JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM debate -
Tuesday, 31 Jan 2012

Cigarette Smuggling: Discussion with Retailers Against Smuggling

Chairman

I welcome Mr. Benny Gilsenan and Mr. William Hanley, spokespersons, and Mr. Richard Brophy, co-ordinator, from Retailers Against Smuggling. Mr. Gilsenan will make some opening remarks which will be followed by a question and answer session. I advise them that, by virtue of section 17(2)(l ) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they do not criticise or make charges against a person, persons or an entity by name or in such a way as to make him, her or it identifiable.

I remind members of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him r her identifiable.

I understand Mr. Hanley will begin rather than Mr. Gilsenan.

Mr. William Hanley

I thank the joint committee for giving us the opportunity to speak to it. I shall give some brief background information on Retailers Against Smuggling, RAS. It was established in 2009 to fight the illegal cigarette trade in Ireland and has almost 3,000 retail members who are badly affected by the problem. It has 14 corporate sponsors, including companies and organisations such as CSNA, RGDATA, BWG, Applegreen, ITMAC and many more.

Cigarettes and impulse items account for approximately 30% of sales in an independent retailer's store. The problem for us is as that people are buying cigarettes on the street, they do not come to our stores. Therefore, we lose sales of cigarettes and impulse items. My colleague, Mr. Gilsenan, let two staff go just before Christmas as a result of the continuous drop in cigarette sales in his store, on which he can give members more details later. This experience has been repeated across the country. A survey carried out in October 2011 that showed at least 700 jobs had been lost last year as a result of the decline in cigarette sales. Unfortunately, the State must support the workers who lost their jobs, thus incurring a further cost to the State. We have no doubt that if the problem continues, there will be further job losses, a view echoed by RAS members. Some 74% of respondents to the survey believed they would have to let more staff go this year.

Industry figures show that the avoidance of duty on tobacco in 2010 cost the State €460 million and retailers, €575 million. Based on averages in the retail industry, this would result in the loss of 2,300 jobs. In other words, if we had had an opportunity to sell these cigarettes, we would have been able to employ 2,300 more staff. Today, no duty is paid on one of every four cigarettes smoked in Ireland. The figures I have quoted highlight the huge economic problems cigarette smuggling poses for retailers and the country. At a time when Ireland is repaying huge debts to private investors Retailers Against Smuggling believes it is worth noting that the loss of revenue arising from cigarette smuggling is almost as big but not widely reported in media and the problem will get worse owing to the recent VAT and duty hike announced in the budget. We understand the reasons the increases were made, but they do not help us. Last year Revenue and Europol highlighted that further increases would drive more people into the black market. A packet of 20 cigarettes costs over €9 in Ireland but is available on the street for around €3 or one third of the price. The Government had hoped to collect extra revenue, but this will not happen; if anything, it may lose revenue this year.

Mr. Benny Gilsenan

My colleague, Mr. William Hanley, has outlined the problem. There are flyers being distributed door to door in his area of Clondalkin advertising cigarettes for sale at a figure way below the recommended price. Our price mark on cigarettes is €9.10 but the people concerning are selling them for €3.20. Highly sophisticated criminals are involved, not ordinary run-of-the mill guys.

The volume of cigarettes being sold illegally throughout the country is phenomenal. As Mr. Hanley said, €420 million in excise duty and revenue is being lost to the State which is one third of the amount we paid to bondholders this week. To retailers who are working seven days a week to try to keep their doors open, this is a phenomenal amount and the problem will only get worse unless a minimum fine is introduced for the illegal sale of cigarettes which carries a maximum fine of €127,000. However, there is no minimum fine. We will see no curtailment in the sale of illegal cigarettes until a minimum fine is introduced. People may view this as a victimless crime, but it is far from that. The money generated by those involved in this illegal activity is funding major criminal organisations throughout the world. In a recent case a Ukrainian was brought before the court for this offence. This was the first person to be given a custodial sentence. We need to see many more of those engaged in the illegal cigarette trade caught and fined. That concludes my contribution.

I will answer questions from members.

Chairman

I thank Mr. Gilsenan.

