NZLII Home | Databases | WorldLII | Search | Feedback

New Zealand Yearbook of New Zealand Jurisprudence

You are here:  NZLII >> Databases >> New Zealand Yearbook of New Zealand Jurisprudence >> 2001 >> [2001] NZYbkNZJur 4

Database Search | Name Search | Recent Articles | Noteup | LawCite | Download | Help

Boister, Neil and Burchill, Richard --- "Stamping out global tobacco smuggling" [2001] NZYbkNZJur 4; (2001) 5 Yearbook of New Zealand Jurisprudence 53

Last Updated: 12 April 2015

Stamping Out Global Tobacco Smuggling



Since the 1980s, the smoke from illegally smuggled tobacco products has been 'blowing south'.' As concern over tobacco usage in the developed world has led to greater efforts to reduce demand, tobacco manufacturers have looked elsewhere to market their products. This article is concerned with the extent to which developed states effectively address the problems of smuggling, involving companies based in the developed state, to developing states. The United Kingdom (UK) will be examined as a useful example of a developed state with a contradictory approach to tobacco smuggling. The UK exhibits great enthusiasm for the reduction of tobacco usage at home as well as for the prevention of smuggling into the domestic market. Yet at the same time it is only slowly coming alive to the involvement of large tobacco companies domiciled in the UK in the smuggling of tobacco products into the developing world. The purpose of this article is to provide suggestions for enhancing the legal suppression of tobacco smuggling in order to achieve a comprehensive global approach to reducing the supply of illicit tobacco.

Part I of the article will outline the efforts taken by the UK to suppress tobacco usage in the domestic market. Part II will look at the impact of tobacco suppression measures on tobacco companies and their responses in relation to developing markets. Part III will examine the response of the UK government to allegations regarding the involvement of British tobacco companies in smuggling into the developing world. Part IV will look at the inadequacy of existing penal provisions in the UK for addressing the alleged illegal behaviour of British tobacco companies abroad. Part V will investigate the use of

* Dr Neil Boister, Law, University of Nottingham, UK, and Dr Richard Burchill, Law, University of Hull, UK.

Panos Media Briefing No. 13 (September 1994) 'Tobacco: The smoke blows south', available at <>.

54 Yearbook of New Zealand Jurisprudence Vol 5
the United Nations Transnational Organised Crime Convention in the suppression of extraterritorial tobacco smuggling.

I. The suppression of tobacco use in the UK

On 30 October 2000, the then Secretary of State for Trade and Industry in the United Kingdom, Stephen Byers, announced that he was accepting the 'unanimous recommendation of the Select Committee that the DTI [Department of Trade and Industry] should investigate the allegations of BAT' s [British American Tobacco] involvement in smuggling.'2 This decision followed extensive media coverage of the alleged role played by British tobacco manufacturers in smuggling tobacco products into the UK, other European states and other parts of the world.3 It was precipitated by the conclusion of the House of Commons Select Committee on Health, which had examined the allegations, that there was sufficient evidence to justify a DTI in vestigation .4

The findings of the Select Committee are not limited to the behaviour of one company. They reveal that tobacco smuggling is a major and general problem within the tobacco business and that UK companies are implicated. The report observes that as the use of tobacco products has declined in developed societies, tobacco manufacturers have gone to great lengths to increase market share in developing societies where the use of such products is historically low. The report notes that participation in smuggling is alleged to be part of the corporate strategy of tobacco manufacturers for increasing market share around the world. The Select Committee concludes that the UK government needs to be more active in monitoring the action of tobacco manufacturers. The reasoning behind this conclusion is that:

  1. `Byers announces investigation into British American Tobacco' (30 October 2000) DTI Press Release P/2000/713. Section 447 of the Companies Act 1985 allows the Secretary of State for Trade and Industry to appoint investigators when there is good reason. In practice information on, or any final decision in relation to, a Section 447 investigation is not made public.
  2. For example see the extensive coverage provided by The Public i, An Investigative Report for the Centre of Public Integrity <>.
  3. Second Report of the Select Committee on Health HC 27 (14 June 2000) para 222, available at <www.publications.parliament.u1c/pakm199900/ cmselect/cmhealth/27/2702.htm>.

2001 Stamping Out Global Tobacco Smuggling 55

[i]t would be a hollow victory if, as a result of more stringent action taken on tobacco control in the developed world, smoking related deaths were merely exported to the world's poorer nations.5

The UK government, however, does not see such monitoring of tobacco companies as part of its role." This response is unfortunate and surprising, given not only the UK government's commitment to reducing the harmful effects of tobacco nationally but also its expressed support for measures aimed to decrease tobacco consumption globally.'

In developed states where major tobacco manufacturers have corporate headquarters and much cigarette manufacturing goes on, smoking is considered a potentially harmful activity.8 This potential harm is considered to be great enough to justify a wide range of legal measures to suppress tobacco use and thus restrict its adverse impact on health.9 In the UK the government's position on tobacco usage and its action plan are set out in Smoking Kills — A White Paper on Tobacco. The White Paper makes it clear that the UK government considers tobacco usage to be a major threat to the general health of society.'" The UK

5 Ibid, para 230.

  1. Department of Health, Government Response to the Health Select Committee's Second Report on the Tobacco Industry and the Health Risks of Smoking (2000) Cm 4905, 19.
  2. Smoking Kills — A White Paper on Tobacco Cm 4177 (1998) paras 8.178.24.
  3. See the information provided by the governments of the UK <>, US <>, Canada <>, the European Union <> and New Zealand <>.
  4. See the Preface and Foreword in the White Paper (supra n 7). The Tobacco Law Compendium of Canada <> lists 384 domestic laws regulating tobacco usage in Canada.
  5. White Paper (supra n 7) para 1.4. Para 1.5 states that `[t]he case for action on smoking is clear.' The UK is also involved as a member of the European Union with the EU's efforts in this area. For an overview of the EU's efforts see Hervey, TK `Up in smoke? Community (anti-) tobacco law and policy' (2001) 26 European Law Review 101. The EU sees its work as a step towards a global strategy for minimising the use of tobacco products.

