WEBVTT - NZ Customs battles growing illicit tobacco smuggling trend 0:00:05.600 --> 0:00:06.000 Kyota. 0:00:06.080 --> 0:00:09.040 I'm Chelsea Daniels and this is the Front Page, a 0:00:09.119 --> 0:00:16.640 daily podcast presented by the New Zealand Herald. The illegal 0:00:16.720 --> 0:00:22.680 tobacco trade has become a very lucrative business worldwide. In Australia, 0:00:22.720 --> 0:00:27.840 for example, illegal excise evading cigarettes now comprise half of 0:00:27.880 --> 0:00:32.240 the products sold to the country's two point seven million smokers. 0:00:32.479 --> 0:00:36.120 According to the ABC, it's thought that ten billion dollars 0:00:36.159 --> 0:00:39.240 a year in revenue there is going straight into. 0:00:39.080 --> 0:00:40.960 The pockets of organized crime. 0:00:41.720 --> 0:00:45.120 But has this trend made it to New Zealand shores 0:00:45.640 --> 0:00:48.160 and how much of a headache is it causing those 0:00:48.280 --> 0:00:51.800 protecting our borders. Today on the Front Page, Head of 0:00:51.880 --> 0:00:56.040 Fraud and Prohibition Chief Customs Officer Nigel Barnes is with 0:00:56.160 --> 0:00:59.920 us to discuss how they're cracking down on a legal tobacco. 0:01:03.600 --> 0:01:07.200 First off, Nigel, what are some key trends you've seen 0:01:07.560 --> 0:01:10.840 in illegal tobacco smuggling over the years. 0:01:11.280 --> 0:01:14.080 Well over recent years, the efforts to smuggle will listed 0:01:14.120 --> 0:01:19.520 tobacco have become more sophisticated and been of larger quantities. 0:01:20.480 --> 0:01:25.480 In particular, we're seeing that tobacco smugglers will mirror what 0:01:25.720 --> 0:01:28.880 we see drug smugglers do so they'll use similar consentent 0:01:28.959 --> 0:01:32.720 methods and similar tradecraft such as using shelf companies. 0:01:32.880 --> 0:01:35.240 Have you seen an increase recently. 0:01:35.400 --> 0:01:38.360 Yes, it's trended up with over the last few years. 0:01:38.640 --> 0:01:42.640 It does, I guess fluctuate a little bit depending on 0:01:42.680 --> 0:01:45.960 the type of illicit tobacco and the group's involved. 0:01:46.000 --> 0:01:48.120 But in the main it's traveling upwards. 0:01:48.400 --> 0:01:50.880 How much you've seeing the border. 0:01:51.040 --> 0:01:57.000 Well, an example is last October, following a referral from 0:01:57.080 --> 0:02:01.560 the Overseas Customs Administration, we see over two million cigarettes 0:02:01.760 --> 0:02:05.800 and a container from Southeast Asia and that represents roughly 0:02:05.800 --> 0:02:08.000 three million dollars worth of revenue of asion. 0:02:08.360 --> 0:02:10.559 Wow, and that's just some of the kind of volumes. 0:02:10.639 --> 0:02:14.160 Hey, what types of illegal tobacco products are most commonly 0:02:14.560 --> 0:02:16.560 intercepted and has that changed? 0:02:17.160 --> 0:02:20.640 Most commonly it'll be cigarettes, but we do have a 0:02:20.800 --> 0:02:26.280 market for chewing tobacco and also susha tobacco as well 0:02:26.320 --> 0:02:27.240 as loose tobacco. 0:02:27.760 --> 0:02:32.560 How does customs handle these seized illegal tobacco products? Like, 0:02:32.600 --> 0:02:36.040 what happens when you're court importing and then you've got 0:02:36.240 --> 0:02:39.120 what was it two million cigarettes to dispose of? 0:02:39.160 --> 0:02:40.079 What do you do with them? 0:02:40.840 --> 0:02:44.960 Well, they get disposed of safely, but basically they're dolling 0:02:45.040 --> 0:02:46.280 up at land, all right. 