$600m tobacco trade flourishes despite convictions

MARK SCHLIEBS
JANUARY 29, 2019
The Australian
They were unlikely farmers. They lived in Melbourne. They had criminal records ranging from money-laundering to armed robbery and drugs charges.
Yet as surveillance teams watched on, they were bussing in labourers for their harvest and drying out their product in ­industrial-scale kilns.
The busting of this operation, and the convictions of Lebanon Kamarelddin, Houssein Saoud and Carlos Fernandez over more than eight tonnes of tobacco found at properties around the outer-Melbourne suburb of Tarneit, was heralded as a success in the fight against illegal tobacco.
What it showed, though, was the near-futility of trying to stop a black market trade — potentially worth more than $600 million a year — by jailing people for two or three years for activity that has earned them a fortune.
Australian Border Force made more seizures of tobacco in the first four months of this financial year than it did during 2017-18, when 240 million cigarettes and 217 tonnes of loose leaf tobacco were detected at the border. Since 2016, the Australian Taxation ­Office has seized 240 tonnes of ­tobacco, most commonly at farms. In the past three weeks alone, 1.1 million cigarettes were allegedly found in Melbourne — contained in air cargo marked as tea from the United Arab Emirates — and tobacco crops covering 3.2ha were destroyed near Araluen, in the NSW southern tablelands.
Hardened crime gangs have become players in the trade and there are allegations that Customs officials have been recruited to help them smuggle cigarettes by the container-load.
Regions where cannabis was once grown are now sites of illegal tobacco farms.
Even an undercover operation by the Australian Criminal Intelligence Commission to help US authorities bring down Pakistani heroin trafficker Shahbaz Khan — declared a global “narcotics kingpin” by Washington in 2007 — dovetailed into an investigation into Melbourne-based cigarette traffickers.
Susan Black, commander of special investigations at the Australian Border Force, said: “Tobacco is one of the highest-taxed commodities in Australia and across the world. It’s currently (taxed) at $0.81 per stick, and by 2020 that will go up by another 12 per cent. Because of this, illicit tobacco is a really attractive market for organised criminal syndicates due to the lucrative profits that can be made in evaded tax.”
And the illicit tobacco trade did not skip a beat after Kamarelddin, Saoud and Fernandez were sentenced to a minimum two years and three months behind bars last August, after defrauding the commonwealth of more than $4 million in unpaid excise.
Asked if the penalties handled down to traffickers and growers had provided a deterrent, Ms Black pointed to recently enacted legislation that can see jail sentences of up to 10 years.
“I think we will see more deterrence in the future,” she said.
“I think we’ll see a change, and we’ll be able to make a determin­ation on that in a few months or a year’s time.”
The ABF and the ATO are reluctant to estimate the size of Australia’s illicit tobacco market, but have consistently said it accounted for about $600 million a year in lost excise revenue.
That means roughly 750 million sticks — or 30 million packs of 25 — are sold on the black market annually.
The prices consumers have been paying for the illicit product at small independent grocery shops and corner stores, outside pubs and even from private homes are not all that much lower than those charged by law-­abiding tobacco sellers.
“It might just be a few dollars (cheaper), depending on where you’re buying it from,” Ms Black said.
“The amount they’re making is quite significant, so it depends on what cut they’re ­giving to what part of the market and their ­syndicates.”
Crime groups have sown tobacco crops from northern Victoria to central Queensland and across into the Northern Territory. In some cases, the locations and the players involved are linked to the cannabis trade.
ATO acting deputy commissioner Martin Jacobs said: “We have identified where they’re not just involved in the sale of illegal tobacco but also other criminal behaviour. So it’s another revenue source for them.”
The ATO is part of a special ABF-led Illicit Tobacco Taskforce created last year, along with the ACIC, Austrac, the Commonwealth Director of Public Prosecutions and the Department of Home Affairs, to disrupt the black market.
Tobacco crops, which have not been legally grown in Australia since 2006, have traditionally been the jurisdiction of the ATO.
There have been eight prosecutions for tobacco farming in the past five years.
“The ATO identifies illicit crops (via) information from law-enforcement agency referral; we get community dob-ins, informants, as well as information received from industry networks,” Mr Jacobs said.
“And then we use a range of approaches to identify illicit tobacco activity, which is getting more sophisticated. We’re also getting more sophisticated and increasing our ability to detect and ultimately disrupt illicit tobacco production in Australia.
“Subject to climate, there’s potential for this to be grown in a range of areas, which is why we use a range of detection (techniques).” These include satellite imagery and the use of drones.
The crops themselves do not appear unusual — young tobacco plants look similar to cabbages — but they have usually been dried out on-site after harvest.
Ms Black said bigger shipments were becoming better concealed, labelled as paper cups, dried noodles, air fresheners, aromatherapy or hidden in chopping boards and tiles.
“People are becoming much more sophisticated and they’re adaptive as well,” she said. “Like any criminal market, they’re quite adaptive with their skills. When they realise that detections are happening one way, they’re quite innovative and can move quickly.”
A KPMG report, commissioned by tobacco giants Phillip Morris and Imperial Tobacco, found that the black market ­accounted for 15 per cent of the Australian market.