Free zones ‘be­ing used to make boot­leg cig­a­rettes’

▶ In­dus­try ex­perts claim half of UAE’s smok­ers are now us­ing il­licit tobacco

The National - News - - NEWS EMIRATES - NICK WEB­STER

A year since the UAE brought in its mile­stone 100 per cent tobacco tax, half the smok­ing pop­u­la­tion has turned to cheaper, il­licit cig­a­rettes.

Mid­dle East ex­perts claim 50 per cent of the UAE cig­a­rette in­dus­try is now taken up by “cheap whites” or lower qual­ity cig­a­rettes.

Many are made in the UAE’s free zones or smug­gled in to avoid govern­ment reg­u­la­tions and ex­cise du­ties.

There are 77 tobacco-re­lated op­er­a­tions in Dubai free trade zones, in­clud­ing 22 man­u­fac­tur­ers of cheap whites.

“There is not a lot of reg­u­la­tion in these free zone ar­eas, such as the stan­dard of pa­per used or qual­ity of tobacco,” said in­dus­try in­ves­ti­ga­tor Bren­dan Le­moult, who is vice pres­i­dent of anti-il­licit trade train­ing at Ja­pan Tobacco In­ter­na­tional.

“Free zones are ei­ther not declar­ing a mar­ket, or be­ing de­cep­tive about where these cig­a­rettes are des­tined to go,” he said.

The Gulf Re­search Cen­tre think tank compiled a re­port on the re­gion’s black mar­ket trade to as­sess the ef­fect of the tobacco tax im­ple­mented across the GCC last year.

De­tails of the study in­cluded re­search on the trade’s ef­fect on na­tional se­cu­rity, or­gan­ised crime, so­ci­etal is­sues and the re­gion’s le­git­i­mate econ­omy.

The re­port claimed smug­glers were tak­ing ad­van­tage of sim­pli­fied cus­toms pro­ce­dures and a lack of reg­u­la­tion to dis­guise the ori­gin and na­ture of boot­leg prod­ucts.

“Man­u­fac­tur­ing fa­cil­i­ties in the UAE free zones are pro­duc­ing cheap whites with­out the pack­ag­ing health in­for­ma­tion that 98 per cent of coun­tries have,” said Tamer Sha­bana, di­rec­tor of il­licit trade pre­ven­tion at tobacco multi­na­tional Philip Mor­ris Mid­dle East.

“We do our own re­search to mea­sure the pen­e­tra­tion of il­licit prod­ucts, coun­ter­feit cig­a­rettes and il­le­gally im­ported tobacco from other coun­tries.

“We also com­plete empty packet sur­veys to see what cig­a­rettes are be­ing smoked, and we know il­licit whites cover 50 per cent of the UAE mar­ket.”

Free trade zones are duty free ar­eas that of­fer ware­hous­ing and dis­tri­bu­tion fa­cil­i­ties for trade, trans-ship­ment and re­port­ing op­er­a­tions, gen­er­ally or­gan­ised around ma­jor sea­ports, in­ter­na­tional air­ports and fac­to­ries.

The UAE has one of the re­gion’s largest free trade zones.

A new plan to add dig­i­tal stamps to cig­a­rettes is part of a govern­ment crack­down on tax eva­sion in the tobacco in­dus­try. It is hoped the mea­sure will help to pre­vent il­le­gally smug­gled tobacco, such as cheap whites.

“We have seen tobacco prod­ucts ex­ported out of free zones and de­clared for im­por­ta­tion in a third coun­try else­where in the eastern Euro­pean Union,” Mr Lamoult said.

“One lorry can con­tain 10 mil­lion cig­a­rettes, so the value can be some­where be­tween $2 mil­lion and $5m (Dh7.34m and Dh18.36m) per con­tainer.

“If smug­glers have 10 con­tain­ers they want to ship to ar­eas of high tax­a­tion, such as the UK, they only need to get one through to make a profit.

“This is the risk of high tax­a­tion in some coun­tries, and some free zones are help­ing fa­cil­i­tate that in­dus­try.”

Stu­art Pat­ter­son, a part­ner at law firm Her­bert Smith Free­hills in Dubai In­ter­na­tional Fi­nan­cial Cen­tre said ad­e­quate laws in the UAE are in place but, like many free zones, are not al­ways ad­e­quately en­forced.

Greater phys­i­cal ac­cess to free zone op­er­a­tions for checks and more re­port­ing of sus­pi­cious fi­nan­cial trans­ac­tions would also help to tighten up these ar­eas, he said.

The Fi­nan­cial Ac­tion Task Force, backed by the G7 group of the world’s big­gest economies, con­ducts eval­u­a­tions of coun­tries to as­sess how vul­ner­a­ble they are to money laun­der­ing.

The UAE is due for an in­spec­tion next year.

“When trade passes through free zones, fees are paid and those fees are ef­fec­tively pro­ceeds of crime that are ef­fec­tively in­vested back into the le­git­i­mate econ­omy,” Mr Pat­ter­son said. “How you com­bat this is dif­fi­cult, but these ar­eas can be sub­ject to greater trans­parency and ac­count­abil­ity.”

The Na­tional

So-called cheap whites – low-qual­ity black mar­ket cig­a­rettes – are flood­ing in the UAE

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