Perspectives on the WCO 2019 Illicit Trade Report (written for Tax Stamp News, published by the International Tax Stamp Association)
ILLICIT ALCOHOL A GROWING PROBLEM
An estimated one in four bottles of alcohol are illicit, representing 25.8% of global consumption – nearly 10.9 million hl of illicit alcohol in 24 surveyed countries alone[1]- and which the World Health Organisation has projected will increase to 27.7% in 2020[2].
THE WCO ANNUAL ILLICIT TRADE REPORT
The World Customs Organisation released its annual Illicit Trade Report (with data from 2018) in December 2019[3], as usual covering a wide range of topics, from cultural heritage, drugs, the environment, IPR, security and tax revenue risks - with the latter including a section on trends in the illicit trade in excisable products.
During the course of 2018 customs and excise agencies reported the seizure of a number of excisable products, with 56 percent of those seizures relating to cigarettes, 10 percent to other tobacco products, 4 percent to cigars and electronic cigarettes - and 29 percent to alcoholic products.
Alcohol product seizures increased by 72.7 percent year-on-year from 2017. Countries in the Middle East reported more alcohol product seizures than any other region, accounting for 61.4 percent of global seizures in 2017 and 47 percent in 2018, while seizures in Western Europe rose dramatically from 2017 to 2018, jumping from 922 to 3,349.
While the report provides some useful data points, it does not constitute a comprehensive overview and would need to be triangulated with other research for a more accurate picture. Nonetheless, the reported trends do raise a number of interesting perspectives:
Inconsistent reporting from countries
The report suffers from a number of challenges, most notably in that it relies on self-reporting by countries, who may choose not to disclose all seizures, or not to report seizures at all (only 54 countries contributed to the most recent report). And as is always the case when tracking the prevalence of illicit trade, increased seizures could either be the result of an actual increase in smuggling, or simply of enforcement efforts being stepped up.
A key concern emanating from the report lies in what appears to be inconsistent reporting from countries. Saudi Arabia far outstrips other countries in terms of its reported seizures; Ireland reported only 1 seizure in 2017, but 1,557 in 2018; Sweden reported 165 seizures in 2017, but none in 2018.
We can only collectively curb the illicit trade in alcohol if we understand it – what it looks like, how it moves, where it comes from, and where it’s going. You can’t manage what you can’t measure. And poor seizure data may well contribute to a country underestimating the real threat from illicit alcohol. The lack of consistent reporting poses both a challenge for solution providers, and perhaps an opportunity. By developing robust reporting solutions, embedded in business intelligence dashboards for client countries, and by encouraging client countries to comprehensively report on seizure trends, we stand to deepen our understanding of the nature of the beast, and to develop more targeted strategies.
A strong focus on the Middle East
In terms of overall reported seizures, Saudi Arabia tops the list, followed by Ireland, Colombia, Sweden and Uruguay. Four countries reported more than 500 instances of detected trafficking: Saudi Arabia (3,469 cases), Bahrain (2,056 cases), United Arab Emirates (739 cases), and Ireland (1,558 cases.)
While illicit alcohol may perhaps well be prevalent in Saudi Arabia, the 35 percent increase in year-on-year seizures, and the significant disparity against seizures reported by other countries, makes the country an interesting one to watch (and perhaps worth a case study on its own, to better understand the extremely high detection rates it reports). Nonetheless, if nothing else, the data does provide some insight into which countries are vocally committed to intercepting illicit shipments, and suggesting that countries like Saudi Arabia, Bahrain, the UAE, Ireland, Colombia, Sweden and Uruguay may be the ones to watch from an illicit trade strategy perspective.
Strong intra-regional trends
Illicit alcohol – just like tobacco - seems to be a largely intra-regional phenomenon. Of the 3,063 reported cases involving departures from the Middle East, a staggering 99.4 percent involved destinations within the Middle East; 65.8 percent of the reported cases destined for Western Europe originated in Western Europe; and 90.8 percent of departures from South America were destined for other countries within South America. (Outside of the strong intra-regional trends, there is a clear flow of illicit alcohol from Europe to South America, most commonly from Bosnia and Herzegovina, United Arab Emirates and Great Britain, and largely destined for Saudi Arabia, Ireland and Oman.)
This trend highlights the importance of developing region-wide solutions, ideally extending to regional track-and-trace solutions.
Vehicles and vessels pose the biggest risk
The greatest quantityof alcohol products was seized from vessels. Of the alcohol seized, 41.1% was conveyed by vessel (most of this being wine, although an outlier may well be skewing the picture - a single seizure of 1,6 million litres of wine, travelling from France and detained in Saudi Arabia, accounted for 78.9% of the alcohol seized from vessels, and a remarkable 32.4% of the total quantity of alcohol seized).
