Pic courtesy of the Herald Sun

The insatiable appetite for money by governments as much as the crooks has fuelled the tobacco wars, and new taxes proposed are only going to increase criminal participation in this lucrative Black Market, a market driven by demand that will only expand.

As criminal enterprises have developed a strong network to distribute their products due to government inaction, it is inevitable that items with high tax regimes or other restrictions imposed by regulations will become the target as criminals expand their wealth creation networks.

With announcements that the taxes on cigarettes are set to rise, as will the taxes on alcohol, the expansion of the current ‘Black Market’ is guaranteed.

What has happened?

Many of the players in the Tobacco Black market are, or were, heavily involved in the Drug trade, but they have found addicts are not a reliable or secure source of finance. Drug addicts are schemers, so income is challenging to secure, and intimidation doesn’t always work for desperate addicts.

The cost of distribution with many drugs passing through multiple dealers, each taking a cut, usually in the product, can work out expensive, hitting the bottom line of the primary players or financiers.

It is much easier to intimidate small business owners to sell illegal tobacco.

The potential for severe penalties for serious drug crimes also has the principals of criminal enterprises looking for safer havens to do (illegal) business. The risks, in many respects, outweigh the advantages. However, crooks, being crooks, are addicted to money and power, so any profitable enterprise is a target.

Law enforcement has an uphill battle to try to control this crime because of a lack of will on the part of successive governments that have historically tried to ignore the problems in the hope they would go away or at least not hurt their electoral fortunes.

The first real inkling that organised crime was moving to a black-marketing model was their move into the Gymnasium sector, where they could not only reap profits but also recruit the necessary enforcement muscle and provide a ready distribution point for illicit drugs. Moreover, this area was unregulated, giving them unfettered access.

By and large, they avoided the alcohol market as it is well regulated, and generally, the nightclub scene has been spared for the same reason. Gambling, although never far from the criminal minds, has not provided fertile opportunities on a large scale.

Inevitably, other vulnerable markets will soon be exploited, given that criminal enterprises have established a ‘retail mechanism’ to market their black-market wares.

Illicit products, literally sold out of a car boot, have insufficient scale to be worthwhile; however, working under the guise of a legitimate business can scale up the market size and develop a loyal following that can be exploited further.

Some prominent and not-so-obvious enterprises will,  if not now, eventually attract the criminal element running the black market.

Obvious future targets.

• Pharmaceutical products- compounded knock-offs being the most obvious, but there are many more.
• Petrol – although regulated, there will be effort targeting the resource to exploit any weaknesses, loyalty cards being the most obvious.
• Food consumables- already legitimate retailers are hit hard by criminals stealing their goods. With the growth of the criminal’s access to customers through their black-market retail outlets (tobacco stores), shop stealing is set to rise dramatically.

Feeding into this phenomenon is the rise in the age of criminal intent to twelve years, and recruiting children under twelve will escalate because they cannot be prosecuted. Many eight- to twelve-year-olds are well capable of shoplifting quality targeted products in retail stores and supermarkets to be sold through the black-market. When they get older, they become ideal users and or dealers to service the drug trade.

• Electronic devices – as the cost increases in the Mobile phone market, this will drive many to seek (latest) cheaper alternatives, and the black market is somewhere to go. This will undercut the major phone industry players and avoid taxes like GST.

There are, however, many more opportunities than listed here, but constant vigilance to control the criminal trade needs a special focus.

Much black-market trading is initially driven by financial pressure on some community sectors, while huge profits attract others.

Although there is no disputing that this is a law enforcement issue, enforcement cannot be achieved without the government’s direct intervention to ensure that law enforcement has the tools to do its job.

Although much of the focus is on Policing as the lead agency, which is fair enough, it would be foolish to assume they can do it on their own, an unrealistic expectation.

The Courts have a role to play, as do the other government agencies as well as the legislators, and to have any chance of controlling, let alone removing, this scourge of society, there must be a master plan, and all agencies held to account for

it’s implementation.

Given the current fiscal pressure on their budgets, one would expect governments to be very keen, so the financial argument is compelling.

But it is not only the government budgets; these costs hit every taxpayer.

The excise and other taxes on tobacco have, without question, driven the astronomical growth of the tobacco black market.

A pack of legal Marlboro cigarettes will cost close to $60. A similar packet of illicit tobacco can cost as little as $15. With the newly flagged increase in the coming months, they will be close to $100 per pack.

Based purely on a financial rationale, it would be of more significant economic benefit to governments if they could achieve the lion’s share of taxes at a lower rate as customers move back to legitimate businesses, with a much lower tax regime rather than the profits (taxes) going to the criminals.

To achieve the most significant impact, without fanfare, the shock to some criminals for a radical price shift at extremely short notice will be enough to destroy many of their business models. Even the cost of a container of cigarettes is a big debt if their income stream is severely damaged without time to adjust. Many criminals are importing multiple containers, so the damage of being unable to move that stock will be extreme.

To try to minimise costs, the criminal hierarchy will be forced to come out from the protection of the shadows. Forcing them to expose themselves as they reduce underlings to prop up their bottom line. This will greatly help the Police to identify them.

The argument that constant price hikes through taxes would achieve a decline in nicotine consumption, benefiting the whole community and taking pressure off the health system, has been exposed in recent media as a myth.

There has been an easily argued rationale for increasing the price of cigarettes based on the health argument that the dearer the cigarettes, so reducing the number of people who can afford to smoke automatically follows a correlation between price rises and user decline.

However, nicotine in Melbourne wastewater has remained stable for the last decade. This contradicts the claims from governments and health groups that putting the price of cigarettes beyond the reach of the masses will reduce nicotine use. That has now been shown to be a myth.

If meaningful inroads to destroy the criminal enterprises, which are undoubtedly very large, are to be achieved, a coordinated effort is required, and marketing principles should be at the fore.