From: New York Times
By STEPHEN CASTLE and DOREEN CARVAJAL
LONDON — When the Sophie Maersk docked at the British port of Felixstowe, the ship carried two 40-foot containers brimming with what had been billed as toys and stuffed turtles. But the cargo was not for child’s play.
The containers were crammed with more than 20 million illicit cigarettes smuggled by an unlikely ring that included members with stellar business résumés: a recruitment consultant, a scaffolding company owner and a millionaire Dubai businessman in plastic recycling who had fallen on hard times during Europe’s economic downturn.
“He borrowed money and took the wrong route,” an attorney said in open court earlier this year, apologizing for the gang’s ringleader, Paul O’Meara, 48, of Suffolk in England, adding that he “lived the good life,” but lost it all, and then risked his reputation “as a result, really, of the financial collapse.”
For years, law enforcement officers and smugglers have played cat and mouse in Europe, where contraband cigarettes are stashed in everything from furniture shipments to loads of Christmas trees or lettuce. But Europe’s four-year economic crisis is expanding the black market for cigarettes, robbing European Union nations of valuable revenue and drawing in a new class of smugglers who look more like the man next door than hardened criminals.
In May, a judge in England scolded Terry Nolan, a blind man living in Yorkshire, who was convicted after investigators found him stashing more than 200,000 contraband cigarettes, some behind a false wall in his garden shed. Mr. Nolan refused to reveal the source, claiming he was afraid of reprisals, and was given a five-month suspended sentence after pleading guilty to evading £102,000, or $158,000, in excise taxes.
“You are 61-years-old and apart from a sentence in your youth for cannabis possession, you have remained law-abiding for the last 40 years,” Judge David Tremberg lectured him in court, issuing a curfew and a £680 fine. “At a time when the public purse is at breaking point, this business robs the country of much-needed finances.”
Indeed, the impact of lost tax revenues is enormous, especially since the European Union is partly funded by customs duties, 75 percent of which are passed to the bloc by its member nations.
“The damage: €1 billion missing in the E.U. budget and up to €9 billion missing in the member states,” said Jens Geier, a German member of the European Parliament, who worries that the volume of smuggled cigarettes hints at serious structures of organized crime behind these illicit, Everyman retailers.
Hard facts about this smuggling trade are found in the lowliest places: the garbage. In annual surveys, financed by legal cigarette companies, researchers fan out to major cities in 27 European nation and collect crumpled cigarette packs. Those packs are analyzed by laboratories to determine how many are bought over the counter and which are counterfeit. Some boxes are so meticulously produced, in China, Dubai or Eastern Europe, that they contain bogus tax stamps for various nations.
The latest results of the garbage scavenging showed the black market competition has increased to record levels. In Spain, illicit sales last year soared 300 percent to more than 4.64 billion cigarettes. In the struggling region of Andalusia, they showed, contraband cigarettes represent 20 percent of the entire market.
In Ireland, smugglers are robust competitors with legal cigarette companies, reaching more than 17 percent. Overall, black market cigarettes continued a steady climb for the fifth straight year, topping 10 percent of consumption or 65 billion cigarettes, according to the annual report issued in June by the auditing firm KPMG for a cigarette manufacturer, Philip Morris International.
Smuggling has flourished in particular in nations where the price of a pack of cigarettes has edged past $10, the result of rising taxes.
“In times of economic crisis, especially a long economic crisis like the one Europe is experiencing now, people have less disposable income and they are particularly interested in cheaper products,” said Simeon Djankov, deputy prime minister and finance minister of Bulgaria. There, he said, the market share of smuggled cigarettes more than doubled from 2008 to 2010.
In Dublin, Benny Gilsenan did his own research. When Ireland’s economy started to founder in 2008 after the country’s real estate crash, Mr. Gilsenan noticed the regulars were dwindling at his store, Benny’s, a 40-year fixture in the neighborhood.
Then he confronted a former customer, whom he could see smoking just a few hundred yards away. The man explained the math to him.
“I sell a pack for €9.20, while they can get one for €3.20,” Mr. Gilsenan said, noting that his sales declined 40 percent in the past four years and resulted in layoffs of two employees. Since then, he and other shopkeepers have formed a group called, Retailers Against Smuggling, which has been pressing for higher penalties for people caught smuggling cigarettes.
The turtle toy-smuggling case was masterminded by Mr. O’Meara, the businessman who fell on hard times before embarking on what prosecutors called a “massive international smuggling operation.”
Among the seven men sentenced earlier this year, none had a previous record for smuggling, according to Paul Barton, assistant director of criminal investigations at HM Revenue & Customs in Britain.
According to investigators and court records, the turtle plot began sometime in 2009 when Mr. O’Meara was struggling with debts and began work on setting up a haulage business, called Vincent Logistics, which prosecutors described as a front company.
The front was established with financial help from another member of the smuggling ring, Robert Doran, 47, a millionaire Dubai businessman who helped bankroll the plot.
In 2007, Mr. Doran sold his share in a Dubai waste-management company for almost £40 million. He ran another company in Dubai called Crayford International, employing a small staff there, and was also director of an English property company called Crayford Creek Properties, based in southeast London.
By 2009, according to statements made in court, he made a misguided £15 million property investment in Dubai and took a £5 million stake in a Malaysian waste-management company, which he lost through fraud — financial problems compounded by an expensive divorce.
“After, effectively, a blameless life and a successful life, by the second half of 2009 Mr. Doran saw every aspect of his life that he had built disintegrating in a series of personal and financial catastrophes,” his attorney argued in court.
The potential tax loss in the case was £3.379 million for the British government, according to Mr. Barton, who said the plot had taken four to five months to prepare and was so well organized that plotters marketed the cigarettes with glossy brochures.
In the end, it cost them jail sentences, ranging from two years to four and a half years.
Despite the emergence of middle-class smugglers, investigators believe that behind them are big criminal organizations involved in large-scale smuggling rings with distribution and territory controlled by violent gangs.
Contraband tobacco is less lucrative than narcotics, but it is attractive because those caught receive much shorter jail terms.
While cash-strapped governments fret about lost revenue, law enforcement officers are concerned how smuggling profits are reinvested in other criminal activities.
“A lot of people perceive this as a Robin Hood type of fraud and that the ordinary person in the street, who has a lot less money these days, is gaining the benefit,” said Austin Rowan, head of unit responsible for cigarette smuggling at the E.U. anti-fraud office. “But this trade is financing organizations that are involved in other activities, including drugs smuggling.”
Today the black market is dominated by counterfeits, often imported from China, and by “cheap whites,” cigarettes of reasonable quality that are made by smaller companies in Eastern Europe or Asia.
In the toy-smuggling case, a consignment of M&J Original cigarettes was bought, legally, from Independent Tobacco, based at Jebel Ali, in Dubai, then sent on an 8,000-mile, or almost 13,000-kilometer, detour via Hong Kong, which was a more believable source of toy imports.
It is a common strategy among smugglers, according to Morgan Rees, a spokesman for Philip Morris International. He said that the duty-free zone has emerged as a manufacturing hub with almost 20 factories for export cigarettes, prompting nations like France and Germany to place customs agents there to increase protection.
But those agents are trying to crack increasingly inventive schemes. European investigators uncovered a plot in which cigarettes were bought in Greece and then exported to Dubai to escape paying duty in the European Union. The cigarettes were then sent to Morocco via Spain — where they were discovered — wrapped in black plastic bags and described on the shipping manifest as humanitarian aid.
