Vincent Byrne, global director, Anti-Illicit Trade Operations, JTI.
Tobacco Asia (TA): What is your team’s role within JTI in fighting the illegal tobacco trade?
Vincent Byrne (VB): The Anti-Illicit Trade Operations (AITO) team plays a critical role within the company by spearheading efforts to combat illegal trade and protect the company’s brands, trademarks, and business from criminal activity. Acting as a key facilitator between the company and law enforcement agencies worldwide, the AITO team operates within the framework of the company’s global Anti-Illicit Trade (AIT) program, which fosters public-private partnerships. Our efforts are not only focused on safeguarding the company’s interests but also contribute to the broader fight against illegal trade.
TA: Could you please describe the general strategy setup that AITO deploys in combatting the illegal trade? Are you approaching the issue from different angles?
VB: Our strategy focuses on three key priorities: ensuring that our supply chain is secure and our products are not being smuggled; supporting governments and law enforcement agencies LEA in combatting illegal tobacco activities; and advocating for those reasonable and proportionate regulations and taxation that do not encourage the growth in demand for illegal tobacco products.
According to industry estimates, illicit tobacco represents 1 in 10 cigarettes consumed globally. And why are criminals particularly attracted to illicit cigarettes? Because criminal syndicates make fortunes by evading the high taxes imposed on tobacco products, profiting at the expense of nations and their citizens. The higher the price of cigarettes relative to consumers’ income, the greater the incentive for criminals to supply illicit products to meet the demand for cheap tobacco.
Secondly, there is little deterrence in many countries, as weak enforcement and lenient punishments enable the illegal tobacco trade to thrive, even though it robs governments of an estimated US$50 billion in excise revenue annually. Additionally, illicit cigarettes are easy to transport, store, and distribute, making them an appealing choice for organized criminal groups, which control a significant portion of the global illegal trade. This illicit trade involves various types of tobacco products, including legitimately produced cigarettes that are diverted from their intended markets without the relevant duties being paid.
To address this issue, we have implemented a comprehensive control system designed to safeguard our products and brands from criminal activities.
TA: What are the main challenges that you are striving to tackle with your control system?
VB: Criminal groups are incredibly adaptable and highly motivated. They are constantly looking for ways to expand operations and swiftly respond to anti-illicit measures. For example, over the last 10 years or so in Europe, organized crime groups have established numerous counterfeit cigarette production facilities which are closer to and give easier access to high-value markets such as France and the UK. In the Asia-Pacific region, they exploit transshipment hubs to smuggle tobacco alongside legitimately declared transit goods.
Consider how quickly criminals adapted their operations after Covid-related restrictions were introduced. There was a sharp increase in online sales of illicit cigarettes, and this shift to online commerce and social media has persisted, making it more challenging for law enforcement to combat illicit trade. There is also a lack of common understanding among regulators regarding the importance of predictable tax regimes in curbing illicit tobacco. Illegal trade tends to increase when legal tobacco products become less affordable. As prices rise due to tax hikes, consumers are increasingly drawn to illicit cigarettes, which are often sold at a fraction of the price of legal products.
One of the major challenges in combating the illegal tobacco trade is that authorities often do not treat it as a serious criminal offense, even though the connections between illegal tobacco and more serious organized crime are well documented. Where criminal prosecutions do take place, the imprisonment rate for individuals charged with tobacco-related smuggling offenses remains very low. Even in cases where jail time is imposed, it is often dismissed by offenders as merely an occupational hazard.
TA: Generally speaking, what tools are at your disposal, what concrete measures are you carrying out?
VB: JTI has invested hundreds of millions of dollars in various initiatives to combat the illegal tobacco trade. We have implemented programs to certify and monitor customers and suppliers, ensuring our supply chain remains secure and preventing our products from being diverted into illegal channels. As a result of these efforts, JTI has established a highly secure supply chain, with only small quantities of its brands being smuggled across borders in recent years.
We recognize that, as an industry, we need a more unified approach and cohesive voice to make a greater impact in supporting authorities in the fight against illegal trade. JTI collaborates with governments, regulators, police, and customs to combat illegal trade and related criminal activities. We provide relevant and reliable information to various law enforcement and government agencies globally to assist in their enforcement action. We conduct analyses of seized samples and provide reports and evidential statements to assist in prosecutions where required. We also deliver anti-illicit trade awareness sessions and counterfeit recognition training to law enforcement agencies (LEA) worldwide. Additionally, we engage in national and international campaigns to educate consumers, retailers, and the general public about the risks and dangers associated with the illegal tobacco trade.
TA: Which authorities would be typically involved?
VB: JTI engages with and provides information to multiple law enforcement and government agencies globally. We have established strong working relationships with international and national LEA including Europol, the European Anti-Fraud Office (OLAF) and various national and local LEA across the Asia-Pacific region, sharing industry expertise, information and actionable intelligence on all aspects of the illegal trade, including criminal operations, illegal production and storage locations, illegal distribution routes, evolving trends and smuggling modus operandi. JTI [also] has developed solid working relationships with customs agencies, border security agencies and police forces. We have signed memorandums of understanding MOU with over 50 government and law enforcement agencies worldwide.