The prevalence of vehicles as a mode of transport makes sense, in the context of the strong intra-regional trends seen: the majority of seizures – 64 percent - involved vehicles (mostly cars and passenger vans, with alcohol being concealed in or under seats, in the load-transport area or in the trunk of the car). In 33 percent of cases, alcohol was simply carried in baggage. Only 25.6 percent of cases involved air transport. The use of vehicles poses a particularly difficult challenge from an enforcement perspective – containers crossing borders can quite readily be scanned or weighed to establish the veracity of customs declarations made, but are not viable options for smaller vehicles. This makes stronger upstream production controls – through secure marks and tax stamps - all the more critical.
A myopic focus on imports
Customs and excise agencies have a tendency to focus their efforts largely on imports (because they have a much stronger revenue potential), and far less so on exports or transit shipments (because they tend to have virtually no revenue generating potential.) This trend is reflected in the fact that by far the majority of reported seizures happen on import (more than 91 percent) – with only Denmark and Belarus seeming to have some seizures of goods in transit, and Colombia reporting the seizure of only internal goods.
Of course, all imports start as exports somewhere else, and the limited focus on exports and transit shipments reflects poor agency risk management practices. The illicit trade in alcohol could be far better managed with a more robust focus on the broader supply chain, and with stronger production controls – a key area where secure marking solution providers have a critical role to play.
The beer conundrum
Beer was the most-seized alcohol product in both 2017 (30.9% of seizures) and 2018 (24.8% of seizures). This is curious, given that estimates suggest that illicit beer actually only constitutes around 10 percent of illicit alcohol, and beer is the least likely type of drink to be illicit (distilled alcohol accounts for 81 percent of illicit alcoholic drinks, and yet accounts for only a very small percentage of seizures.)[4]
(This conundrum is exemplified by the experience in for instance Ecuador, which marked 735 million bottles of alcohol, 95.2 percent of which were beer, despite the fact that beer only constitutes an estimated 0.7 percent of illicit alcohol volume in Ecuador, while distilled spirits account for an estimated 97.9 percent of illicit alcohol[5].)
This suggests that agency efforts may not be effective at identifying illicit alcohol, and far more needs to be done to better manage the illicit trade in distilled alcohol in particular.
Enforcement efforts are flying blind
Worryingly, as much as 72.9 percent of reported seizures were the result of routine inspections – only 14.8 percent of seizures were the result of risk profiling, and an even lower 3.5 percent the result of intelligence-led investigations. Routine inspections – which typically only target between 3 to 5 percent of consignments - have notoriously poor detection rates, in stark contrast with risk-profiled inspections which have far greater success rates. But good risk profiling and intelligence-led investigations need good data and sound algorithms – which solution providers are potentially well-placed to contribute to, as part of their back-office business intelligence and reporting offerings for client countries. By helping countries to develop more robust risk profiling structures, solution providers have the potential to significantly contribute to the curbing of the illicit trade in alcohol.
The report suggests that there may be as many as 13,178 unique alcohol trafficking routes globally. It is evidently not possible to effectively police all of the routes themselves, which in any event mutate over time - as enforcement efforts clamp down on one route, another is simply opened up. This makes production control at source all the more critical, and highlights the importance of secure marking and traceability solutions for alcoholic products.
Conclusion
The WCO’s annual Illicit Trade Report perhaps raises more questions than it answers, but when read in the context of other research into the scope and prevalence of illicit alcohol, suggests that countries are not effective at identifying and containing the illicit trade in alcohol. Secure marking and tax stamp solution providers have a number of opportunities to change that, by continuing to promote stronger production controls, making it easier to identify illicit alcohol at face value, and providing client countries with robust business intelligence offerings to sharpen their risk profiling and intelligence-led investigations.
[1]Euromonitor International, Size and Shape of the Global Illicit Alcohol Market, 2018.
[2]World Health Organisation, Global status report on alcohol and health, 2018, http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/enforcement-and-compliance/activities-and-programmes/illicit-trade-report/itr_2018_en.pdf?db=web
[3]World Customs Organisation,Illicit Trade Report2019, http://www.wcoomd.org/en/media/newsroom/2019/december/the-wco-issues-its-2018-illicit-trade-report.aspx
[4]Euromonitor International, Size and Shape of the Global Illicit Alcohol Market, 2018.
[5]Euromonitor International, Size and Shape of the Global Illicit Alcohol Market, 2018.