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The Final Straw For The Black Market

Published on Dec 6 2012 4:32 PM in Features

The Final Straw For The Black Market

A new report from Retail Ireland has outlined progressive solutions to the issue of black market activity in this country, and it’s time for the government to step in and act on them. Checkout reports.

Such is the wide-ranging impact of the illicit trade in tobacco, fuel and other items that barely a week goes by without another high-profile raid; indeed, on the day Checkout wrote this article, two significant seizures took place, one of an oil laundering facility in Clontibret, Co Monaghan, and another of around 3.8 million illegal cigarettes in Wexford. The combined cost to the Exchequer? Around €2.3 million. And this is just a drop in the ocean.

In August, Retail Ireland issued its most in-depth analysis of the state of the black market in Irish retail at present; an industry that costs approximately €861 million to the Exchequer (or the equivalent value of 5.7% of PAYE collected in the State). Much has been written about the topic in recent months; not least because the problem appears to have escalated rather than reduced, and more importantly because government response has thus far been underwhelming, which is only feeding into the hands of the perpetrators themselves.

Tentative moves by government, such as a special provision in the Programme for Government to increase the penalty for tobacco smuggling, discussions by the Joint Committee on the Environment, Transport, Culture and the Gaeltacht on combating illicit fuel production, and the inclusion of specific tobacco measures in the Department of Social Protection’s Business Plan 2012, have only gone so far. 

The NIDP Issue

With specific regard to the tobacco industry, last month, MS Intelligence issued startling figures estimating that the percentage of ‘Non-Irish Duty Paid’ (NIDP) cigarettes in the Irish market in Q2 2012 is 29.8%, up from 23.8% for the same quarter last year. In April, Revenue Officer Denis Twohig told RTE that around 6% of this constitutes normal cross-border trade, meaning that more than a quarter of all cigarettes smoked in Ireland are of illegal origin.

The highest incidence of NIDP cigarettes was in Waterford (44.5%), closely followed by Newbridge in Kildare at 41.5%. Also in Kildare, Leixlip registered figures above the average with 32.2%, or nearly one in three cigarettes being non-Irish duty paid.  Remarkably, despite this problem, there were zero convictions for illegal cigarette smuggling or selling in Kildare in 2011. 

The average newsagent’s turnover from cigarette sales is approximately 20 to 22% of total sales, according to CSNA estimates, while in forecourts this can be as high as 35% of total sales. In convenience stores, cigarette sales account for between 16% and 19%. Understandably, it’s these businesses that have the most to lose from this increase in black market activity.

Significant Resources

As Frank Gleeson writes in his introduction to the Retail Ireland report, Tackling The Black Market and Retail Crime, such are the losses to the Exchequer from black market activity that ‘significant resources’ should be put in place to address the matter, and those in power should ‘adopt a zero tolerance approach to all criminal activity that steals from the taxpayer and Ireland’s retailers’. But the approach needs to go deeper than that.

“If you take the man on the street, who buys a pack of illegal tobacco; he thinks he’s getting a bargain,” Gleeson tells Checkout. “He thinks that by saving himself five euro that it’s a net win for him. He doesn’t take into account that maybe that product is more harmful than it should be, that maybe the profits are going to into illegal activities, and the shortfall in the economy is being made up of additional taxes being placed on consumers like him. It is actually something that he doesn’t fully understand, or in some cases care about.”

Retail Ireland’s report suggests a series of alternative punitive measures for those found guilty, to redress the imbalances in the current judicial structure; most ‘fines’ for those found guilty fail to act as a sufficient deterrent. Instead of imposing fines, the report argues, State payments, benefits and concessions should be reduced from people found guilty of illicit smuggling, ‘to the value of the loss to the Exchequer of the goods smuggled, counterfeited or stolen’. Should the net loss to the Exchequer be greater than €100,000, criminals’ assets should be seized by the Criminal Assets Bureau. 

It’s a bold recommendation, but its also a controversial one; the socio-economic aspects of reducing welfare payments to those found guilty, many of whom come from the fringes of society, could raise all sorts of ethical issues.

“I don’t think it would,” says Gleeson. “I think the government is on board with what we’re saying; they just haven’t done anything about it. When we published the report we got a great reaction from both Fine Gael and Fianna Fail. They all agreed with us, it just needs to get done.”

Whistleblower System

Another suggested approach is the establishment of an award of €10,000, to be presented to individuals that report an incidence of illegal trade that results in a summary conviction. It also calls for protection for these whistleblowers by legislation (outlined in the Public Interest Bill 2012). Gleeson believes that such is the stretched nature of Garda resources at present, that a whistleblower system, provided those that use it are protected, could have significant benefits.

“I think it’s important to establish that the Gardai are doing their best; from their perspective they’ve had a significant reduction in their resources, and they’re doing their best,” he says. “It’s the same for the Revenue Commissioners; they’ve lost around 900 personnel in the past two to three years; meaning there are less people available to run investigations. 

“We need to have a whistleblower system, whereby people are encouraged to give information via confidential hotlines. We need to have heavier fines, more custodial sentences and ultimately, for anyone who’s convicted of selling product, we should reduce their benefits. They should be made pay, and not have a free ride. 

“This is pure criminal activity no matter what way you look at it, we can pretend that it’s just a bit of turning the blind eye, but the reality is that things are so bad in this economy that we cannot afford that mentality. We need to foster a culture of compliance, otherwise others will have to take an unnecessary burden for people who don’t comply.”

Awareness Campaign

Additionally, the report calls for a different ‘message’ to be publicized, focusing on the damages of the illict trade on the general public, rather than on particular interest groups. Rather than focus on the damage being done to small businesses or retailers, it calls for an ‘awareness campaign’ to be launched to ‘alert taxpayers about the additional burden they have to pay because of the criminal actions of a few’. 

“You need to look objectively at it,” says Gleeson. “To say; ‘hang on, is there a smarter way of doing this?’ Retailers are playing their part; the problem is that this needs to be backed up with actual enforcement. Retailers can’t spend their time stopping criminals; their job is to sell. It doesn’t matter how good our shops are, how friendly our staff are and how decent a job we do running our business; if there is illegal activity effectively undermining our business, we require the government to take action.

“If the government have got some better ideas, let them come up with them too. The reality is that we’ve presented them with a number of recommendations that should, or could, be actions. We’ve got paid officials who should be turning these actions into reality.”

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