In Australia, over 40 per cent of illegal tobacco come from, or tranships through, Malaysia. We regularly see news reports in Australian dailies of Malaysians being arrested and jailed for illegal cigarette smuggling. (AFP/ FILE PIC)

RECENTLY, a global report indicated that Malaysia holds the dubious honour of being the leading country in the world for illicit tobacco trade.

Some 60 per cent of cigarettes consumed in the country are contraband, equal to as many as 1,000 illicit cigarettes sold every minute.

The government has begun to understand this issue as the country continues to lose billions of ringgit in tax revenue annually and the country’s health goals are undermined.

However, more needs to be done as the border processes that are compromised in the country help facilitate illegal trade flows into other countries.

HOW HAS MALAYSIA CREATED THIS BLACK ECONOMY?

In Malaysia, as in Australia, too, the government has increased taxes to meet their twin goals of increasing the budget bottom line while protecting public health by encouraging users to quit smoking.

Here, as with every country that has sought to manipulate consumer behaviour in this way, consumers have simply turned to the illegal, yet easy-to-obtain, alternative.

Not only is the government’s financial goals undermined, but the criminal groups stand to benefit the most. They move into the profit space the tax has created.

The health goal is weakened by consumers not quitting smoking and by inhaling an unregulated product containing “who knows what?”

As with other countries, the Malaysian illicit tobacco trade has grown exponentially since the rise of excise rates.

Malaysian policymakers, like many of their counterparts around the world, did not foresee that a steep rise in excise rates must be matched by an increase in enforcement if any of their financial and health goals are to be met.

International and organised crime groups are quick to realise easy profits when they see a highly taxed product combined with low enforcement.

Singapore, where the legal product is twice as expensive as in Malaysia, has kept its illicit problem to 11.8 per cent via strong enforcement.

My country, Australia, was slow to understand the consequences of creating a highly taxed product, but has now increased legislative penalties and enforcement responses. This has stabilised the illicit tobacco problem at around 14 per cent.

Worryingly, the flow of illegal tobacco into Malaysia is being spread across its borders.

In Australia, over 40 per cent of illegal tobacco come from, or tranships through, Malaysia. We regularly see news reports in Australian dailies of Malaysians being arrested and jailed for illegal cigarette smuggling.

ILLICIT TOBACCO TRADE FUELS CORRUPTION

There is also the wider issue of corruption.

There has been global publicity and major political implications relating to the previous government’s 1Malaysia Development Bhd scandal, yet the illicit tobacco issue that costs Malaysia more than RM5 billion per year goes largely unreported.

The “60 per cent” illicit figure from Oxford Economics shows that the public services designed to prevent illicit trade flows have been severely compromised.

The criminal syndicates that reap huge profits do not only corrupt the supply chain but also channel their ill-gotten revenues back into supporting other forms of criminal activities.

Recently, the United States recognised the links of illicit tobacco to terrorist funding and introduced laws to curb it.

MALAYSIA MUST ACT FAST AND CONCERTEDLY

Malaysia, as a signatory to the World Health Organisation “Framework Convention on Tobacco Control”, needs to do more.

The associated “Protocol on Illicit Tobacco”, which Malaysia has not signed, gives guidance to countries on how to counter this issue.

The government may start there or seek advice from countries that have taken genuine steps to understand and respond to the illicit tobacco problem, such as the United Kingdom.

Malaysia is blessed with competent agencies which can solve domestic issues when asked to do so, but this global problem needs a more holistic and cohesive approach on the interagency level and with their regional law enforcement counterparts.

The drafting of a National Illicit Tobacco Plan, where the responsibilities of each agency are set out, would also better define the problem, set goals and harden the vulnerabilities along the supply chain.

The negative impacts from this black economy are manifold, with implications to the country’s economy, healthcare, trade, global reputation, crime environment and corruption.

But with this challenge comes an opportunity for the new government to create robust policies, see them through and play a leading role in the region’s fight against this epidemic.

(Statistics taken from Oxford Economics’ ‘The Economics of the Illicit Tobacco Trade in Malaysia’, June 2019)

The writer, a former Australian Federal Police officer and leader of Australian Border Force tobacco strike team, works as an adviser and consultant on fraud, corruption and bribery relating to illicit tobacco trading. He was in Malaysia recently on behalf of the Retail & Trade Brand Advocacy group (www.rtbacommerce.com.au)