Thursday, December 5, 2013

International tobacco contraband, by Ioannis Michaletos

The contraband of tobacco products internationally, has attracted little interest on a media level, although it constitutes an important and increasing segment for revenues for a variety of illicit actors, be it organized crime figures, terrorists and extremist sects. 

In contrast to the narcotics illegal trade or human trafficking, tobacco smuggling constitutes no obvious social threat; nevertheless the proceedings of such activity go into the hands of the same people that conduct the bulk of the other dangerous illicit trades nowadays, while it fuels governmental corruption in  developing nations. 

Empirical evidence from many countries, suggest that in fact organized crime dealing with drugs, had firstly found a way to amass primary source of capital needed to organize a systemic flow of narcotics, firstly by investing in tobacco smuggling that enables the financing of more complex illegal operations. 

The steadily increase in tobacco taxation in most countries and the vast difference in the prices for packets of cigarettes even in neighboring markets, makes that trade rather easy to be conducted and yields substantial profits with far lower risks of imprisonment than other more well-known illegal activities. 

In the EU market, the commercial price differences for tobacco products can reach up to 400% from lowest to highest price, thus the profits involved are a great lure for all sorts of groups of smugglers.

According to various part reports by EUROPOL, there is large and traditional smuggling of cigarettes and tobacco products in the regional triangle between Netherlands, Belgium and the UK. Small groups of people bring tobacco from these two Continental countries into the UK, which has high taxes and can make up to 500 Euros net profit per day. Globally tobacco smuggling is worth 50 up to 80 billion Euros.

In order for an organized crime network to be systematically involved in this kind of trade, there are five basic conditions to be met. Firstly the network should have the capacity for transporting the merchandise either via vessels or trucks and that means having the necessary recruitment abilities for the personnel working in such transportation companies. 

Secondly, the vast majority of cigarettes being sought by consumers illegally are those of well-known brands such as Marlboro. Thus any smuggling network should be able to obtain and supply the markets with these well-known brands that has consumer loyalty and can be easily sold. 

Thirdly, the network should be able to have its fair share of interpersonal connections with law enforcement agencies and customs personnel, so as to be able to ship and move bulks of illegal tobacco cargo across borders without fearing confiscation. In contrast to narcotics trade, tobacco needs to be sold in big quantities in order to offer a considerable return in investment, since it is not considered as a "fast moving object". Thus any international long-time tobacco smuggling operation that it is not disbanded, has assumedly placed its own people inside customs operations in order to evade detections, which otherwise would not be of such a difficulty. 

Fourthly, an international smuggling group should be able to operate within a range of local markets with high differences in taxation and be flexible enough to adapt in market changes and prices fluctuation. That means maintenance of a local network of representatives and lots of intermediates. 

Lastly, the smugglers should have first person contact with street vendors and small market stores that have been found to function in a great manner as the last chain of operations, before the cigarettes find their way into the consumer. 

It is estimated by European security agencies, that at least 50 international criminal groups are specialized in this kind of illicit market in the EU and the International Transparency organizations has correlated that they tend to be located in countries where the public sector corruption scale is high, thus linking the existence of that trade with the collaboration of state employees. 

The Bill and Melinda Gates Foundation funded a research by Dr. Martin Raw of the Nottingham University Centre for Tobacco Control Studies, that pointed out the fact that as much as 12% of cigarettes consumed internationally are from the illegal market and in countries that face serious corruption problems such as Uzbekistan, Bosnia, Georgia its more than 40-50%, depriving much needed taxation revenues from their state budgets and further fuelling local corruption practices. 

