The Framework Convention Alliance for Tobacco Control

Illicit Trade: The Facts

Illicit trade in tobacco products, including smuggling, illicit manufacturing and counterfeiting, is a large-scale global problem with critical impacts on public health. The Framework Convention Alliance ( FCA) estimates that illicit trade in cigarettes represents approximately 10.7% of global sales, or 600 billion cigarettes annually, and that losses to government revenue as a result of illicit trade in all tobacco products total approximately $US 40 to 50 billion annually . [1]

Illicit trade in tobacco products contributes to tobacco consumption – and higher rates of tobacco related disease and death – by making tobacco products available more cheaply, with particular effects on price sensitive young people. [2] It undermines high tobacco taxation and other public health measures which reduce tobacco use, and reduces the funding available for public health and other policies by depriving governments of billions of dollars in taxation revenue.

In addition to being a major public health problem, illicit trade in tobacco products poses a significant threat to the maintenance of law and order. There is evidence that illicit trade in tobacco products is carried out by organized transnational criminal groups, and that money gained from illicit trade in tobacco products is used for other serious criminal enterprises, including terrorist operations. [3]

Illicit trade in tobacco products occurs in all parts of the world, in both low tax and high tax jurisdictions. Smuggling is a supply driven process, facilitated by large tobacco manufacturers and wholesalers that control the distribution of tobacco products, and by organized criminal networks with sophisticated systems for illicit product distribution. [4] Smuggling benefits the tobacco industry by increasing consumption both directly (because the presence of smuggled products in a market lowers the price of all products, stimulating consumption) and indirectly (because smuggling can be used to influence governments against effective tobacco tax polices, which reduce consumption), and by stimulating demand for particular brands (particularly in markets that have previously been closed to imports). [5] Illicit trade in tobacco products is a very attractive source of funds for organized criminal networks because tobacco products have high fiscal value, are easy to handle and transport, and often do not carry the same penalty risks as other trafficked substances, such as narcotics. [6]

The elimination of illicit trade in tobacco products will require a global effort to ensure that the illicit tobacco product supply and distribution chain (both within and between countries) is adequately controlled, and to ensure the application of appropriate penalties and effective enforcement strategies against all forms of illicit trade.

 

[1] Framework Convention Alliance, How big was the illicit tobacco problem in 2006? (2007).

[2] See World Bank, Curbing the Epidemic: Governments and the Economics of Tobacco Control (1999); FJ Chaloupka, T Hu, KE Warner, R Jacobs and A Yurekli, ‘The Taxation of Tobacco Products' in PJha and FJ Chaloupka (eds), Tobacco Control in Developing Countries (2000) 237-272.

[3] See United States General Accounting Office, ‘Terrorist Financing: US Agencies Should Systematically Assess Terrorists Use of Alternative Financing Mechanisms', Report to Congressional Requesters GAO-04-163 (November 2003), available at http://www.gao.gov/new.items/d04163.pdf .

[4] See World Bank, Curbing the Epidemic: Governments and the Economics of Tobacco Control (1999) 63-65; L Joossens and M Raw, ‘How can cigarette smuggling be reduced?' (2000) 321 British Medical Journal 947-950; International Consortium of Investigative Journalists, Tobacco Companies Linked to Criminal Organizations in Lucrative Cigarette Smuggling (Center for Public Integrity, 3 March 2001 ); Kelley Lee and Jeff Collins, “‘Key to the Future': BAT and Smuggling in China ” (July 2006) 3(7) Plosmedicine 228.

[5] World Bank, Curbing the Epidemic: Governments and the Economics of Tobacco Control (1999) 65.

[6] Ibid, 63-64.

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