Press release FITA 25 October 2019

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Press release – FITA – for immediate release

We note and welcome the announcement by Finance Minister Tito Mboweni that the South African Revenue Service is to commission a study into the size of the country’s illicit economy, which study would look into inter alia the size of the illicit trade in cigarettes which has dominated talk in the media for the last number of years largely in part due to the desire of multinational tobacco companies to overstate the size of the illicit trade in order to direct the attention of law enforcement agents and the public at large via the media towards their commercial competitors. We have for long called for an independent study, free of influence from big tobacco, to be commissioned in order for government to get a true reflection of this problem.

Big tobacco has for a number of years produced reports such as the infamous Ipsos report on the scale of the illicit trade in tobacco products worldwide which have been used in the media to argue against certain proposed legislative changes, which reports have been proven to be false and misleading.

It has always been our view that if one seeks to understand the fiscal risks to the economy, you shouldn’t restrict your views to excise taxes and illegal tobacco alone. One needs to look at the entire sector, across all tax types and along the value chain. It is only then that one will be able to determine the complete set of risks in the industry. As things stand, and as they have been looked at over the years, the multinationals dictate the public perception. They do this by lobbying at policy levels, financing and directing law enforcement agencies by pretending to be innocent victims through aggressive media and marketing campaigns, biased research papers and industrial espionage. The result is that there is an extreme focus on losses of excise only, and the perception that illegal tobacco and manufacturing is the sole risk in the industry.

There has been more than sufficient empirical evidence worldwide which points directly to questionable practices of multinationals in corruption, money-laundering, aggressive base erosion practices and industrial sabotage. There is also more than sufficient evidence in South Africa which points to British American Tobacco and their inordinate influence over law enforcement officials. British American Tobacco supposedly appointed law firm Norton Rose Fulbright to “investigate” these allegations in South Africa as far back as 2016. They also appointed law firm Slaughter & May to do the same in other parts of Africa and elsewhere. Yet their reports and findings have remained under wraps and away from public scrutiny despite several requests by inter alia our organisation for the release thereof. Because of their proximity to senior law enforcement officials and their close relations, none of these allegations appear to have ever been investigated and prosecuted by our law enforcement agencies. This must be questioned. How can a multinational tobacco company direct a handful of law enforcement officials to do their bidding by executing raids under false pretences, causing damage to property and intimidating workers at a local manufacturer?

It has further been concluded by leading academics and researchers that one must be wary of the tobacco industry painting itself as both the victim and saviour when it comes to the illicit tobacco trade. It has proven time and again by its behaviour and a litany of legal cases to simply not be credible when it comes to illicit trade in tobacco.

One must be cognisant of the fact that “big tobacco” has been a global serial repeat offender when it comes to illicit tobacco, and has spent millions on lobbying to block regulation and promote its own agenda. Big tobacco has paid billions of dollars in fines over the years and has been found to be either directly involved or complicit in illicit trade in its own product.

Further, a recent study from the Tobacco Control Research Group at the University of Bath exposed evidence that big tobacco companies are facilitating tobacco smuggling, while also attempting to control a global system (WHO FCTC Protocol) designed to regulate it. The study, which draws on leaked industry documents and investigates industry front groups, highlights the elaborate lengths the industry has gone to, to control a global track and trace system and to undermine the World Health Organisation’s Illicit Trade Protocol (Protocol).

The paper, published in June 2018, “calls on governments and international bodies to crack down on big tobacco tactics and to instead ensure systems designed to control tobacco smuggling are free of industry influence”.

Regulators, including SARS, should be careful in how and where they engage with the tobacco industry and question the solutions they advocate. Big tobacco is the progenitor of the illicit trade monster.

Recent investigations with regard to money-laundering, corporate espionage, bribery and smuggling around the world and including South Africa, should provide a sobering caution as to who government can really trust.

If South Africa is serious about tackling the problem of illicit trade and getting this essential revenue back into government coffers, SARS has the ability to act under its existing powers. It does not need, and should not accept, assistance from the tobacco industry or its front groups. Not only are the goals of SARS and the industry opposite, SARS as a government entity must also comply with the article 5.3 of the WHO Framework Convention on Tobacco Control that limits the industry involvement in government matters. To do otherwise plays into the hand of big tobacco and should have South Africans questioning the sincerity of government’s commitment to stamping out illicit trade.

As an organisation we fully support any effort by the state and affected industry stakeholders to curb smuggling and the illicit trading in cigarettes. This whilst maintaining our position that smuggling, although a problem, pales in comparison to the vast amounts of profits which leave our shores through aggressive tax avoidance schemes such as base erosion and profit shifting employed by some in our industry (we know that one multinational is alleged to owe SARS in excess of R 2 billion).

One such compliance risk which has grown unabatedly is the large number of smuggled and counterfeit cigarettes which have of late entered the republic via our porous borders. We have communicated this ad nauseam to the relevant authorities as it is of major concern to our members, who are local cigarette manufacturers. We however wish to point out that the lack of visibility of SARS customs officials on the ground has led to a substantial growth in the aforementioned influx of smuggled cigarettes.

As an organisation we understand the capacity challenges that SARS faces however, as concerned and legitimate manufacturers of tobacco products, we urge SARS and law enforcement agencies to attend to this and other issues which are robbing the fiscus of billions without further delay. Many of these brands which are being smuggled into the country are either counterfeits of FITA member brands, or legitimate brands manufactured in our neighbouring countries for sale and consumption in those countries which find their way into the local market. In this regard we are passing on any  information received in relation to this criminal conduct on to the relevant authorities as and when it becomes available.

Issued by the Fair-trade Independent Tobacco Association: 25 October 2019

For queries kindly contact Monique Vogel t: 072 720 7919; e: Monique@fita.co.za

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