Senator Thomas Byrne

I pay tribute to the members of the organisation, Retailers Against Smuggling, RAS. I know, having met them at previous committee meetings, they have been working hard on this issues for the past number of years. Some of my questions may be challenging and difficult to answer. Do members of RAS come across instances of retailers being involved in the sale of illicit cigarettes? Is this a significant problem?

Chairman, will I continue to go through my list of questions?

Chairman

If the Senator would prefer, he can have a few minutes for questions and answers?

Senator Thomas Byrne

Yes.

Mr. William Hanley

Yes, there are some rogue retailers, the same as in any industry. The important point is that the retail trade is regulated. We are licensed to sell cigarettes and regularly get calls checking to ensure our stock is legitimate stock. We could not condone fellow retailers selling illegal products. It is correct to prosecute them for doing so. There is no evidence to suggest it is a big problem.

Senator Thomas Byrne

Are the enforcement authorities out on the ground in the shops? Is the level of enforcement noticeable?

Mr. Benny Gilsenan

Yes, Customs and Excise officials call to my shop regularly and check my stock to ensure I do not have contraband cigarettes in the shop. The health inspectors will send in youngsters to try to buy cigarettes in the shop. We must comply with the law on the sale of cigarettes, as cigarettes must be behind closed doors and we are not allowed to sell them to minors.

Mr. William Hanley

If the Senator is referring to the illegal trade, there is no evidence of an active deterrent to those selling cigarettes on the street.

Senator Thomas Byrne

That is interesting. Is the sale of illegal cigarettes in street markets still as big a problem as it was?

Mr. Benny Gilsenan

Yes. In fact, it probably has grown more and more because now the traders use people from outside of the markets to carry the cigarettes to those selling them. They do not carry large quantities of cigarettes themselves, they will carry 200 or 400 cigarettes, so if a Garda Síochána or Customs and Excise official comes on the scene, that is all they will get. They will have somebody not too far away from them, who will bring them the cigarettes on a continuous basis.

Mr. William Hanley

There is an anomaly. If one is caught selling a non-duty paid product in a market, the fine is €63. This needs to be addressed.

Senator Thomas Byrne

The Irish Heart Foundation and the Irish Cancer Society have contacted us this morning requesting another meeting. I put that request to the Chairman before the committee went into public session. They make certain allegations that Retailers Against Smuggling is funded by the tobacco industry. Will the delegates comment briefly on that? They allege, and I have no information on this, except anecdotally, that the tobacco industry itself is involved in illicit imports and in the grey marketing of cigarettes to countries, in order to increase sales or to avoid excise duty?

Mr. William Hanley

We know nothing about that. We are retailers. In regard to funding, I get nothing. I have come before the joint committee at my own expense and everything I have done for Retailers Against Smuggling for the past three years has been funded from my own pocket and not from the funds of any organisation. We in RAS receive a paltry funding to run an office and have a part-time secretary who deals with our literature. We get funding from cigarette companies, wholesalers, ITMAC, Topaz, Apple Green and so on. We have 14 sponsors who contribute a small amount to us.

Senator Thomas Byrne

Is this funding used only to operate the office?

Mr. Benny Gilsenan

That is correct.

Mr. William Hanley

Yes, they all provide the same amount.

Senator Thomas Byrne

We have clarified that issue.

Mr. Benny Gilsenan

It is not massive funding by any manner or means.|

Mr. William Hanley

In regard to the two organisations the Senator mentioned, we also made a request to meet them last week and we are awaiting a response.

Deputy Olivia Mitchell

I thank the delegation from Retailers Against Smuggling for appearing before the committee. I accept their bona fides and I realise they are speaking for themselves entirely. I have a worry about the proposition that high taxes are causing smuggling, with the corollary that if one reduces taxes, one would get rid of smuggling. That smacks of a similar argument from another sector, the drinks industry, that if we increase the cost of drinking at home, we will reduce alcoholism. I worry about the vested interests behind these campaigns and the use of the Joint Committee on Finance, Public Expenditure and Reforms to make points that should be made somewhere else.

