NZ Customs battles growing illicit tobacco smuggling trend

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I'm Chelsea Daniels and this is the Front Page, a daily podcast presented by the New Zealand Herald. The illegal tobacco trade has become a very lucrative business worldwide. In Australia, for example, illegal excise evading cigarettes now comprise half of the products sold to the country's two point seven million smokers. According to the ABC, it's thought that ten billion dollars a year in revenue there is going straight into.

The pockets of organized crime.

But has this trend made it to New Zealand shores and how much of a headache is it causing those protecting our borders. Today on the Front Page, Head of Fraud and Prohibition Chief Customs Officer Nigel Barnes is with us to discuss how they're cracking down on a legal tobacco. First off, Nigel, what are some key trends you've seen in illegal tobacco smuggling over the years.

Well over recent years, the efforts to smuggle will listed tobacco have become more sophisticated and been of larger quantities. In particular, we're seeing that tobacco smugglers will mirror what we see drug smugglers do so they'll use similar consentent methods and similar tradecraft such as using shelf companies.

Have you seen an increase recently.

Yes, it's trended up with over the last few years. It does, I guess fluctuate a little bit depending on the type of illicit tobacco and the group's involved.

But in the main it's traveling upwards.

How much you've seeing the border.

Well, an example is last October, following a referral from the Overseas Customs Administration, we see over two million cigarettes and a container from Southeast Asia and that represents roughly three million dollars worth of revenue of asion.

Wow, and that's just some of the kind of volumes.

Hey, what types of illegal tobacco products are most commonly intercepted and has that changed?

Most commonly it'll be cigarettes, but we do have a market for chewing tobacco and also susha tobacco as well as loose tobacco.

How does customs handle these seized illegal tobacco products? Like, what happens when you're court importing and then you've got what was it two million cigarettes to dispose of?

What do you do with them?

Well, they get disposed of safely, but basically they're dolling up at land, all right.

And what happens to those court importing or a distributing it say.

So, we prosecute to the full extent of the law that we can, and we don't exclusively charge for customer offenses as well. So an example of that is last year where a individual in christ Church broke into a warehouse and stole a large amount of tobacco from that

What's the maximum penalty if I was to say, try and smuggle in.

A two million cigarettes from Southeast Asia?

I say so, the maximum penalty is five years imprisonment under the Customs and ext ISAAC offenses. However, you what we find is that people rarely stick to this one type of offending, so it's quite common for us to see crossover with drug offending as well as money laundering, where we identify those offenses, we charge for those.

Well, what is the alternative.

Do you then drop legal cigarettes back to twenty dollars in order to compete twenty dollars a pack they're currently about sixty bucks a pack to compete with the illegal tobacco.

You can't.

You absolutely can't not, because you can't. The smoking rates would first of all go through the roof, because if you actually look at the statistics, they've halved since the excise was first introduced. So it actually is working to do what its main purpose is, which is to cut smoking rates and therefore help the public health system obviously look after the well being of the country. But on top of that, it's second purpose is obviously to raise tax as well.

Do you think that it's seen as more low risk than trying to smuggle say Class A drugs because you've got a maximum penalty of a five years imprisonment versus life imprisonment.

Well, what I think motivates these criminals is actually the money. So yeah, there is a difference in the maximum penalty maximum tem of prisonment, But what really hurts these guys is when you take their money and take their assets. So where were possible we make referrals. We work quite closely with the police Asset Recovery Unit because what really hurts them is taking away there all gotten gains.

Why do you think organized crime groups are becoming increasingly involved in tobacco smuggling.

Well, there is a lot of money in it, there's no doubt about it. In twenty eighteen, which is a wee while ago now, we found four million dollars in cash in a storage unit and that was the proceeds of ilicit tobacco.

Where are these products ending up?

Well, a lot of them are retailed throughout the country. There are various ways that various outlets. I'm not just talking about dairies. It could be restaurants as well, online as well, in chat groups as well as through community organizations.

It's some of the figures here.

It looks like the revenue from the tobacco excise tax peaked in twenty twenty, then it's been dropping since. Does that make you believe that more smokers are in fact turning to the black market.

I think it's probably fair to say that the illicit market is increasing and the smoking rate is dropping. So as the overall consumption goes down, the size of the illicit market relative to the legal market increases.

