Dr Rob Hornsby University of York rh529york'ac'uk

1
Dr Rob HornsbyUniversity of Yorkrh529_at_york.ac.uk

• Getting the Goods to Market Criminal
  entrepreneurship, contraband and globalisation.

2
Removing the Trade Barriers

• Formation of the EU single market in 1993
• Aiming to sweep away the previously
• restrictive,
• rigid,
• bureaucratic,
• cultural
• and protective sovereign barriers that had
  formerly stifled free trade and free movement
  within the EU,
• marketplaces for consumers to exploit have
  widened with increased opportunities for the
  purchase of cheaper tobacco products within the
  EU

3
The Four Freedoms of Trade?

• Namely,
• goods,
• persons,
• services
• and capital

4
European Legislation Homo Economicus

• Since the abolition of trading barriers within
  the European Union, cigarette smuggling within
  the UK has increased dramatically.
• Resulting in opportunities afforded to
  entrepreneurial criminals by the introduction of
  the European Union single market and the
  increases in international trade and passenger
  movements

5
EU Price Tax Disparities
6
Estimated Scale of the Illicit Cigarette Market
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Jasons Free Market Raid

• Study by Hornsby and Hobbs (2007)
• 20k per week outlay
• 9k per week profit for Jason
• 6 drivers _at_ 1k per week each
• 6 hire cars, 1 floor on French hotel rent per
  week
• Supplying a constant flow of British professional
  bootleggers for a highly receptive UK market
• De-frauding French economy conspiring to
  de-fraud UK economy

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On a Larger Scale How Do Smugglers Operate

• Organised smuggling typically begins when a bulk
  order for cigarettes is placed with a
  manufacturer.
• After leaving the factory or bonded warehouse
  with documents showing they are bound for a
  legitimate market,
• They then go through a series of paper
  transactions that are difficult to follow.
• Ultimately, the paper trail leads to non-existent
  or shell companies, with the cigarettes having
  entered the black market.
• Sometimes the smuggling involves forged transit
  documents and tax stamps, in some cases, corrupt
  foreign customs agents or other officials are
  involved.
• All of the major multinational tobacco companies
  are implicated in smuggling activities and have
  been the subject of several legal cases to
  determine the extent of their involvement.
• In the 1990s around 80 of smuggled tobacco
  entering the UK consisted of UK-legally
  manufactured cigarettes or hand-rolling tobacco
  that had been diverted onto the black market and
  smuggled back into the UK
• Usually, as we have seen in Johns Kinghorns
  previous HMRC presentation, via large containers
  purporting to contain other consumer goods
  masking millions of contraband cigarettes

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The Criminals?

• Free Market Entrepreneurs
• Demand driven
• Bears little difference from legitimate trading
  relations and indeed often mirrors it
• Fluid, inter-locking networks of criminal
  entrepreneurs who commodity-hop between illicit
  goods driven by highly receptive markets

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Size, Price Scale of the Market

• While firm estimates of its extent are hard to
  make, it is generally accepted that at least 16
  of all cigarettes consumed in the UK are
  contraband.
• A further 8-10 are legally bought in low-duty
  countries,
• 71 of all hand-rolled tobacco used in the UK is
  either smuggled or purchased outside the UK (CMO
  200413).
• With approx. 89 of the price of legitimate
  cigarette sales in the UK made up of tax,
• And, as van Duyne suggests
• As soon as there is a sufficient demand for a
  commodity and a rewarding price difference, all
  such measures are like plugging a sieve (2003
  285)
• Potential profit for enterprising counterfeiters
  and contrabandiers in evading excise duty through
  smuggling is huge.

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The Demand for Smuggled Cigarettes

• UK, whilst smoking is declining, there is still a
  considerable market
• Approximately 12 million regular smokers
• Recent research has shown that smokers often view
  those that smuggle and distribute smuggled
  cigarettes and HRT as modern day Robin Hoods
  (Hornsby Hobbs 2007, Wiltshire et al., 2001)
• Alisa Rutters presentation should shed more
  light on this issue

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And Doubly Deviant

• Latest estimates from HMRC suggest that
  counterfeit cigarettes now make up an approx. 51
  share of the contraband seized in the UK

13
Counterfeits

• During 2004, 400 illicit counterfeit factories in
  China (producing an estimated 3 billion
  counterfeit cigarettes per week) were raided and
  350 cigarette machines confiscated (HM Treasury
  2005).
• Anecdotal evidence suggests that organized crime
  is moving into counterfeit cigarette production
  in eastern Europe,
• Recently HM Revenue and Customs have disrupted a
  number of counterfeit production sites within the
  UK.
• Stephens et al (2005) have identified
  particularly high levels of heavy metals and tars
  in counterfeit tobacco products.
• Department of Health states that these
  counterfeit cigarettes have the potential to
  deliver consistently high levels of heavy metals
  to the lungs of those who habitually smoke them.
• Laboratory tests have shown that counterfeits
  contained
• 160 per cent more tar
• 80 per cent more nicotine and
• 133 per cent more carbon monoxide than their
  genuine counterparts.

