Big Tobacco faces big EU counterfeit problem
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[June 01, 2023] By
Richa Naidu, Emma Pinedo and Emilio Parodi
MADRID (Reuters) - Spanish police raided three clandestine tobacco
factories early this year, seizing nearly 40 million euros ($44 million)
worth of tobacco leaf and illicit cigarettes.
At one, in the northern town of Alfaro, they found 10 Ukrainian workers,
five of them war refugees, who'd been put to work with no contracts and
scant pay, police said. They worked all day for and lived at the
factory, forbidden from leaving.
This operation is one of dozens across the EU that regional policing and
anti-fraud agencies say have driven seizures of illicit cigarettes to
record levels.
Crime groups, which have traditionally mainly sourced fake tobacco
products from outside the EU, are increasingly setting up production
facilities in western Europe to be closer to higher-priced markets,
according to Reuters interviews with half a dozen specialists in the
field, including enforcement officials, tobacco executives and industry
analysts.
The trend was revved up by the travel shutdown of the COVID-19 pandemic,
which choked supplies from outside the bloc, the European Anti-Fraud
Office (OLAF) said. It may have been further accelerated by the war in
Ukraine, which for years has been a production hub and transit route for
illicit tobacco, OLAF added.
As well as the human cost, counterfeiting is a financial thorn in the
side of the world's biggest tobacco companies at a time when they're
facing a global decline in smoking that's spurred large investments in
alternative products like vapes.
"Criminal gangs have switched from importing counterfeit products into
Europe to establishing illicit manufacturing facilities within EU
borders," said Cyrille Olive, British American Tobacco's (BAT) regional
head of anti-illicit trade.
BAT - one of tobacco's global giants with Imperial Brands, Japan Tobacco
and Philip Morris International - has seen increased counterfeiting
since last year in France, the Netherlands, Portugal, Slovenia, Denmark
and the Czech Republic, Olive added.
Some campaigners have accused Big Tobacco of overstating the size of the
illicit market to help lobby against higher taxes - something the
companies deny. Nonetheless, the latest data shows seizures of illicit
cigarettes are increasing.
A record 531 million illicit cigarettes were impounded across the EU
last year, a rise of 43% from the roughly 370 million seized in 2020,
according to data from OLAF. About 60% of the cigarettes were from
illicit production in the bloc while the rest were smuggled in.
Europol told Reuters that last year would also likely set a record for
the number of illegal cigarette factories that were reported shut down
by national police forces, although the full-year data isn't yet
available.
TOBACCO INVESTIGATORS
The industry has responded by hiring investigators to research illicit
operations and share intelligence with European authorities, executives
at Japan Tobacco, BAT and Imperial Brands told Reuters.
The three tobacco majors declined to put a figure on the financial hit
from the illicit trade. Japan Tobacco has, though, spent "hundreds of
millions of dollars" gathering information on the counterfeiters which
it then passes on to European authorities like OLAF, according to
Vincent Byrne, head of the company's anti-illicit trade operations.
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A Spanish civil guard arrests two people
during a raid where more than 3.5 million packets of contraband
tobacco were seized, in Seville, Spain, in this picture released on
January 22, 2023. Guardia Civil/Handout via REUTERS
"We have a dedicated function within the company to try and protect
our assets, protect our brands, and combat illegal trade," said
Byrne, a former detective who investigated organised crime in
Ireland.
BAT and Imperial Brands said they also had intelligence operations.
Philip Morris International declined to comment for this article.
PACK: LESS THAN A EURO TO MAKE
Counterfeiters typically replicate popular cigarette brands, which
include Japan Tobacco's Winston, Philip Morris' Marlboro, British
America's Dunhill and Imperial Brands' Nobel.
A packet of 20 cigarettes costs less than a euro to make, said
Byrne, but trades at several times that, depending on the
marketplace.
Supplies from China and other parts of Asia - which used to be the
biggest sources of counterfeit cigarettes that ended up in the EU -
shrank during COVID-19 lockdowns, spurring increasing production in
Europe itself, according to Alex McDonald, head of group security at
Imperial Brands.
Russia's invasion of Ukraine may have quickened that trend, said
Ernesto Bianchi, OLAF's director of revenue and international
operations, investigations and strategy, adding that the agency was
"analysing how the fraudsters may have reconfigured their routes".
Ukraine had been a hub for the manufacturing of illicit tobacco and
a supply route for illicit and counterfeit cigarettes made in Russia
and Belarus, activities that may have been disrupted by the war,
Imperial Brands' McDonald said.
Some counterfeiters are luring and coercing Ukrainian refugees to be
workers.
An illegal tobacco factory was dismantled last month in Roda de Ter,
80 km from Barcelona, Spanish police said on Thursday. Officers
seized 11,400 kilos of tobacco and 7,360 packets of cigarettes. Six
Ukrainians were found working there.
In Italy, officials said in April last year they had found about 82
tonnes of counterfeit cigarettes inside a factory in the industrial
area of the country's Pomezia municipality.
Investigators said they found Russian, Moldovan and Ukrainian
workers doing gruelling shifts in an unsafe environment where
walled-up windows stopped fumes escaping.
"A good many workers from Ukraine have been found in these illegal
factories," Japan Tobacco's Byrne said about counterfeiting
operations across the EU.
"They're collected in a van at an airport, blacked out windows,
driven around and swapped into another van," Byrne, said recounting
a particular incident.
"Eventually they're delivered to the factory. Mobile phones are
taken from them. Essentially, it's a form of modern-day slavery."
($1 = 0.9310 euros)
(Reporting by Richa Naidu in London, Emma Pinedo in Madrid and
Emilio Parodi in Milan; Editing by Matt Scuffham and Pravin Char)
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