56 Yearbook of New Zealand Jurisprudence Vol 5

government justifies its position on tobacco usage based on the impact it has on human health — smoking kills over 120,000 people in the UK each year" — and on cost — the NHS spends up to £1.7 billion per year on health problems related to tobacco usage.12 The UK government's action plan to minimise tobacco usage involves, in the government's own assessment, a 'comprehensive package of measures' .13 Some measures have a domestic and regional focus. These include ending tobacco advertising, promotion and sponsorship; increasing tax on tobacco products; taking action against smuggling; supporting the NHS, undertaking health promotion through the media; reviewing smoking policies in public areas; supporting European initiatives on health; and creating codes of conduct for tobacco manufacturers. Practical measures taken by the government include the recently passed Tobacco Advertising and Promotion Act 2002 that bans most forms of advertising which promote tobacco products. The government believes that this one measure will reduce tobacco consumption in the UK by 2.5% and save almost 3000 lives a year.14 Other measures have an international focus as the government is also committed to ending the promotion of tobacco products or events overseas while supporting international efforts on tobacco control."

Despite these measures, smuggling remains a problem. The demand for tobacco products is sensitive to price, making high taxes on tobacco products an obvious means for decreasing consumption." Smuggling

11 White Paper (supra n 7) para 1.1.

12 Ibid, para 1.24.

13 Ibid, para 1.13.

  1. Explanatory Notes, Tobacco Advertising and Promotion Act 2002, available at <>.
  2. All these measures are discussed in detail in the White Paper (supra n 7). A summary list is found in para 10.5. For a discussion on the efforts of the WHO to control tobacco smuggling see Boister, N and Burchill, R 'Stopping the smugglers: Proposals for an additional protocol to the World Health Organization's Framework Convention on Tobacco Control' [2002] MelbJlIntLaw 2; (2002) 3 Melbourne Journal of International Law 33.
  3. HM Customs and Excise and HM Treasury, Tackling Tobacco Smuggling (March 2000) paras 11-14, World Bank Report, Curbing the Epidemic: Governments and the Economics of Tobacco Control (May 1999). <>.

2001 Stamping Out Global Tobacco Smuggling 57
of a wide range of otherwise licit products is a common response to high levels of taxation and excise duties. Tobacco is considered to be no different. Researchers estimate that, globally, almost a third of legal tobacco product exports disappear into the contraband market, which leads to major losses in tax revenue.17 More crucially, however, smuggling exacerbates public health problems because it floods the market with cheap tobacco products, thus stimulating consumption and increasing ill health.'8 The aim of suppressing smuggling is not to reduce supply for its own sake, nor to increase government revenue, but to help the effective implementation of price increases that reduce demand.19

The introduction of smuggled cigarettes into the UK's domestic market directly undermines the UK government's health objectives. In response, the UK government has invested some £209 million into the efforts of Customs and Excise to reduce smuggling. Through measures targeting both the licit and illicit use of tobacco products in the UK, the government is committed to reducing consumption in the UK, with the goal of ensuring a healthier society. But what of the UK government's concern about the health of the citizens of other states, given that the legal suppression of tobacco use in developed states is a significant contributing factor to the globalisation of tobacco's harmful effects?2°

II. The impact of suppression on tobacco manufacturers and the development of new markets, licit and illicit

Legal suppression measures like those described above have resulted in decreased sales and profits for tobacco manufacturers.21 However,

  1. See Joossens, L and Raw, M 'How can cigarette smuggling be reduced?' (2000) 321 British Medical Journal 947-9 at 947. See also the World Bank Report (supra n 16) 63.

18 Joossens and Raw (supra n 17) 947.

19 See the World Bank Report (supra n 16) 63.

20 The capitalist imperative of increasing profits also plays a significant role.

  1. The White Paper (supra n 7) provides evidence that intensive health promotion strategies do result in decreased tobacco usage: see paras 6.356.36.

58 Yearbook of New Zealand Jurisprudence Vol 5
the sale of tobacco products is an extremely lucrative business," and tobacco companies have attempted to counter regulation in developed states by increasing their advertising and promotional activity." At the same time the globalised nature of the world economy has provided other avenues for escaping punitive taxation in traditional markets. In a push-down, pop-up response to legal suppression,24 tobacco companies have developed new markets for their products, and the developing world has become an important target for the creation of these new markets.25 In order to penetrate and maintain these new markets, tobacco manufacturers employ a number of tactics, including aggressive advertising. Smuggling also appears to play a significant role. Joossens and Raw argue convincingly that tobacco smuggling is not caused primarily by 'market forces' but is supply driven, caused mainly by fraud through the illegal evasion of taxes.26 The developing world offers many such 'tax free' opportunities because of weak law enforcement infrastructures. A study commissioned by the World Bank concluded that factors such as corruption in the target- or transit-state and public acceptance of black markets — factors prominent in developing states — also contribute to smuggling.27

The nature of the smuggling process points to the important role of tobacco companies in smuggling. Joossens and the World Bank have

  1. For example, BAT' s profits for 2000 were £1 .522 billion. It produced 807 billion cigarettes, 15% of the world market (Reuters, 8 February 2001).
  2. See Joossens, L 'How to circumvent tobacco advertising restrictions: The irrelevance of the distinction between direct and indirect advertising' (March 2001) <>; Bates, C 'Tobacco Sponsorship of Sport' (1999) 33 British Journal of Sports Medicine 299300.
  3. This development is on the increase over the past two years and looks set to continue; see Satcher, D 'Why we need an international agreement on tobacco control' (2001) 91 American Journal of Public Health 191-2.
  4. The White Paper (supra n 7) states at para 8.23 that UK tobacco manufacturers are exporting increasingly large quantities of product.