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And the Legitimate Manufacturers

• Previously it has been suggested/identified that
  British cigarette companies, were facilitating UK
  tobacco smuggling
• Exporting to countries in which there is little
  or no market for their productsexcept for
  smugglers, whose intention is to smuggle them
  back into Britain.
• Products that are only smoked in significant
  quantities in Britain, such as Regal, are
  exported to the Balkans, Baltic States and
  Southern Africa.
• The suggestion here is that the manufacturers are
  complicit in facilitating tobacco product
  smuggling activities in order to maintain their
  market positions and keep their shareholders
  happy
• (Select Committee on Treasury)

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Scale of the smuggled market

• Analysis shows that the profile of the illicit
  tobacco market has changed and is a dynamic and
  with constantly shifting modi operandi.
• The proportion of illicit cigarettes seized that
  are proven to be counterfeit has increased to 51
  in 2005-06,
• And more than 50 of the HRT smoked in the UK is
  smuggled.
• The annual approx. cost of to the Treasury
  coffers.
• Approx. 3 billion

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Or, if you like

• Evelina Childrens Hospital at St Thomas, London
  (opened its doors to patients in October 2005)
• Building and equipment cost 60 million

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So, what else do you get for your 3 billion.?

• During 2002-3, the estimated cost of lost excise
  duty to the UK Treasury was 3.38 billion
• The prison population consists of approximately
  81,533 inmates
• The annual running costs of prisons (this
  excludes private prisons) stands at 1,936 million

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Whether Illegal or LegalThe Real Costs are

• No doubt, that this has an impact on health
  inequalities.
• The North East region has some of the worst
  health statistics in the UK.
• It is the region with the highest death and
  chronic illness rates, circulatory disease rates,
  cancer death rates and levels of hospital
  activity in England,
• And tobacco use is the single most important and
  preventable reason for these poor statistics
  (Walrond, Natarajan and Chappel 2004).
• It is also recognized as a leading area in the
  country for the supply and consumption of
  contraband tobacco and is considered a central
  hub for tobacco smuggling (House of Commons
  2005).
• The presence of contraband and counterfeit
  tobacco is a major stumbling block to efforts to
  control tobacco use through taxation, health
  initiatives and other legislative means
• Rather than being considered as modern day Robin
  Hoods by smokers, perhaps the focus in creating
  a sea-change of social consciousness might best
  be directed at the real and/or potential benefits
  3billion can have to society e.g. Evelina
  Childrens Hospital at St Thomas

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Ambiguity, Costs and Social Harm

• Cigarettes whether legal or illegal kill half
  of all smokers
• And smoking kills over 100,000 people in the UK
  every year in the UK
• Organised criminal gangs that smuggle tobacco
  provide a cheap and unregulated supply which
  undermines the Governments policy of using tax
  to maintain the high price of tobacco and help
  reduce smoking
• Tobacco smugglers also undermine law-abiding
  businesses and law enforcement agencies argue
  they often use the proceeds of cigarette
  smuggling to fund other forms of organised
  crime.
• However, the costs involved takes us away from
  mere criminal justice studies, and allows us to
  consider the emerging interest in exploring the
  notion of social harm (Hillyard et al. 2005).
• Regardless of the legal status afforded to some
  agents of the tobacco trade and the demonization
  of others,
• This is a product that not only killed over
  106,000 people in the UK during 2002 (Twigg et
  al. 2004 2), but has also created new
  opportunities for commodity-hopping entrepreneurs
  such as Jason and others.

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References

• Agamben, G. (1998), Homo Sacer Sovereign Power
  and Bare Life. Stanford Stanford University
  Press.
• Hillyard, p., Pantazis, c., Tombs, t. and Gordin,
  D. (2005), Criminal Obsessions Why Harm Matters
  More than Crime. London Crime and Society
  Foundation.
• Hornsby, R. and Hobbs, D. (2007) A Zone of
  Ambiguity the political economy of cigarette
  bootlegging. British Journal of Criminology,
  47(4) 551-71.
• House of Commons Treasury Committee (2005)
  Excise Duty Fraud Fourth Report of session
  2004-5. 9th March. London Stationery Office
  http//www.publications.parliament.uk/pa/cm200405/
  cmselect/cmtreasy/126/12602.htm
• Stephens, W.E., A. Calder and J. Newton (2005)
  Source and Health Implications of High Toxic
  Metal Concentrations in Illicit Tobacco Products.
  Environmental Science and Technology, 39(2)
  479-88.
• Twigg, l., Moon, g. and Walker, S. (2004), The
  Smoking Epidemic in England. London NHSHealth
  Development Agency.
• Van Duyne, P. C. (2003), Organising Cigarette
  Smuggling and Policy Making, Ending Up in Smoke,
  Crime, Law and Social Change, 39 285317.
• Walrond, S., M. Natarajan and D. Chappel (2004)
  Premature Mortality from Smoking in the North
  East of England. Occasional paper 8, North East
  Public Health Observatory, available at
  http//www.nepho.org.uk.
• Wiltshire, S., A. Bancroft, A. Amos and O. Parry
  (2001) Theyre doing people a service a
  qualitative study of smoking, smuggling and
  social deprivation. British Medical Journal,
  323 203-7.

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• In January 2008 Dr Rob Hornsby will be leaving
  the University of York taking a post of Senior
  Lecturer in Criminology at the University of
  Northumbrias Division of Criminology.