Economist Webinar Discusses Shift in Illicit Trade in Europe

In December last year, Economist Impact, part of the Economist Group, convened a roundtable titled ‘Continental shift: tackling illicit trade in Europe’ to discuss the fundamental changes illicit trade has undergone in Europe and to provide insights into how governments, service providers and industry need to address the issue.

The panel was moderated by Chris Clague, Senior Manager at Economist Impact, and included Alvise Giustiniani, Vice-President, Illicit Trade Prevention, Philip Morris International; Laurent Giezendanner, Head of Legal Operations and Corporate Security, Syngenta Group; Arndt Sinn, Professor of Criminal Law at the University of Osnabrück; and Stefano Betti, Deputy Director-General, Transnational Alliance to Combat Illicit Trade (TRACIT).

The event was supported by Philip Morris International.

The panel addressed several emerging illicit trade trends. As discussed in previous Tax Stamp & Traceability News™ articles, the pandemic has shifted illicit trade patterns – due to e-commerce and accelerated digitalization of direct-to-consumer business – with even more illicit trade now moving online.

As was seen in the 2021 KPMG report, ‘Illicit cigarette consumption in the EU, UK, Norway and Switzerland’, illicit trade constantly shifts and adapts, as it did in response to border closures and increased border enforcements during the pandemic, which drove illicit trade production from the outside to the inside of Europe.

Forced labor

The roundtable coincided with a newly released report by TRACIT: ‘The Human Cost of Illicit Trade: Exposing demand for forced labor in the dark corners of the economy’, which examines the impact of illicit trade on forced labor.

The nexus of forced labor and illicit trade, until this report, had not been fully examined and it shines an important light on a dark ‘side-effect’ of illicit trade. Forced labor is an issue globally and within Europe, and TRACIT, through its report, is calling for increased government attention and data collection on this issue.

New illicit product categories

Laurent Giezendanner of Syngenta discussed how criminals keep expanding illicit trade beyond the ‘traditional’ illicit trade categories of luxury goods or pharmaceuticals, into new categories.

These include Syngenta’s business of agricultural products, such as seeds. He stressed the importance of collaboration and training of law enforcement through private-public partnerships.

Syngenta employs a ‘detect, respond and deter’ strategy to combat existing and emerging illicit trade issues. This strategy is designed to help detect and identify illicit product and work with law enforcement to respond to infringements.

Lost taxes and increased consumer exposure

The panel stressed the impact illicit trade has had on economies and tax collection.

According to the latest KPMG report, $8.5 billion is lost in taxes to illicit trade in Europe annually.

In addition, illicit trade undermines legitimate trade, including the impact of lost jobs, and exposes consumers to sub-standard products unknowingly. The overall increase of e-commerce, social media platforms and online marketplaces during the pandemic has dramatically increased the overall exposure of consumers to illicit trade and counterfeit.

Not a policy priority

The increased impact of e-commerce on illicit markets has elevated the importance of consumer education and highlights the need for governments to focus on counterfeit and illicit trade enforcement as a policy priority.

The panel accurately discussed that although the illicit trade in counterfeit goods is worth hundreds of billions annually, it is often not a policy priority for governments and, as a result, also not a priority for law enforcement. Illicit trade enforcement is often only prioritized by governments if it is linked to serious organized crime, such as that highlighted in Europol’s Serious and Organised Crime Threat Assessment (SOCTA) report.

The panel discussed how buying or selling counterfeit goods is often seen as a ‘petty’ crime in many countries, rather than as a support and financing mechanism for serious organized crime. All panelists called for increased consumer education, yet were worried about the lack of effectiveness of existing campaigns.

The panel focused on the importance of targeted messaging to affected consumers. In addition, it highlighted the importance and effectiveness of education coming from law enforcement rather than industry participants.

Most importantly, the panel called on governments to classify counterfeit crimes as serious crimes, rather than petty crimes, and to prioritize enforcement accordingly.

E-commerce regulations lagging behind

Although the presence of illicit goods on social media, e-commerce and online marketplaces has increased accordingly, the regulation of these platforms globally is lagging behind.

The EU and USA are starting to work on legislation and regulation to increase platform accountability and liability, but limited progress has been made. The panel stressed that platforms need to do a better job of enforcing against illicit trade, and that legal ramifications will be needed to fully motivate platforms to act.

Germany has been setting a new standard on this by enacting a new ‘platform responsibility’ criminal law in the summer of 2021. It establishes contributory liabilities for platforms that do not act or that turn a blind eye to illicit goods on their platforms.

The law is intended to aid investigations and motivate platforms to more fully cooperate.

Trade-based money laundering

The panel also discussed the issue of money laundering, as well as the new development of trade-based money laundering where illicit gains are laundered through the transaction of goods with falsified invoices.

The panel mentioned that privacy concerns and limitations sometimes restrict the ability or willingness of financial institutions to share information.

Impact of technologies

The final topic of the panel turned towards the impact of technologies on illicit trade.

Technologies are a double-sided sword – criminals use them to disguise their operations, encrypt communications and hide financial transactions.

On the other hand, law enforcement can gain an advantage over criminal organizations if they utilize technology proactively and deliberately.

This was shown in the Operation Trojan Shield ¹, where the FBI, in cooperation with Australian law enforcement, deployed a Trojan horse into a custom-built encrypted communication platform, which was used by a large-scale narcotics smuggling ring.

The operation resulted in hundreds of arrests. Similarly, law enforcement in the United States was able to recover most of Colonial Pipeline Co’s ransom money, which was paid in cryptocurrency, since cryptocurrency is inherently traceable.

The panel also discussed the use of artificial intelligence (AI) to help to identify patterns, illicit trade routes, money laundering patterns and sift through huge amounts of data. Examples would be to connect cell phone numbers or email addresses across platforms and investigative data.

The increase of e-commerce, the digital economy and social media has created vast amounts of data and AI can be used to harvest and comb through this data and connect the dots for better investigations and enforcement. Illicit trade enforcement is quickly turning into a big data challenge and AI can help detect and identify the ‘digital fingerprints’ of criminal networks. This is especially true for money laundering investigations.

In addition, technologies such as track and trace, as well as Know Your Customer reporting, was discussed as the foundation for robust investigation and enforcement campaigns. These more traditional tools can provide important data to aid law enforcement, but the panel also agreed that such data is only useful if it can be analyzed, investigated and prosecuted.

In other words, data or technology will only be as effective as the law enforcement, and correlated funding, deployed to work with it.