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TRACIT
​Talking Points

TRACIT welcomes the forthcoming entry into force of the WHO Protocol to Eliminate Illicit Trade in Tobacco Products

4/7/2018

 
With the UK signing on to the WHO Framework Convention on Tobacco Control (FCTC) Protocol to Eliminate Illicit Trade (the Protocol), last week, the Protocol finally achieved the threshold support needed for it to enter into force.[i]

This is a significant milestone in the fight against illicit trade in tobacco, specifically; and it’s a strong signal that the international governance community has an appetite to rally its forces against illicit trade generally.

Tobacco is perhaps the most widespread and well-documented sector vulnerable to illicit trade[ii] and the WHO reports that one in every 10 cigarettes consumed globally is illicit.[iii] Like virtually all forms of illicit trade, this illegal activity robs governments of tax revenue, fuels corruption and terrorism, and expands the global illegal economy, which hampers competition and free trade and subsidizes other forms of criminality, including drugs, arms and human trafficking.[iv]

For legal businesses operating in the tobacco sector, damages include trademark infringement, lost market share and increased supply chain costs associated with monitoring infrastructure and implementing trace and trace technologies. For the consumer, it means exposure to unregulated and adulterated products.

The Protocol contains several measures that should prove effective for improving security in the legal supply chain, including the establishment of a global tracking and tracing system and stricter penalties for offences, liability and seizure payments. Moreover, it includes several measures aimed at promoting international cooperation, including on information sharing, technical and law enforcement, cooperation, mutual legal and administrative assistance, and extradition. 

While the entry into force of the Protocol is an important step in itself, this really is just the starting point. For the Protocol to effectively address the problem, many more countries will need to become parties to it.  And, it will be crucial for those parties to live up to their formal engagements and set up the envisaged institutional, regulatory and legislative measures without delay. 

Beyond tobacco, TRACIT believes that the Protocol holds enormous potential to support and leverage efforts to combat other forms of illicit trade that similarly exploit regulatory controls supply chain vulnerabilities. For example, the requirement to “implement effective controls on all manufacturing of and transactions in, tobacco products in free zones” will ramp up attention to suspect manufacturing processes in the zones. Similarly, national measures adopted under Article 18—calling on Parties to allow for the use of special investigative techniques—can be applied to a broad range of illicitly traded goods across sectors.

Other tools can be applied to fight illicit trade more broadly, such as requirements to establish a licensing system for supply chain actors and shaping effective customer due diligence processes. These measures can all serve as benchmarks for policy-makers intent on tackling illicit trade in other sectors.

The First session of the Meeting of the Parties to the Protocol will take place in Geneva, Switzerland, from 8-10 October 2018. Meetings of the Parties are expected to be convened at regular intervals of time in order to review and promote the implementation of the Protocol. The October meeting will be a particularly interesting event as the first testing ground of the willingness of its Parties to turn words into deeds. 

​Notes
[i] World Health Organization Framework Convention on Tobacco Control. (2018, June 28). The Protocol to Eliminate Illicit Trade in Tobacco Products is live! [Press release]. Retrieved from: http://www.who.int/fctc/mediacentre/press-release/protocol-entering-into-force/en/
[ii] Melzer, S. and C. Martin (2016). "A brief overview of illicit trade in tobacco products", in Illicit Trade: Converging Criminal Networks, OECD Publishing, Paris. Retrieved from: http://dx.doi.org/10.1787/9789264251847-8-en
[iii] World Health Organization Framework Convention on Tobacco Control. (2018, June 28). The Protocol to Eliminate Illicit Trade in Tobacco Products is live! [Press release]. Retrieved from: http://www.who.int/fctc/mediacentre/press-release/protocol-entering-into-force/en/
[iv] US State Department. (2015, December). The Global Illicit Trade in Tobacco: A Threat to National Security. Retrieved from: https://2009-2017.state.gov/documents/organization/250513.pdf

Illicit trade in Oil and Fuel: An Emerging Global Policy Challenge

24/4/2018

 
This post was originally published by Inter Press Service (IPS)

Illicit trade in any of its forms—alcohol, tobacco, pharmaceuticals, diamonds, timber, ivory and oil—sits at the nexus of two social-economic disorders that challenge global stability. Firstly, the global economy remains on unsteady footing, and governments are scrambling to stimulate growth, employment and investment in infrastructure and other public programs. Secondly, the upswing in criminal activity and lawlessness—in some cases punctuated by terrorist acts—has left us all questioning our security for this generation and the next. Illicit trade exacerbates both problems and presents governments with an immediate challenge to address their pervasive and significantly negative impacts on our economy and our civil society.

