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International Conference: Counteracting Cigarette Smuggling in the Balkans
The Center for the Study of Democracy (CSD) and the Customs Agency carried out an international conference “Counteracting Cigarette Smuggling in the Balkans” on June 2-3rd, 2011 in Sheraton Hotel, Sofia. The Deputy Prime Minister and Minister of Finance, Mr. Simeon Diankov, officials from the Ministries of Finance and Interior, along with the general directors and high-level officials from the customs administration of Bulgaria, Turkey, Greece, Macedonia, Serbia and Romania and representatives of Japan Tobacco International offices in Bulgaria, Turkey, Greece, Macedonia, Serbia and Romania, representatives of OLAF and Directorate-General “Taxation and Customs Union” of the EC, representatives of cigarette companies “British Amercian Tobacco”, “Philip Morris International”, “Bulgartabac Holding” and “Ïmperial Tobacco” took part in the conference.

The conference was officially opened by Dr Ognian Shentov, Chairman of Board of Directors of the Center for the Study of Democracy. In his opening speech, Dr Shentov stated that joint actions are needed for counteracting of the gray economy. The raise of the excise tax of cigarettes lead to a higher demand in illegal tobacco markets, thereby causing an increase in cigarette smuggling. The CSD annual index of gray economy for year 2010 shows that in 2009 there was a decrease of illicit cigarette trade. In year 2010 there was a surge of illicit trade of cigarettes though it is accompanied by an increase in captured smuggled tobacco products. The people involved in illicit cigarette trade are targeted by organized crime and then involved in other criminal markets, thereby increasing the social impact of such activities. This makes the cooperation between law enforcement, customs administration and the private sector crucial for combating this type of crime. The police and administrative measures needed to be supported by sound management of the excise policy.

The Deputy Prime Minister and Minister of Finance, Mr. Simeon Diankov said that in times of economic crisis consumers tend to revert to the gray markets due to their tighter budgets and limited purchasing power. The tendency is reversed when the economy picks up. Mr. Diankov stated that the excise tax on cigarettes was increased in light of Bulgaria's EU commitments and also taking into account healthcare considerations. Current research reveals that 4.3% of the Bulgarians have quit tobacco use as a result of cigarettes price increase in 2009. These unpopular measures aim to tackle inflation and keep the current excise tax on cigarettes until 2015. Mr. Diankov said that the legislative changes, including the draft act reverting the investigative powers of the Customs Agency, aim to strengthen the efforts in combating cigarettes smuggling. Enhancing the technological capacity of the customs authorities through purchasing of scanning equipment has also affected positively the capture of smuggled cigarettes. The Minister of Finance emphasized the importance of cooperation between all EU Member States and the European Commission for combating cigarette smuggling.

Mr. Vanio Tanov, Director of the Customs Agency, outlined the main activities and priorities of the institution. He stated that current problems with this illicit trade come from the Southeast neighbors. The cigarettes that enter the country are those smuggled to the EU through third countries and also cigarettes without paid excise tax. 70 % of the cigarettes captured by the customs administration enter the country through internal EU border, mostly through the border with Greece. 3% of those smuggled tobacco products enter the country through the border with Turkey and another insignificant share enter through Serbia and Macedonia. Another interesting tendency shows that the strong control of the land borders has lead to an increase of illicit activities along the sea border. Mr. Tanov emphasized the importance of the establishment of mobile units, which can cover the whole country and all international transport routes. The importance of utilization of modern technologies for surveillance and control was also stressed by Mr. Tanov. The purchasing of additional scanners would increase the effectiveness of the routine work of the customs administration. In the field of information exchange the Bulgarian customs administration cooperates with the customs agencies of other EU Member States as well as with the respective authorities in Turkey. The establishment of joint customs and police center on the borders with Greece, Macedonia and Serbia would further enhance information exchange. The private sector support with expert analysis was described as especially valuable by Mr. Tanov.

Ms Aggeliki Matsouka, Head of Section B, 33-rd Customs Control Division, Ministry of Finance of Greece underscored the significant weigh of the excise taxation in the state budget, especially excise tax on cigarettes, which tends to be among the highest excise tax. In 2010 the total quantity of seized cigarettes was 543.951.272 pieces and the amount of the evaded excise and custom duties was 88.413.394 EUR. Ms Mitsoulka showed statistics on smuggled cigarettes over the past three years and outlined the role of the different statkeholders taking part in counteracting this illicit trade – customs, police, port police and agency for specialised investigations. She underscored that cooperation between the EU Member States and the EU institutions such as OLAF, Europol, International Customs Organisation and the Southeast Initiative for Cooperation is necessary to tackle this type of crime.

Mr. Ljubisa Dimovski, Intelligence Department, Customs Administration, Republic of Macedonia presented data on the cigarettes marked in Macedonia, stating that the illicit trade represents 6% of the local cigarettes market. Mr. Dimovski outlined the measures implemented to combat cigarettes smuggling. The System for Electronic Exchange of Data (SEED) used by the Macedonian customs authorities in cooperation with their colleagues in Albania, Serbia and Kosovo is especially effective for the purpose of risk assessment. Mr. Dimovski outlined the new measures for increasing the penalties of customs related crime, as well as other proposals for cooperation between customs authorities, such as exchange of operational information, joint use of infrastructure and technical equipment.

