Globally, we’ve seen how smaller manufacturers – who don’t have as many sophisticated tax avoidance mechanisms at their disposal as multinationals do – cheat the system a bit differently: they might post9 illicit cigarettes, because small, high-frequency smuggling by post goes largely undetected;10 hang gliders take off from Ukraine and drop as many as 100 cartons of contraband cigarettes per flight in Hungary;11 a drone was caught smuggling cigarettes from Lithuania to Russia – it cost $10 to build, could carry up to 500 packs of cigarettes per trip, and was fitted with a GPS device allowing it to make drops at pre-determined waypoints, making $1 300 profit per trip;12 a 700-metre-long tunnel between the Ukraine and Slovakia was fitted with an electric railway which was used to smuggle contraband cigarettes;13 and on the border between Russia and Estonia, consignments of illicit cigarettes are simply dropped at a strategic point along a river bank in Russia, where it drifts along the current and is promptly deposited on the Estonian side, with nobody needing to carry the packs across any borders.14
(It’s easy enough to set up a back-yard operation. Want to make your own commercial batch of illicit cigarettes? Order a manufacturing machine off Alibaba,15 buy bulk loose tobacco and filters without a licence – none of which are actually illegal in many countries – and you’re in business.)
Where did they learn how to smuggle? One of the smugglers I spoke to was explicit: ‘Initially, we bought our tobacco from the big guys, but we soon realised that we could make far more profit making our own cigarettes, initially in places like Dubai, and later here in South Africa, and just play the same games they always have, but this time with all the profit going to us.’16
He went on to claim: ‘Of course big tobacco supplies the local illicit market. But they do it the same way I do it. We’re not stupid enough to do the smuggling ourselves – we pay agents to do it for us. That is why I have never been caught, and that is why they have never been caught here.’ (In fairness, he has his own motivations for speaking out against big tobacco, and so I don’t expect you to take his word for it – read the rest of this book and decide for yourself.)
To be clear – I was not a member of the Project Honey Badger team, and I don’t know what evidence they found. I have not personally investigated any of the names now being bandied about as the sources of illicit cigarettes in South Africa – I left SARS before they became players in this saga. I am certainly not suggesting that these independent manufacturers of what are loosely referred to as ‘cheapies’ are innocents – there are allegations about them being associated with cocaine dealers, wanted by Interpol, and linked to apartheid assassins and arms traders, after all – just that their potential role in the abuses of tobacco is but one dimension of a bigger story.
More information about these smaller players, and the allegations that they face, can be found in Van Loggerenberg’s books, and in Jacques Pauw’s The President’s Keepers.
I should also mention that the Fair Trade Independent Tobacco Association (FITA), which represent many of these smaller players, and is predictably at loggerheads with TISA, has denied that any of its members are involved in illegal activities, and has pledged to take action against any of their members found to be contravening the laws of the country.
For what it’s worth – it’s not just smaller competitors who are fuelling the illicit trade in cigarettes. Many politicians are doing the same, doing more than just giving tobacco room to breathe, but actively getting into the black market themselves.
As far back as the 1730s in France, we see examples where those in power got their hands dirty. Local churches exploited the niche market, hiding hundreds of pounds of contraband tobacco in their buildings – the Couvent de la Trinité was widely known as a reliable source of cheap tobacco, and over time various religious orders were found guilty of smuggling.
In eighteenth-century France, convicted smugglers were frequently ordered to join the army instead of being sent to the galleys, bringing with them both their proclivities and black-market skills. As soldiers they had access to two sources of cheap tobacco: troops only paid half price for tobacco; and they had easy access to cheap tobacco from neighbouring countries from their border patrols, allowing them to buy cheaply, and still make a profit on-selling on the black market.
It’s a trend that continues to this day:17 The ex-president of Paraguay reportedly owned the company that produced the majority of smuggled cigarettes in Latin America, although he frequently denied this accusation.18 The Montenegrin Prime Minister was accused by Italian prosecutors of having run a cigarette smuggling operation worth more than $1 billion – but he could not be prosecuted because he had diplomatic immunity.19 Belarus, which only has two state-owned tobacco manufacturers, has been the largest single identifiable source of contraband cigarettes smuggled into the EU.20 Seven Gambian diplomats were convicted for dealing in illicit tobacco, defrauding the UK Treasury of £4,7 million.21 North Korean diplomats at the Stockholm Embassy were involved in contraband tobacco and alcohol sales as far back as 1976, and more recently were again caught smuggling cigarettes into Sweden in 2009.22
In China some local governments are so zealous about defending the tobacco industry that at some point, officials in Hubei were reportedly required to smoke a collective 230 000 packs of regional brands a year.23
In the last two years alone we saw government officials really get their hands dirty: In Jordan politicians have reportedly been involved in an illicit tobacco manufacturing scheme resulting in an estimated $100 million in evaded taxes and duties.24 In Montenegro a journalist was shot following a series of allegations of senior policemen being involved in a counterfeit cigarette syndicate.25 Greece disbanded a contraband cigarette syndicate headed by an ex-policeman. In the US, three military veterans were charged with cigarette smuggling. In one of the Balkan countries illicit tobacco largely comes from two factories in the country – both of them rumoured to be run by the state security agency.26
Not all government complicity takes the form of corruption, though. Sometimes governments’ complicity may be unintentional: The Indian government resells some of the smuggled cigarettes it seizes in special customs shops. However, a BAT document reveals how it viewed these shops as a new marketing opportunity: cigarettes were being smuggled directly to the shops, where they were illegally sold under the cover of the shops’ legal sales of seized cigarettes.27
Other politicians actively encourage illicit trade and smuggling as an act of patriotism. Former Australian senator David Leyonhjelm praised tobacco smugglers, calling them patriots. He said people dealing in illicit tobacco were simply avoiding unreasonable taxes, arguing that the government is only getting away with harsh new measures to target tobacco smugglers because ‘smokers are sneered at by the elites of society.’28
Of course, the illicit trade in tobacco frequently involves crime syndicates. In Europe alone, organised crime groups rake in at least €9,4 billion a year from illicit cigarettes. Illicit tobacco in France yields more than €2 billion a year. In Canada, an estimated 105 crime syndicates are involved in the illicit tobacco trade.29 At one point, illicit tobacco in Ireland was generating up to €3 million a week.30
And some reports suggest that illicit tobacco may be funding extremist organisations who are increasingly turning to cigarette smuggling as a high-profit, low-risk way to finance their operations. It’s an extremely lucrative business, earning the Real IRA an estimated $100 million over a five-year period. It also provided the bulk of the financing for AQIM, formerly backed by Osama bin Laden; constituted the second biggest source of funding for the Taliban (after heroin); and – together with oil – earned Saddam Hussein as much as $2,7 billion annually.31
Where do syndicates get the cigarettes from? The smaller independent manufacturers may be fuelling some of it, but a study by a US-based think-tank claims that they simply may not have the capacity to produce those kinds of volumes by themselves.32 The smaller independent manufacturers are an indisputable problem – but they are certainly not the whole problem.
Whether we’re dealing with the new crop of smaller independent manufacturers, or senior politicians, or crime syndicates, the road was paved by big tobacco. What