Economic Impacts Deriving from Illicit Trade in the Petroleum Sector
Every year an estimated $133 billion of fuels are illegally stolen, adulterated, or defrauded from legitimate petroleum companies.[1] Roughly 30% of Nigeria’s refined fuel products are smuggled into neighboring states [2] and pipeline fuel theft in Mexico is at record levels [3]. This illegal activity creates an enormous drain on the global economy, crowds out billions from the legitimate economy and dislocates hundreds of thousands of jobs. 

Equally significant are associated fiscal losses from tax evasion and subsidy abuses that deprive governments of revenues for vital public services and force higher burdens on taxpayers—especially in developing countries where petroleum industry royalties and tax payments finance development. For example, Philippines loses $750 million annually in tax revenue from fuel adulteration and smuggling.[4] The Honorable Dakila Cua, Chairman of the Philippines House Committee on Ways & Means, told me that fuel smuggling is a vicious practice that deprives his country of precious revenues for investment in infrastructure. He confirmed that the problem is deeply embedded in the Philippine economy and throughout ASEAN economies. The value of the illegal fuel trade in Southeast Asia ranges from $2 to $10 billion a year.[5]

Links to transnational Organized Crime and Terrorism
The links between illicit trade and organized crime are well established. The global economic value of oil and fuel theft ranks amongst the highest of transnational crimes. Research shows connections between oil theft and drug cartels in Mexico; insurgents and human traffickers in Thailand; human smugglers in Libya; terrorists in Ireland; militant groups in Nigeria; rebel movements in Mozambique, and of course, ISIS.[6] This activity significantly threatens national and regional stability, and creates significant deterrents for business investment, which thrives in stable, peaceful environments. Notably, the criminal connection is not limited to oil and fuel theft. Transnational organized crime is involved in all forms of illicit trade, from human trafficking networks and tobacco smuggling, to the involvement of the Mafia and Camorra in the trade of counterfeit goods. Moreover, profits from one illegal activity are frequently used to finance a different type of illicit trade.  

Illicit Trade and Environmental Degradation
Illicit trade in the petroleum sector perpetuates extensive ripple effects across global markets, including undercutting sustainable development and hastening environmental degradation. The process of illegal tapping, bunkering and ship transfers, for example, carry a higher probability for oil spills and blown pipelines, potentially causing significant damage to soil fertility, clean water supplies and marine life. Consequently, fighting fuel fraud is a global responsibility, as well as a prerequisite for the achievement of the UN Sustainable Development Goals.

Solutions
Despite these severe negative effects, the global problem of oil and fuel theft so far has been largely unchecked and remains mostly hidden from international attention.  Any long-term solution will be dependent on sustained collaboration between governments and the private sector. 
Business will contribute by continuing to develop technical solutions, such as fuel markers and GPS tracking. Modern fuel-marking programs allow governments to identify stolen or diverted fuel and reduce fuel losses, while delivering improved integrity in fuel supply chains, mitigating tax evasion and subsidy abuses, and plugging revenue drains. Business also can share intelligence, data, resources and measures that effectively control this illicit activity. And Business is willing to work with partners to convene stakeholders, improve awareness, expand the knowledge base, and energize the global dialogue. 

​Governments, however, need to improve regulatory structures, set deterrent penalties, rationalize tax policies, strengthen capacity for more effective enforcement and educate consumers. This is a matter of urgency and government efforts to fight illicit trade should be considered investments that pay tangible dividends to economic development and global security. 

TRACIT is responding to this challenge by leading business engagement with national governments and intergovernmental organizations to ensure that private sector experience is properly integrated into rules and regulations that will govern illicit trade.  Our specific engagement in the petroleum sector stems from the shared understanding that a united industry voice is required to track, report and stop fuel fraud – from extraction to production to distribution to consumers. 

