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International Tobacco Contraband

Ioannis Michaletos, May 11, 2012

The contraband of tobacco products internationally has attracted little interest on a media level, although it constitutes an important and increasing form of revenue for a variety of illicit actors, be they organized crime figures, terrorists or extremist sects. In contrast to narcotics trade or human trafficking, tobacco smuggling constitutes no obvious social threat; nevertheless, these activities are conducted by the same people who run the bulk of other dangerous illicit trades, while fueling governmental corruption in developing nations.

Evidence from many countries suggests that organized crime syndicates amass capital needed to organize a systemic flow of narcotics by investing in tobacco smuggling. The increase in tobacco taxation in most countries 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. Globally tobacco smuggling is worth 50 up to 80 billion euros.

In the E.U. market, the commercial price differences for tobacco products can reach up to 400 percent from lowest to highest price, thus the profits involved are a great lure for all sorts of smugglers. According to reports by EUROPOL, smuggling of cigarettes and tobacco products is prominent in the regional triangle between Netherlands, Belgium and the United Kingdom. Small groups of people bring tobacco from these two continental countries into the United Kingdom, which has high taxes and the potential for large profit.

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

Second, 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.

Third, the network should have its fair share of interpersonal connections with law enforcement agencies and customs personnel, so as to ship and move bulks of illegal tobacco cargo across borders without it being confiscated. In contrast to narcotics trade, tobacco needs to be sold in big quantities in order to offer a considerable return on investment, since it is not considered a "fast-moving object."

Fourth, 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 to market changes and price fluctuations. That means maintenance of a local network of representatives and lots of intermediates. And lastly, the smugglers should have first-person contact with street vendors and small-market stores, which operate as the last chain of operations.

European security agencies estimate that at least 50 international criminal groups specialize in this market within the European Union, and the International Transparency has correlated that they tend to be located in countries where public-sector corruption is high.

The Bill and Melinda Gates Foundation funded research by Dr. Martin Raw of the Nottingham University Centre for Tobacco Control Studies, which found that as much as 12 percent of cigarettes consumed internationally come from the illegal market, and in countries that face serious corruption problems—Uzbekistan, Bosnia, Georgia—it is more than 40 or 50 percent, depriving much-needed taxation revenues from their state budgets.

In 2005, an international arrest warrant was issued by the Italian authorities against Montenegro Prime Minister Milo Djukanovic, who had been frequently accused as the main culprit of the "Adriatic tobacco Mafia." In 2007 the prosecution against Djukanovic was dropped, but Italian and Swiss media continued to accuse him in 2009 and linked the eventual acceptance of Montenegro into the European Union to the this country's ability to finally curb the massive export of tobacco contraband into Italy. The so-called Montenegro Mafia earns perhaps more than $1 billion 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.

Several prominent assassinations, including those of media owners and business people have been attributed to this trade, and all available information reveals that the same networks involved in tobacco are also importing cocaine from Latin America and then re-exporting into the European Union.

Inside the European Union, tobacco smuggling has increase more than 100 percent since the introduction of the Schengen control-free zone. The proliferation of inter-European tourism and 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, have fuelled the issue and provided golden opportunities to the smugglers.

Along with the smuggling of genuine tobacco products, an industry has cropped up for the production of imitation and low-quality cigarettes. In Pakistan, Thailand, Ukraine and China, thousands of small production facilities copy well-known brands and ship them across the world illegally via the same criminal networks. In countries such as the United Kingdom, 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.

International terrorism is tied to tobacco illegal industry as well. The United Nations has reported that the Pakistani Taliban, Maghreb al Qaeda, Colombian FARC, Real IRA and Tutsi guerilla groups in the Congo raise black funds by smuggling tobacco. David Kaplan, an international corruption expert, says tobacco is the second-most important revenue for the Taliban in Pakistan after opium trade. Hezbollah was also linked to this trade when several of its members were arrested in the United States.

The main global distribution centers are Chinese ports, Paraguay, Odessa in Ukraine and the Balkan Adriatic coast from Croatia and Montenegro up to Albania. Italian counter-terrorism expert Lorenzo Vidino says the Maghreb Islamist terrorists have placed their people across E.U. metropolises.

U.S. expert on international organized crime Louise Shelley believes that the world community has not paid attention to the issue, directing interest mostly to weapons and narcotics illegal groups. In the U.S. customs service it is estimated that only 2 percent of the personnel specialize in dealing with this illegal sector, and present day security systems have significant holes that allow these products to flow through the system undetected.

In July 2009 in Geneva, an international high-level council was held where state representatives for the first time discussed ways that international collaboration can be achieved on this issue. The United States, United Kingdom and France have also upgraded their security mechanisms toward combating tobacco smuggling, and U.N. 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, while criminal groups have shown flexibility 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.

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