Are cigarettes the underworld's Bitcoin?

The Age
DECEMBER 16 2017

They say the King of Cocaine, Colombian drug lord Pablo Escobar, was once the world’s seventh-richest person, who spent $US2500 a month on rubber bands to wrap his cash and every year would lose around $US2 billion in notes damaged by hungry rats or rising damp.

In Australia drug dealers have filled baths, walls, ceilings and industrial strength garbage bags with cash, waiting for the right time to launder the proceeds. When Melbourne gangster Dennis Allen died 30 years ago, he left millions buried around Richmond that would by now be the world’s most expensive garden mulch, while one local drug dealer paid off his back tax bill with slightly musty cash he has kept in his ceiling for years.

A recent robbery targeting cigarettes in Melbourne.  Photo: Police media

(The journalistic equivalent here was a reporter who exaggerated his expenses so successfully it was rumoured he left his actual wages untouched for years. If they had a Walkley Award for such matters, he would be a Hall Of Famer.)

In modern Australia the newest illicit product on a growth curve is one of the oldest – tobacco.

A robbery by a man armed with a knife at a petrol station in Newcastle, NSW, in March 2012. The robber took $500 and “a quantity of cigarettes”. Photo: SUPPLIED ZZZ

Let’s look at the maths. If you were to invest $200,000 in cocaine, you could expect a return of $1.6 million. Invest the same amount in smuggled cigarettes from China and the return would be $10 million.

Border Force estimates nearly 15 per cent of all tobacco sold in Australia has been illegally imported to avoid local taxes. And little wonder. The price of cigarettes has doubled in the last six years, with a packet expected to cost $40 in just over two years.

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Now the tobacco industry is not one that garners sympathy easily, but many smokers who feel they are unfairly taxed to indulge in what remains a perfectly legal pastime have turned to the illegal market to satisfy their cravings.

(An Asian leader on an official visit to Melbourne once complimented his local liaison officer on the dress code of the street prostitutes in the CBD, until it was pointed out they were city workers standing outside on cigarette breaks.)

Part of a haul of 4.5 million cigarettes intercepted by Australian Border Force in a container from Malaysia declared as boxes of paper cups. Photo: Australian Border Force

Police are reporting illegal “pop-up” shops appearing virtually overnight in regional areas, with queues out the door as smokers line up for cheap cigarettes.

Certainly when I recently entered a milk bar in search of a frozen Jubbly, the dishevelled chap in front of me asked the equally dishevelled chap behind the counter for a single cigarette. Dishevelled man 2 sheepishly opened the drawer in front of him to produce the required gasper, which was placed in the nicotine-stained hand of dishevelled man 1.

A man armed with a handgun enters a petrol station inNewcastle and demands cash and cigarettes. Photo: photos@theherald.com.au

The figures are staggering. Border Force have created Tobacco Strike Teams that have in the last 12 months seized 96 million illegally imported cigarettes from one organised crime group. In two years from 2015 they have seized 400 tonnes of tobacco that would have evaded excise of $294 million. In the last financial year, the total was around 180 million fags weighing 174 tonnes.

For that is what crooks do: Seek the maximum profit from their illegal activity.

Many smokers who feel they are unfairly taxed to indulge in what remains a perfectly legal pastime have turned to the illegal market to satisfy their cravings. Photo: Tamara Voninski

With Australian smokers the highest taxed in the world, we have become the most lucrative spot for illicit cigarettes.

The illegally imported cigarettes usually end up at tobacconists and corner shops and are only produced when a consumer asks for the “cheapest available”. They are usually sold at $12 to $14 a packet – and since the federal excise on a legitimate packet is around $16, it is a fair bet they are smuggled darts.

The Melbourne cigarette robbery. Most such robberies have a precise division of labour – one investigator likened it to a military operation. Photo: Police media

The price of the local product has created its own crime wave, with gangs of young offenders targeting stores that supply cigarettes. We are not talking about kids pinching a packet of Craven “A” from the milk bar counter, but organised and international rackets that can net tens of thousands in one night.

In 2016-17, there were 190 cigarette-related armed robberies and more than 450 commercial burglaries targeting the product. When you consider the crooks can sell a stolen packet for $10 a pop, no questions asked, you can see the profit margin is immense.

