MALAYSIA has become the largest consumer of illegal cigarettes in the world, at 59 per cent of its market, with 1,000 illicit cigarette packs bought each minute.
This was among the findings presented during the unveiling of a report by Oxford Economics Tobacco, titled “The Economics of the Illicit Tobacco Trade in Malaysia”, at The Majestic Hotel Kuala Lumpur last week.
In the report, the illicit cigarette trade cost Malaysia almost RM4.8billion in excise duties last year. It was presented by Oxford Economics Europe and Middle East economic impact consulting director Pete Collings.
The report, which was commissioned by British American Tobacco, quantified the amount of potential tax revenue loss through the illicit tobacco market and also highlighted the wider and less obvious economic consequences of the trade.
Illicit cigarettes include those that were legally produced and then smuggled into the country from Vietnam, Indonesia, and the Philippines. Malaysia’s move to stub out tobacco use with higher levies has pushed smokers to the black market instead.
Another study conducted by research house Nielson and the Confederation of Malaysian Tobacco Manufacturers said Malaysia is among the largest consumer of illegal cigarettes in the world, with over 12 billion sticks sold last year.
The study tallied with Oxford Economics and found that 58.9 per cent of all cigarettes sold in Malaysia were illegal cigarettes.
Former Royal Malaysian Customs Director General (RMCD), Datuk Seri Subromaniam Tholasy stated that last year, the underground economy includes illegal smuggling worth between RM5 to RM7 billion yearly.
The Customs Department has of late seized contraband cigarettes with RM1 billion worth of taxes as the authority intensified actions to curb the rise of illicit tobacco products and the government incurs billions in revenue lost.
Clearly these illegal activities have been reported to be the largest illegal lucrative business in the world.
By right effective from Jan 1, traders and syndicates of smuggled cigarettes and liquor will face stiffer penalties after amendments on Section 135 of the Customs Act 1976 and Section 74 of the Excise Act 1976 were passed at Dewan Rakyat last year.
The minimum fine of RM100,000 would be slapped on smuggled cigarettes and liquor offences, after both acts.
No doubt raids have been intensified to foil smuggling attempts at border checkpoints, but many a time it is learnt that such raids are just a formality instead of an all-out war to wipe out illicit tobacco trade.
Sad to say, a report compiled by Special Branch a few years ago, revealed that a staggering 80 per cent of the national's security personnel and law enforcement officers at Malaysian borders are corrupt.
Oxford Economics said illegal tobacco benefits from, and propagates, corruption in Malaysia, undermining the rule of law and governance, and diminishing the country’s attractiveness to international investment.
The sale of contraband cigarettes in Malaysia has enabled smuggling syndicates to generate profits used to fund more smuggling activities and other types of criminal activities.
It is revealed that regional terrorist organisations such as Abu Sayyaf and Jemaah Islamiyah could be getting funding from local organised crime gangs and using Malaysia as a base to fund their activities.
The Home Ministry and crime prevention groups have begun drawing links to these organisations and the thriving illicit cigarette business.
Illegal cigarettes trade is also a lucrative business and such money is used for terrorism financing.
Since smuggling illegal tobacco is considered low risk and profitable, kidnapping activities in the Security at Eastern Sabah Safety Zone (Esszone) seemed to have been reduced.
With vast monetary means in their possession, it’s a small price for syndicates to splash on lowly-paid law enforcers for they can expect massive returns on investment, i.e. RM2.5 million from a 40-foot container (10 million sticks or 500k packets cost about (US$100,000) of illegal cigarettes alone.
One way to fight crime syndicates is to cut off their main source of funds or the financier and to tackle corruption.
The government must take more serious measures to control the organised criminal syndicate involved in both the importation and domestic distribution of illicit tobacco in Malaysia.
There must be coordination among the Customs and other law enforcement agencies to continuously disrupt the illegal activities of organised criminals, cut off their main source of funds and seize and freeze the assets of the financiers.
According to British American Tobacco, the black market in tobacco involves criminal gangs smuggling across borders, engaging in large-scale tax evasion and producing counterfeit cigarettes.
With weak penalties for perpetrators, poor border controls, low arrest rates and tobacco taxes creating disparity between neighbouring countries, it’s a problem that’s set to grow.
The illegal cigarette trade also undermines the health objectives of governments to curb tobacco consumption.
