24th June 2022

Hiding in plain sight

Illicit cigarette producers and distributors have infiltrated and impacted the UK’s economy, industry, and health. Operation CeCe has brought together a network of groups to stub out the problem,

By William Henry
Having that extra funding allows us to be more flexible with our resources. We can do after-hours work and also apply for sniffer dogs
If we were to get a £5,000 penalty then that would pay for the enforcement work and the pursuit of the penalty as well. It could almost be like self-financing
That reporting process can be very effective but it needs to follow due process

Operation CeCe and the HMRC funding it brought with it has been critical in arming Trading Standards Officers in the battle against the illicit cigarette trade. However, that funding is far from adequate; communication lines are lacking between bodies focusing on different parts of the criminal supply chain; and further operative support initiatives are required to make a dent in obstinate illegal enterprises, according to some of those involved in tackling the problem on the ground.

As with many priorities for Trading Standards Officers, a lot of the obstacles come down to money.

“I’ve got an area the size of Lincolnshire to enforce; Operation CeCe provides a little over £2,000 a quarter for illegal tobacco enforcement,” says Andy Wright, Principal Trading Standards Officer at Lincolnshire County Council. “Basically, what that covers is a couple of test purchases and a day’s inspection with absolutely no follow-up whatsoever.”

That’s not to say that Operation CeCe and the work done to target illicit cigarettes over the past few years has not brought success. The statistics have been well publicised: over the course of Operation CeCe’s first year, investigators seized 13 million cigarettes and 4,300 kilos of hand-rolling tobacco worth more than £7m in street value. And HMRC is getting value for money, with £8.75 saved in detriment for every £1 spent on Operation CeCe.

The problem is size. Through the operation, HMRC has committed to providing £800,000 of funding each year until 2025, with an additional £200,000 committed for the first three months of this year. But the illegal cigarette trade costs UK coffers £2bn annually.

Even so, a number of success stories have emerged in which Trading Standards has made seizures of note all over the UK.

“Having that extra funding allows us to be more flexible with our resources,” says Nazir Ali, Principal Trading Standards Officer at London Borough of Barking & Dagenham. “We can do after-hours work and also apply for sniffer dogs (supplied by BWY canine and Wagtail). Having a dog out for a day costs from £700 upwards, and local authorities cannot afford to have a dog and handler on a regular basis. Having them for project work is really helping us make major breakthroughs in a number of
these areas.”

With buyers who are literally addicted to the product though, the motivation for illicit tobacco sellers is strong.

“Clearly the huge amounts of illegal cigarettes and tobacco we see are directly linked to profitability,” says Wright. “It is not uncommon for retailers to be taking more than £1,000 a day. These are organised crime groups and the premises they trade from are set up with the purpose of selling illegal cigarettes.”

An NTS spokesperson said: “Combatting the illegal tobacco trade has always relied on strong partnership working across multiple agencies. Although historically this has been difficult to achieve in practice, Operation CeCe was developed partly in response to these challenges. It has officially brought together the significant expertise of HMRC and trading standards (via National Trading Standards), with the single objective of significantly reducing the availability of illegal tobacco by cutting off supplies at each level, from local retail right to the top of the criminal chain.

“This collaborative approach is already proving highly successful, with 15 million illegal cigarettes and nearly 5000kg of hand-rolling tobacco – with a revenue value of £7.8m – removed from local communities in a 12-month period.

“The intelligence generated from these local seizures made by trading standards is helping HMRC build a better picture of the structure and function of the criminal gangs that operate at the top of the chain. Trading standards is also benefitting from an improving flow of intelligence from HMRC, with direct support now available from the TOICC (Tobacco Intelligence Coordination Centre). Without the funding provided by HMRC, the coordinated approach taken by trading standards through Operation CeCe would not be possible.

“HM Treasury has provided this funding specifically for local disruption activity. NTS would like to be able to secure additional funds and to be able to support higher-level, regional and national investigations relating to illicit tobacco. HMRC is aware of our ambitions to provide greater support and we hope that by achieving good outcomes and effectively delivering the current work, we will be in a strong position to continue discussions about future enhanced levels of work.”

 Intricate webs

All different types of illegal product are defined by the legislation they contravene. Some products are strictly counterfeit, in that they are produced and packaged illegally. According to Wright, research into these types of cigarettes has found them to contain “markedly higher levels of heavy metals” as well as rat droppings. Another major category of illicit cigarettes is those that are intended to be sold abroad but end up being distributed in the UK, where it is not legal to sell them because their labels omit some details and duty is not charged. A third type are those that fail ignition propensity testing, with fire service and county coroner investigations concluding that they are a serious cause of injury and death.

A structural problem for police, Trading Standards, and others attempting to combat the illicit cigarette trade is the supply chain. According to some, the best place to intervene is at the point of importation or manufacturing. It is after these initial stages of the distribution network that large quantities get broken down into increasingly smaller units until they hit the retail level. HMRC is responsible for movement at the earlier stages, with police and Trading Standards taking responsibility as the distribution chain splits off.

