Illicit trade in consumer goods and normally licit products 17th October 2013 Karl Lallerstedt Karl Lallerstedt co-founder Black Market Watch member OECD Task Force on Charting Illicit Trade Past Political and Economic Analyst - Department of State - The Economist Intelligence Unit - Oxford Analytica Illicit Trade Expertise - Anti-illicit trade director, Fortune 500 Company - Steering committee, International Chamber of Commerce Business Action to Stop Counterfeiting and Piracy (BASCAP) The global picture Transnational organised crime United Nations Office on Drugs and Crime (UNODC) meta study for 2009 1.5 percent of world GDP 6 times global development assistance budgets 870 billion USD (2012 = over one billion USD) Breakdown: Transnational organised crime UNODC meta study: Narcotics 320 bn Counterfeiting 250 bn Trafficking 32 bn Excise goods - another significant category International Chamber of Commerce 2011 Counterfeiting a bigger problem? Ill effects of illicit trade All illicit trade Normally licit products 1) Revenues for organised crime groups, terrorists and insurgents Economic power = “military” power and political influence 1) Reduces government revenues (excise tax, import duty, VAT, income tax, corporate tax) 2) Corrupts Border guards, law enforcement, military, politicians, civil servants 2) Undermines job creation and economic development 3) Smuggling routes Once developed for one goods can be used for others 3) Consumer risk associated with ”normal products” Deaths due to medication, foodstuffs, electrical components, etc Africa: Illicit trade in normally licit goods African terror attacks in the news Kenya - September Westgate Mall attack 61 civilians killed, including EU citizens Al-Shabaab claimed responsibility Algeria - January gas plant attack 39 foreign hostages killed, including EU citizens Al-Qaeda linked terrorists led by Moktar Belmoktar responsible What did the two attacks have in common? Perpetrators have profiteered on illicit trade in consumer goods Al-Shabaab Charcoal smuggling --> Gulf Consumer goods smuggling --> Kenya Poaching trade - ivory and rhino --> China Moktar Belmoktar A.K.A. “Mr MARLBORO” smuggling across Sahel Illicit trade: the economics West Africa estimates, source: UNODC 2009 Nigeria: Oil Bunkering “one of the greatest threats to the rule of law in West Africa is rooted in the smuggling of a licit commodity: oil” UNODC 2009 Oil bunkering impact Estimated value of stolen Nigerian oil per year $3 billion - $8 billion West Africa: Wholesale value of cocaine to Europe is $1.25 billion UNODC, World Drug Report 2013 Piracy, drug- and arms-trafficking in Niger Delta Networks sometimes overlap Kidnapping linked to oil theft Source: Chatam House September 2013 Cigarettes “There is evidence to suggest that the worldwide retail value of the illicit trade in tobacco products may be comparable to the cocaine market” - Transcrime (The Joint Research Centre on Organised Crime of the Università Cattolica del Sacro Cuore and the University of Trento, Italy), 2012 Cigarettes Africans smoke 400 bn cigarettes a year 60 bn are bought on the black market 1 in 7 Cigarettes smoked in Africa are illegal *Figures UNODC estimates from 2009 South Africa 2012 30% consumption illegal 8.5 billion cigarettes tax losses 5bn Rand Source: The Tobacco Institute of Southern Africa “Information obtained suggests that a number of wellknown organised crime figures have been moving away from investing in traditional illegal drug smuggling, and are now getting involved in the tobacco industry." South African Revenue Service spokesperson Adrian Lackay, 2012 Medication In 21 surveys of drugs from six classes from 21 countries in sub-Saharan Africa: 20% were classified as falsified 35% failed chemical analysis Source: The Lancet, 2012 Charts;UNODC 2013, WHO data from 2011 Medication - WCO project in Africa 1 week operation using new IPM tool, July 2012 Diagrams: WCO Medication & tobacco: common factors Medication Tobacco Sources Asian imports: China & India African production Sources Asian imports: China & UAE African production Routes from Asia: Often container via Free Trade Zones (UAE) Routes from Asia: Often container via/from FTZ (UAE) Containers: Often mis-declared for inland markets Containers: Often mis-declared for inland markets Customs Unions: ECOWAS/EAC/SADC facilitate movement of goods Sources: UNODC & industry The future: Does illicit trade in normally legal goods risk becoming a bigger problem? Oil - Higher prices = stronger criminal incentive - Gulf of Guinea growing in importance as global supplier of oil Tobacco - Higher taxation = higher profits Counterfeits - Projected growth rate - Significant Chinese role Source: Chatam House September 2013 Thank you!