From: Malaya Business Insight
CIGARETTE smuggling has now become a major security concern for many countries because terrorist networks such as Al Qaeda are turning to this illicit trade to finance their criminal activities, according to a study done b by a global non-profit tax research foundation.
Citing findings by the US Department of Justice Bureau of Alcohol, Firearms and Tobacco (AFT), the International Tax and Investment Center (ITIC) reported that “organized” criminal groups, including those with ties to terrorist organizations, are engaged in illegal trafficking of alcohol and tobacco products, including counterfeit tobacco products.”
The Center, which serves as a clearinghouse on best practices for tax and investment policy information worldwide, also noted that the crackdown on the banking system after the Sept. 11 terror attacks on US soil, which has made money laundering difficult, have led terrorists and other criminals to the illegal trade of cigarettes to generate funds and move money across borders.
“Research demonstrates that illicit trade [on tobacco products] has become a major security challenge in different environments around the world and is, increasingly use to fund terrorism,” the ITIC said in its 39-page report on cigarette smuggling.
The ITIC study disclosed that terrorist organizations and other organized crime groups are exploiting the illicit trade in tobacco products because the highly lucrative activity is relatively low-risk compared to other heavily penalized crimes like drug trafficking and human smuggling.
It also pointed out that cigarettes, being highly taxed, easy to transport and with a lucrative risk-to-reward ratio, are among the most illegally trafficked goods in the world, with people involved in the smuggling of tobacco products also involved in the trafficking of drugs, people, alcohol, diamonds, timber and antiquities.
The report titled ‘The Illicit Trade in Tobacco Products and How to Tackle It” was authored by tax and customs expert Elizabeth Allen, who has over 35 years of management, operational and policy experience in the United Kingdom’s revenue, and customs agencies.
The study found that an “unbalanced tax policy that calls for radical tax increases for tobacco products triggers cigarette smuggling” and advised governments to “balance their approach in the setting of excise tax rates” with the aim of optimizing tax revenues in the long term and avoiding the development of an illicit market.”
Even the World Bank, the ITIC pointed out, has advised governments against excessive, yet counterproductive tax rate hikes in tobacco products.
“The potential for smuggling tobacco can limit increases in tobacco tax rates. When setting tax rates, consider the risk of smuggling, the purchasing power of the consumers, tax rates in neighboring markets. and the ability and effectiveness, of the tax authorities to enforce compliance,” the World Bank said.
The ITIC also serves as a training center for the transfer of technical know-how on taxation and investment best practices to developing countries, holds offices in the United States, United Kingdom, Russia, Azebaijan, .Jordan, Kazakhstan, Ukraine and the Philippines.
The ITIC also cited research done by a terrorism and transnational crime expert who described cigarette smuggling “as a crime choice among terrorists.”
Terrorists are increasingly turning to cigarette smuggling for funding. “Among the groups are the Taliban, for whom cigarettes are now second only to heroin as its funding source, and al Qaeda,” said Dr. Louise Shelley, a professor and director of the Terrorism, Transnational Crime and Corruption Center at George Mason University in Arlington, Virginia.
She said the CS Government Accountability Office ranks cigarette smuggling among the top fund-raising activities used by terrorists, along with the illegal drugs, weapons and diamonds.
Shelley’s research showed that the Irish Republican Army (IRA), Hezbollah, Hamas, PKK, ETA, the Egyptian and Palestinian Islamic Jihad, Farc and terrorist groups in Pakistan are among those that have turned to cigarette smuggling to raise funds. Terrorist organizations have also been found to he involved in the manufacturing and selling of counterfeit cigarettes in South America and Russia.
The ITIC study noted that since law enforcement resources in many countries are targeted at drugs and human trafficking, cigarette smuggling has become a relatively low-risk but highly profitable activity.
“As a result, the high profits available when measured against the risks of being caught and the low penalties handed down should a prosecution ever take place, make cigarette smuggling a very attractive option for organized crime gangs and terrorist network,” the study said.
Various stakeholders have raised concerns about the marked increase in trade of illicit cigarettes as a result of the implementation of the Finance department-backed House Bill (HB) 5727.
HB 5727 seeks to impose a unitary tax rate of P30/pack, on all tobacco products within three years from implementation which will result to more than a 1000% increase on low-priced cigarettes., thus, triggering influx in the country of smuggled and counterfeit cigarettes.