Illicit Trade and the nexus with organized crime

WCO Knowledge AcademyIndustry Perspective on Illicit Trade and How to Tackle It

Brussels

3 July 2014

Business Action to Stop Counterfeiting and PiracyINTERNATIONAL CHAMBER OF COMMERCE

ALEXANDRA ILIOPOULOUPolicy & Legal adviser

Overview1. The scale of illicit trade - Trends of illegal trading activities

2. Impact, harms and risk of illicit trade - Organized crime linkages - Consumer health and safety risks - Costs to legitimate businesses - Costs and loss of revenues to states and corruption

3. Drivers enabling illicit trade to thrive

4. How to tackle illicit trade - Recommendations and ICC/BASCAP’s work

The scale and trends of illicit trade: a serious global threat

• Estimates of the global retail value of illicit trade vary but have been recently estimated by Global Financial Integrity (GFI) at $650 billion for goods and at $2 trillion if illicit financial flows are included (2011-2012 report on illicit trade)

• WCO Illicit Trade Report 2013 findings: - drugs seizures considerably higher than in 2012; - excise goods seizures grew substantially; - both an increase of the reporting countries and cases on counterfeit goods was observed => in 2013 one of the striking features was that more than half of the reported interceptions were illicit pharmaceutical products, followed by counterfeit electronic appliances and illicit foodstuffs – all of which threaten consumer health and safety.

Impact, harms and dangers deriving from illicit trade

Organized crime linkages, money laundering and terrorist financing (I)• From illicit trade to organized crime networks. Specifically,

illicit trade in counterfeit/substandard products attract criminal networks due to high profits and low risks associated with modest penalties of IP crime.

• Criminal networks do not distinguish between different types of illicit goods; trafficking networks switch seamlessly from narcotics to counterfeits to weapons, depending on expectations for abundant and easy profits.

• Tobacco and alcohol smuggling is a prime example of lucrative illicit trade, which allows criminals to avoid high taxes, sell goods cheaply and reap huge profits.

Impact, harms and dangers deriving from illicit trade

Organized crime linkages, money laundering and terrorist financing (II)• Illicit trade inter-linkages with money laundering and

terrorist financing! • Illicit trade in counterfeit/substandard products serve a dual

function for the organized criminal groups: as a source of financing for other illegal activities, and as a tool to launder proceeds derived from various crimes.

• Furthermore, illicit trade in drugs, counterfeits and arms have been one of the major direct sources of funding of several terrorist groups.

Impact, harms and dangers deriving from illicit trade

Consumer health and safety risks• The Word Health Organization estimates that the counterfeit and

substandard medicines market constitutes a $431billion market across the globe and has witnessed a 300% growth since 2000.

• 700.000 people per year are killed by counterfeit malaria and tuberculosis medications (Global Financial Integrity)

• 64% of counterfeit electrical goods in legitimate stores.• Perfume, cosmetics and body care products, fake tobacco, alcohol

and food products. • Vehicle and other spare parts. • Military and airplane components – missile guidance systems,

aircraft, weapons, etc.

Impact, harms and dangers deriving from illicit trade

Costs to legitimate businesses• Illicit traders use the infrastructure of the legitimate economy to

conduct their business, which induces various costs and risks onto legitimate business.

• Organized crime groups thriving on illicit trade often exacerbate a weakened or corrupted state, thereby creating a hostile environment for legitimate business and discouraging investment.

Costs and loss of revenues to states and corruption• Loss taxes: illicit trade in cigarettes alone costs states an

estimated $50 billion per year (Global Financial Integrity).• Organized crime adopts all forms of corruption to infiltrate

political, economic and social levels to facilitate a lucrative illicit trade.

Drivers enabling illicit trade to flourish• Misuse and criminal exploitation of Free Trade Zones (FTZs)

and shipping intermediaries due to relaxed oversight, softened Customs controls and lack of transparency.

• Cross-fertilization of organized crime networks and distribution channels (e.g. the same supply chains used for counterfeits are also used for other types of illicit trade).

• The low risk, high reward dynamic – suggesting that strong penalties are needed.

• Loopholes or ambiguity in national legislations.

How to Tackle Illicit TradeAddressing problems in FTZs

• Strong legislation and regulatory measures should be applied within FTZs.

• ICC/BASCAP report on FTZs calls for several legislative measures to be put in place:• Give Customs authority over goods in transit and free zones.• Ensure close cooperation between national Customs

authorities and the special authorities of FTZs.• Give Customs ex-officio power to detain goods they suspect

of infringing intellectual property rights.• Provide for a simplified procedure for the destruction of

infringing goods.

How to Tackle Illicit TradeProceeds of Crime (POC) legislation

• Shift the balance between risk and reward. • Depriving criminals of their illicit profits can have a much

greater punitive effect than imprisonment.• ICC/BASCAP’s Proceeds of Crime (POC) report calls for the

confiscation of criminal assets to be reinvested into law enforcement programs to further prevent illicit trade and IP crime.

• POC report’s recommendations on: - Legal framework to effectively implement POC legislation - Institutional framework to effectively administer POC legislation - International cooperation mechanisms

How to Tackle Illicit TradeStrengthening International Cooperation

• The illicit trade and its nexus with organized criminal activities is often transnational in nature: the assets of criminal groups are increasingly invested in countries other than those whether the crimes take place.

• Crime operates without borders and requires international cooperation to facilitate mutual legal assistance in response to requests by foreign states.

Conclusion• A systemic approach is warranted not just because of the

varieties of illicit trade but, even more importantly, because of its:

- health and security risks; and - inter-linkages with organized crime, corruption, money laundering and terrorism.• A systemic approach to addressing illicit trade requires: - coordinated action at bi-lateral, multi-lateral and international levels and cooperation among law enforcement, Customs, the judiciary, and other stakeholders across borders, including the private sector.• ICC/BASCAP is actively engaged with WCO in tackling illicit

trade flows.

For more information please visit: www.iccwbo.org/bascap

Jeffrey Hardy William DobsonDirector Deputy Directorjeffrey.hardy@bascap.com william.dobson@bascap.com+1 239 267 4488 +1 513 878 2630

Tracy Faustin Alexandra IliopoulouProject Manager Policy & Legal AdviserTracy.faustin@iccwbo.org alexandra.iliopoulou@bascap.com +33 1 49 53 28 27 + 32 489 97 01 43

THANK YOU !