Illicit trade in consumer goods and normally licit products

17th October 2013

Karl Lallerstedt

Karl Lallerstedt

co-founder Black Market Watch

member OECD Task Force on Charting Illicit Trade

Past

Political and Economic Analyst- Department of State- The Economist Intelligence Unit- Oxford Analytica

Illicit Trade Expertise- Anti-illicit trade director, Fortune 500 Company- Steering committee, International Chamber of Commerce Business Action to Stop Counterfeiting and Piracy (BASCAP)

The global picture

Transnational organised crime

United Nations Office on Drugs and Crime (UNODC) meta study for 2009

1.5 percent of world GDP

6 times global development assistance budgets

870 billion USD

(2012 = over one billion USD)

Breakdown: Transnational organised crime

UNODC meta study:

Narcotics 320 bn

Counterfeiting 250 bn

Trafficking 32 bn

Excise goods - another significant category

International Chamber of Commerce 2011Counterfeiting a bigger problem?

Ill effects of illicit trade

All illicit trade

1) Revenues for organised crime groups, terrorists and insurgents

Economic power = “military” power and political influence

2) Corrupts Border guards, law enforcement, military, politicians, civil servants

3) Smuggling routes Once developed for one goods can be used for others

Normally licit products

1) Reduces government revenues (excise tax, import duty, VAT, income tax, corporate tax)

2) Undermines job creation and economic development

3) Consumer risk associated with ”normal products”

Deaths due to medication, foodstuffs, electrical components, etc

Africa: Illicit trade in normally licit goods

African terror attacks in the news

Kenya - September Westgate Mall attack61 civilians killed, including EU citizens

Al-Shabaab claimed responsibility

Algeria - January gas plant attack39 foreign hostages killed, including EU citizens

Al-Qaeda linked terrorists led by Moktar Belmoktar responsible

What did the two attacks have in common?

Perpetrators have profiteered on illicit trade in consumer goods

Al-Shabaab Charcoal smuggling --> GulfConsumer goods smuggling --> Kenya Poaching trade - ivory and rhino --> China

Moktar Belmoktar A.K.A. “Mr MARLBORO” smuggling across Sahel

Illicit trade: the economics

West Africa estimates, source: UNODC 2009

Nigeria: Oil Bunkering

“one of the greatest threats to the rule of law in West Africa is rooted in the smuggling of a licit commodity: oil” UNODC 2009

Oil bunkering impact

Estimated value of stolen Nigerian oil per year$3 billion - $8 billion

West Africa: Wholesale value of cocaine to Europe is $1.25 billion UNODC, World Drug Report 2013

Piracy, drug- and arms-trafficking in Niger DeltaNetworks sometimes overlap

Kidnapping linked to oil theft

Source: Chatam House September 2013

Cigarettes

“There is evidence to suggest that the worldwide retail value of the illicit trade in tobacco products may be comparable to the cocaine market”

- Transcrime (The Joint Research Centre on Organised Crime of the Università Cattolica del Sacro Cuore  and the University of Trento, Italy), 2012

Cigarettes

Africans smoke 400 bn cigarettes a year

60 bn are bought on the black market

*Figures UNODC estimates from 2009

1 in 7Cigarettes smoked in Africa are illegal

South Africa

201230% consumption illegal8.5 billion cigarettestax losses 5bn Rand

Source: The Tobacco Institute of Southern Africa

“Information obtained suggests that a number of well-known organised crime figures have been moving away from investing in traditional illegal drug smuggling, and are now getting involved in the tobacco industry."

South African Revenue Service spokesperson Adrian Lackay, 2012

Medication

In 21 surveys of drugs from six classes from 21 countries in sub-Saharan Africa:20% were classified as falsified35% failed chemical analysis Source: The Lancet, 2012

Charts;UNODC 2013, WHO data from 2011

Medication - WCO project in Africa1 week operation using new IPM tool, July 2012

Diagrams: WCO

Medication & tobacco: common factors

Medication

SourcesAsian imports: China & IndiaAfrican production

Routes from Asia:Often container via Free Trade Zones (UAE)

Containers:Often mis-declared for inland markets

Tobacco

SourcesAsian imports: China & UAEAfrican production

Routes from Asia:Often container via/from FTZ (UAE)

Containers:Often mis-declared for inland markets

Customs Unions: ECOWAS/EAC/SADC facilitate movement of goods

Sources: UNODC & industry

The future: Does illicit trade in normally legal goods risk becoming a bigger problem?

Oil

- Higher prices = stronger criminal incentive

- Gulf of Guinea growing in importance as global supplier of oil

Tobacco

- Higher taxation = higher profits

Counterfeits

- Projected growth rate

- Significant Chinese role

Source: Chatam House September 2013

Thank you!