Global, East Europe, Middle East , p , & Africa Illicit Trade Overview TISA Conference November 2013 Brian O’Connell Regional Head of Anti-Illicit Trade Regional Head of Anti Illicit Trade
Types of Illicit Trade
The Global Illicit Trade problem • Global illicit trade has grown for 5 consecutive years • Some 330 - 657 billion cigarettes consumed each year are illicit* – either g y smuggled, counterfeit or locally tax evaded l d f i l ll d d • Equivalent to 6-12% of world cigarette consumption • Governments globally losing some $40-50 billion a year in tobacco taxes* • Governments globally losing some $40-50 billion a year in tobacco taxes *Source: Various, BAT, Euromonitor, Framework Convention Alliance
Global market share (%) of major players 41.4 41.4 40 30 % 20 15 15 13 13 12 12 10 10 10 5 0 CNTC China CNTC China Philip Morris p British American ILLICIT Japan Tobacco p Imperial p International Tobacco TRADE International Tobacco UK Source: 2011 Credit Suisse/BAT estimates
BAT’s East Europe, Middle East & Africa Region One trillion cigarettes sold; 220 million smokers g ;
Illicit Trade across the Region: 2012 According to our estimates: According to our estimates: Over a hundred and thirty billion illicit cigarettes in the region Illicit traders make over a £1 billion; governments lose £2 billion CF - 10% CF 10% T Tax Evaded - 10% E d d 10% S Smuggled - 80% l d 80%
Illicit trade is growing across EEMEA (billion sticks) 160 140 120 100 100 80 60 60 40 20 0 2012 2012 2013 2013 2014 2014 2015 2015 7 *Source: BAT
History still means that the main volume of illicit trade is in the Middle East and Africa is in the Middle East and Africa 1.9 7.2 6 Southern Africa 5.7 7.3 East & Central Africa 3.4 West Africa 12.6 North Africa Middle East 20.4 Turkey Ukraine, Moldova & Belarus Russia Russia Caucasus & Central Asia 35.6 % of consumption across EEMEA 8 *Source: BAT
Illicit trade in the Continent of Africa: 1 in 10 cigarettes are illicit are illicit 18.8 Southern Africa East & Central Africa West Africa 53.3 53.3 North Africa North Africa 19.0 8.8 % of consumption (Africa only) 9 *Source: BAT
The Drivers of Illicit Trade… The opportunity it offers for all elements of the illicit supply chain to make money at very low risk and for the smoker to save money at very low risk, and for the smoker to save money Lack of Enforcement Consumer willingness to accept illegal cigarettes Free Trade Zones Lack of consumer knowledge - Viewed as a “Victimless Crime” Internet Weak controls, Excise Increases over-production d ti (and in neighboring and oversupply in Markets) neighboring countries Increasing regulation & War, unrest etc. Legislation Global Economic Crisis 10 Lightweight Penalties
2011 2013 Trends & Developments 2011-2013 Trends & Developments 11
12 The Modus Operandi of smugglers has developed
Social unrest, wars, coups etc. and sanctions have been key to the growth of illicit trade in have been key to the growth of illicit trade in � � Pricing and excise may be the drivers but these are the facilitators: Pricing and excise may be the drivers, but these are the facilitators: THE ARAB SPRING Africa and the Middle East 25 20.7 20.3 20 18.4 17.8 15 8 15.8 MANY OF THESE MARKETS HAVE NOW BECOME KEY HUBS AND 14.6 14.1 15 TRANSIT ROUTES FOR ILLICIT TRADE INTO OTHER MARKETS 2010 % 2011 2011 9.4 9 4 10 2012 7.2 5 5 0 13 13 Middle East North Africa ME & NA 2011 → 2012 Middle East & North Africa DNP year on year growth (less Iran) – 47%
Working Across Government Agencies Critical Interagency AIT Working Group Participants Ministry of Finance Ministry of Finance Ministry of Trade Ministry of Trade Ministry of Supply & Ministry of Supply & Ministry of Foreign Ministry of Foreign Internal Trade Affairs Provides financial expertise Leads dialogues with trade Works to protect consumers Collaborates with partners on scope of losses and partners on tackling illicit from illicit tobacco that on reducing illicit trade and measures to reduce tax trade and provide violates product regulation. interfaces with foreign evasion evasion. Can also assist in Can also assist in authoritative info on nature authoritative info on nature govts., donors, and int. orgs govts donors and int orgs seizing illicit traders’ and scope of problem. to obtain financial and financial assets and technical assistance. monitoring transactions. Border Guards/ Customs Police/Interior Tobacco Industry Armed Forces Defends borders against g Leads efforts to interdict Deploys resources to p y Provides critical intelligence g smugglers. Provides critical smugglers, seize illicit investigate and unravel on sources of product, intelligence on arrests, product, and recover lost organised smuggling market dynamics, shipment seizures, trafficking routes, revenues. networks and patrols street routes and volumes. etc. Deploys resources for markets for illicit product. land and maritime border security efforts. secu ty e o ts 14 Some include: Health, Transportation, Education etc.