A specialist gang, consisting of three to six offenders but occasionally as many as 10, can steal around $15,000 of cigarettes inside a minute – indeed, when police raided one crew they recovered 1600 packets stolen in a series of robberies.

In the raids each crook has a role, such as forcing the door, locating the stash, isolating staff and customers and loading the product – and with some retail outlets holding up to 1000 packets, it is a lucrative and sophisticated business.

“Some [gangs] run like a military operation – and they rarely make a mistake,” says one investigator.

There are reports of the gangs ignoring the more carefully secured cash and going for cigarettes, as the packets are easier to grab when you need to make a quick getaway. Plus they are as good as cash on the black market.

Police say bikie and Middle Eastern crime gangs are the biggest influences behind the rackets, with some of the stolen product sold back to small retailers or sent interstate. But the tobacconists and corner shops that buy the product through the back door risk having the front one smashed in, as they leave themselves at risk of being robbed for their stock. Or as one investigator says: “Today’s buyer is tomorrow’s victim.”

Increasingly the gangs are targeting smaller country regions within 100 kilometres of the CBD, where the crooks know there are no night police patrols. Having found a soft target, they return like wolves to a flock of sheep to pick off another one.

In one case, a gang hit three supermarkets in one night, getting away with stock valued at $200,000.

Police found that a team hit three shops from the Mornington Peninsula to the northern suburbs within hours. To make the targets, police later proved they had driven at an average speed of 155 km/h between jobs.

This is how a typical gang works: Connected via mobile phones they will text to meet – then commit one or more home invasions to steal cars before moving on to a series of retail targets that include supermarkets, convenience stores and service stations.

If the outlet is staffed, the gang will use weapons such as knives and hammers to subdue staff and customers. If it is unoccupied, the biggest members will use sledgehammers to force their way in.

Sometimes they will lever open a door, then use the smallest member to slip in and trip the electronic opening device. (One was found by police trapped in the store, unable to open the two sets of exit doors.)

In recent times police have run three operations against “Up In Smoke” gangs (every good crime story requires a partially bogus nickname) and have discovered many of the offenders are in their teens, with the youngest aged 16.

In one case they arrested two offenders responsible for a series of robberies, including one where a victim was hit with a hammer when the crooks stole 1300 packets. The second involved a gang of five and the third a crew of four who stole 15,000 packets and $10,000 cash.

And here is where the law of unintended consequences kicks in.

The laws on plain packaging of cigarettes – designed to strip the addictive product of any advertising gloss – have made it difficult for police to link recovered stolen packets to the source of the robbery, as the packs don’t have identifiable registration numbers.

There are two certainties in crime. Where there is a demand, organised crime will find a supply, and police alone cannot stop a lucrative crime trend.

Take bank armed robberies – we used to have one every working day, stick-up crews  regularly escaping with six-figure hauls.

The introduction of timer safes, CCTV, direct alarms and cash dye bombs rendered the crime redundant – leaving the crooks the choice of retiring, moving into drug trafficking or, even worse, becoming part-time true crime authors.

And this is where Detective Sergeant Scott Dwyer from the Eastern Region Crime Squad has come to our notice. Having successfully investigated a spate of the armed robberies, Scott realised he needed to help the retailers protect themselves from further attacks. In cop-speak it is called “target-hardening”.

Working with supermarket chains and late-night convenience stores, Dwyer introduced training programs, recommended stock reductions to make the robberies less lucrative and doors that were harder to smash in. He also worked on defensive strategies, including strongrooms where staff and customers could hide and emergency exits through which they could flee.

The result? There has been a slowdown on the rate of robberies and the four key gangs have been smashed. So successful has Dwyer’s “target-hardening” been that the strategy has been rolled out to other major convenience stores and late-night fast food outlets. It is likely jewellery shops will also jump on board.

Dwyer has now trained more than 100 sergeants and senior sergeants around Victoria in the defensive programs that may slow a crime wave to a manageable ripple.

And the “Up In Smoke” gangs? Most of their members are now inhabitants of a strictly tobacco-free zone – they call it prison.