Having made that point, selling cigarettes is a completely legitimate activity and smoking is a legitimate activity no matter what one thinks about it. I am a very tolerant ex-smoker and I have no issues with it whatsoever. The retailers are entitled to make representations and more importantly they are entitled to regulation and enforcement of the law in regard to smuggling, but it seems to be a policing rather than a financial issue. I honestly do not believe we will reduce crime by reducing taxation. We will reduce crime by enforcing the law. Has the Garda Síochána complained about the level of the fine? Does the Garda feel this is the barrier to ending smuggling in cigarettes or is this what the retailers think? Is the Garda making representations on higher fines, because otherwise our hands are tied?

Mr. Benny Gilsenan

We would not know what the Garda Síochána is looking for. To return to the Deputy's initial assessment, we are not looking for a reduction in the price of cigarettes, we are looking for the law to do its job. The law is not doing its job. We have to comply with the law in our stores, where we cannot sell to a minor and cigarettes must be held behind closed doors, yet people on the street outside my premises can sell them openly to a member of the public. There is no law to deal with them and there is no control whatsoever on what they are selling.

Deputy Olivia Mitchell

I accept that point. Did Mr. Gilsenan say that because of the high excise duty on cigarettes, Ireland has been targeted for smuggling?

Mr. Benny Gilsenan

That is part of the reason that cigarettes have been brought in here. Criminals see an opportunity to make significant revenue for themselves because they can buy the cigarettes at a much lower price than retailers and then sell them at a third of the price that retailers can sell them at.

Deputy Olivia Mitchell

Has RAS had meetings with the Joint Committee on Justice, Defence and Equality and the Garda Síochána?

Mr. Benny Gilsenan

Yes, we appeared before the Joint Committee on Justice, Defence and Equality two years ago. We had the same problem then but it has grown on a daily basis. The problem has not been tackled. Customs and Excise and the Revenue Commissioners can tell you this is a growing problem.

Deputy Olivia Mitchell

Do the authorities put it down to the level of the fine?

Mr. William Hanley

I speak from personal experience. I brought the names and addresses of houses where illegal cigarettes were for sale to the Garda Síochána. When they looked at the details they told me that the individuals had been brought to court on three previous occasions and they were fined a paltry €150 each time and were back at it a couple of days later.

Deputy Olivia Mitchell

Do they put it down to the level of the fine?

Mr. William Hanley

These were obviously the gardaí on the ground and their comment was what was the point of all the paperwork and all the effort they made when this is what happens. The level of fines is too small and that is the feeling of gardaí.

Chairman

Deputy Mitchell asked RAS whether it believes this is principally a law enforcement issue or a taxation issue.

Mr. William Hanley

We appreciate the state the country is in. I am not a smoker and I do not condone the consumption of cigarettes. We are not asking for a reduction in taxation but we are asking that the sale of illegal cigarettes be policed and brought to a stop.

Deputy Olivia Mitchell

Why has RAS brought the issue to this committee?

Chairman

Deputy Mitchell is pressing Mr. Hanley on whether this is a Revenue issue. We deal with the Department of Finance and we have the power to make recommendations and so on. Is that what RAS wants us to do?

Mr. William Hanley

There is a Revenue issue because we estimate €460 million is being lost annually.

Deputy Olivia Mitchell

The lost revenue is due to poor policing-----

Mr. William Hanley

Of course.

Deputy Olivia Mitchell

-----if what Mr. Hanley says is true.

Mr. William Hanley

I agree. Ultimately, it is a policing issue.

Deputy Pearse Doherty

I welcome the members of RAS to the meeting. This is primarily a justice matter and I raised it when we dealt with the budget proposal to increase excise duties on cigarettes. The Government's argument was the increase in duty was related to health promotion and it was not a revenue raising exercise. I argued that if the Government wanted to promote health, the way to do so was to tackle smuggling to increase the money available to the authorities. If it is a revenue raising issue, then excise duties should be increased and the Government should be upfront and straight about it.

I have sympathy with some of the issues raised by Mr. Hanley. RAS seeks a minimum fine of €10,000. The maximum fine is €126,000 but I do not support this call because it takes away the discretion of the courts. If someone is selling a box of cigarettes to his neighbour or doing this as part of a multi-million euro enterprise, under the proposal a minimum fine could be imposed and, for example, someone's social welfare payments could be stopped. That would not be the best approach.