TA: Are there any countries where this collaboration may be either lacking or may not be as well developed as elsewhere?
VB: It is fair to say that in some countries, the illicit tobacco problem is more pressing than in others. There are many factors which contribute to and facilitate the growth of the illegal trade. The main driver is lack of affordability driven by excessive excise or tax rises. That makes legitimate tobacco less affordable to consumers and drives them to seek cheaper alternatives.
Unfortunately, criminal networks very quickly fill that demand by smuggling illegal products including counterfeits and so called cheaper ‘illicit whites’ across borders and illegally distributing them in the targeted market.
In some countries tackling this issue is not high on government or LEA’s priority and in some countries there are issues such as lack of resources and corruption which are further enablers. Another challenge often encountered is the lack of cooperation between LEA. These issues all pose challenges for cooperation and JTI works with various international bodies and LEA to try and overcome those challenges.
As an example, let’s look at an Asian market with very high illicit trade. Malaysia continues to rank among the countries with the highest levels of illicit cigarette consumption globally. However, the government has been taking actions to address this issue. JTI and industry experts consistently emphasize the cross-border nature of the illegal tobacco trade, noting that disrupting the logistics routes established by criminal syndicates has a substantial impact on their operations. The Malaysian government has taken proactive steps to curb smuggling activities by limiting the transshipment of cigarettes to five designated ports and enhancing control and monitoring measures at these locations.
The greater the share of illicit tobacco, the more challenging it becomes to dismantle the black market. Criminal syndicates establish deeply rooted operational frameworks, generating billions of dollars in illegal revenue. JTI has been emphasizing to governments and LEA that in addition to traditional methods for tackling smuggling, other crime fighting deterrents need to be implemented or deployed. That includes the seizing and confiscation of proceeds of crime, i.e., the illegal profits generated from tobacco smuggling. As a result, law enforcement agencies require additional resources and stronger legislative support to adapt and implement new measures to combat illegal tobacco.
TA: Are you applying your strategy across the board, i.e. any illegal products encountered regardless of their brand or origin? Or are you only focusing on JTI-branded products, including counterfeits?
VB: Securing JTI’s supply chain is a top priority in our comprehensive anti-illegal trade program, which spans more than 130 markets where we sell our products. We invest millions of dollars to ensure our products are sold exclusively in their intended markets and that our partners are not involved in illicit trade. However, combating the illicit tobacco trade extends beyond protecting just our consumers, brands, products, and trademarks. The production and illegal distribution of cheap so called ‘illicit whites’ cigarettes are by far the largest contributors in volume to the illegal tobacco trade globally. That is why we emphasize extensive cooperation between the industry, authorities, retailers, and NGO to fight this huge problem.
TA: What are the overarching trends regarding illicit product? Is the problem increasing, is it decreasing?
VB: While the dynamics vary from country to country, the overall consumption of contraband and counterfeit cigarettes remains high. According to the latest KPMG report, illicit consumption across 38 European markets grew by 3.0% to 52.2 billion units in 2023. Reports suggest that illicit tobacco products could account for 19% of the Philippines’ domestic market by 2025. These examples highlight the severity of the illegal tobacco problem. A research paper on the “Causes and Control of Illegal Tobacco” demonstrates a direct correlation between the growth of illegal trade and the decreasing affordability of legal products due to tax hikes. For instance, France has experienced a persistent – and recently accelerated – illegal trade problem, with illegal cigarettes being sold at half the price of genuine brands following recent tax increases.
Another concerning trend is the expansion of the illegal market for e-cigarettes. Many of these relatively new products are entering markets, and organized crime groups are exploiting gaps in clear regulation or legislation, as well as confusion among enforcement authorities about these products.
We are also witnessing a significant rise in the use of social media and e-commerce plat-forms, including websites and instant messaging apps, to market and sell illegal cigarettes and reduced-risk products (RRP). In some cases, these platforms even enable delivery services. The proliferation and convenience of new technologies make it easier for criminals to target minors and sell illicit tobacco products.
TA: Should governments rethink their policies? Or in other words, what should be done to combat the illegal trade more efficiently and sustainably?
VB: First and foremost, governments must enhance border enforcement and close loopholes that allow illegal cigarettes to be smuggled alongside legitimate transit goods.
Recognizing that the illegal cigarette trade is dominated and controlled by organized crime groups, governments should prioritize addressing this issue by following the money trail and dismantling criminal networks. Strong enforcement with serious consequences, such as lengthy prison sentences for criminals involved in organized illegal tobacco operations, including smuggling, is essential.
Fiscal and regulatory policies should be balanced and predictable to ensure legal products remain accessible and affordable for law-abiding citizens. Reasonable and moderate taxation is crucial to curbing illicit trade. We collaborate with government bodies worldwide to highlight the implications of aggressive tax policies and emphasize that taxation should be a primary tool for preventing illegal trade.
The illegal tobacco trade is inherently a transborder crime, requiring increased international cooperation between LEA. Enhanced collaboration between private industry and law enforcement is also vital, as improved intelligence sharing has proven essential in tackling illegal trade operations across the globe. Additionally, coordinated global campaigns can help raise consumer awareness about the dangers and consequences of illegal tobacco.