The case of Montenegro is illustrative on how important can tobacco smuggling is in high-level political corruption and international relations. In 2005 an international arrest warrant was issued by the Italian authorities against the Prime Minister of the country who had been frequently accused as the main culprit of the "Adriatic tobacco Mafia". In 2007 the prosecution against him was dropped, nevertheless Italian and Swiss media continued to accuse him in 2009 and linked the eventual acceptance of Montenegro into the EU by the capability of this country to finally curb the massive export of tobacco contraband into Italy. The so-called Montenegro Mafia earns perhaps more than 1 billion Dollars a year by shipping tobacco across the Adriatic or through trucks from Bosnia-Croatia to Austria and manages to exercise considerable political clout in this country of 600,000 people.  

Moreover, several prominent assassinations, including those of media owners and businesspeople have been attributed to this trade and it is of importance to note that all available information reveals that the same networks involved in tobacco are also importing cocaine from Latin America and then re-exporting into the EU. 

Inside the EU, tobacco smuggling has increase more than 100% since the introduction of the Schengen control-free zone. Moreover the proliferation of inter-European tourism, the multitude of air transportation and truck companies, along with the existence of duty free zones in non-EU states, across the borders of Schengen agreement countries has fuelled the issue and provided golden opportunities to the smugglers. 

Further, along with the smuggling of genuine tobacco products, there is also an industry for the production of imitation and low quality cigarettes. In Pakistan, Thailand, Ukraine and China thousands of small production facilities manage to copy well-known brands and ship them across the world illegally with via the same criminal networks. In order to counteract this trade that costs billions to multinational companies such Altria and BAT, private intelligence firms are being employed that stage sophisticated international surveillance operations and once they find evidence they deliver their findings to the authorities. A significant number of successes of police forces worldwide is attributed but never fully confirmed to these private agencies. In countries such as the UK, perhaps as much as half of the confiscated contraband tobacco is in fact a copy product that has low quality and in some cases it is extremely harmful for consumers. 

Apart from the organized crime involvement and the governmental corruption, the issue of international terrorism is related to tobacco illegal industry. 

 An international reporting by the UN, a few years back provided points that the Pakistani Taliban, Maghreb Al Qaida, Colombian FARC, Real IRA and Tutsi guerilla groups in Congo, raise black funds by tobacco smuggling. Hezbollah was also linked to this trade when several of its members were arrested in the in USA in past decade. 

According to David Kaplan an international corruption expert, tobacco is the second most important revenue for the Taliban in Pakistan after opium trade. The main global distribution centers are Chinese ports, Paraguay, Odessa in Ukraine and the Balkan Adriatic coast from Croatia, Montenegro up to Albania. 

In Algeria where the al-Qaeda in the Islamic Maghreb" (AQIM) organization is operating tobacco products smuggling provides considerable financing and according to the Italian counter-terrorism expert Lorenzo Vidino the Maghreb Islamist terrorists have placed their own people across EU metropolises in order to raise proceedings by contraband thus fuelling further terrorist activity.

The American expert on international organized crime Louise Shelley, believes that the world community has not paid attention to the issue and their interest is directed mostly to weapons and narcotics illegal groups, underestimating thus that a terrorist group does not need excessive funds to conduct a hit, therefore tobacco smuggling is indeed a significant threat, as long as it is widely undetected by authorities. In the US customs service it is estimated that only 2% of the personnel is specialized in dealing with this illegal sector and present day security systems have significant holes allowing a flow of such products without being detected. 

In July 2009 in Geneva an international high level council was held with the representatives of state officials by various countries that set for the first time their worries for this illicit trade and discussed ways under which effective international collaboration can be sought. USA, UK and France have also upgraded their security mechanisms towards combating tobacco smuggling and the UN agencies have set up working groups. 

Nevertheless, the global financial crisis and the shrinkage of security budgets in a number of countries have stalled developments, whilst the criminal groups are quite flexible into shifting their presence from one country to another. For the moment the only effective manner under which law enforcement is able to deal this contraband, is through the use of private intelligence services as it was mentioned previously. 

Therefore, in this case as also in dealing with terrorism and governmental corruption, the private security sector is growing and steadily becomes an important factor in shaping international law and order.