26 Joossens and Raw (supra n 17) 947.

  1. See the World Bank Report (supra n 16) 63. See also Joossens, L Tobacco Smuggling, Tobacco-Control Resource Center and International Union Against Cancer (11 April 2001).

2001 Stamping Out Global Tobacco Smuggling 59
identified a number of key features of global tobacco smuggling.28 These include the transportation of non-duty paid (or general trade) tobacco products 'in transit' which allows them to be exported without duty being paid and then to disappear into the contraband trade; passage through a number of owners making it impossible to trace the final consignee; and the involvement of criminal networks.

The bulk export by tobacco companies of popular international cigarette brands 'in transit' to undeclared final consignees is critical to the smuggling process.29 Manufacturers benefit directly from smuggling because in addition to the large-scale evasion of duty, it allows trade barriers to be avoided and increases market penetration due to the affordability of the product.'"

The lesson that there is money to be made out of tobacco smuggling appears not to have been lost upon the major tobacco companies. The media have directly implicated major British tobacco manufacturers in smuggling.3' Many of the allegations are supported by the tobacco manufacturers' own internal documents, which suggests involvement

  1. See the World Bank Report (supra n 16) 63. Joossens (supra n 27) expands at some length on these factors.
  2. World Bank Report (supra n 16) at 64 points out that a container of 10 million cigarettes purchased duty not paid at $200,000 is worth at least $1 million taking into account excise duties, VAT and import taxes.
  3. Joossens and Raw (supra n 17) 947; See Joossens (supra n 27), who refers to a 1996 Report where World Tobacco notes (at 65) that 'smuggling has also helped to promote some of the world's leading brands in markets which have remained closed to foreign imports'.
  4. For further information see: 'Clarke Company Faces New Smuggling Claims' (2001) The Public i on the Public i website at <http://> and related links; 'Clarke hit by tobacco smuggling claim', The Sunday Times (22 July 2001); 'Tobacco firms face claims of smuggling to Iraq' The Times (28 February 2002); 'Court backs tobacco giants in smuggling cases' Guardian (21 February 2002). Also see Guardian Online 'Special Report: Smoking' available at <http://> and the information provided by ASH at <> .

60 Yearbook of New Zealand Jurisprudence Vol 5
in smuggling is endemic within the tobacco industry." Whatever the legal merits of particular cases, it would be absurd to suggest that tobacco companies are completely ignorant of the destination of many obviously suspicious bulk exports of their products. It would, for example, be kind to UK tobacco companies to believe that exporting more than 1520 million cigarettes to Andorra in 1997, which has a population of 63,000, was done at most recklessly as to the fact that they were destined to be smuggled out of Andorra."

The particular legal loophole being exploited by tobacco companies is the difficulty of proving their direct and intentional participation in smuggling. A spokesman for Gallaher, when interviewed on the BBC, explained:

We will sell cigarettes legally to our distributors in various countries. If ... those distributors subsequently sell those products on to other people who are going to illegally bring them back into this country, that is something outside of our contro1.34

BAT holds a similar position, explaining:

Where a market involves myriad and diverse secondary transactions, it is impossible for any manufacturer, however prudent in managing its primary distributors, to control all aspects of supply.35

The Chairman of BAT stated before the Select Committee that tobacco manufacturers, while unable to control all aspects of their supply chain, nonetheless know that smuggling is occurring, and that this 'is hardly a surprise.' He went on to say, 'Knowledge of what is happening in a market is not, as far as I have understood, a criminal offence.'36

  1. Second Report of the Select Committee on Health HC 27 (14 June 2000) paras 205-222.
  2. See 'Tobacco companies linked to criminal organizations in cigarette smuggling: Cyprus and the Middle East', The Public i (11 April 2001) <›; Joossens and Raw (supra n 17) 948.

34 Quoted by Joossens and Raw (supra n 17) 949.

35 BAT, Smuggling: Our View, available on their website <>.

  1. Second Report of the Select Committee on Health HC 27 (14 June 2000) para 217.

2001 Stamping Out Global Tobacco Smuggling 61
III. The UK government's responses to tobacco company involvement in smuggling into the developing world

The Health Select Committee rejected this abdication of responsibility. It stated that the regulation of tobacco usage depends 'on a responsible approach being taken by the tobacco companies.'" While it would be difficult to set out the precise details of what this responsible approach entails, it does at the least include a duty upon companies to adhere to existing laws and to prevent or remedy any detrimental effects of their actions.38

Governments and international organisations recognise the need for a global effort aimed at minimising the harmful effects of tobacco usage along with the illegal activities associated with tobacco products. The World Bank notes that in spite of objections from tobacco companies that higher taxes are an incentive for smuggling,39 taxation remains one of the most effective methods for reducing tobacco consumption. It believes that the appropriate response to smuggling is to suppress smuggling,40 not decrease taxation.4' Governments, the UK included, appear to support this view.42 Legislators in developed states also recognise that raising taxes and using other measures to suppress tobacco consumption and pursue public health at home without doing anything at the international level to prevent smuggling to developing states is untenable. Unfortunately, official rhetoric does not reveal how far these developed states are prepared to go in constraining tobacco

37 Ibid, para 230.

  1. See L Whitehouse 'Regulating corporate social power: An evaluation of initiatives on the global, European and domestic level' (unpublished manuscript on file with authors).
  2. See BAT Smuggling: Our View (supra n 35), which states: 'Smuggling is caused by high tax differentials between neighbouring areas, weak border controls, and import restrictions and bans ...'.

