Illicit Trade

What is illicit trade?

All legitimate tobacco products sold on the Irish market must display a relevant duty paid Irish tax stamp. Product being sold or supplied that does not display this stamp is classed as illicit product.

There are three categories in which illicit tobacco products fall under:

  1. Contraband – Genuine brands smuggled from one low tax/excise country to a higher tax country. Often seen as Duty Free product which is smuggled in to Ireland and sold illegally
  2. Counterfeit – Product illegally produced and made to replicate genuine product
  3. Illicit Whites – Cigarettes commonly produced legitimately for export by small tobacco manufacturers throughout the world but illegally smuggled in to Ireland. The majority of products found in Ireland has originated from countries such as Singapore, Vietnam and the UAE.

Current situation

Itmac Total Market Overview

Revenue’s Illegal Tobacco Products Research Survey 2017 found that approximately 520 million illegal cigarettes (26 million packs) were consumed in Ireland in 2017, representing a loss to the Exchequer of approximately €229 million. 1 in 5 adult smokers in Ireland do not purchase cigarettes from any Irish shop. This accounts for approximately 22% of the market of which Revenue estimates that 13% is illicit while the remaining 9% is purchased abroad.

Recent regulation passed by the Government saw the introduction of a minimum pack size of RYO tobacco of 30g which will cost an average of €15. The illicit trade in counterfeit RYO products is booming and a 50g pouch of illegal RYO tobacco (usually counterfeit) can be purchased for as little as €10. Up until recently, consumers were able to purchase genuine packs of 9g RYO for €3.90. The number of illicit RYO pouches has jumped from 9% in 2016 to 15% in 2017.

Brexit is of significant concern as it may open new smuggling avenues for criminals.

Sourcing and smuggling illegal tobacco products

Smugglers source and smuggle illegal product in several different ways. These include:

  • Smuggling large consignments of cigarettes in containers or within genuine cargo from the Far and Middle East
  • Van and car drivers transporting illicit product on board passenger ferries from Europe
  • Illegal product being posted to Ireland
  • Ant smugglers bring back product in suitcases from cheaper countries such as The Canaries and Baltic States
  • Returning holiday makers arriving back with excess amounts of product to sell
  • These smuggled products can be counterfeit, contraband or Illicit whites depending on where the smugglers source them

Illegal sales in Ireland

  • Illegal tobacco products still sold in traditional ways including Street markets.
  • Word of mouth, e.g. contacts made in smoking areas of certain pubs, bookmakers etc.
  • Via the internet, particularly through ads placed on Social Media e.g. Facebook accounts. This route to market is of growing concern to the industry due to the easy access to a large targeted audience and the total lack of regulation when it comes to the age profile of potential purchasers.

What drives the illicit tobacco trade?

The illicit trade is driven primarily by price and the significant profits that criminal groups and individuals involved in the trade can make from smuggling and selling illicit tobacco products. As they pay no excise or tax on the smuggled product they have a big margin to work within. That facilitates the growth of criminality in communities and allows criminal gangs to flourish and prosper. Furthermore, the people involved in the smuggling, distribution and sale of illicit tobacco products have no qualms about selling to and indeed, often using children to sell their product on the streets. The illicit tobacco trade offers consumers a value for money option compared to the high prices of legitimate tobacco in Ireland and the people involved continue to seek out new ways of supplying its target audience.

Over the last number of years the Irish Government has taken the approach of significantly increasing excise duty on tobacco products. This has seen duties increase by 90% since 2003 and today sees a legitimate pack of 20 cigarettes retailing at over €11 with similar illicit packs being sold for as little as €5. This price difference between legally sold and illegal tobacco products remains the single biggest contributory factor.

Impact of illicit trade

The citizens of Ireland and tax payer are ultimately the biggest losers because of the illicit trade. Figures released from Revenue for 2016 show the illegal trade at 10% this equates to an excise loss of €170m to the exchequer. With the government not collecting these monies, it allows general taxes to remain at a high level to make up the shortfall and local and national services throughout the country suffer.

Other significant losers from this trade are the genuine retailers, who because of illegal selling in their community no longer see genuine customers visiting their store. A typical retailer reports tobacco sales to be an average of 30% of their overall turnover. A survey produced by Grant Thornton in 2013 put the loss to the Irish Retail sector at over €720m.

Who is the ultimate winner?

Organized Crime Groups and individuals involved in the illegal trade are big winners. The people at the top of the chain make the most profit but everyone involved to the street or end seller take a little profit from it. It is believed that the major organized crime groups use the vast profits to fund further criminal activities such as drugs and gun smuggling. In 2015, a seizure of 10m cigarettes was seized by Customs whilst en route to Northern Ireland.

If that container had not been detained and all product had been sold on our streets it would have resulted in a €2.3m windfall for the criminal gang.

Tackling the illicit market

In 2016, a total of 67 fines were imposed for tobacco related offences, with only 29 of these fines paid. Only 14 people were imprisoned for the non-payment of a fine.1

Smugglers are continuously adapting their methods and making it increasingly difficult for the Customs or Gardai to identify illegal consignment or routes and to conduct seizures. The authorities primarily charged with tackling cigarette smuggling are under resourced and subsequently are unable to develop intelligence or conduct enforcement action that would reduce the illicit trade or at least make it more difficult for the people involved.

The government needs to realize its excise strategy is failing. Failing year on year to bring in the projected funds from excise duties, failing society by creating a lucrative market for criminals to thrive and failing hard working retailers from earning an honest living. We believe Law Enforcement agencies do have the necessary legislation to tackle these individuals however current laws need to be enforced such as seizing cars and vans that have been used to transport illegal product. We need to educate society on the role criminals play and how the illicit market is affecting society as a whole. The Sale of Illicit Goods Bill (2017) which makes it illegal for citizens to purchase illegal tobacco products is a step in the right direction towards doing this, however this bill is yet to be recognized as priority legislation by the government.

1 Parliamentary Question from Declan Breathnach TD to Minister for Justice Frances Fitzgerald TD, 17 May, 2017.