Illegal tobacco trade
A growing black market
The black market in tobacco involves criminal gangs smuggling across borders, engaging in large-scale tax evasion and producing counterfeit cigarettes. With weak penalties for perpetrators, poor border controls, low arrest rates and tobacco taxes creating disparity between neighbouring countries, it’s a problem that’s set to grow.
International Tobacco Smugglers Inc.
Our video portrays a fictional tobacco conglomerate – International Tobacco Smugglers Inc., which profiles the criminal supply chain that manufactures, transports and distributes tobacco products illegally.
Combatting illicit trade is a priority to safeguard our combustibles business. Illicit trade stifles the operation of the legitimate industry, erodes our market share and has wide-reaching negative societal impacts. The economic fallout from COVID-19 may exacerbate this issue as consumers become increasingly stretched and governments seek to raise revenues through increases in tobacco excise duties.
Why it matters
Euromonitor International estimates that approximately 400 billion cigarettes per year are smuggled, manufactured illegally or counterfeited. Illicit trade also cheats governments out of around US$40 billion each year in taxes. This stolen revenue is also being used to fund other illegal activities. In addition, counterfeit cigarettes are not manufactured to stringent product health and safety standards. We are tackling illicit trade head-on so we can stop profits going to illegal activities.
The Anti-Illicit Trade (AIT) Policy in our Standards of Business Conduct (SoBC) sets out the controls all Group companies must put in place to stop our products from being diverted into illicit trade channels.
In addition, our Supply Chain Compliance Procedure, updated in October 2020, provides guidance for complying with our AIT Policy. It sets out the minimum requirements for supply chain controls for our end-market operations, and covers tobacco leaf, as well as combustibles. At every regular Board meeting, the Board reviews a report from our Legal & External Affairs Director. This includes anti-illicit trade initiatives.
Our management approach
We fully support regulators, governments and international organisations in eliminating all illicit tobacco trade. It is vitally important that governments establish workable tax regimes and economic policies that do not encourage illicit trade. Strong border controls and effective laws also help to fight the black market. Our approach to fighting the black market in tobacco includes:
- Effective internal governance and supply chain security;
- Gathering market information on the scope of illegal trade;
- Working with authorities to ensure that appropriate enforcement action is taken;
- Engaging with international bodies like the World Customs Organization to increase understanding of the issue;
- Informing regulators about the impacts of the illegal tobacco trade; and
- Raising awareness of the topic among our employees, business partners and the public.
We actively engage with key external stakeholders across our industry and other sectors on a range of AIT priorities. We have dedicated AIT teams operating at global and local levels. Our AIT Engagement teams are always fully cooperative with enforcement agencies and local tax and customs authorities, where it is needed. The global AIT strategy is supported by our research programme, which aims to further understand the size and scope of the problem.
Our 2020 progress and performance
Given the scale of the issue, it is vital we continue to work united as an industry and develop effective solutions to eliminate illicit trade and, in turn, its negative socioeconomic impact in the markets. We have developed industry-wide security systems by working alongside other international tobacco companies. These trace and authenticate our products, thus enhancing our supply chain controls – in digital coding technology, for example. We support law enforcement agencies worldwide in gathering and sharing information. We monitor the destruction of seized products and machinery. And we analyse suspected fakes in our state-of-the-art laboratory in Southampton, UK. We also ensure our business joins governments and other organisations, to make our combined efforts more effective. As part of our cooperation agreement with the European Commission and its member states, we contribute to funding areas, such as training for border staff in new security systems. In 2020, we further strengthened our AIT approach with the roll-out of our Groupwide engagement toolkit. This provides our operations with detailed guidance on effective stakeholder engagement – from how to better assess the size, nature and urgency of the illicit trade issue to building effective campaigns.