The geographic diversity and wide-ranging methods of oil and fuel theft and fraud require a comprehensive global approach to mitigating the problem. All stakeholders have an interest in stamping out illicit trade; and all benefit from collective action.

​
​Notes
[1] Desjardins, J. (2017, May 7). Fuel theft is a big problem. Business Insider. Retrieved from http://www.businessinsider.com/fuel-theft-is-a-big-problem-2017-5
[2] Ralby, I. M. (2017). Downstream Oil Theft: Global Modalities, Trends, and Remedies. Washington, DC: Atlantic Council. Retrieved from http://www.eurocontrol.ca/images/euo_content_images/euo_pdfs_in_articles/AtlanticCouncil_Report-Downstream_Oil_Theft_January_2017.pdf
​[3] García, K. (2018, April 5). Crece sin freno sangría a ductos de Pemex. El Economista. Retrieved from https://www.eleconomista.com.mx/empresas/Crece-sin-freno-sangria-a-ductos-de-Pemex-20180405-0016.html
[4] ADB. (2015). Fuel-Marking Programs: Helping Governments Raise Revenue, Combat Smuggling, and Improve the Environment. The Governance Brief, 24. Retrieved from https://www.adb.org/sites/default/files/publication/174773/governance-brief-24-fuel-marking-programs.pdf
[5] Gloystein, H and Geddie, J. (2018, January 18) Reuters. Shady triangle: Southeast Asia's illegal fuel market.
Retrieved from https://www.reuters.com/article/us-singapore-oil-theft-southeast-asia-an/shady-triangle-southeast-asias-illegal-fuel-market-idUSKBN1F70TT
​
[6] Ralby, I. M. (2017). Downstream Oil Theft: Global Modalities, Trends, and Remedies. Washington, DC: Atlantic Council. Retrieved from
http://www.eurocontrol.ca/images/euo_content_images/euo_pdfs_in_articles/AtlanticCouncil_Report-Downstream_Oil_Theft_January_2017.pdf
Picture
​Transnational Alliance to Combat Illicit Trade
​The Transnational Alliance to Combat Illicit Trade (TRACIT) is a private sector initiative organized as a non-governmental, not-for-profit organization under US tax code 501(c)(6). TRACIT draws from industry strengths and market experience to build habits of cooperation between business, government and the diverse group of countries that have limited capacities for regulatory enforcement. Its work program focuses on strengthening the business response to illicit trade by exchanging information and mitigation tactics in and across key industry sectors and reducing vulnerabilities in supply chains, including transportation, digital channels, free trade zones and financial networks. TRACIT’s work program covers alcohol; agri-foods; counterfeiting and piracy; fisheries; forestry; pesticides; petroleum; pharmaceuticals; precious metals and gemstones; and tobacco. trafficking in persons, and wildlife. 
​
www.TRACIT.org : info@TRACIT.org

Stepping up integrity in trade and customs: Going beyond policy principles to combat illicit trade at the border

22/3/2018

 
Illicit trade has an extensive destabilizing impact on global security due to its central role in facilitating transnational organized crime and illegal flows of money, people and products across borders. Combating the twin devils of corruption and illicit trade is critical to unlocking the potential of clean international trade and protecting prosperity, profitability, global supply chains and natural resources.

Customs has a particularly important role to play in combating illicit trade, with Customs officers on the front-line conducting inspections and detecting and seizing illicit goods. If this role is compromised, such as when customs officers are not acting in accordance with their official duties because of the promise of, or receipt of a bribe or other undue advantages, the system fails and enables opportunities for illegal trade, criminal activity, illegal financial flows and trafficking in products and persons.

In spite of meaningful progress in some countries, corruption continues to plague customs administrations around the world regardless of their level of development. Recent high profile cases simply reinforce what we always knew – that no country is immune to the problem and that there are no quick-fix solutions available. The very nature of customs work makes it vulnerable to many forms of corruption and other serious criminal activities.[1]
​
  • In Mumbai, 19 Customs department officials were suspended due to ‘professional inadequacies of conduct’ that contributed to lost import duties and allegations of co-operation with smugglers.[2]
  • In the Philippines, a congressional hearing investigated the Bureau of Customs in a drug smuggling case, where the illicit shipment made its way relatively unhampered through customs' so-called express "green" lane[3]. Several high-level officials were implicated as corrupt and complicit.[4]
  • In the Ukraine, respondents to a survey carried out by the American Chamber of Commerce in Ukraine (ACC) amongst more than 180 domestic and foreign companies said that the fight against corruption should be the main priority for enhancing the country’s business climate. 54 per cent consider tax and customs authorities to be the main source of corruption.[5]

While some innovative approaches have shown genuine promise in addressing integrity risks, the problem of corruption and the challenges and vulnerabilities faced by customs administrations are ongoing and require constant vigilance and practical strategies to address the problem in a holistic way.