These unregulated products are affordable and accessible, easily finding their way into the hands of consumers including youths, particularly with the availability of cheap illegal cigarettes selling at the price of RM4 per pack compared with legally sold cigarettes retailing at RM17 per pack.
The following are four recommendations that the government may look into when addressing these concerns:
First, the latest amendment of the Customs Act 1967 last December was not effective as there were only increase in penalty but no mandatory imprisonment.
The effective deterrent measures are vital to reduce the incidences of illegal cigarette trade in Malaysia.
The Customs Act 1967 provides for offences related to dutiable, uncustomed and prohibited goods in Section 135(1) (a) – (g) and the penalties for those offences are prescribed under Section 135(1) (i), (ii) and (iii).
Currently, there is no distinction in terms of the penalties prescribed for dealings in illegal cigarettes, as the same penalties apply across the board for all products which are generally classified into 3 categories i.e. class of goods in an order made pursuant to Section 11(1), uncustomed goods and prohibited goods.
In essence, the penalties prescribed would either be in the form of a fine or imprisonment or both. Further, it is to be noted that the fines to be imposed are tagged to Illegal cigarette operators throughout the supply chain from the smugglers right down to the retailers which derive excessive profits and they can readily afford to absorb the risks of financial penalties in those instances where they are caught and fined by the authorities.
Hence, stricter and heavier penalties including imprisonment are required to act as an effective deterrent against all illegal operators.
It is strongly encouraged that the government consider amending Section 135(1) of the Customs Act 1967 to include a specific provision prescribing the penalty for tobacco smuggling offences.
The penalty should be seriously increased to include a minimum and mandatory imprisonment term for tobacco smuggling offences.
This would be a far more effective deterrent both for the smugglers and individual operators like distributors and retailers who are in the illegal business for lucrative gains.
In a case where personal liability for imprisonment is involved, a mere promise of an indemnity for any fines incurred in the course of facilitating illegal cigarette activities is likely to be far less acceptable to the individuals.
By comparison, a Malaysian man who attempted to drive into Singapore with a total of 298 cartons of contraband cigarettes hidden in his car was sentenced by the court to seven months' jail. His Malaysian-registered car was also seized.
Secondly a Special Task Force should be set up under the able leadership of the Home Ministry to focus on illegal cigarette trade.
This independent task force should comprise clean and high integrity senior representatives who are from relevant government departments and agencies to
increase strategic-level coordination efforts and cooperation.
The task force will spearhead more effective coordination and collaboration among key law enforcement agencies including the police, Customs, Maritime Enforcement Agency and Ministry of Domestic Trade, Cooperative and Consumerism, Bank Negara, Malaysia Anti-Corruption Commission and if need be between local and international enforcement agencies to increase cross-border collaboration and information sharing.
Enforcement should be focused and directed at significantly disrupting the distribution supply lines of the trade, step up security surveillance, apprehend key figures and seizing the proceeds of their criminal activity.
The tone at the top must be one of the leadership by example, and political influence should be eliminated, especially when the Customs Department conducts raids or confiscation of illegal tobacco and other illicit goods.
Thirdly, the government should install and invest in the most modern scanners available at strategic ports. Officers should be located at high risk posts especially in Port Klang and Penang Port, Labuan, Langkawi and Malaysian-Thai border.
The customs checkpoints and facilities at “hot spots” such as Port Klang, Penang, and Johor Port and also at the Malaysia-Thailand borders checkpoints in Rantau Panjang, Bukit Kayu Hitam, Padang Besar and Wan Kelian in Perlis and other borders, must be upgraded.
Lastly, law enforcement agencies must introduce job rotation by identifying officers to be transferred according to the duration of being at one place three (3) years for sensitive jobs and five (5) years for non-sensitive jobs and enhance supervision to prevent the officer from seeking an opportunity to make illegal gains.
Syndicates dealing with supplying contraband cigarettes have become more brazen, offering bribes and buying the integrity of irresponsible enforcement officers to cover up their trail.
While not all enforcement officers or personnel can be bought, these illegal cigarette cartels are willing to exhaust all avenues, including leveraging threats, to influence these quarters to work with them.
The government and all relevant authorities need to prioritise this area of enforcement of preventing illicit cigarette trade as there are public health and loss of revenue implications.
The endeavour may be difficult but it can be done. So, let’s get on with it!
The writer holds a Professorial Chair for Crime and Criminology at Institute of Crime & Criminology, HELP University, and former immediate president of Transparency International Malaysia and President Malaysia Association of Certified Fraud Examiners.