Appendix E – Illicit tobacco trade
A5.1 The manufacture and distribution of illicit tobacco (illicit tobacco trade) has been a long standing public policy issue for Australia and globally. For example, in 2015–16, almost $600 million in tobacco duty was foregone as a result of such tobacco trade.1123 In addition to revenue forgone, the illicit tobacco trade has health policy, law enforcement, border control1124 and consumer protection implications.
A5.2 Those responsible for the smuggling or domestic cultivation of illicit tobacco are often linked to serious and organised crime syndicates who import other illicit drugs and seek to corrupt public officials1125 in an attempt to avoid payment of any excise or customs duty that may arise.1126
A5.3 The illicit tobacco trade can be defined as ‘any practice or conduct prohibited by law and which relates to production, shipment, receipt, possession, distribution, sale or purchase [of tobacco], including any practice or conduct intended to facilitate such activity’.1127 As the trade in illicit tobacco touches a number of laws and regulatory regimes, different agencies are involved in law enforcement efforts and different policy agencies are responsible for different aspects of the applicable legislative framework.
The regulation of tobacco
A5.4 Domestically produced tobacco products are subject to excise, pursuant to the Excise Act 1901, and imported tobacco products are subject to customs duties, under the Customs Act 1901. For some imported goods, the applicable rate of customs duty is the rate of excise duty that would apply if the goods were domestically produced.1128 These imported goods are known as ‘excise-equivalent goods’ (EEGs).
A5.5 In 1999, administration of the Excise Act 1901 was transferred from the then Australian Customs Service to the ATO. The Customs Act 1901 is administered by the Department of Home Affairs, which was previously known as the Department of Immigration and Border Protection (DIBP). However, in 2010, the then DIBP delegated to the ATO authority to issue licenses for warehousing1129 EEGs upon which customs duty had not been paid1130 as well as the responsibility for controlling the movement of such EEGs.1131 This delegation was designed to streamline services to taxpayers.
A5.6 Health-related regulation of tobacco is the responsibility of the Department of Health who investigates and enforces legislation which imposes restrictions on the presentation and appearance of tobacco packaging that is offered for sale or otherwise supplied.1132 Violation of the relevant law carries heavy penalties.1133
A5.7 More broadly, the Department of Health has primary responsibility for developing the Government’s public health policies, including those with respect to legally produced and marketed tobacco products1134, and administers the National Tobacco Strategy 2012–20181135 which is part of the broader National Drug Strategy 2017–26, administered by the Ministerial Drug and Alcohol Forum.1136
A5.8 In addition to plain packaging requirements, it is an offence to offer tobacco products for sale if their packaging does not have health warning labels applied, including graphics.1137 Substantial financial penalties may be applied if such offences are committed. The relevant legislation is administered by the Australian Competition and Consumer Commission (ACCC).
Approaches and challenges to combatting the illicit tobacco trade
A5.9 There are dedicated areas within the above agencies which seek to address aspects of the illicit tobacco trade. For example, the ATO’s ITX business line has dedicated areas to assessing and investigating fraud risks associated with non-payment of excise.1138 The ATO’s approach in this area has previously included a ‘disruption’ strategy to make the practice of cultivating and distributing illicit tobacco less attractive to perpetrators of fraud by making such activities less profitable such as by destroying illicit tobacco crops.1139
A5.10 The ABF’s Tobacco Strike Team1140 targets serious organised crime syndicates and other commercial enterprises that seek to make significant profits from illicit goods including the smuggling of tobacco across the border1141 whilst the National Measurement Institute, pursuant to the delegated authority of the Department of Health, investigates potential contraventions of the plain packaging legislation and reports to the Department of Health’s Tobacco Plain Packaging Enforcement Committee. The latter considers recommending enforcement action against any identified contraventions, including the commencement of administrative, civil or criminal proceedings.1142
A5.11 There are also a number of interagency forums aimed at addressing the illicit tobacco trade. For example, the Department of Health’s Tobacco Control Interdepartmental Committee provides an interagency forum to discuss issues arising from tobacco control generally.1143 It has replaced the Illicit Tobacco Committee which had been focused on the illicit tobacco trade and was chaired by the then DIBP. The Department of Home Affairs chairs the Illicit Tobacco Industry Advisory Group which allows representatives from industry and government agencies to share information and discuss the illicit tobacco environment, including the illicit tobacco market.1144 It is usually attended by representatives from the Treasury, ATO, ACIC, ACCC, AFP, Department of Health and the tobacco industry.
