New tobacco laws may worsen illicit trade, global conference hears

An increasing number of South African smokers choose to buy cheaper illegal cigarettes as their purchasing power is on the decline due to ever-rising tax levies on legitimate products, contributing to high prices on these on top of inflation.

This is part of a submission by Brig-Gen Juan Carlos Buitrago of the national police of Colombia, who is also the founder and CEO of Strategos BIP, on the Tobacco Products and Electronic Delivery Systems Control Bill.

Buitrago expanded on this during a panel discussion in Dubai this week at a conference on illicit trade and anti-counterfeiting.

"Illicit trade is one of the biggest threats to stability and economic growth in South Africa. The Financial Action Task Force (FATF) placed South Africa on its grey list in February 2023 because of the state's shortcomings in tackling illicit financial flows and the financing of terrorism.

“Unfortunately this is reminiscent of Panama, a country that I know well, which was also catalogued by the FATF as a ‘grey list’ country due to deficiencies of its government in matters of prevention of money laundering and financing of terrorism,” said Buitrago.

The South African Revenue Service has estimated illicit trade costs the economy R100bn every year.

In 2021/2022 the level of illicit trade was at least 54% and before Covid-19 it was at 35%. This sharp increase occurred with the Covid-19 measures imposed by government that included a ban on sales of alcohol and tobacco products, for the latter from March 27 until August 17 2020, enabling illicit traders to widely supply the market due to a lack of enforcement.

“It was the direct result of imposing restrictive and prohibitive regulations,” Buitrago said.

He said the display ban and point-of-sale restrictions proposed by the bill are highly likely to increase illicit trade and counterfeit tobacco products and will add to the burden of law enforcement agencies.

“The risk of criminalising the retail sector increases significantly, making it easier for unscrupulous retailers to sell cheaper illicit products as there will be no visibility whatsoever,” he said.

On Monday police intercepted a truck transporting illicit cigarettes worth an estimated R22m outside Cape Town. Two suspects were arrested. The large consignment of illicit cigarettes was allegedly discovered on the truck heading to a warehouse in Montague Gardens.

“Plain packaging is another restrictive provision that will increase illicit trade. Removing distinctive trademark features and restricting the labelling or packaging of products benefits illicit manufacturers as the process of counterfeiting popular trademarks becomes easier to do and more difficult and cumbersome to detect.

“Evidence coming out of Australia, after the introduction of plain packaging in October 2012, shows illicit trade in cigarettes has increased by almost 20% between 2012 and 2013. In 2019 the estimated proportion of Australia’s tobacco consumption comprising illicit tobacco products was 20.4%,” said Buitrago.

He recommended government should avoid prohibition laws, extreme legislation, and regulation that “artificially” reduce the supply of safer legal products.

Stefano Betti, deputy director general at the Transnational Alliance to Combat Illicit Trade, said the inflow of fake and smuggled goods contributes to the country’s unemployment challenge.

“Domestic job opportunities are lost when fakes manufactured elsewhere in the world are imported and sold in South African markets.”

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