On August 19, 2014, the Chairman of the Economic and Financial Crimes Commission Ibrahim Lamorde assured stakeholders that his Commission will forge a common front with the Nigerian Customs Service to address the problem of tobacco smuggling.Six months after, the activities of the smugglers has not shown signs of abating. Within the last two months alone, there have been reports of about 5 containers of tobacco smuggled into the country.
A few days later, on Friday August 22, 2014 to be exact, the Consumer Protection Council (CPC) published a public announcement warning consumers about the dangers associated with a particular brand, Esse, which had found its way into the country illegally and which it said had been found to have a post-dated date of manufacture with the intention of giving it a prolonged shelf life. Such falsification can pose grave health hazards for consumers as they may purchase them well past their ideal consumable dates.
Generally speaking, apart from porous borders and venal government officials, different tax incentives, price differentials, geographical characteristics and socio-economic conditions may lead to different kinds of illegal activities. But let me begin by distinguishing between two kinds of illegal circumvention of taxation that afflict most nations of the world: bootlegging and large-scale organized smuggling.
Bootlegging is encouraged by substantial differentials in the price of tobacco products between neighboring countries or between neighboring states or provinces. Where there are large differences in retail prices (often more than 300 percent), duty-paid products may be purchased in a low-tax area and transported to a high tax-area to be sold illegally. Bootleggers often use especially made vehicles that have been altered to conceal the goods. Bootlegging is, in a sense, old-fashioned smuggling. It is often organized by gangs, but does not require huge investments. Large price differences are essential in sustaining this illegal business.
Large-scale smuggling is characterized by the involvement of criminal organizations, a relatively sophisticated system for distributing smuggled cigarettes locally, and a few controls on the international movement of tax-free cigarettes.
While avoidance of taxes is the motivation for smuggling, smuggling cannot be explained by tax levels alone. Although the level of sales of contraband cigarettes varies between markets, large-scale smuggling of cigarettes has some common features throughout the world.
1. Transport of tax-free cigarettes. Large-scale smugglers transport containers of 10 million cigarettes, on which they prefer to pay no tax. Paying taxes would diminish profits and increase the risk of loss by confiscation of the goods. A container of 10 million cigarettes can be bought for some US$200,000, but has a fiscal value (import taxes, excise duties and VAT) of at least $1 million. Large-scale smugglers operate in all parts of the world, as container transport costs are small compared to the market value of the goods.
2. International brands: Smuggling focuses mainly on well-known international brands, as instant recognition and confidence in the merchandise are essential to these quick, sneaky transactions. BAT and Marlboro brands are some of the worlds most valuable brands and remain some of the most in demand in the contraband sector.
3. Transported in transit: Tax-free cigarettes are most often bought in transit. Transit is a concession system aimed at facilitating trade which allows the temporary suspension of customs duties, excise and VAT payable on goods originating from and/or destined for a third country while the goods are transported through a defined customs area. However, many cigarettes simply fail to arrive at their final destination, having been bought and sold by unofficial traders. Fraud occurs when the transit cigarettes do not arrive at their declared destination, but are sold without taxes on the black market.
4. Passed through a number of owners: Fraudulent transactions typically involve several separate buyers between the initial purchase of the cigarettes and their disappearance from legitimate circulation. The key point for a fraudster is not to be discovered. One mechanism used to make investigation difficult is to arrange for a consignment to pass through a bewildering number of owners in a short time. The aim is to make it impossible to trace the final owner, and to obscure the links between successive owners.
In the specific case of Nigeria, the biggest driving force of smuggling is corruption. It is corruption that makes it difficult to secure our borders. It is corruption that compromises the integrity of some law enforcement officers who turn the other way when goods are smuggledafter their palms have been greased, of course. So, corruption is a central concern in the fight against smuggling in Nigeria.
According to the preamble of the United Nations Convention against Corruption, the prevalence of corruption destroys the stability and security of societies, undermining the institutions and values of democracy, ethical values and justice and jeopardize sustainable development and the rule of law. This preamble seems tailor-made for Nigeria, where corruption at the highest levels of government has become a way of life, as second nature.
A study for the World Bank assessed the extent to which factors such as general corruption levels contribute to smuggling. Using standard indicators of corruption levels based on Transparency Internationals Index of Countries, the study concluded that (with certain notable exceptions) the level of tobacco smuggling tends to rise with the degree of corruption in a country. Countries with high levels of cigarette smuggling (more than 30 percent of total sales) are not those with the highest prices or taxes, but rather those with a high corruption score, such as Yugoslavia, Ukraine, Colombia, Pakistan and Nigeria.