A5.12 The ATO leads the Tobacco Stakeholder Group which is a forum for industry representatives, the ATO and the Department of Home Affairs to focus on improving the ATO’s administration of the EEG regime. Representatives from the Treasury, ACCC and Department of Health may also attend meetings of this group.1145
A5.13 More recently, the Government has announced that a new multi-agency Illicit Tobacco Taskforce will be formed in July 2018, comprising members from a number of law enforcement and border security agencies, to combat illicit tobacco smuggling. This new taskforce is intended to build on the approach of the ABF’s Tobacco Strike Team and have additional powers to enhance intelligence gathering and proactively target, disrupt and prosecute serious and organised crime groups at the centre of the illicit tobacco trade.1146
A5.14 The main challenges faced by the above agencies in combatting the illicit tobacco trade include the following:
- obtaining the necessary assistance from overseas law enforcement agencies to intercept tobacco being illegally imported into Australia1147;
- penalties for cultivation of illicit tobacco not being aligned with those for smuggling illicit tobacco1148 — the Treasury Laws Amendment (Illicit Tobacco Offences) Bill 2018 (the 2018 Tobacco Bill), seeks to address this issue1149;
- satisfying the element of intent which is required for prosecution of importation, conveyance or possession of tobacco products with the intention of defrauding the Commonwealth1150 — enactment of the 2018 Tobacco Bill is aimed at addressing this issue with respect to certain offences1151;
- proving the origin of illicit tobacco which may not be possible once the tobacco has been cut out of the ground,1152 leading to regulators resorting to less punitive treatments, such as tax assessments for underreported income1153 — the 2018 Tobacco Bill is aimed at addressing this difficulty1154;
- aligning the public health policy objective1155 of the plain packaging legislation with the law enforcement use of that legislation to disrupt the efforts of organised crime1156 — proposed offences in the 2018 Tobacco Bill are aimed at addressing this difficulty1157;
- ensuring relevant agencies obtain the specialist capabilities of other agencies required to enforce certain laws1158; and
- accurately estimating the tax gap from the illicit tobacco trade or more specifically the customs duty gap and excise gap.1159
A5.15 In addition to the 2018 Tobacco Bill mentioned above, amendments to the Customs Act 1901 have been introduced into Parliament which, amongst other changes, are intended to align the offences for illegally importing and domestically cultivating tobacco.1160 The Government has also recently announced a number of further measures to target the three main sources of illicit tobacco, namely: smuggling, leakage from licensed warehouses and domestic production. From 1 July 2019 importers will be required to hold a permit and pay all relevant duty and tax liabilities upon importation. The ATO will also be provided further funding to combat the production of illicit domestic tobacco crop.1161
1123 The Hon. Kelly O’Dwyer, MP, Minister for Revenue and Financial Services, and the Hon. Peter Dutton, MP, Minister for Home Affairs, Immigration and Border Protection, ‘New illicit tobacco taskforce and tobacco duty measures to fight organised crime’ (Media Release, 6 May 2018).
1125 Australian Criminal Intelligence Commission (ACIC), Organised Crime in Australia 2017 (2017) p 23; AFP, ‘Multi-agency operation destroys global criminal syndicate’ (Media Release, 10 August 2017); ACLEI, ‘ACLEI Operation Zeus’ (Media Statement, 10 August 2017).
1126 Department of Immigration and Border Protection (DIBP), Submission 77 to the Parliamentary Joint Committee on Law Enforcement, Inquiry into Illicit Tobacco, undated, p 3.
1127 World Health Organization (WHO) Framework Convention on Tobacco Control, WHO, Protocol to Eliminate Illicit Trade in Tobacco Products (2013) p 6.
1128 Explanatory Memorandum, House of Representatives, Excise Tariff Amendment (Tobacco Duty Harmonisation) Bill 2017, p 5 para [1.3].
1129 Customs Act 1901 s 79.
1130 DIBP, Licencing – Warehouses, Depots and Brokers, Practice Statement PS2011/43 (29 September 2011) p 2.
1131 ANAO, ANAO Report No.34 2015–16 Performance Audit Administration of Tobacco Excise Equivalent Goods (2016) p 17 para [1.8].
1132 Tobacco Plain Packaging Act 2011.
1133 AFP, Submission 161 to the Parliamentary Joint Committee on Law Enforcement, Inquiry into Illicit Tobacco, February 2016, para [e].
1134 Department of Health, Submission 157 to the Parliamentary Joint Committee on Law Enforcement, Inquiry into Illicit Tobacco, February 2016, p 2.
1137 See, Competition and Consumer (Tobacco) Information Standard 2011 which has the force of law by virtue of the Competition and Consumer Act 2010 sch 2 s 134.
1138 The Excise Product Leadership in the ITX business line is responsible for the non-payment of excise risk.
1139 ATO, Submission 16 to the Parliamentary Joint Committee on Law Enforcement, Inquiry into Illicit Tobacco, undated, p 5.
1140 The Australian Border Force’s Tobacco Strike Team was established in October 2015. See, above n 1126, p 6.
1141 Above n 1126, p 6.
1143 Answers to Questions on Notice to the Parliamentary Joint Committee on Law Enforcement, Inquiry into Illicit Tobacco, Canberra, 22 March 2017, Question 19 (Department of Health).
1146 Above n 745, p 12.
1147 AFP, ‘Multi-agency operation destroys global criminal syndicate’ (Media release, 10 August 2017).
1148 ACLEI, ‘Operation Zeus’ (Media Statement, 10 August 2017).
1149 Explanatory Memorandum, House of Representatives, Treasury Laws Amendment (Illicit Tobacco Offences) Bill 2018 p 34 para [1.146].
1150 Customs Act 1901 s 233BABAD.
1151 Above n 1149, p 16 para [1.45].
1152 Above n 1139, p 6 para .
1153 Evidence to the Parliamentary Joint Committee on Law Enforcement, Parliament of Australia, Canberra, 23 November 2016, p 8 (Assistant Commissioner, ATO).
1154 Above n 1149, p 16 para [1.47].
1155 Department of Health, Supplementary submission 157.1 to the Parliamentary Joint Committee on Law Enforcement, Inquiry into Illicit Tobacco, April 2016, p 4.
1156 Above n 1133, para [e].
1157 Above n 1149, p 18 para [1.55].
1158 Above n 1155, p 4.
1159 Evidence to the Parliamentary Joint Committee on Law Enforcement, Parliament of Australia, Canberra, 4 March 2016, p 23 (Assistant Commissioner, ATO).
1160 Customs Amendment (Illicit Tobacco Offences) Bill 2018.
1161 Above n 745, p 12.