40 See the World Bank Report (supra n 16) 63.

  1. <> . See Joossens and Raw (supra n 17) 948, on how the experience in Canada demonstrates that tax reduction is not the answer.

42 White Paper (supra n 7) paras 2.12-2.19.
62 Yearbook of New Zealand Jurisprudence Vol 5
companies based within their jurisdictions and implicated in illegal activity elsewhere. The UK government, for example, has recognised that the harmful effect of tobacco use is a global problem, and it has declared its support for global action.43 It has expressed support for international codes of conduct for tobacco manufacturers and for the work of the WHO.44 It is questionable, however, whether these measures adequately address the fact that the UK is the source of many of the cigarettes smuggled to the rest of the world. The UK government's response to the Select Committee's recommendations is that it is not the role of governments to monitor the behaviour of companies.45

IV. The inadequacy of existing penal provisions in the UK

The focus of the extant UK legislation is the control of the import of tobacco products into the UK. This activity is regulated by the Tobacco Products Duty Act 1979 (TPDA), the Customs and Excise (General Reliefs) Act 1979 (CEGR) and most significantly the Customs and Excise Management Act 1979 (CEMA). These statutes provide for the imposition of duty on tobacco.46Although UK citizens returning from abroad are legally entitled to import as much alcohol and tobacco as they want for their own use, importation of any quantity of tobacco for resale is an offence. A wide range of criminal, civil and administrative enforcement options are available to Customs and Excise such as prosecution, compounding, seizure, forfeiture and civil penalties. Under CEMA, section 50 penalises importation of non-duty paid goods, section 68 exportation, and section 170 fraudulent evasion of duty. Section 170 is heavily relied on in the prosecutions initiated by Customs and Excise, and a breach is potentially a serious offence: it can carry

43 White Paper (supra n 7) para 8.3.

44 Ibid, paras 8.20-8.21.

45 See supra n 6.

  1. Section 2(1) of the TPDA provides for the imposition of excise duty on tobacco products (including cigarettes) imported into England and Wales. It requires that tobacco products have markings indicating duty has been paid. Individuals in possession of products which do not have the appropriate markings are committing an offence and the products may be seized. The CEMA provides for the collection and management of tobacco excise duty.

2001 Stamping Out Global Tobacco Smuggling 63
seven years' imprisonment on indictment, or an unlimited fine.47 However, the Court of Appeal has noted that prison is not the only form of appropriate punishment," and it is not surprising that Customs and Excise relies heavily on confiscation to deter smuggling. Under the CEMA anything that is being taken into or out of the UK contrary to any legislation in force may be liable to confiscation, and the scope of confiscation has been broadened by the Proceeds of Crime Act 2002. The problem with these laws is that they do not extend liability to those who produce tobacco within the UK which is then smuggled into another state in breach of that other state's laws.

It is facile to argue that the suppression of tobacco product smuggling is entirely a matter of the domestic criminal law of the developing states into which tobacco products produced in the UK are smuggled, and not the UK's business. Problems of effective implementation abound in the developing world, and even if these laws are implemented effectively, developing states may not be able to reach sufficiently far up the chain of supply to get at its source. The practical issue for their criminal justice authorities is that key accused are likely to be in the UK.49 These foreign authorities may, of course, make an extradition request to the UK. These requests cannot be denied on the basis of the fiscal offence exception to extradition, because the UK has abandoned it.' However, problems remain with double criminality in respect of

  1. On summary conviction the maximum penalty is a fine of the prescribed sum or of three times the value of the goods, whichever is the greater, or imprisonment for a term not exceeding 6 months, or both.

48 Kefford [2002] EWHC 1691; [2002] 2 Cr App R (S) 495.

  1. The reluctance of states to get involved in the suppression of smuggling activity beyond their own borders has been demonstrated in recent US cases: see The European Community v RJR Nabisco and others 186 F.Supp. 2d 231 (19 February 2002, E.D.N.Y.); Attorney General of Canada v R.J. Reynolds [2001] USCA2 385; 268 F.3d 103 (12 October 2001, 2nd Circuit Court of Appeals); Republic of Ecuador v Philip Morris (26 February 2002, S.D.F1a) 2002 U.S. Dist. LEXIS 3423; The European Community v RJR Nabisco 150 F.Supp 2d456 (16 July 2001, E.D.N.Y); Attorney General of Canada v RJR Reynolds and others 103 F.Supp 2d 134 (29 June 2000, N.D.N.Y).
  2. Arising from the reluctance to become involved in applying another state's fiscal law, extradition has traditionally been refused in respect of tax and customs offences. See Bantekas, I, Nash, S and Mackarel, M International Criminal Law (London: Cavendish, 2001) 147.