“There is an unofficial breakdown of responsibilities, where Trading Standards is supposed to look at illegal cigarettes at retail level,” says Wright. “HMRC looks slightly above that, at manufacturing and that sort of thing. Clearly at retail level is the worst time to intervene; what was one consignment could be broken down and spread across hundreds of retailers.”

The limitations inherent in that framework suggest that a better way to ensure Operation CeCe enjoys further success is by promoting greater communication between the different entities involved. HMRC’s Track and Trace – in which all businesses engaged in the manufacture, importation or supply of tobacco products in the UK need to report their activities to the system – has reportedly proved successful. The information the Government receives through the system could be put to good use by those working at retail level.

For Trading Standards Officers, police are close and proactive allies in the fight against organised crime. HMRC could be circulating information garnered from its work at the top of the chain to better inform those at the retail level, making initiatives like Operation CeCe more effective.

“I do think we could get more assistance from HMRC as far as intelligence exchange is concerned,” says Wright. “They have unlimited access to our intelligence database, but it’s not a two-way street. Given that Trading Standards is supposed to take the lead at retail level I would expect any intelligence received by HMRC concerning retail to be routinely sent to the relevant department; this doesn’t appear to have ever happened despite agreements setting out that it should.”

Laying the groundwork

A central tenet of Operation CeCe is the test purchasing element, in which Trading Standards recruits shop from outlets where complaints have been made or intelligence suggests illicit cigarettes may be on sale. Sniffer dogs are then enlisted to follow up with the investigations. For Ali and his team, this process is where the operation has been most useful.

“If we do 10 visits per day in Barking and Dagenham, at least 50 percent of the premises we investigate supply illicit cigarettes,” he says. “It’s in particular types of shops,” he adds, “newly opened or reopened establishments, more often than not.”

However, others suggest that Operation CeCe is too focused on the seizure of goods without considering the need for in-depth follow-ups or prosecutions. In the short term, the operation allows for disruption in terms of removing illicit cigarettes from the marketplace but practically speaking many outlets are capable of trading again almost immediately afterwards.

“What I’ve found with illegal cigarettes is that the tenant (usually running the business) will be named on a tenancy agreement,” says Wright. “We may prosecute the tenant for selling illegal cigarettes, they will then assign that lease on to one of their friends, who then accepts responsibility for the business, so we’ll prosecute him. And then he’ll assign it on to somebody else… And so this goes on forever in some cases.”

Operation Aladdin provides greater longevity in terms of stamping out repeat offenders by holding landlords accountable for a portion of  the illegal activity. Wright is an advocate.

He gives the example of a case in which eight different people were prosecuted for the distribution of illegal cigarettes on the same premises over a 12-year period, with each new defendant being a first-time offender. Under Operation Aladdin and the Proceeds of Crime Act, the landlord assumes a conviction and can be charged for allowing the crime to occur. Wright has used this approach successfully with more than 30 problem premises in Lincolnshire.

“Most [landlords] have evicted tenants as soon as they found out. Some held out until they were interviewed to remove tenants. In all, roughly half have removed problem tenants and there has been no repeat offending from the same premises. Work is still ongoing with the remaining premises. Aladdin has been the most effective thing that we’ve done,” he says.

A step further

The illicit tobacco trade has not declined in parallel with the falling number of smokers in the UK over the past two decades. This suggests that education needs to be ramped up, as do enforcement actions and penalties for those found to be involved in the illicit tobacco supply chain.

Proposals have been in draft note format for around two years which would see fixed penalties for possession of illegal cigarettes enforced through county courts. Claims would be civil in nature, made against a business – or its owners – whose premises are found to be used for the sale of illegal tobacco products. A sliding scale of penalties from £500 to £10,000 would be applied based on an assessment of past offences and the amount of product that is seized. It is understood that the maximum penalty would be “commensurate” with the type of offences seen by Trading Standards officers on a regular basis.

Should the drafts move through the legislature it could be very good news for Trading Standards. Officers need not be involved in the resource- and cost-heavy process of criminal proceedings – rather they instigate the civil penalties. Better still, the fines are then given back directly to Trading Standards.

“If we were to get a £5,000 penalty that would pay for the enforcement work and the pursuit of the penalty as well. It could almost be like self-financing,” says Wright.

On paper, the suggestions are promising and could work well with Operations Aladdin and CeCe in place. But they aren’t flawless, as officers would need to go through the difficult process of identifying the head of a business responsible for illegal activity. Separately, they may have responsibility of pursuing payment of the fines even after cases have spent lengthy periods in court.

According to Wright there is talk of moving forward with implementation sometime in 2022.

Fighting networks with networks

Without doubt, Operation CeCe has brought a number of enforcement, investigation, and educational teams closer together in combating the illicit cigarette market. While the funding system has created a degree of openness between HMRC and other relevant bodies, greater communication channels could benefit the concerted effort. Information sharing and a better reporting process throughout the investigation and engagement supply chain would only boost the cause.

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