Drug lords turn to cigarettes
Multimillion-dollar trade said more lucrative than cocaine, holds lower risk
BY ALICIA ROACHE Sunday Observer staff reporter email@example.com:
ORGANISED criminal gangs and drug dealers are behind the growing multimillion-dollar trade in illicit cigarettes locally, the Sunday Observer has learnt.
According to the authorities, the drug lords' transition is driven by their desire to avoid the harsh penalties associated with narcotics trafficking, even though breaches of the Trade Marks Act can attract huge fines and prison time.
In addition, the trade in illicit cigarettes is said to have lower safety risks.
"What we are really seeing in the illicit trade is tantamount to organised crime," said Michael Bernard, managing director of Carreras, the sole legal distributor of Craven A cigarettes in Jamaica.
"We believe it is structured and it has the potential for bringing in very, very significant income to the players," he told the Sunday Observer. "We don't believe, for example, that the major players are the little traders operating a small shop or wholesale. We believe it is basically planned, controlled and organised by people who have the capacity to, in some instances, engage with external suppliers."
Bernard spoke to the Sunday Observer following a record $300-million worth of illicit Craven A cigarettes was discovered last week in the country. Carreras immediately advised the public of the find and the potential legal actions which may be taken against those involved in the illegal trade.
Last month, the Jamaica Customs Contraband Enforcement Team seized a 40-foot container with over 400 cases of illegal cigarettes valued at $120 million. At that time, it was disclosed that the container belonged to a well-known area leader.
The estimated world market for the illicit trade is 390 billion sticks per year, representing six per cent of total world cigarette consumption, according to director of corporate and regulatory affairs at British American Tobacco (BAT) Michael Prideaux. An estimated 44-50 million sticks are illegally imported and distributed in Jamaica.
The cigarette market in Jamaica is also one of the most lucrative in the region, according to Carreras. This makes Jamaica a prime target for not only local 'dons' but international crime syndicates which can benefit from the high margins on the product.
Last year, BAT, owners of Carreras, recorded over £14 billion in revenue from the sale of the products. The Americas, of which Jamaica is a part, contributed 27 per cent of that amount, the largest share of the total for the company.
Carreras, which holds 99 per cent of the legal market through brands Dunhill, Matterhorn, Craven A and Rothmans, reported sales of 757 million sticks last year, even with the high incidence of counterfeit brands on the market. The contraband market accounts for 44-50 billion sticks, a loss to the formal system of approximately $1 billion in taxes and other duties each year.
A former law enforcement official who now targets the illicit cigarette trade said the value of the industry to the crime lords cannot be underestimated. He said that given the success of local and international law enforcement officials in disabling aspects of the cocaine trade locally, the cigarette market provides an efficient and low-risk means of diversifying the revenue base of the crime lords.
"Cocaine and gold don't carry the value that cigarettes do," he said. "This market is always going to be an attractive market for those who operate in the illicit trade."
He told the Sunday Observer that the illicit trade seen in Jamaica is part of a wider global network of which China accounts for 80 per cent of counterfeit brands. Countries such as Guatemala and Paraguay are also major hubs of trade in illegal products, but of all the territories, Jamaica presents the biggest challenge in arresting the problem because the margins for illegal traders are the highest here. Two million sticks of illicit cigarettes have an estimated street value of over $50 million in Jamaica.
"Why sell for $10 million in Guatemala when you can sell it for $100 million in Jamaica?" the official said. "If you have, say US$40,000, you can go to Nicaragua, El Salvador, Guatemala where they have tobacco factories, get a 40-foot container, load it up, bring it in and sell it in Jamaica and make at least $US1.2 million. What is your exposure there?"
Christopher Brown, head of corporate and regulatory affairs at Carreras, said that the high value-to-volume ratio of cigarettes, ease of production and movement, low detection rates and penalties, make cigarettes an attractive addition to organised crime's portfolio of activities.
"Cigarette business is profitable. In fact, because of that it would be attractive to profiteering and the evasion of duties, which would make it more profitable for those doing it," argued Brown. "...It is tantamount to becoming a segue for those organised criminal gangs that were previously involved in the hard cocaine trade, ganja trade, the guns and ammunition trade."
He said that the illicit trade is a transnational phenomenon, similar to how organised crime, and the guns for drugs trade operate. "Sometimes a container that starts in China goes to Panama and then eventually it comes here," said Brown.
A copy of a video shown to the Sunday Observer last Friday suggests that the counterfeit facilities, like narcotics labs, are hidden. In China, for instance, workers are given quotas and are left in caves, along with the machinery and parts to manufacture counterfeit goods.
Brown said the discoveries that have been made locally so far will prove small compared to what will happen if the trade goes unrestricted. "We are just seeing the tip of this. Because in other central and south American countries they have this problem full blown," he said. "They have support from the organised gangs, and even unscrupulous members of the authorities. They control the distribution network. In other countries in the Americas this is well-organised and they are looking to grow their market." Paraguay, for example produces 60 million sticks of cigarettes a year, but the market there consumes only three million sticks. The remaining cigarettes, therefore, find their way into countries such as Jamaica.
Superintendent Fitz Bailey, head of the Organised Crime Investigation Division, told the Sunday Observer that the police are still devising a strategy to deal with the illicit trade in cigarettes. "We have been pursuing it. We have been working on some new strategy," said Bailey. "I hope that at the end of the day we will be getting a better understanding of what the trade is all about and how it is perpetrated."
Glenmore Hinds, acting assistant commissioner of police in charge of operations, said that drug lords' transition to illicit cigarettes should not come as a surprise as the leaders of organised crime will seek to benefit from all criminal activity if the opportunity exists.
"It is just another commodity, so... they move from one to the other as the trade becomes more profitable," said Hinds.
He said the illicit cigarette trade, like any other criminal activity, can be arrested with time, diligent work and the collaboration of all stakeholders, including law-abiding citizens.
"I don't think there is any police force in the world that has all the resources that they need," said Hinds. "But to the extent that they exist, they will be applied to addressing the problems."
According to Brown, Carreras will offer its support to the authorities. "We as a company do not have operational activity that we directly participate in as it relates to the anti-illicit trade, because it is a very dangerous trade," he said. "However, what we really want to do is to sensitise the country to the presence of this new shift and this new emergence of what is generally considered to be part of the organised crime activity. It has been developing a lot in Central America and because of the transnational nature of it we have to now flag this and show that it is becoming a serious issue in the country."
April 25, 2010