West Indian Tobacco - Tobacco trafficking

The black market in tobacco involves criminal gangs smuggling across borders, engaging in large-scale tax evasion and producing counterfeit cigarettes. With weak penalties for perpetrators, poor border controls, low arrest rates and tobacco taxes creating disparity between neighbouring countries, it’s a problem that’s set to grow.

Combatting illicit trade is a priority to safeguard our combustibles business. Illicit trade stifles the operation of the legitimate industry, erodes our market share and has wide-reaching negative societal impacts. The economic fallout from COVID-19 may exacerbate this issue as consumers become increasingly stretched and governments seek to raise revenues through increases in tobacco excise duties.

Why it matters

Euromonitor International estimates that 372.2 billion cigarettes per year are smuggled, manufactured illegally or counterfeited*. Illicit trade also cheats governments out of around US$40 billion each year in taxes. This stolen revenue is also being used to fund other illegal activities. In addition, counterfeit cigarettes are not manufactured to stringent product health and safety standards. We are tackling illicit trade head-on so we can stop profits going to illegal activities.

The Anti-Illicit Trade (AIT) Policy in our Standards of Business Conduct (SoBC) sets out the controls all Group companies must put in place to stop our products from being diverted into illicit trade channels.

In addition, our Supply Chain Compliance Procedure, updated in October 2020, provides guidance for complying with our AIT Policy. It sets out the minimum requirements for supply chain controls for our end-market operations, and covers tobacco leaf, as well as combustibles. At every regular Board meeting, the Board reviews a report from our Legal & External Affairs Director. This includes anti-illicit trade initiatives.

Our anti-illicit trade strategy

We fully support regulators, governments and international organisations in eliminating all illicit tobacco trade. It is vitally important that governments establish workable tax regimes and economic policies that do not encourage illicit trade. Strong border controls and effective laws also help to fight the black market. Our approach to fighting the black market in tobacco includes:

•  Effective internal governance and supply chain security;
•  Gathering market information on the scope of illegal trade;
•  Working with authorities to ensure that appropriate enforcement action is taken;
•  Engaging with international bodies like the World Customs Organization to increase understanding of the issue;
•  Informing regulators about the impacts of the illegal tobacco trade; and
•  Raising awareness of the topic among our employees, business partners and the public.

Our work to tackle illicit trade

We engage with key external stakeholders across our industry and other sectors on a range of Anti-Illicit Trade priorities. Our teams fully cooperate with enforcement agencies and local tax and customs authorities, where needed. The AIT strategy is supported by our research activities, which aim to further understand the size and scope of the problem

We also use security systems that work by tracing and authenticating our products, enhancing our supply chain controls by, for example, using digital coding technology. We support law enforcement agencies in gathering information. Our expert team is able to forensically analyse seized products, determining counterfeits and identifying illicit machinery used in their production. This enables law enforcement agencies to take appropriate action, such as destroying the goods and production machinery. We also work with governments and other organisations to make our combined efforts more effective. As part of our European Union Cooperation Agreement with the European Commission and its member states, we make contributions to the EU’s efforts to fight the illicit tobacco trade. In 2021, we continued to further strengthen our AIT approach, embedding our Supply Chain Compliance Procedure, which we updated in 2021. This includes a dedicated e-learning programme for relevant employees.

We continue to further strengthen our AIT approach by appropriately updating our SCCP. Amongst other supply chain controls, we rolled out a dedicated eLearning programme for all relevant employees. The completion rate for the 2022 SCCP eLearning was approximately 90% across the Group.