How do you work with overseas agencies?

Because I know that Australia's got a huge illicit tobacco problem, and as we know what happens in Ossie soon comes over the Tasman to our shores, something like I think nearly half of Australia's two points something million smokers are now smoking illegal tobacco or tobacco that hasn't been through the excise tax process.

Is that alarming to you.

Well, we definitely don't want to end up with a problem the scale that Australia has. There are, in fact, even more concerningly homicides and arsons attributed to the illicit tobacco problem in Australia, and we definitely don't want to see that here. We work quite closely with our partners overseas, not just the Australian Border Force, but also his Mentesces Revenue and customs in the UK well as other jurisdictions in Southeast Asia.

Is Southeast Asia where we're getting most of it from.

Well, the international supply chain for USIT tobacco is actually quite complex, and there's factories not just in Southeast Asia but also in the Middle East and in Eastern Europe that manufacture huge amounts of cigarettes which are destined for the illicit market, and they don't make their way directly to New Zealand or ways. They'll go through other countries and intermediary countries where their origin is concealed, and then they might go into a concealment such as construction materials

If you were to put a percentage on it, how much do you reckon customs is seized at the border and how much has slipped through the cracks?

Perhaps, Well, that's a great question and I wish I had a really a really precise answer to it. It's really hard to estimate. There have been various attempts to estimate the size of the I listed market in New Zealand and the University of Auckland and University of Otago both completed studies in recent years on it, and also the tobacco industry complete studies on it as well, which they publish. The range in the size of the listed

Is it somewhere in between? Probably?

So I can't really I wouldn't really want to take a stab.

The criminals will lose revenue, and we'd like to think that your average Australian is a law abiding citizen, and generally they were up until a few years ago, until the attacks became so extreme combined with the cost of living crisis, they just decided that enough was enough and they weren't going to pay those excessive prices. So there is a balance, There is a level where people will hopefully return to the legal product.

Do you think there's a point where we can't increase the excise tax by anymore? Like looking at some figures here, the excise tax increased to one eight hundred and twelve dollars and sixty one cents per kilo, and compare that to three hundred and ninety three dollars and three cents in two thousand and nine. Now, granted the smoking rate

Do you reckon we've gone too far?

Well, I'm not really an expert in the economy of it. There is no doubt though, that the amount of exercise is what drives the drives the profitability of the market, So it's definitely a factor. But there's much more to it than just the excise. There are elicit tobacco markets in countries with much lower excise rates than New Zealand as well.

What new technologies or intelligence capabilities are customs using to tackle this? Obviously you've got at the border as well, but have you.

I don't know.

I'm just assuming a whole group of you guys in a room just on Facebook, marketplace searching for listings or something.

Well, we take a bank for back approach to our investigations. So what we do is, rather than trying to simply suppress every instance of elicit tobacco being sold in the community, we look to target the source of it and take out the people who are profiting from the import and then the distribution of these cigarettes on a large scale. We get a lot of benefit from community reporting, so

Has the team tackling this at the border grown along with the rate of illicit tobacco so to speak, like, do you have as many boots on the ground to say to tackle this problem.

Yeah.

In twenty twenty two, Customs received ten point four million dollars in funding over four years, which we think we've delivered a really good return on investment with our seizure stats and our prosecutions as well as our set restraints in that short time. But what's really important, I think is that you don't outgrow a organized crime problem you

Operate here And looking forward, Nigel, what further changes, whether it be legislative, operational, or technological, could improve new Zealand's ability to curb illegal tobacco.

Really it comes down to I think good old fashioned investigating and also community buy in. There might be a sentiment out in the community that elicit tobacco is not actually a serious problem, and that it's great that people can get cheaper cigarettes, But what those people are playing to realize is that they themselves are actually being exploited by organized crime and there are people driving around in very flash cars that those guys.

Have paid for.

Thanks for joining us, Nigel.

Thanks Chelsea, much appreciate it.

That's it for this episode of the Front Page. You can read more about today's stories and extensive news coverage at enzidherld dot.

Co dot nz.

The Front Page is produced by Jane Ye and Richard.

Martin, who is also our editor. I'm Chelsea Daniels.

Subscribe to The Front Page on iHeartRadio or wherever you get your podcasts, and tune in tomorrow for another look behind the headlines.