Mr. Slobodan Nikolic, Deputy Director General, Customs Administration, Republic of Serbia presented the organizational structure of the customs administration as well as the international and regional cooperation agreements in this field. Mr. Nikolic shared information on joint operations between the agency and OLAF and other customs administrations of EU Member States for capturing cigarettes smuggling activities. The major cigarette smuggling routes passing through Serbia to Western Europe go through neighboring countries and EU Member States such as Romania, Bulgaria and Hungary.

Ms Camelia Dima, Head, Risk Management Office, Surveillance of Excise and Customs Opera-tions Directorate, National Customs Authority, Romania, presented the organizational structure of the agency, its main functions, the relevant legislative framework, as well as cooperation agreements between Romania, Serbia, Ukraine and Moldova. The measures for combating ciga-rettes smuggling include penalties for customs fraud. Ms Dima presented the main tendencies for cigarettes smuggling, as well as statistical information on apprehended illicit cigarettes trade.

The presentations of the speakers prompted a lively discussion among the participants. The storage of captured cigarettes appeared to be one of the problems. The renting of warehouses is expensive and demands additional expenses. Ms Matsouka shared that in the past captured cigarettes were given to the army but this practice was discontinued due to the health risks that tobacco causes and the unknown content of smuggled cigarettes.

Mr. Guzel discussed the issue of using laboratories (including international laboratories) for establishing the content of captured cigarettes. Ms. Matsouka shared that in Greece the cigarettes captured at the border are transported to laboratories of the producers in order to determine their content.

The participants from Serbia shared their experience in signing memoranda of understanding with transportation companies such as DHL and FedEx. Issues of importance to national security, such as the use profits made from smuggling and organized crime for financing of terrorist organizations was another topic of discussion. Participants from Turkey shared that a joint initiative headed by OLAF and the International Customs Organization should be established to train the relevant stakeholders on harmonization of standards.

Mr. Mehmet Guzel, Deputy Director General, Customs Enforcement DG, Undersecretariat of Customs, Republic of Turkey presented statistical information on captured smuggled cigarettes. Mr. Guzel presented project aimed at the modernization of customs as well as the most prominent cooperation agreements with international organizations and the private sector. He underscored the importance of the use of advanced technical equipment at the customs agencies to intecept cigarettes smuggling. The system for tracking of the production of tobacco products, which allows for the tracing of the origin of each legal cigarette package, was presented in detail. Mr. Guzel also outlined the system for tracking through GPS the transportation vehicles used for import or transit of products.

Mr. Stefan Shlaefereit, Vice President, Anti-Illicit Trade Global Strategy, JT International, responsible for the strategy for tackling illicit cigarettes trade, pointed out that illegal trade leads to financial losses not only for the tobacco companies but also for the national budgets. This calls for active cooperation between the private sector and the customs agencies for the combating of cigarettes smuggling and trade of fake cigarettes. This cooperation may be in the form of legally binding agreements or memoranda of understanding. He shared some assessments on the global share of illegal trade of cigarettes and some new tendencies on the markets of fake Japan Tobacco International products.

Mrs Diane Scarlett, Head of Operations, OLAF presented the role and activities of the agency. She discussed in detail the role of the Working Group on Combating Cigarettes Smuggling which coordinates big international operations for the interception of cigarettes smuggling. The effective cooperation with cigarettes producers helps reduce illicit trade as well as uncover factories for the production of fake cigarettes. The production of so called “cheap whites”, illegal production and the global nature of the illicit cigarette trade were among the main challenges for OLAF outlined by Mrs Scarlett. She shared some typical schemes for smuggling of this type of cigarettes and outlined data on the illegal cigarettes production in the EU.

Mr. Kristian Vangrieken, Head, International Cooperation Unit, DG Taxation and Customs Union shared some of the main challenges in the field of combating cigarettes smuggling. The enhancing of the technical capacity of the customs agencies, including through training and upgrading of equipment, with limited financial resources, is one such challenge. The difference of penalties and sanctions for customs fraud in EU Member States is another problem. The different taxes and high prices of the products also predispose smuggling. Mr Vangrieken mentioned several OLAF initiatives among which cooperation agreements for information exchange, enhanced cooperation with producers, joint customs operations. The adoption of relatively comparable excise tax in EU Member States would be the most effective measure for combating cigarettes smuggling, albeit the most difficult to implement.

Mr. Tihomir Bezlov, Senior Analyst at the Center for the Study of Democracy presented an analysis of the tax policy as a factor generating illicit cigarettes trade. He stressed the fact that Bulgarians smoke the most expensive cigarettes in the EU if the price of cigarettes is calculated as a percentage of the average income. Mr. Bezlov outlined some tendencies of the illicit cigarettes market, which reached almost 40% of the total volume of cigarettes trade in Bulgaria. He estimated the profits generated by organized crime by illicit cigarette trade. He emphasized the different costs, including financial and social, caused by this type of crime.

In his closing speech Mr. Tanov outlined the Serbian good practice in investing in technological equipment such as scanners on the basis of risk analysis which precedes the increase of smuggling of products. Mr Kent Brown, Vice President, JTI and Mr. Mehment Guzel also gave closing speeches.

Agenda (Adobe PDF, 62,6 KB)
Presentation by Mrs. Diane Scarlett, Head of Operations, OLAF (PowerPoint, 7,96 MB)
Presentation by Mr. Tihomir Bezlov, Senior Analyst, Center for the Study of Democracy (PowerPoint, 4,93 MB)
Presentation by Mr. Stephan Schlaefereit, Vice President, Anti-Illicit Trade Global Strategy, JT International (PowerPoint, 4,53 MB)


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