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1st Meeting of WCO Contact Points for Anti-Cigarette Smuggling Operations in Asia Pacific Region on 10 June 2004

10 June 2004


Distinguished Delegates, Colleagues, Ladies and Gentlemen,

First, let me extend to you a very warm welcome to the First Meeting of WCO Contact Points for Anti-Cigarette Smuggling Operations in Asia Pacific Region. Our congregation today has the unanimous support of the heads of our customs administrations at their 10th regional meeting held at Auckland, New Zealand in March 2004. The Hong Kong Special Administrative Region is also honoured to have the endorsement of the World Customs Organization to host first time ever an event of the kind in this part of the world.

The Hong Kong Perspective

2. Representatives of 16 customs administrations are here to-day to address the problem of transnational smuggling of illicit cigarettes. I should start by sharing with you, briefly, the Hong Kong perspective. As you know, Hong Kong is tariff-free for importation and exportation. Duty is collected only in respect of 4 items of dutiable commodities and only for revenue purposes. The dutiable items are hydrocarbon oil; tobacco; liquors and methyl alcohol. Cigarettes accounted for HK$2,201 million, or 33.9% of our total excise duty in Year 2003, second only to hydrocarbon oil. Combating the smuggling and sales of cigarettes for which duty is not paid, therefore, is a high priority on our law enforcement agenda.

3. The problem of tax evasion exists since tobacco duty was first introduced in 1916. In recent years, it has been aggravated by economic adversities and the emergence of counterfeit cigarettes. Demand for illicit cigarettes has arisen due to their low price. Not only are our revenue laws fowled and Government's health policies hampered. Cigarette smuggling and their illicit sales, which of themselves are criminal deeds, have in turn bred more social and economic crimes.

4. Hong Kong Customs have been deploying an increasing amount of resources to combat cigarette-related crimes. A dedicated unit of 12 investigation experts was established in 1994, which within six years had expanded into a full squadron of 85 officers. In early 2003, through re-organization we created a new formation named Revenue and General Investigation Bureau, with over 200 officers engaged full time to deal with illicit cigarettes and illicit fuels.

5. Our vigorous law enforcement has made its impact felt. Persistent raiding at the street level in Year 2003 led to the detection of 4,487 cases of storage and distribution, with 2,791 persons arrested, 2,714 prosecuted, 2,595 convicted in the year. The result was a change of business practice in this forbidden trade. Street dealers and distributors would now keep much smaller stocks to minimize their loss in the event of a Customs seizure. Still, in the first 4 months of 2004 alone, some 32 million sticks worth HK$ 46 million were seized by Customs from them.

Problem of Transshipment

6. Transshipment of illicit cigarettes was rampart until the Year 2001, when 24 cases of transnational smuggling were detected by Customs, inflicting upon the unscrupulous operators an aggregated loss of over 200 million sticks of cigarettes worth in excess of HK$300 million. The problem was temporarily contained, but it came back later and continued to haunt us. In 2003, a suspicious shipment left Busan, Korea to travel via Hong Kong to Italy. Acting upon intelligence, we informed the Italian Customs which then staged a full scale inspection at Gioia Tauro and discovered 10 million sticks of counterfeit cigarettes. This was one of our first encounters with culprits who adopted the "merry-go-round" mode of operation.

7. The techniques of the ignoble trade have since evolved, and intelligence shows that currently popular routes include:

* the HK - Philippines - Vietnam - China - HK route; and

* the Singapore - HK - Malaysia - Singapore - multi destination route

Typically, at the beginning of a journey, branded cigarettes were duly declared and legitimately handled. After a few stops notably at some free trade zones, however, unscrupulous operators would alter the cargo manifest, add to or reshuffle the contents of the cargo, and sometimes mix genuine cigarettes with counterfeit ones to meet the specific requirements of a black market. The consignment will then enter its intended destination, either under a false declaration, or via a smuggler's avenue. The circumlocutory paths adopted under this method of transnational smuggling, and the concealment available at an average free-trade zone, have made it difficult for customs to detect such illegal activities.

Size of Problem

8. This unlawful business is fast growing and its proceeds are huge. Although statistics are not available on the volume of the illicit trade, some broad indicators can be found to shed light on its magnitude. According to the World Health Organization, global smoker population amounts to 1,250 million, of which some 64%, or 800 million, are living within the territories of the 16 Customs administrations represented here today.

9. Figures from the world tobacco industry however show that our consumption of cigarettes is no more than 243 billion sticks, or 18.5% of global consumption. The assumption must either be that, in the Asia Pacific Region, the average smoker smokes a great deal less than his global counterpart elsewhere. Or, if he actually smokes as many cigarettes as a smoker in Europe or America does, then the bulk of the cigarettes he burns, ie up to 72%, might have come from dubious sources. On the latter assumption - perhaps a bold assumption - the potential black market for illicit cigarettes within our 16 customs territories combined can reach 610 billion sticks per annum. When a Hong Kong person lights a cigarette, he should be paying an excise duty equivalent to ten American cents. At this rate, the potential revenue loss calculated of 610 billion sticks of cigarettes would be US$61 billion, or HK$478 billion every year. Whereas tax rates varies from one country to another, suffice it to say that this is a multi billion dollar problem of tax evasion.

Action Plan

10. Smuggling is a cross-boundary crime, to which the only cure lies in international cooperation. We must act in concert under the auspices of RILO Asia Pacific. Distinguished delegates, in the course of today and tomorrow, you will be looking at a set of proposals for an action plan. The focus will be on:

(a) Intelligence Sharing

You may wish to deliberate how best fellow customs administrations may share the intelligence they have, relating not only to a suspicious shipment travelling across the boundaries, but also the intelligence they have of the syndicates pulling strings behind the shipment. You may wish to discuss, inter alia, the importance of speedy exchange of such intelligence, the mode of the exchange, and the coordination role of RILO in the process.

(b) Joint Investigation

Effective detection of cross-boundary crimes calls for comprehensive investigations to take place, often simultaneously, at more than one port, one city, or one customs territory. This is especially relevant to cigarette smuggling given the meandering patterns of travel of many of our targeted shipments. We have amongst us today some of the best customs investigators in our region. So let us discuss how best and how efficiently our joint investigations can be conducted.

(c) Joint Operation

The ultimate purpose of our investigations is to effect seizures and arrests. Precisely if we aim not only to deal with the small operators at the front-line, but to extend the long arm of the law to those controlling them from behind, we must be thoroughly well coordinated as we mount our operations. We have the advantage of all the professional talents that are with us at this Conference. We may also discuss whether or how we could mobilize, where necessary, the hundreds and thousands of Customs officers we have in our respective administrations as back-up.

Conclusion

11. Distinguished delegates, the scene has been set for us to embark upon a far-reaching operation to combat the smuggling of a commodity with immense revenue implications to us all. This is also one of the most ambitious cooperative arrangements Hong Kong Customs have ever participated in. I am confident that your deliberations in the next two days will go a long way towards strengthening our collective efforts on law enforcement in the region. I am confident that the seeds you sowed this week will bring harvest in the not too distant future. Meanwhile, I wish you a productive meeting inside the conference room. Work aside, I wish you a pleasant stay in Hong Kong, with time for some excursions that we have the privilege to arrange for you as our honoured guests.

12. Thank you.

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