0:02:46.600 --> 0:02:51.080 And what happens to those court importing or a distributing 0:02:51.120 --> 0:02:51.720 it say. 0:02:51.880 --> 0:02:54.639 So, we prosecute to the full extent of the law 0:02:54.680 --> 0:03:00.000 that we can, and we don't exclusively charge for customer 0:03:00.160 --> 0:03:03.040 offenses as well. So an example of that is last 0:03:03.080 --> 0:03:06.280 year where a individual in christ Church broke into a 0:03:06.360 --> 0:03:09.440 warehouse and stole a large amount of tobacco from that 0:03:09.480 --> 0:03:13.880 warehouse that then led to a burglary investigation. The polices 0:03:13.960 --> 0:03:16.000 led that part of it, and then once it was 0:03:16.120 --> 0:03:20.120 established that this was actually a illicit tobacco manufacturing effort, 0:03:20.800 --> 0:03:25.800 Customs then charged him with the illegal manufactured, the unlawful 0:03:25.840 --> 0:03:28.440 import of the tobacco as well as the burglary. He 0:03:28.639 --> 0:03:31.560 was sentenced earlier this year two years and eight months 0:03:31.600 --> 0:03:32.000 in prison. 0:03:32.280 --> 0:03:36.120 What's the maximum penalty if I was to say, try 0:03:36.160 --> 0:03:39.720 and smuggle in. 0:03:38.360 --> 0:03:40.800 A two million cigarettes from Southeast Asia? 0:03:40.840 --> 0:03:44.560 I say so, the maximum penalty is five years imprisonment 0:03:44.880 --> 0:03:48.760 under the Customs and ext ISAAC offenses. However, you what 0:03:48.800 --> 0:03:52.080 we find is that people rarely stick to this one 0:03:52.200 --> 0:03:54.920 type of offending, so it's quite common for us to 0:03:54.960 --> 0:03:57.640 see crossover with drug offending as well as money laundering, 0:03:57.680 --> 0:03:59.880 where we identify those offenses, we charge for those. 0:04:00.160 --> 0:04:04.200 Well, what is the alternative. 0:04:04.360 --> 0:04:07.880 Do you then drop legal cigarettes back to twenty dollars 0:04:07.880 --> 0:04:10.480 in order to compete twenty dollars a pack they're currently 0:04:10.520 --> 0:04:15.520 about sixty bucks a pack to compete with the illegal tobacco. 0:04:15.760 --> 0:04:16.320 You can't. 0:04:16.560 --> 0:04:21.400 You absolutely can't not, because you can't. The smoking rates 0:04:21.440 --> 0:04:23.400 would first of all go through the roof, because if 0:04:23.440 --> 0:04:26.680 you actually look at the statistics, they've halved since the 0:04:26.720 --> 0:04:30.560 excise was first introduced. So it actually is working to 0:04:30.680 --> 0:04:34.279 do what its main purpose is, which is to cut 0:04:34.320 --> 0:04:39.039 smoking rates and therefore help the public health system obviously 0:04:39.440 --> 0:04:42.280 look after the well being of the country. But on 0:04:42.320 --> 0:04:45.039 top of that, it's second purpose is obviously to raise 0:04:45.120 --> 0:04:45.839 tax as well. 0:04:48.120 --> 0:04:50.839 Do you think that it's seen as more low risk 0:04:51.040 --> 0:04:54.040 than trying to smuggle say Class A drugs because you've 0:04:54.080 --> 0:04:57.239 got a maximum penalty of a five years imprisonment versus 0:04:57.920 --> 0:04:59.200 life imprisonment. 0:05:00.040 --> 0:05:04.120 Well, what I think motivates these criminals is actually the money. 0:05:04.520 --> 0:05:08.040 So yeah, there is a difference in the maximum penalty 0:05:08.200 --> 0:05:11.440 maximum tem of prisonment, But what really hurts these guys 0:05:11.480 --> 0:05:13.920 is when you take their money and take their assets. 0:05:14.080 --> 0:05:16.880 So where were possible we make referrals. We work quite 0:05:16.880 --> 0:05:20.160 closely with the police Asset Recovery Unit because what really 0:05:20.240 --> 0:05:22.920 hurts them is taking away there all gotten gains. 0:05:23.080 --> 0:05:27.080 Why do you think organized crime groups are becoming increasingly 0:05:27.080 --> 0:05:29.120 involved in tobacco smuggling. 