues in
the smuggling of tobacco products. Available at:
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTHEALTHNUTRITIONANDPOPULATION/EXTETC/0,,conte
ntMDK:20226973~menuPK:478900~pagePK:148956~piPK:216618~theSitePK:376601,00.html. Accessed:
November 30, 2011
 World Health Organization. The cigarette "transit" road to the Islamic Republic of Iran and Iraq. Illicit tobacco
trade in the Middle East. Cairo: WHO_EM/TFI/011/E/G/07.03/1000) http://www.emro.who.int/tfi/TFIiraniraq.pdf.
Accessed: November 30, 2011.
Busting the Myths
Tobacco Control and Illicit Trade
Questions and Answers
Thank You.
Join Us in February
for our next Webinar on
Tracking and Tracing.
For more information, go to:
www.tobaccocontrollaws.org