64 Yearbook of New Zealand Jurisprudence Vol 5
fiscal offences, due to the lack of correspondence between UK fiscal offences and foreign fiscal offences and the omission of these offences from bilateral extradition arrangements. Stanbrook and Stanbrook note:

Outside Europe, the exclusion of purely fiscal offences from extradition arrangements has been a source of grievance for many developing countries for whom such offences have caused significant economic damage.51

The alternative is prosecution in the UK. Unfortunately, the existing penal measures relating directly to smuggling do not allow for legal action in the UK regarding the extraterritorial behaviour of UK companies alleged to be involved in smuggling where this behaviour does not occur in, or impact in some way on, the UK. This is not true of all crimes. Extraterritorial jurisdiction has commonly been established in English law in respect of crimes that cause harm at home such as High Treason52 and conspiracies to commit crimes that begin abroad with the intention of completion at home.53 The situation is more difficult in respect of offences that occur abroad and have no harmful effects at home. They can be brought within English jurisdiction in a number of ways. In terms of section 1A of the Criminal Law Act 1977, if a conspiracy to commit an offence abroad is hatched within England or Wales it falls under English jurisdiction notwithstanding that implementation of the agreement will occur extra-territorially.54 The conspiracy must be to bring about an 'act or event' abroad, which constitutes an offence in the country where it is to take place, and which would constitute an offence under English law were it to take place in England or Wales. Importantly, something relating to the conspiracy must be done within England and Wales by a party to the conspiracy or by an agent of the conspiracy. Section 1A of the

  1. Extradition: Law and Practice, 2nd ed. (Oxford: Oxford University Press, 2002) 39.

52 Treason Act 1351.

53 This is even the case where no steps are taken to put the agreement into effect in England or Wales — Somchai Liangsiripraesent v United States [1991] AC 225.

  1. Section 1 A of the Criminal Law Act 1977 inserted by section 5 of the Criminal Justice (Terrorism and Conspiracy) Act 1998.

2001 Stamping Out Global Tobacco Smuggling 65
Criminal Law Act 1977 could be used as an effective tool against conspiracies to smuggle tobacco hatched in whole or in part in the UK. However, it appears to have been intended for use against terrorist groups operating from the UK55 and its use in other contexts has been very limited.56 Where no conduct of any sort occurs within England or Wales, the scope of extraterritorial jurisdiction is much narrower. Extraterritorial jurisdiction has, however, been established on the basis of nationality in respect of specific crimes such as sex tourism because of the involvement of UK nationals and residents.57

The rationale for establishing jurisdiction over domestic conspiracies to commit offences abroad and nationality jurisdiction over entirely extraterritorial offences is relevant in the present context. These legislative actions recognise the responsibility of the UK for the prevention of harm abroad that either originates in the UK or is caused by UK nationals. This domestic concern about offences that do not harm the UK directly is equally apposite, we submit, to tobacco smuggling. In this regard, Section I A of the Criminal Law Act 1977 should be applied to conspiracies to smuggle tobacco products abroad, and nationality jurisdiction over purely extraterritorial tobacco smuggling must be established in the UK. But how is it possible to oblige the UK government to take these and other associated steps against extraterritorial tobacco smuggling?

V. Using the TOC Convention to combat tobacco company involvement in extraterritorial tobacco smuggling

The adoption and domestic implementation of the United Nations Convention against Transnational Organised Crime (TOC Convention)5K concluded in November 2000 would, it is submitted, provide the ideal opportunity to address not just extraterritorial tobacco

  1. Simester, A and Sullivan, B Criminal Law: Theory and Doctrine (Oxford: Hart, 2000) 317, fn 290.
  2. In MacMaster [1999] 1 Cr.App.R. 402, section IA was used in respect of a conspiracy to commit drug trafficking abroad.

57 Section 7(2) of the Sex Offences (Conspiracies and Incitement) Act 1996.

58 Annex to UN Doc. A/55/383.
66 Yearbook of New Zealand Jurisprudence Vol 5
smuggling but all serious extraterritorial organised crimes committed by UK nationals. Although not yet a party, the UK is a signatory to the TOC Convention along with 143 other states and the European Community.59 The main purpose of the TOC Convention is to increase cooperation in tackling the root causes of transnational crime. In doing so it provides for a major extension of criminal liability to offenders who belong to criminal organisations but who may not get involved directly in offending.6° The TOC Convention is based on legislative measures developed in the United States°' and Italy62 to counter organised crime. In the United States this legislation has been used against tobacco companies allegedly involved in smuggling.63 The significance of the TOC Convention for the present discussion is that its broad provisions would oblige the UK government to take legal action against a tobacco company based in the UK when it knowingly supplies tobacco products to groups or individuals who are engaged in smuggling activities elsewhere.

The major penal provision of the TOC Convention is article 5 on the criminalisation of participation in an organised criminal group. It reads:

I .Each State Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences, when committed intentionally:

(a) Either or both of the following as criminal offences distinct from those involving the attempt or completion of the criminal activity:

  1. New Zealand is a signatory. The TOC Convention is not yet in force. Article 38 requires forty ratifications for entry into force; at present there are twenty-seven ratifications.

60 See generally Bassiouni, MC and Vetere, E (eds), Organized Crime: A Compilation of UN Documents 1975-1998 (Ardsley-on-Hudson: Transnational, 1998).

  1. The Racketeer Influenced Corrupt Organizations Act (RICO) 18 USC sections 1961-1968 and the Continuing Criminal Enterprises Act (CCE), 21 USC section 848.