0:05:29.680 --> 0:05:31.400 Well, there is a lot of money in it, there's 0:05:31.440 --> 0:05:34.080 no doubt about it. In twenty eighteen, which is a 0:05:34.120 --> 0:05:37.359 wee while ago now, we found four million dollars in 0:05:37.400 --> 0:05:40.360 cash in a storage unit and that was the proceeds 0:05:40.400 --> 0:05:41.400 of ilicit tobacco. 0:05:41.760 --> 0:05:43.400 Where are these products ending up? 0:05:43.920 --> 0:05:46.560 Well, a lot of them are retailed throughout the country. 0:05:47.200 --> 0:05:51.640 There are various ways that various outlets. I'm not just 0:05:51.680 --> 0:05:54.920 talking about dairies. It could be restaurants as well, online 0:05:55.000 --> 0:05:59.320 as well, in chat groups as well as through community organizations. 0:06:00.160 --> 0:06:01.440 It's some of the figures here. 0:06:01.480 --> 0:06:05.360 It looks like the revenue from the tobacco excise tax 0:06:05.520 --> 0:06:09.159 peaked in twenty twenty, then it's been dropping since. Does 0:06:09.200 --> 0:06:12.159 that make you believe that more smokers are in fact 0:06:12.240 --> 0:06:13.640 turning to the black market. 0:06:14.279 --> 0:06:16.919 I think it's probably fair to say that the illicit 0:06:17.000 --> 0:06:20.039 market is increasing and the smoking rate is dropping. So 0:06:20.240 --> 0:06:24.960 as the overall consumption goes down, the size of the 0:06:25.000 --> 0:06:29.239 illicit market relative to the legal market increases. 0:06:35.640 --> 0:06:37.960 How do you work with overseas agencies? 0:06:38.040 --> 0:06:42.080 Because I know that Australia's got a huge illicit tobacco problem, 0:06:42.240 --> 0:06:45.360 and as we know what happens in Ossie soon comes 0:06:45.360 --> 0:06:49.080 over the Tasman to our shores, something like I think 0:06:49.520 --> 0:06:53.599 nearly half of Australia's two points something million smokers are 0:06:53.680 --> 0:06:58.320 now smoking illegal tobacco or tobacco that hasn't been through 0:06:58.320 --> 0:06:59.960 the excise tax process. 0:07:00.800 --> 0:07:01.840 Is that alarming to you. 0:07:02.440 --> 0:07:05.039 Well, we definitely don't want to end up with a 0:07:05.120 --> 0:07:08.239 problem the scale that Australia has. There are, in fact, 0:07:08.320 --> 0:07:12.680 even more concerningly homicides and arsons attributed to the illicit 0:07:12.720 --> 0:07:15.560 tobacco problem in Australia, and we definitely don't want to 0:07:15.560 --> 0:07:18.320 see that here. We work quite closely with our partners overseas, 0:07:18.360 --> 0:07:22.320 not just the Australian Border Force, but also his Mentesces 0:07:22.400 --> 0:07:26.280 Revenue and customs in the UK well as other jurisdictions 0:07:26.280 --> 0:07:27.160 in Southeast Asia. 0:07:27.680 --> 0:07:31.720 Is Southeast Asia where we're getting most of it from. 0:07:32.520 --> 0:07:35.680 Well, the international supply chain for USIT tobacco is actually 0:07:35.800 --> 0:07:40.520 quite complex, and there's factories not just in Southeast Asia 0:07:40.600 --> 0:07:42.640 but also in the Middle East and in Eastern Europe 0:07:42.720 --> 0:07:47.640 that manufacture huge amounts of cigarettes which are destined for 0:07:47.680 --> 0:07:50.440 the illicit market, and they don't make their way directly 0:07:50.520 --> 0:07:53.640 to New Zealand or ways. They'll go through other countries 0:07:53.840 --> 0:08:00.480 and intermediary countries where their origin is concealed, and then 0:08:00.520 --> 0:08:04.440 they might go into a concealment such as construction materials 0:08:04.480 --> 0:08:06.800 and things like that. So it's not really straightforward just 0:08:06.840 --> 0:08:09.160 to say it's all coming from one part of the world, 0:08:09.280 --> 0:08:12.800 but certainly our siegere statistics would suggest that it's mostly 0:08:12.840 --> 0:08:14.120 coming from Southeast Asia. 0:08:14.160 --> 0:08:16.200 If you were to put a percentage on it, how 0:08:16.440 --> 0:08:19.800 much do you reckon customs is seized at the border 0:08:20.200 --> 0:08:22.040 and how much has slipped through the cracks? 