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Toward a comprehensive policy to combat illicit trade in Latin America

Writer: StrategosBIP
StrategosBIP
Jul 8, 2022
5 min read

This year, Parlatino published two fundamental laws: one on asset forfeiture and another on illicit trade and transnational crime.


Written by General (Ret.) Juan Carlos Buitrago Arias | July 2022



This year, Parlatino published two fundamental laws: one on asset forfeiture and another on illicit trade and transnational crime. It has also approved other measures highly relevant to our circumstances, including the framework law on citizen security and the model law to prevent and combat violence, drug trafficking and terrorism. Ecuador has just adopted an anti-smuggling law based on Parlatino’s model. Other Latin American countries should follow this example, drawing on its valuable provisions on interagency coordination, transparency and integrity, administrative and criminal penalties, international cooperation and illicit e-commerce.


Colombia, for example, is overdue in updating Law 1762 of 2015, the Anti-Smuggling Law: almost perfect in design, but difficult to develop and implement. Perceptions of illicit trade, smuggling, counterfeiting and product adulteration have undoubtedly changed for the better. Yet urgent additional efforts and resources are needed to reintegrate and formalize the livelihoods of almost 60% of the country’s families who depend on informal activity and illegal trade. Colombia must also overcome its cumbersome tax and customs system by simplifying, accelerating and automating procedures, establishing the National Anti-Smuggling Centre, confronting corruption fearlessly and directly, and thoroughly modernizing outdated systems for facilitating and controlling trade at ports, airports and borders.

Economic fraud arising from smuggling, counterfeiting and illicit trade costs the world 3% of GDP, approximately US$500 billion annually. In Colombia alone, the cost reaches US$6 billion. Customs authorities, police and private companies make enormous efforts each year to combat it. In 2021, INTERPOL, Europol and Ameripol led two major operations against the global illicit markets in medicines and agro-industrial products, as well as electronic fraud. Despite the participation of more than 72 countries, Latin America and the Caribbean remain institutionally weak.


Aruba and Panama, for example, are major entry points for smuggled cigarettes and alcohol into the Caribbean and Latin America. Large shipments are secretly unloaded on the Atlantic coast. Those that escape seizure cross Colombia’s Pacific coast to supply the domestic illegal market on a smaller scale and, primarily, Ecuador’s market, where the figure reaches 79%.


According to an El Observador article published on April 27, 2022, approximately 3.6 trillion illegal cigarettes were traded in Central America and the Caribbean during 2020, representing 40% of the market and an estimated annual tax loss of US$250 million.


According to Nielsen’s 2021 Illegal Cigarette Market Study in Panama, cited by El Observador, a random, representative sample of 1,150 packs collected in the country’s main cities indicated that 87.9 out of every 100 cigarettes consumed in Panama were smuggled. This represents a dramatic, worrying increase over previous years. The same study found that 60.8% of cigarettes consumed on Panama’s streets were illegal in 2016, rising to 73.4% in 2018 and 79.9% in 2019—an increase of 7.9 percentage points over two years.


Guatemala’s situation is equally concerning. A market study conducted by Total Research Network in the last quarter of 2021 found that the volume of illegal cigarettes entering the country had increased to 428 million units. The estimated figure was 76.9 million in 2013 and almost 422 million units sold in 2020.

The study also noted that Korean-manufactured products accounted for more than 70% of illegal cigarette consumption in Guatemala—approximately 300 million illegal units—with the remaining roughly 120 million units of uncertain origin. It estimated that around 36 million cigarettes enter Guatemala illegally each month. (Total Research Network, 2021, cited by Periódico Digital Centroamérica y el Caribe, 2022)


In Costa Rica, meanwhile, 6.3 out of every 10 cigarettes consumed are smuggled and fail to comply with legally required pictograms and health warnings. This illicit trade also has a major fiscal impact. Annual tax losses are estimated at around 38 trillion colones in a country with a fiscal deficit of 8.1% of GDP. According to the Fiscal Control Police, a total of 13,712,842 cigarettes and cigars were seized in the first half of 2021. (El Observador, 2022)


As for seizures, just last week authorities in Guayaquil intercepted a container from Panama carrying almost 11 million cigarettes of Asian origin. In Colombia over the past year, the Navy, POLFA and DIAN, supported by U.S. ICE and private business, seized a record 600 million smuggled cigarettes. According to Nielsen, cited by E&N, more than 115 million illegal cigarettes were seized in Panama in 2021, with a market value exceeding US$17.2 million and an estimated loss of more than US$8.6 million in uncollected taxes.


These figures show that criminal networks continue to penetrate our economies. Cigarettes and alcohol undoubtedly harm health, but buying them on the illegal market is even more damaging. That market finances and is closely connected with organized crime involved in terrorism, kidnapping, extortion, homicide, human trafficking for multiple purposes, arms trafficking, wildlife trafficking, illegal mining and drug trafficking.


Consider controls on imports of potable alcohol. Regulation is limited, while the potential health damage caused by alcohol misuse is a major concern. E-commerce sales are also growing rapidly in an increasingly digital world. The absence of rules governing the sale and advertising of alcoholic beverages on e-commerce platforms and social media is a key issue. Encouraging platforms to regulate themselves is an essential first step.

Cooperation among authorities and the enforcement of penalties must become stronger and more efficient. Measures should target criminal organizations’ finances, follow the money and use effective tools such as asset forfeiture.


Finally, a comprehensive Latin American strategy to mitigate illicit trade must confront the corruption networks that criminal organizations have embedded in public and private institutions. Asset forfeiture should also apply to public officials convicted of corruption. Promoting a culture of legality is equally important. Colombia, for example, created the Legal Trade Zones program, involving all institutions engaged in combating illicit trade. It aims to formalize small traders traditionally involved in producing, distributing and selling counterfeit, adulterated or illegally sourced goods. The program is accompanied by an intensive campaign to nurture a culture of legality among children and adolescents whose families live in vulnerable areas, such as border communities, and depend on selling illegally sourced products. Combating illicit-trade networks through intelligence, judicial investigation, anti-money-laundering measures and asset forfeiture is essential. But prevention and formalization for at-risk families and sectors, helping them leave informal employment, are the master key to eradicating illicit trade in Latin America.




Sources consulted:




Article originally published in the digital magazine El Mundo Cambió, July 2022 edition.




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