It is only fair that issues were raised about the funding of RAS by my colleague because it throws into dispute the validity of the group's argument. I do not suggest Mr. Hanley's arguments are invalid but he suggested that the VAT increase has pushed the price of a packet of cigarettes over €9 and has made them three times more costly, but he did not acknowledge that of the 27 EU member states, cigarette manufacturers make their greatest profit in Ireland. They make €1.80 profit on a box of 20 cigarettes whereas in Britain, for example, they make 60 cent in profit per box. While it is correct to reference the impact of the VAT increase, Mr. Hanley should have mentioned this as well.

I am at a loss as to whether the organisation supports the notion of freezing, increasing or reducing excise duty on cigarettes.

Mr. Benny Gilsenan

We are certainly not looking for a reduction in excise duty. Freezing excise duty is a matter for the State, not us. We can only sell cigarettes at the recommended price put in front of us. It is up to the State. We want smuggling of illegal cigarettes stopped. As we have pointed out from the start, the State has lost €420 million annually. That is not small money for the Exchequer to lose because criminality is increasing and thriving in this country.

Deputy Pearse Doherty

I welcome the fact that retailers have done a great deal to make sure minors are not sold cigarettes as well as observing legislation and regulations. I recall as a teenager nipping down to the shop from school. I was sold individual cigarettes and I was ripped off. A box of cigarettes cost 82p at the time and we bought individual cigarettes for 12p or 13p each. Not only was the retailer breaking the law, he was making a healthy profit, but I am glad that is not happening anymore.

The Revenue Commissioners stated that up to October 2010, 35 convictions had been secured for selling unstamped tobacco products and further prosecutions had been secured for cigarette smuggling with total fines of €98,000. This is why I have sympathy for RAS's position. The extent of the action taken in regard to cigarette smuggling and selling unstamped products and the fact that the fines levied did not exceed €170,000 shows there is a major problem. The Irish Cancer Society has a proposal to increase funding for anti-smuggling operations which it estimates would reduce the tobacco market by 5% and bring in €130 million. Has RAS proposals in this regard? It is fine to say that we need to stop this but has the organisation proposals to do something similar? If so, what would they cost?

Mr. William Hanley

First, we are asking for a minimum fine because there is none currently. We have a figure of €10,000 but, in reality, we have picked a figure somewhat out of the air and it is not for us to set a figure. There needs to be a minimum fine because there is no deterrent at the moment. That must be the starting point and what happens beyond that is for other Departments to deal with.

Chairman

The RAS will appreciate the committee does not deal with the issue of fines and the criminal justice system. We are interested in this, like everyone else, but it is not part of the committee's remit. This leads to the issue of mandatory sentencing. A minimum fine is a mandatory indication to a court that the fine cannot be below a threshold, which is controversial. We have enough controversy to deal with. RAS might consider raising the fines issue with the Joint Committee on Justice, Defence and Equality.

Deputy Doherty was wondering whether the group thought measures could be taken in the context of revenue raising. As he correctly said, there are two issues. One is ascribing the problem, which RAS does well, and the other is elaborating solutions. It is not up to the committee to report on solutions related to policing and the criminal justice system.

Mr. William Hanley

Another side to this is engagement with the Department of Health and educating the consumer to let them know the pitfalls such as the loss of jobs in their communities and the danger posed by the ingredients in illegal cigarettes. No one says a cigarette is good for a person but at least there are controls in place for the manufacture of legitimate cigarettes. Children aged as young as five or six are being sold cigarettes by illegal traders whereas we cannot sell them to anyone aged under 18. The public needs to be educated on all of this. That can be done with the assistance of the Department of Health.

At the moment, the tobacco industry is being brushed under the carpet to a certain extent. It is a hidden thing. We are not allowed to display cigarettes in our stores. They have to be kept under the counter. Various Departments and bodies check whether we are abiding by all the laws. Quite often, the only cigarettes that are visible to people at the point of purchase are those being sold on the streets. That side of things needs to be addressed. The various interested parties need to come together to eradicate this activity. Retailers Against Smuggling and the tobacco industry cannot do it on their own. Other interested parties, such as the Department of Health, need to get involved. Statistics show there has been a reduction in tobacco consumption since the price of cigarettes at retail level was increased. The sales in our shops have declined. That might seem like a result, until one bears in mind that sales of cigarettes on the black market have increased. Therefore, nothing is really being achieved.