0:08:22.080 --> 0:08:25.000 Perhaps, Well, that's a great question and I wish I 0:08:25.040 --> 0:08:28.120 had a really a really precise answer to it. It's 0:08:28.160 --> 0:08:31.480 really hard to estimate. There have been various attempts to 0:08:31.840 --> 0:08:34.360 estimate the size of the I listed market in New 0:08:34.440 --> 0:08:38.600 Zealand and the University of Auckland and University of Otago 0:08:38.760 --> 0:08:42.880 both completed studies in recent years on it, and also 0:08:43.120 --> 0:08:46.400 the tobacco industry complete studies on it as well, which 0:08:46.440 --> 0:08:49.440 they publish. The range in the size of the listed 0:08:49.480 --> 0:08:53.600 market is in these estimates is huge. The lowest one 0:08:53.640 --> 0:08:55.680 is around about six point eight percent and the highest 0:08:55.679 --> 0:08:57.320 one is around about twenty four percent. 0:08:57.559 --> 0:08:59.080 Is it somewhere in between? Probably? 0:09:00.080 --> 0:09:02.920 So I can't really I wouldn't really want to take 0:09:02.920 --> 0:09:03.360 a stab. 0:09:05.840 --> 0:09:08.800 The criminals will lose revenue, and we'd like to think 0:09:08.880 --> 0:09:12.520 that your average Australian is a law abiding citizen, and 0:09:12.640 --> 0:09:15.160 generally they were up until a few years ago, until 0:09:15.240 --> 0:09:18.120 the attacks became so extreme combined with the cost of 0:09:18.120 --> 0:09:21.080 living crisis, they just decided that enough was enough and 0:09:21.120 --> 0:09:24.160 they weren't going to pay those excessive prices. So there 0:09:24.240 --> 0:09:27.320 is a balance, There is a level where people will 0:09:28.080 --> 0:09:29.800 hopefully return to the legal product. 0:09:32.559 --> 0:09:35.679 Do you think there's a point where we can't increase 0:09:35.800 --> 0:09:40.079 the excise tax by anymore? Like looking at some figures here, 0:09:40.240 --> 0:09:44.160 the excise tax increased to one eight hundred and twelve 0:09:44.160 --> 0:09:47.440 dollars and sixty one cents per kilo, and compare that 0:09:47.480 --> 0:09:49.920 to three hundred and ninety three dollars and three cents 0:09:49.960 --> 0:09:53.880 in two thousand and nine. Now, granted the smoking rate 0:09:53.920 --> 0:09:56.960 has decreased since two thousand and nine. Don't get me wrong, 0:09:57.080 --> 0:10:00.280 but depending on the brand, that tax today may up 0:10:00.320 --> 0:10:03.040 around eighty percent of the cost of a pack of smokes. 0:10:04.360 --> 0:10:05.800 Do you reckon we've gone too far? 0:10:06.480 --> 0:10:10.520 Well, I'm not really an expert in the economy of it. 0:10:10.679 --> 0:10:13.680 There is no doubt though, that the amount of exercise 0:10:14.000 --> 0:10:17.000 is what drives the drives the profitability of the market, 0:10:17.600 --> 0:10:20.120 So it's definitely a factor. But there's much more to 0:10:20.160 --> 0:10:23.880 it than just the excise. There are elicit tobacco markets 0:10:23.960 --> 0:10:26.839 in countries with much lower excise rates than New Zealand 0:10:26.880 --> 0:10:27.319 as well. 0:10:27.440 --> 0:10:31.840 What new technologies or intelligence capabilities are customs using to 0:10:31.920 --> 0:10:34.760 tackle this? Obviously you've got at the border as well, 0:10:34.800 --> 0:10:35.640 but have you. 0:10:35.679 --> 0:10:36.040 I don't know. 0:10:36.080 --> 0:10:38.760 I'm just assuming a whole group of you guys in 0:10:38.800 --> 0:10:42.760 a room just on Facebook, marketplace searching for listings or something. 