[Intl-tobacco] UK: European cigarette smuggling racket article and leaked report posted by ASH UK

[Robert Weissman]

December 9, 2001

Dear friends

There's a very useful article in today's Independent on Sunday (see below)
highlighting the nature of the cigarette smuggling trade in the UK (80% of
cigs smuggled into the UK are manufactured in the UK, exported by tobacco
companies, sold to smugglers, returned illegally). We again pose the
question: "Why do the UK tobacco companies ship so many billion cigarettes
to regions such as eastern Europe and the Baltic states where they are
hardly smoked, and where the most obvious customers are Mafia who will bring
them back to the UK?"

Also, there is discussion of a serious technology for tracing contraband
back through the distribution system - 'Project Hawkeye' - that has been
proposed to tobacco companies, but never used.  This system was
presented to
government delegates at the WHO FCTC meeting in Geneva last month.  The cost
given in the article is 0.0085 pence [*] per pack - it should actually be
0.85 pence per pack.

The leaked World Customs Organisation report referred to in the article
gives great insights into how the trade works across Europe - and should be
of great interest to anyone in Europe or following the smuggling issue world
wide.  We have obtained the report and it is now on the ASH web site at:
http://www.ash.org.uk/html/smuggling/pdfs/lasso2000.pdf
(it's a big file (2.5 MB) so be patient if downloading)

Regards

Clive Bates
ASH
-----------

Britain is centre of European cigarette smuggling racket
-------------------------------------------------------
Export-for-import » How billions of smokes blow back to UK
http://news.independent.co.uk/world/europe/story.jsp?story=109140

By Andy Rowell
09 December 2001

Britain is the prime destination for smuggled cigarettes in Europe,
according to a leaked report from the World Customs Organisation (WCO). As
the illegal trade swamps the UK, British Customs last month announced record
seizure figures; some 2.8 billion cigarettes seized this year, up nearly a
billion on the year before. However, seizures represent only about 10 per
cent of the illegal cigarettes entering the UK, meaning that tens of
billions of illegal cigarettes are being smoked in the country.

The vast majority of cigarettes being seized in the UK are made here and
then legally exported. A Customs official said: "The overwhelming
majority -
80 per cent - of the cigarettes that are being seized in the UK are made
here. They are exported, go into the grey market and then find their way
back."

Last month Bristol-based Imperial Tobacco reported "excellent" financial
results, with booming international sales. However, millions of Imperial's
cigarettes exported from the UK are being seized by Customs organisations.
The WCO report confirms that together two brands made by Imperial, Regals
and Superkings, accounted for more seizures than any other brands across the
whole of Europe.

Also in November, UK Customs announced the results of their strategy to cut
smuggling, smashing 43 major organised crime gangs. While Customs cut
cross-Channel smuggling by 76 per cent, the leaked WCO report highlights how
the majority of smuggling is now done on large containers. "The most common
methods of transportation are lorries and containers, hidden among other
legitimate loads," it says. The report says that three of the top four
European ports for cigarette seizures were in the UK: Dover, Southampton and
Felixstowe. It also identifies the routes used by the smugglers, including
regions such as the Baltics, Balkans, Central Europe and Russia.

Some industry critics and campaigners claim that the tobacco manufacturers
are facilitating the flourishing illegal trade. Ash, the anti-smoking
campaign group, has alleged that the manufacturers "may be aiding and
abetting smuggling to ensure they retain a share of the lucrative market by
not stopping exports that reach smugglers".

Clive Bates, director of Ash, asks: "Why do the UK tobacco companies
ship so
many billion cigarettes to regions such as eastern Europe and the Baltic
states where they are hardly smoked, and where the most obvious customers
are Mafia who will bring them back to the UK illegally?"

The benefits to the companies are obvious, critics say. Whether the
cigarettes are sold legally or illegally, the company still gets paid. If
the cigarettes are seized, they are destroyed by Customs at a cost to the
taxpayer. If this happens, the smugglers are likely to order replacements
and so the company will get another sale.

Tobacco analysts also argue that the more smuggling that goes on, the
greater the pressure on the government to hold or reduce domestic taxes. Tax
is the main weapon to stop people smoking, so if taxes are reduced this
means that more people will continue to smoke. Illegal tobacco is, of
course, cheaper than legal tobacco, which means that there is less incentive
to quit. Illegal tobacco is also more likely to be sold to youngsters.

Moreover, faced with a static UK market, international expansion is proving
good business. Nearly half Imperial's profits come from international
operations, up from just 20 per cent four years ago.

Last month international initiatives to stop smuggling formed part of the
negotiations at the World Health Organisation's convention on tobacco
control in Geneva. During the meeting, EU proposals on the need for
traceability of tobacco products to fight the illegal trade received
widespread support - but not from the tobacco industry itself.

Speaking in Geneva was security inks expert John Thorpe, who had tried to
sell a covert marking system called Hawkeye to the cigarette companies.
Hawkeye can trace cigarettes anywhere in the world at a cost of 0.0085[*]
pence a pack. It would allow the tobacco companies to track exactly
which of
their customers or distributors were selling to smugglers.

The system has already proved highly successful in stopping counterfeit
luxury leather goods, so it came as a surprise to Thorpe when he found the
cigarette companies were not interested in Hawkeye. "Of the five we
demonstrated to - Philip Morris, RJ Reynolds, BAT, Brown and Williamson
[BAT's US subsidiary] and Gallaher - all five acknowledged that the system
would do the job. At the time they saw no benefit to them to do it."

The UK companies strenuously deny facilitating the illegal trade. "We have
no evidence whatsoever that any of our wholesalers, distributors or
salespeople have supplied smuggling gangs," says Liz Buckingham, Imperial's
communications manager. "Given that the UK is the highest taxed country in
the world for cigarettes, it is not surprising that smugglers are
tempted by
the high profits to be made."

"We deplore cigarette smuggling," says Jeff Jeffery, Gallaher's corporate
affairs manager. "We have a long history of co-operating with Customs. We
confine our sales to bona fide distributors and traders and we work closely
with the Customs authorities and others to prevent smuggling. We support and
endorse the policing measures that Customs have introduced to address
smuggling".



Clive Bates
ASH London
102 Clifton St
London EC2A 4HW
T: +44 20 7739 5902
F: +44 20 7613 0531
M:+44 77 6879 1237
W: http://www.ash.org.uk