62 Decree No. 309 of 9 October 1990.

  1. Civil suits are also possible under RICO, and many of the suits brought against tobacco companies in the United States have been brought in terms of RICO: see RICO 18 USC section 1964.

2001 Stamping Out Global Tobacco Smuggling 67

(i) Agreeing with one or more other persons to commit a serious crime for a purpose relating directly or indirectly to the obtaining of a financial or other material benefit and, where required by domestic law, involving an act undertaken by one of the participants in furtherance of the agreement or involving an organized criminal group;
(i) Conduct by a person who, with knowledge of either the aim and general criminal activity of an organized criminal group or its intention to commit the crimes in question, takes an active part in:
  1. Criminal activities of the organized criminal group;
  2. Other activities of the organized criminal group in the knowledge that his or herparticipation will contribute to the achievement of the above-described criminal aim;

(b) Organizing, directing, aiding, abetting, facilitating or counselling the commission of serious crime involving an organized criminal group.

  1. The knowledge, intent, aim, purpose or agreement referred to in paragraph 1 of this article may be inferred from objective factual circumstances.
  2. States Parties whose domestic law requires involvement of an organized criminal group for purposes of the offences established in accordance with paragraph 1 (a) (i) of this article shall ensure that their domestic law covers all serious crimes involving organized criminal groups. Such States Parties, as well as States Parties whose domestic law requires an act in furtherance of the agreement for purposes of the offences established in accordance with paragraph 1 (a) (i) of this article, shall so inform the Secretary-General of the United Nations at the time of their signature or of deposit of their instrument of ratification, acceptance or approval of or accession to this Convention.

Article 5(1)(a) obliges parties to adopt either one or two new organised crime offences. Both offences must be committed 'intentionally' but section 5(2) allows states parties to infer this mens rea from the facts.

Article 5(1)(a)(i) is a broadly-drawn conspiracy offence suitable for penalising the involvement in tobacco smuggling by tobacco companies. It would apply to very broad agreements, and would appear to include any corporate decision leading to or allowing for smuggling activities. Where corporate executives deny involvement, an agreement
68 Yearbook of New Zealand Jurisprudence Vol 5

to smuggle could be inferred from documents that make it clear that a state is being targeted for the export of large quantities of potentially contraband products.64 In terms of article 10 of the TOC Convention, which obliges the criminalisation of juridical persons, the agreement could be between the tobacco company and any individuals or groups directly involved in smuggling. It could also be an agreement between individuals who are employed by the tobacco company and individuals or groups involved in smuggling. The agreement must be 'to commit a serious crime', something defined by article 2(b) as a crime with a maximum prison sentence of at least four years or more. It will be a question of fact whether smuggling of cigarettes carries a maximum prison sentence of four years or more in a state.65 In terms of the TOC Convention the agreement to commit the crime must be for a purpose `relating directly or indirectly to the obtaining of a financial or other material benefit'. Evidence that a tobacco company received financial benefit from the sale of greater quantities of tobacco products along with increased market penetration would suffice. There appears to be little doubt that tobacco companies that do intentionally conspire to supply smugglers would be liable in terms of any domestic offence that applies article 5(1)(a)(i) of the TOC Convention. It will, nevertheless, be difficult to prove intentional participation by a tobacco company in the supply of smugglers when they are in control of all

  1. As a result of US litigation the major international tobacco companies have been required to make corporate documents public: see Ciresi, M, et al., `Decades of deceit: Document discovery in the Minnesota tobacco litigation', (1999) 25 William Mitchell Law Review 477. A wide range of documents can be accessed through <> .
  2. In England and Wales, for example, an appropriate offence would be fraudulent evasion of duty under section 170 of the Customs and Excise Management Act 1979. As noted above, the maximum penalty under section 170 is seven years. In R v Dosanjh [2009] EWCA Civ 1291; [1999] 1 Cr. App. R. 371, the Court of Appeal laid down sentencing guidelines setting out that the category of offender deserving of the most serious punishments were those in organised gangs involved in importation on a commercial scale. Where the amount of duty evaded was in excess of £500,000 sentences in the region of four years were appropriate, and this would increase to the statutory maximum of seven years when a million pounds or more of duty was avoided. In exceptional cases consecutive sentences might be considered. The Magistrates' Association Guidelines consider 'commercial operation' an aggravating factor in sentencing.

2001 Stamping Out Global Tobacco Smuggling 69
records relating to the production and export of tobacco products, and when they are free to export to any destination without authorisation.66

As an alternative to the 'conspiracy' offence, parties may choose to apply the 'Mafia Offence' in article 5(1)(a)(ii) of the TOC Convention, which specifically requires the involvement of an 'organised criminal group'. In terms of article 2(a) this means a structured group. Defined by article 2(c) such a group is one 'not randomly formed for the immediate commission of an offence' but one which 'does not need to have formally defined roles for its members, continuity of membership or a developed structure'. Such a group must consist of three or more persons, must exist for a period of time, and must act in concert with the aim of committing one or more serious crimes or offences established in accordance with the Convention. Various examples exist today of alleged involvement by tobacco companies with criminal organisations,68 so this element is potentially quite simple to establish 69 Article 5(1)(a)(ii) requires 'conduct by a person' — perhaps the action of the person in the tobacco company responsible for supplying the