Deputy Peter Mathews

I thank Mr. Hanley and Mr. Gilsenan for their timely presentation. They have described the scale of the moneys involved, which is of relevance to the area of finance with which this committee deals. Lost finance is important, as is the wider or holistic view. Health issues arise in this context. Children are among the victims of the black market in this regard. I agree that this relates to international crime.

We need to stand back from the whole thing. Cigarettes do not fall out of the sky. They are produced and distributed. If they come into Ireland, they are imported. Some €460 million in revenue is being lost to the State, which is many lorry loads, plane loads or ship loads of cigarettes. Fines are being imposed on people at the consumer end. Shipping and airline companies need to know what the hell is on their ships and aircraft. They should be responsible for ensuring that what is in the 80-foot or 40-foot containers they are transporting is what is stated on the invoices and loading documents. That is very important.

The witnesses have highlighted a social problem that should be brought to the attention of the Departments of Justice and Equality, Finance and Health. Some 700 jobs are at risk because retailers are not making the sales that would be made if it were not for the black market. Children are developing a habit that will be very hard to shake off. British American Tobacco and other companies add addictive additives to cigarettes that are legitimate. What they do around the world is very wrong. The public needs to be reminded of this not because it is worthwhile to preach, but because education is important.

We are only beginning to become aware that one in two smokers will die of heart-related disease. Like Deputy Olivia Mitchell, I was once a smoker. I gave them up and, thankfully, I have stayed off them. It is important for people to do that if they can at all, for their sake and for their family's sake. It gets easier three months after one has kicked the habit. I would like to strike that optimistic note.

The witnesses are doing great work by retailing in accordance with the law. They deserve our support for bringing the scale of this financial, human, health and criminal problem to our attention. As a committee, we should do everything we can to support their efforts in this area.

Deputy Kevin Humphreys

I will also comment rather than ask questions. This is probably the wrong committee at which to consider this matter. As a result of the presentation, I fully understand the problems associated with the loss of cigarette sales and the decrease in the number of customers coming in the door. We have to realise that one of the world's largest cigarette firms paid a fine of €1 billion to the EU in exchange for the dropping of a lawsuit on tobacco smuggling. The problem is very large. The larger companies have to be examined in this context.

I would not support the idea of a reduction in the cost of cigarettes. I would support further taxation measures. Policing is needed. The system of fines needs to be assessed. Additional X-ray machines should be installed at ports and airports to pick up on instances of smuggling. Efforts should be made to level the playing field through the imposition of fines and costs.

The figures quoted by Deputy Pearse Doherty came from a question I asked the Minister in October. He mentioned that just one of the 35 people who were convicted for selling these cigarettes was given a custodial sentence. I understand that just seven custodial sentences were imposed as a result of 77 prosecutions for actual smuggling.

The Minister of State, Deputy Hayes, has given a commitment to examine further measures to combat cigarette smuggling in the context of the forthcoming finance Bill. There is still time for that to be done. This committee should ask the Minister what he will propose in the finance Bill to prevent smuggling.

I thank the delegates for attending this meeting. I will convey their comments to my colleagues on the Joint Committee on Justice, Defence and Equality. Perhaps we can formally request an updated report from the Minister on the proposals he will introduce in the finance Bill.

Chairman

The delegates should note the signal given by Deputy Humphreys. The finance Bill will be considered by this committee in the next few weeks. If they want to raise issues with the Minister, there is a period in which that can be done. If they think this committee should be aware of any specific arguments in the context of the provisions of the finance Bill, they should let us know. As there are no other questions, I thank the delegates for their attendance at today's meeting. They have highlighted this issue very well. They will have gathered from members a sense that this is a law enforcement issue, which would make it principally a matter for the Joint Committee on Justice, Defence and Equality. That does not mean the problem should not be highlighted at this committee as well. I am making the point that this committee is perhaps more limited than the justice committee in what it can actually and realistically do in the law enforcement area. The delegates have highlighted the situation very well. I thank them again for attending.

The joint committee adjourned at 3.30 p.m. sine die.