We do not need a World Bank study to remind us of the depressingly deep culture of corruption that we have had to live in for much of our post-independence existence. Smuggling and black marketeering, aided by governmental corruption, have especially assumed epidemic proportions in Nigeria in recent times. By some estimates, the smugglers steal up to 10 percent of Nigeria’s annual oil output. And according to a recent country report on Nigeria by Global Integrity, an independent body that provides information on governance and corruption worldwide, “escaping the world of unofficial charges is difficult, if not impossible, for the average Nigerian. Almost everyone pays bribes on some level: professionals, politicians and even youths are wrapped up in a system estimated to have cost Nigeria more than US$100 billion (12 trillion naira) in illicit money transfers alone.”
Not surprisingly, corruption is considered the third most important obstacle for doing business in Nigeria by the World Economic Forum, surpassed only by access to financing and inadequate supply of infrastructure. In a recent USAID survey, 43 percent of Nigerian businesses considered corruption in the public sector to be a moderate to major obstacle for doing business, and companies spend up to 12 percent of their annual income on gratifications to officials. About half of the firms polled in the survey reported that they have to pay such gratifications. Most firms say that most bribes are requested by government agents and not initiated by the firms. Instructively, 80 percent of households in Nigeria, according to the same survey, also find corruption to be a serious national problem.
The USAID survey indicates that more than a third of Nigerian companies considered laws and regulations to be inconsistent and unpredictable, and 58 percent of the responding companies reported that they always, mostly or frequently, have to pay ‘gratifications’ to obtain permits or licenses. Despite the fact that complaint mechanisms are in place many businesses end up bribing their way through the system.
This state of affairs is especially worrisome because since 1999 Nigerians have been deafened by noises of anti-corruption, rule of law and due process. The situation on ground has however consistently proved the opposite to be true and most of the time, corruption is aided by individuals high up in government and agency circles.
No less a person than Nuhu Ribadu, the former chairman of the EFCC, admitted this. In a speech he delivered at the Nigerian Bar Association Annual Conference held at Abuja in September 2004, he said, “While we now have legislation to regulate the conduct of both public officers and the private sector for corrupt practices, the vices are still very much with us Despite the large number of law enforcement workforce and the numerous agencies, nothing seems to be working The principal reason for the failure of our law enforcement agencies is corruption,” he said.
But what predisposes our leaders to corruption, and why has this problem eluded solutions? High-ranking government officials use their positions as a gateway for personal enrichment. But we cannot afford to lose the few foreign investments we currently have because of corruption. Theres got to be a way out of this serious problem. The country will be the better for it in the long run if we can sustain the enthusiasm of our current investors and attract others looking to invest overseas.
In order to stem the tide of the twin evils corruption and smuggling in our country, we need concerted efforts by the media, NGOs and concerned government officials to raise public awareness of the negative consequences of smuggling and corruption. Other measures include:
Increase penalties: smugglers continue because the benefits outweigh the risks
Place labels with the inscription tax paid on fast moving consumer products: these clearly distinguish between legal and illegal goods, making contraband products easier to detect and trace, and the law easier to enforce
Require industry-specific licenses for manufacturers, exporters, importers, wholesalers, transporters, warehouses and retailers. Licenses help identify and monitor those involved in various sectors. Conditions can be attached: licenses can be suspended for breach of these conditions and of the law. Loss of license contact will serve as a real deterrent to potential traders in smuggled products.
Developing and adopting new customs legislation, strengthening supervision over customs brokers and carriers activity, including penalties for violations
Establishing a customs training center that will include a flexible management of personnel and staff rotation. There should also be an implementation of practical accountability of personnel, developing and practical implementation of a code of conduct; developing short-term and long-term plans including annual strategy and action plans; interagency cooperation through developing, signing and implementation of memorandums of understanding; ensuring transparency of customs activity, particularly customs operations; re-building and the development of a customs laboratory; developing of infrastructure (scales, x-ray machines, dead-end sidings, search equipment, etc.) an intelligence and internal audit unit should be created under the Comptroller-General of Customs; establishing risk assessment and selectivity principals
Developing memorandums of understanding with companies operating in Nigeria to be provided with information about passengers in advance; on board catering and fueling supply control and airport personnel control; developing advanced methods to combat excise goods smuggling and other types of offences; establishing a check and balance policy among fiscal law enforcement agencies and supportive organizations.− cooperation with World Customs Organization (WCO), ICPO/INTERPOL, etc.; exceeding and implementation different international anti smuggling conventions, including the KYOTO International Convention.
Extensive and effective collaboration between the Economic and Financial Crimes Commission, the Nigeria Customs Service and the Nigeria Police can checkmate the activities of the smugglers and save the country billions in revenue as well as help safe guard the health of the vulnerable members of the population
Utilisation of the full powers of the EFCC’s Director of Operations Olaolu Adegbite to ensure this type of result-oriented collaboration is achieved. Whilst the NCS carries out the arrests of the smugglers, the need for their crimes to be diligently investigated and prosecuted by the EFCC will ensure that they bag appropriate sentences and also deter others from pursuing a similar line of illicit business.