The OECD and WCO are at the forefront of addressing integrity in customs. To date, a selection of what the two organizations have developed includes:
  • Ten principles of the WCO Revised Arusha Declaration on Integrity in Customs;
  • G20 High Level Principles on Countering Corruption in Customs; and the
  • OECD Integrity in customs: Taking stock of good practices.

However, the work does not end there. The OECD and WCO have come a long way in identifying what needs to be done and what has worked well on a national scale in addressing integrity issues in customs. Now is the time to bring these lessons and principles to life to address the remaining gaps.

TRACIT looks forward to advancing the integrity in customs agenda together with the OECD and WCO. Through our envisaged cooperation, we can involve the private sector in the collective action to fight corruption at the border and promote shared responsibility between the public and private sectors in achieving clean trade. By joining forces, we will be able to bring together the best and brightest on these issues to facilitate true knowledge exchange between government representatives in charge of integrity, trade and security issues; national customs authorities; key implementing IGOs; and private sector experts on trade and supply chain management.

The upcoming OECD Global Anti-Corruption and Integrity Forum provides an important venue for advancing the work on improving integrity in customs. We look forward to engaging with our partners and Forum participants in Paris in the end of March and beyond.
 
​
Notes
[1] McLinden, G. & Durrano, A. Z. (2013). Corruption in Customs. World Customs Journal. 7 (2). 3-10.
[2] Dasgupta, A. (2017, November 3). A custom of corruption haunts Customs dept. Mumbai Mirror. Retrieved from https://mumbaimirror.indiatimes.com/mumbai/crime/a-custom-of-corruption-haunts-customs-dept/articleshow/61474969.cms
[3] Parpan, L. (2017, August 1). Senate alleges corruption and incompetence in customs bureau over biggest haul yet of shabu smuggled into PH. CNN Philippines. Retrieved from http://cnnphilippines.com/news/2017/07/31/senate-probe-customs-drugs-china-faeldon.html
[4] Nonato, V. F. (2017, August 8). Broker accuses BOC execs of accepting bribes. Philippine Daily Inquire. Retrieved from http://newsinfo.inquirer.net/921110/broker-accuses-boc-execs-of-accepting-bribes
[5] Emerging Europe. (2018, February 14). Perceived Corruption Continues to Hold Back Ukraine FDI. Emerging Europe. Retrieved from http://emerging-europe.com/in-brief/perceived-corruption-continues-hold-back-ukraine-fdi/
Picture
Transnational Alliance to Combat Illicit Trade
​The Transnational Alliance to Combat Illicit Trade (TRACIT) is a private sector initiative organized as a non-governmental, not-for-profit organization under US tax code 501(c)(6). TRACIT draws from industry strengths and market experience to build habits of cooperation between business, government and the diverse group of countries that have limited capacities for regulatory enforcement. Its work program focuses on strengthening the business response to illicit trade by exchanging information and mitigation tactics in and across key industry sectors and reducing vulnerabilities in supply chains, including transportation, digital channels, free trade zones and financial networks. TRACIT’s work program covers alcohol; agri-foods; counterfeiting and piracy; fisheries; forestry; pesticides; petroleum; pharmaceuticals; precious metals and gemstones; and tobacco. trafficking in persons, and wildlife. 
​
www.TRACIT.org : info@TRACIT.org

    About tracit talking points

    TRACIT Talking Points is a channel we’ve opened to comment on current trends and critical issues. This blog showcases articles from our staff and leadership, along with feature stories from our partners in the private sector and thought-leaders from government and civil society. Our aim is to deepen the dialogue on emerging policy issues and enforcement measures that can be deployed against illicit trade.

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