  1. The WHO Tobacco Framework Convention addresses this issue of export restriction. For more information see <> .
  2. The 'conspiracy' offence has two further possible conditions 'where required by the domestic law' of the state party which would make it palatable to those states for which the Mafia offence has been designed. These conditions require either the involvement of 'a) an act undertaken by one of the participants in furtherance of the agreement, or b) an organised criminal group'. They apply because in some states an agreement is not enough conduct for criminal liability; there must be a choate offence. Involvement of an organised criminal group avoids such a requirement.
  3. For example, the EU suit in the Eastern District of New York alleges that RJR and Phillip Morris had dealings with 'individuals in Spain who they knew or should have known were identified by Spanish legal authorities as being involved in narcotics trafficking.' See Schelzig, E and Warner, MB `Tobacco firms used suspected drug traffickers EU lawsuit claims', The Public i (11 April 2001) <>.
  4. UK enforcement authorities have stated that organised criminal gangs are involved in tobacco smuggling; see HM Treasury, Pre-Budget Report 2002, Chapter 5, para 5.85, 'investigators have also broken up 60 major organised crime gangs involved in smuggling huge volumes of illicit cigarettes.' Also HM Customs and Excise, 'Our fight against alcohol and tobacco fraud', available at <> .

70 Yearbook of New Zealand Jurisprudence Vol 5
cigarettes, or perhaps the tobacco company itself in terms of article 10's provision for corporate penal liability — acting 'with the knowledge of either the aim and general criminal activity of an organised criminal group or its intention to commit the crimes in question'. The individual must either take 'an active part in criminal activities of the organised criminal group' or in 'other activities of the organised criminal group in the knowledge that his or her participation will contribute to the achievement of the above described criminal aim'. If it cannot be established that a tobacco manufacturer has engaged directly in smuggling, then it becomes an issue of whether the behaviour of the manufacturer contributed to the aim of the smuggler's criminal activities. The latter test should be relatively easy to satisfy.

Perhaps the simplest way the TOC Convention obliges parties to extend criminal liability to tobacco manufacturers involved in smuggling is through article 5(1)(b), which makes it an offence to engage in various acts of complicity in respect of 'the commission of a serious crime by an organised criminal group', viz.: 'organising, directing, aiding, abetting, facilitating, [and] counselling'.

Jurisdiction would be crucial to the application of article 5's offences in the present context. Article 15(1)(a) obliges a party to exercise jurisdiction over article 5 offences on the basis of the territoriality principle, and article 15(1)(b) extends the obligation to its vessels and aircraft.7° Following established state practice this means that if only one element of the smuggling offence occurs on the territory of the state concerned it will have jurisdiction. If all the elements of the offence occur extraterritorially a state may in terms of article 15(2) establish jurisdiction on a number of different bases, some not relevant here.71 Article 15(2)(b) provides for optional nationality-based jurisdiction, which would be an effective basis for UK legal action against tobacco companies and their personnel who are in the UK but have performed

  1. On jurisdiction in international law see Brownlie, I Principles of Public International Law, 5th ed. (Oxford: Oxford University Press, 1998) chapter 15.
  2. Article 15(2)(a), passive personality, is not relevant at all, while article 15(2)(c), the effects principle, is only useful for taking action when the impact of smuggling will have an effect on the UK.

2001 Stamping Out Global Tobacco Smuggling 71

article 5 offences elsewhere.72 The problem with nationality jurisdiction is that the UK would have to find the political will, as it has done with the sex-tourism offences, to establish its extraterritorial jurisdiction on this basis over tobacco product smuggling. Article 15(3) further extends the possible grounds for jurisdiction as it places an obligation on state parties to exercise jurisdiction over an alleged offender present in its territory who is not to be extradited 'solely on the ground that he or she is one of its nationals.' This aut dedere aut judicare (extradite or prosecute) provision has the advantage of being an obligation and the alleged offender is in the custody of the state that will exercise jurisdiction. Nevertheless, its operation in respect of extraterritorial tobacco smuggling is likely to be limited because the UK does, in principle, extradite its nationals, and it must be triggered by an extradition request from a third-party state. Nationality jurisdiction is the better option, and practical problems like the gathering of evidence can be overcome by use of the legal assistance provisions of the TOC Convention?' If the UK government decides not to take the nationality option, it will in any event be obliged in terms of article 6 of the TOC Convention to criminalise money laundering74 where the predicate offences are 'serious crimes' as defined by the Convention.75 Moreover,

72 The nationality of the alleged offender is a very useful principle for establishing jurisdiction over extraterritorial crime to which there is no other connection. See Harvard Research in International Law, 'Draft convention on jurisdiction with respect to crimes' (1935) 29 AJIL 435 at 519. Civil law states justify its use on the basis that the defendant benefits from the protection of nationality and owes allegiance to it. Common law states do recognise nationality as a basis for jurisdiction, but are traditionally inclined to use it only if some essential state interest was threatened by a crime such as treason. However, some common law states have shown an increased willingness to establish nationality jurisdiction over offences endemic in developing states, when such states are unable for socio-economic reasons to suppress these offences themselves. See Bantekas et al (supra n 50) 24. In order to globalise the use of the principle, international society has included it in a large number of multilateral crime suppression conventions like the TOC Convention.

73 Article 18.

74 Article 6(1).

  1. Article 6(2)(b). The UK has moved in this direction with the enactment of the Proceeds of Crime Act 2002. The Act considers tax evasion of any sort a predicate offence for laundering (see generally Part 7).

