R2bn lost every year to fake cigarettes

Published Aug 12, 2006


Two billion rands could have paid for 12 500 low-cost houses. And by the year 2010, nearly 100 000 families could have owned their own home.

But the money won't be contributing to these urgent causes because it has gone up in smoke, so to speak.

According to the South African Revenue Service (Sars), cigarette smuggling is increasing at a rate of two percent each year. This means that about R2-billion in revenue is lost every year.

Francois van der Merwe, chief executive of the Tobacco Institute of South Africa, says illicit trade in tobacco products has grown from almost nonexistent 10 years ago to more than 20 percent of the total South Africa market.

In some areas of Gauteng it is estimated as high as 30 percent, with some vendors selling illicit products almost exclusively.

"Cigarettes are especially attractive for illicit traders because they have a high value-to-volume ratio and are relatively easy to transport. They also offer a higher profit opportunity than most other fast-moving consumer goods, due to the significant tax portion of the retail price," says Van der Merwe.

British American Tobacco SA (Batsa) says the crime is linked to wider criminal activity. In recent months at least three high-profile businessmen have been linked to cigarette smuggling and contraband.

Business journalist Barry Sergeant in his book Brett Kebble: The Inside Story stated that the slain mining magnate had been involved in the underworld. According to Sergeant, Kebble was thrown a lifeline by a man referred to as "Mr X", an alleged international smuggler and crook with whom Kebble had allegedly been doing shady deals since 2002.

Last month, a state witness in the ongoing R250-million Alberton drug bust case fingered Glen Agliotti of JCI, a Kebble company, in alleged contraband cigarette and hashish smuggling.

It is believed that a warehouse in Johannesburg belonging to John Bredenkamp, a close associate of Zimbabwean President Robert Mugabe, was raided by customs officials last month. It was alleged that smuggled cigarettes had been confiscated, but this information could not be confirmed by Friday.

Batsa spokesperson Anthea Abraham said: "While smokers who purchase illegal cigarettes may be paying less per packet, these products are largely of a sub-standard quality in addition to being illegal."

Batsa's brand enforcement committee works closely with Sars and other government law enforcement agencies to combat illicit trade. The committee revises its strategies constantly because counterfeiting syndicates keep changing their methods of operation.

In 2002 Batsa and the Scorpions closed down two counterfeit factories in Gauteng. The leader of the syndicate was fined R5-million and received a five-year suspended sentence. The syndicate's cigarette-making machinery was forfeited to the state and destroyed.

Last year, law enforcers disrupted seven syndicates, made three arrests and seized tobacco products valued at R8,7-million.

Sars spokesperson Adrian Lackay says illicit cigarettes are being smuggled into South Africa mainly from Zimbabwe, as it is still a major producer of tobacco and tobacco products. Other countries of origin include neighbouring countries in the SADC region, as well as the Middle East and Far East.

Van der Merwe says there are three types of illicit trade. The first is the importation, for commercial use, of tobacco products on which payment duties, excise and value-added tax are evaded in the country of consumption, or no tax is paid at all.

The second is "undeclared" local production, where products are produced and consumed in the same country, but without payment of local taxes. These products may be manufactured in approved factories, but not declared to the authorities, or they may be manufactured in illegal operations.

The third type is counterfeit product, which is intended to be an identical or near-identical copy of a genuine branded product and its packaging, to give it the appearance of being genuine.

South African and Zimbabwean officials have made several arrests and confiscated millions of rands worth of contraband over the past few months:

- On May 20, police in Zimbabwe arrested two South African immigration officials and their Zimbabwean counterpart as they tried to smuggle cigarettes and ivory across the border into South Africa in a South African Home Affairs Department vehicle that had been used to transport illegal Zimbabwean immigrants back to Zimbabwe.

- On May 11, three people were arrested at Zimbabwe's southern border as they attempted to smuggle $117 000 (about R790 000) worth of cigarettes into South Africa under a consignment of coffee.

- In January, a 61-year-old man was arrested for allegedly attempting to bribe a Sars investigator with R600 000. The man, believed to be a British national, apparently got wind of an investigation into R7-million worth of goods that had been seized by Sars in Germiston.

While investigations were under way, the suspect contacted the investigator, offering R600 000 to avoid arrest.

The man was arrested when he handed over the money at a meeting in Bruma, Johannesburg.

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