Smoking gun

Smuggling of illegal cigarettes is growing across Latin America.

A report prepared by the Organised Crime and Corruption Reporting Project (OCCRP) recently revealed the existence of a network of shell companies in Panama operating from the Colón Free Trade Zone which smuggles Chinese cigarettes into Latin America. The network was set up after the government closed the local production plant of the China National Tobacco Corporation (CNTC).

According to data reported by the National Customs Authority, in 2020 around 220 million units of illegal cigarettes were seized in Panama. These cigarettes are sourced from China, India, South Korea, the United Arab Emirates and Paraguay, and arrive in Panama before being shipped across Central America, especially to Costa Rica, Guatemala and El Salvador.

This may be an underestimation, according to Panama’s President, Laurentino Cortizo, “8 out of every 10 cigarettes are illegal, traded by gangs and criminal organisations. This represents about USD 75 million in lost tax annually.” A KMPG 2018 study revealed that Panama lost approximately USD 100 million in tax as a result of the 750 million illegal cigarettes consumed in the country, of which 85% entered the country through the Colón Free Trade Zone.

An illicit trade prevention executive at Phillip Morris explained, “Undoubtedly, the problem continues to grow. The reality is that the current anti-smuggling law makes it difficult to impose sanctions as to be considered a criminal act, the value must be greater than USD 500,000, otherwise it is considered an administrative offense with minimal penalties.”

“Undoubtedly, the problem continues to grow. The reality is that the current anti-smuggling law makes it difficult to impose sanctions.”

Illicit trade prevention executive, Phillip Morris

The problem is widespread and growing, across the whole of Latin America. In neighbouring Colombia, authorities confiscated six million packs in the first half of 2020. In Brazil police confiscated 201,386 packs in 2020, a 165% increase compared with 2019. Furthermore, in September 2020, Mexico discovered 25 million packs of cigarettes in a single operation. In Colombia, 1% of the drug trafficking proceeds, which amount to USD 120 million, are laundered through the cigarette black market while illicit cigarettes in Venezuela amount to 30% of the market and cost USD 130 million to the government in taxes.

Lax regulations are easily exploited by smugglers which ship the cigarettes to the Colón Free Trade Zone and then on to Jamaica and Aruba before being shipped to South America, mostly entering through the port of Cartagena de Indias in Colombia.

The Phillip Morris executive reported that the industry is working with customs authorities to tackle the issue, “The World Customs Organisation, through its regional vice president, Mr. Werner Ovalle, have discussed this problem, with the aim of designing a robust plan to trace and seize these products before criminal organisations receive them. However, it is urgent that these actions be expedited and that, above all, they be carried out within the framework of transparent cooperation and supported by modern legislation, such as the recently approved Parlatino Model Law.”

“The World Customs Organisation has discussed this problem, with the aim of designing a robust plan to trace and seize these products before criminal organisations receive them.”

Illicit trade prevention executive, Phillip Morris

A former director of the Panama Customs Authority described what initiatives had been started to combat the problem, “The public and private sectors are discussing modifications and adjustments to Executive Decree 466 that governs Intellectual Property matters and Law 30 that governs the articles on smuggling and customs fraud to impose more severe sanctions. There are also improvements being implemented in standardised procedures, policies and controls.”

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