72 Yearbook of New Zealand Jurisprudence Vol 5
article 6(2)(c) provides specifically that each party shall include as predicate offences 'offences committed both within and outside the jurisdiction of the State Party in question' so long as the 'the relevant conduct is a criminal offence under the domestic law of the State where it is committed and would be criminal under the domestic law of the State party implementing or applying this article had it been committed there.' Thus the UK will be obliged to criminalise the domestic laundering of the proceeds of extraterritorial tobacco smuggling. Finally, the obligation in article 10 to establish the possibility of corporate criminal liability will play a key role in the prosecution of tobacco corporations.76

The UK government currently appears to be unwilling rather than completely unable to police the behaviour of British tobacco companies overseas.' Ratification of the TOC Convention would oblige the UK to consolidate and put into effect legislative measures against transnational organised tobacco smuggling. In particular, the implementation through domestic legislation of article 5 of the TOC Convention would provide a means for prosecuting tobacco companies that get involved even if only indirectly in tobacco smuggling into developing states. This broad conspiracy provision would go a long way to counteract the tobacco companies' apparent position that while they may have mens rea for commission of a foreign smuggling offence (they do after all concede that they know their products are feeding the illicit trade), they do not have the actus reus because they are so detached from the smuggling process that they cannot be said to conspire in it.

Conclusions on comprehensive global action

Using the Transnational Organised Crime Convention against tobacco manufacturers based in the UK that are alleged to be involved in smuggling to the developing world presents many opportunities and equally many problems of proof and jurisdiction. However, its adoption

  1. Corporate criminal liability for offences requiring mens rea is notoriously uncertain in the UK — see Simester and Sullivan (supra n 55) at 244.
  2. Section IA of the Criminal Law Act 1977 discussed above goes some way toward satisfying article 5 of the TOC Convention's obligations.

2001 Stamping Out Global Tobacco Smuggling 73

and application will make tobacco companies rethink their position on smuggling. The tobacco industry is a highly competitive global market and individual companies are determined to maintain and increase market share as well as ensure the industry remains relatively unregulated, which in turn contributes to the lure of smuggling." Yet tobacco companies deny any direct involvement and publicly state that they are against all forms of smuggling as it causes severe damage to their business and reputation.79 This response should be seen in the context of their general response to poor public perception about the industry. They have made substantial efforts to combat negative public perceptions of the industry.'" They support measures which attempt to limit the use of tobacco products by children, stress the beneficial impact the tobacco industry has on the economy, and emphasise that tobacco manufacturers are not evil but instead are 'good corporate citizen[s] which maintain high ethical standards.' 81 Tobacco companies

  1. See the statements by Kenneth Clarke, 'Clarke admits BAT link to smuggling', Guardian (3 February 20(X)).
  2. See the statement of BAT in Smuggling: Our View (supra n 35). Also the statements from Imperial Tobacco, Imperial Tobacco Annual Report 2000, 9.
  3. It has been established that the major tobacco manufacturers colluded in an attempt to complicate the debate on the harmful effects of tobacco usage: see Francey, N and Chapman, S Operation Berkshire": The international tobacco companies' conspiracy' (2000) 321 British Medical Journal 371.
  4. Statement by Kenneth Clarke, Deputy Chairman of BAT, from Second Report of the Select Committee on Health HC 27 (14 June 20(X)) para 216. Reviewing the websites of the tobacco manufacturers such as BAT <>, Imperial Tobacco <>, Gallaher <> one is able to find extensive information concerning the philanthropic activities of the companies, statistics on the economic benefits of their industry, the benefits of being employed by them, their co-operation with governments and health authorities, and specific projects they are undertaking in developing countries. BAT' s site is perhaps the most informative regarding all the good things tobacco manufacturers bring lo the world. The creation of the website by BAT has come under criticism for exposing a loophole in United Kingdom and NU legislation, which bans the advertising of tobacco on the Internet. BAT claims it is not advertising,

74 Yearbook of New Zealand Jurisprudence Vol 5
have also mide efforts to deflect allegations about the effect of tobacco smuggling on developing states. BAT, for example, stated that international efforts led by the WHO to suppress the use of tobacco did not correspond with the priorities of health ministers from developing countries who, it claimed, put more emphasis on issues such as malnutrition, poor sanitation, infant mortality and AIDS.82 This position was soundly rejected in submissions to the Commons Health Select Committee by a WHO representative and by the Chinese Health Minister.83

As the Health Select Committee points out, the UK, like all developed states with an interest in tobacco product manufacturing, cannot allow the negative effects of tobacco use to be exported elsewhere. Governments in these developed states have a crucial moral and political responsibility for global suppression of illicit tobacco supply. Steps taken to provide a social defence in developed states have been at least partly responsible for tobacco companies seeking markets elsewhere. If governments in the developed world are serious about comprehensive measures to tackle problems of tobacco use, they must ensure that their efforts are not undermined by the behaviour of tobacco companies. Lawmakers in developed states are under a compelling obligation to ensure that the citizens of developing states are given the opportunity to compete on a level playing field with those in developed states when it comes to the health hazards of tobacco consumption. Domestic implementation of the TOC Convention in the developed world would provide a legal instrument that would prevent some of the harm caused by illegal tobacco from 'blowing south'.

describing the website as a public service: see 'United Kingdom American Tobacco exploits ad ban loophole', Marketing (30 March 2000) 1. Philip Morris states on its website that it is proud of its tobacco products and their advertising campaigns but will not include any tobacco brand imagery on the site. Whether or not such actions make tobacco companies 'good citizens' or even responsible ones is questionable. If tobacco companies are going to make the claim that they are good citizens then there is an expectation they will do much more 'good' for society then merely adhering to the letter of the law: see Whitehouse (supra n 38).

  1. Second Report of the Select Committee on Health HC 27 (14 June 2000) para 226.

83 Ibid. para 227.

NZLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback