Cigarette smuggling

The illicit cigarette trade is defined as “the production, import, export, purchase, sale, or possession of tobacco goods which fail to comply with legislation” (FATF 2012). Illicit cigarette trade activities fall under 3 categories:

Cigarette smuggling, also informally referred to as "buttlegging," is the illicit transportation of cigarettes or cigars from an administrative division with low taxation to a division with high taxation for sale and consumption. The practice, commonly used by organized crime syndicates and rebel groups, is a form of tax evasion.

The illicit trade of tobacco is both supply and demand driven, as consumers look to save money by evading taxes on tobacco; and suppliers want to take advantage of easy border entry, high profit margins, and weak repercussions if caught. Illegal cigarettes are priced much cheaper than legal cigarettes, and do not undergo stringent regulation in the form of health warnings, product checks, or age verification. Studies highlight that increased tobacco taxes do not dissuade consumers from smoking, rather, consumers turn to cheaper brands and illegal cigarettes. Low costs of production and high levels of demand make illicit cigarettes one of the world’s most trafficked illegal goods (Allen 2011). In London alone, 85% of smuggled cigarettes were found to be counterfeit, while the UK Border Agency averages more than 1 million counterfeit cigarette seizures per day (ICC 2007). Similarly, South Africa reports the incidence of illicit cigarettes has doubled the past 3 years, accounting for 25% of the total market in 2012. Public tolerance and acceptance of illegal cigarettes as a norm also factors into the continued purchase behavior among consumers, as they believe legitimate cigarettes are over-taxed and too expensive.

Illicit cigarettes continue to dominate in Malaysia, where 34.5% of all cigarettes (ITIC 2013), approximately 7.9 billion sticks, sold were illicit. Illicit trade remains prevalent in Malaysia due to its long coast lines, which allow for shipments to be sent from neighbouring nations, such as kreteks from Indonesia, into the East Malaysian states of Sabah and Sarawak (Rejab and Zain 2006). Smugglers have also become increasingly more efficient in unloading, storing, and distributing smuggled cigarettes quickly in local villages; whilst avoiding Customs officers. In Lahad Datu (Sabah), locals have become part of the problem, as they frequently purchase illicit cigarettes from illegal immigrants from the Philippines and Indonesia—who openly pedal these goods out in the open in a thriving flea market full of smuggled illicit goods (New Straits Times 2013). Lax law enforcement further facilitates the prevalence of illicit trade and smuggled goods in this area, as the sale of these illicit goods are responsible for sustaining the livelihood of these illegal immigrants. The low salaries of responsible law enforcement units are highlighted as a contributing factor to the lack of smuggled cigarette seizures. Rejab and Zain (2006) posit cigarette smugglers are notified before raids are conducted by Insiders in law enforcement, providing ample time to conceal shipments of illicit cigarettes. With less than 2% of all shipment containers checked upon arrival at ports (due to high volumes of containers), and low penalties for illicit smuggling, this issue will remain prevalent in Malaysia (and other countries with poor border control) as illicit cigarette smuggling continues to be seen as a lucrative, relatively low risk activity.

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Wikipedia