The role of international agreements, trade blocks, customs unions etc. is continuing to grow; its impact on illicit trade must be considered and reflected • Promulgated new EU-wide AIT Strategic Action Plan in 2013 • Coordinates engagement with neighbouring countries against illicit trade China, Belarus, Ukraine, Moldova, Russia, Western Balkans and Turkey Enforcement Sanctions Supply Chain Customs & Police Penalties for SOC Minimum penalties Sharing analytical information Licensing equipment Minimum maximum penalties Customs Modernisation C M d i i Due diligence (KYC) Confiscating the proceeds from Customs Training Track & Trace SOC 15
What can be done? Consideration in regulatory decision making g Increased enforcement International cooperation Stronger laws & Stronger laws & Tougher penalties Nationally aligned Reduce responses Illicit Trade Illicit Trade Graduate & Moderate Pressure on the Illegal Pressure on the Illegal Excise Rises supply chain 16
The WHO’s FCTC Protocol to Eliminate Illicit Trade in Tobacco Products Tobacco Products � In November 2012, the Protocol to Eliminate Illicit Trade in Tobacco Products was unanimously adopted by the delegates of the Parties to the Products was unanimously adopted by the delegates of the Parties to the WHO’s Framework Convention on Tobacco Control (FCTC) � It is the first Protocol to the WHO FCTC. It is the first Protocol to the WHO FCTC. � The Protocol is an important step in addressing the problem but there is still a long way to go. g y g � It’s vital that the work to move this finalised Protocol forward, to implementation stage, begins immediately. 17
What does the ITP contain ? � A comprehensive set of Supply Chain controls and international cooperation commitments to help fight against Illicit Illicit Trade Trade in tobacco Trade in tobacco � Not all the provisions of the ITP are mandatory
Signatories to the ITP g (17 out of 36) Source: www.WHO.int
How Do We Address the Issue? � Key Company Priority / Building Internal Momentum � Raise Awareness Internally (Research & Analysis) � Consistent approach to fighting Illicit Trade � Dedicated Resources - AIT Cross Functional Cooperation Dedicated Resources AIT Cross Functional Cooperation � Supply Chain Security � ‘Know Your Customer’ & ‘Customer Approval’ / Standards of Business Conduct � Supply commensurate with legitimate demand � � Destroy Old Production Equipment Destroy Old Production Equipment � Track & Trace – Product Authentication Devices � Brand Protection � Gather Intelligence to Support Seizures � BAT Laboratory / Trademark Protection / Internet Strategy � Training Enforcement Agencies / Adult Smokers Campaigns � Work with Governments / Policymakers � AIT Dialogue / Social Reporting � MoU Programme /Cooperation Agreements � Industry and cross industry cooperation – Brand Protection Groups � Striving for appropriate regulatory & tax regimes � Appropriate Portfolio Strategy Appropriate Portfolio Strategy
21 Thank You Thank You
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