0:10:43.440 --> 0:10:47.640 Well, we take a bank for back approach to our investigations. 0:10:48.200 --> 0:10:51.640 So what we do is, rather than trying to simply 0:10:51.640 --> 0:10:55.960 suppress every instance of elicit tobacco being sold in the community, 0:10:56.000 --> 0:10:58.840 we look to target the source of it and take 0:10:58.880 --> 0:11:04.240 out the people who are profiting from the import and 0:11:04.280 --> 0:11:08.280 then the distribution of these cigarettes on a large scale. 0:11:09.200 --> 0:11:13.439 We get a lot of benefit from community reporting, so 0:11:14.040 --> 0:11:18.360 crime Stoppers and also our own Border Protect hotline. But 0:11:18.440 --> 0:11:22.960 more importantly, we have a very good relationship with industry 0:11:23.000 --> 0:11:26.600 and we encourage our industry partners as well, such stratefwards 0:11:26.679 --> 0:11:30.080 and Customs brokers to let us know when something doesn't 0:11:30.080 --> 0:11:30.720 appear right. 0:11:30.880 --> 0:11:35.319 Has the team tackling this at the border grown along 0:11:35.440 --> 0:11:38.880 with the rate of illicit tobacco so to speak, like, 0:11:38.920 --> 0:11:43.800 do you have as many boots on the ground to 0:11:43.880 --> 0:11:46.280 say to tackle this problem. 0:11:46.600 --> 0:11:46.880 Yeah. 0:11:46.920 --> 0:11:51.800 In twenty twenty two, Customs received ten point four million 0:11:51.840 --> 0:11:55.320 dollars in funding over four years, which we think we've 0:11:55.360 --> 0:11:57.600 delivered a really good return on investment with our seizure 0:11:57.600 --> 0:12:02.160 stats and our prosecutions as well as our set restraints 0:12:02.640 --> 0:12:06.920 in that short time. But what's really important, I think 0:12:07.080 --> 0:12:11.840 is that you don't outgrow a organized crime problem you 0:12:12.120 --> 0:12:16.000 think it. So our strategy is basically to make life 0:12:16.000 --> 0:12:19.760 as hard as possible for these criminals and in particular 0:12:19.960 --> 0:12:21.559 just make it not profitable for them to. 0:12:21.480 --> 0:12:26.040 Operate here And looking forward, Nigel, what further changes, whether 0:12:26.080 --> 0:12:31.560 it be legislative, operational, or technological, could improve new Zealand's 0:12:31.559 --> 0:12:33.800 ability to curb illegal tobacco. 0:12:34.200 --> 0:12:37.199 Really it comes down to I think good old fashioned 0:12:37.480 --> 0:12:42.800 investigating and also community buy in. There might be a 0:12:43.520 --> 0:12:46.040 sentiment out in the community that elicit tobacco is not 0:12:46.160 --> 0:12:49.079 actually a serious problem, and that it's great that people 0:12:49.080 --> 0:12:51.440 can get cheaper cigarettes, But what those people are playing 0:12:51.559 --> 0:12:55.079 to realize is that they themselves are actually being exploited 0:12:55.080 --> 0:12:57.720 by organized crime and there are people driving around in 0:12:57.800 --> 0:12:59.560 very flash cars that those guys. 0:12:59.320 --> 0:12:59.839 Have paid for. 0:13:00.160 --> 0:13:02.000 Thanks for joining us, Nigel. 0:13:01.800 --> 0:13:03.199 Thanks Chelsea, much appreciate it. 0:13:06.160 --> 0:13:09.400 That's it for this episode of the Front Page. You 0:13:09.400 --> 0:13:13.320 can read more about today's stories and extensive news coverage 0:13:13.360 --> 0:13:15.000 at enzidherld dot. 0:13:14.800 --> 0:13:15.680 Co dot nz. 0:13:16.480 --> 0:13:20.040 The Front Page is produced by Jane Ye and Richard. 0:13:19.760 --> 0:13:23.720 Martin, who is also our editor. I'm Chelsea Daniels. 0:13:24.160 --> 0:13:27.360 Subscribe to The Front Page on iHeartRadio or wherever you 0:13:27.400 --> 0:13:31.080 get your podcasts, and tune in tomorrow for another look 0:13:31.120 --> 0:13:32.319 behind the headlines.