One of the cornerstones of a functional economy is a supportive regulatory and policy environment that supports business growth, job creation and improves the living standards of the majority.

In a South African context, this also means protecting businesses from the growing threat and risk to economic order and the fiscus from the impact of illicit trade. 

Although the Consumer Goods Council of South Africa (CGCSA) has previously highlighted the destructive impact of illicit trade to businesses, job security and the health of consumers, the magnitude of the problem now requires an even more robust response and intervention from the government, working together with other stakeholders, among them business and law enforcement. 

The problem has become so pervasive that it is now estimated more than R100-billion is being lost annually to illicit trade in a wide range of products in South Africa.

Conservative estimates show that the South African Revenue Service (SARS) is losing more than R8-billion — and perhaps even as much as R19-billion — annually from illicit cigarette sales alone.

The South African Liquor Brandowners’ Association (Salba) was earlier this year quoted as saying the total share of illicit alcohol in 2020 was worth about R20.5-billion and comprised 22% of total alcohol volumes.

It is worrying that more than 50% of all tobacco products sold in South Africa are illicit, and the bulk of these products are cigarettes either manufactured locally or smuggled from neighbouring countries for sale in the informal market, mostly through black market traders, smugglers and drug dealers.

Street vendors and house shops are primary purchase sources of illicit cigarettes and alcohol. These illegal sources were further entrenched by the Covid-19 restrictions, in which the government imposed bans and restrictions on tobacco and alcohol sales, an ill-informed decision that merely gifted the illicit market and replaced traditional retail sources. 

 The CGCSA was at pains at the time to point out to the government that these bans and restrictions were irrational because people easily found ways to access alcohol and cigarettes that benefitted unregulated, illegal operators to the detriment of responsible, law abiding and tax-paying businesses. 

Given this background, it would be an understatement to say that we have reached a tipping point in the fight against illicit trade. At the core of this problem is what appears to be a well-organised criminal enterprise involved in illicit and counterfeit trade in not only tobacco and alcohol, but also pharmaceuticals, apparel and electronic products.

We have an entire parallel economy that has established itself in illicit and counterfeit products.

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Organised crime linked to illicit trade

Illicit trade is thriving because of its links to organised crime, which has become significantly more sophisticated over the years and is making it even more difficult for the already overstretched law enforcement agencies to be able to react to infringements and enforcement of the rules against illicit trade.  

The most commonly used methods by those involved in the illicit trade include: 

• Failing to declare locally produced products, some of which are being manufactured in approved factories or in illegal covert operations.
• Smuggling through illegal trading of goods across borders.
• Transit fraud (or round-tripping), where goods ostensibly destined for export pay less tax and are then rerouted back into South Africa and sold in the illicit market at a lower price.
• Producing goods for duty-free export, which means they pay lower tax, and then making it possible for these goods to illegally re-enter the local market.
• Organised criminals hijacking trucks with consignments and selling stolen products back into the illicit market at reduced prices.

The CGCSA is understandably concerned about the risks from and effect of the illicit and counterfeit trade because of its wide impact.

For industry, the risk relates to financial losses and damage to companies’ brand integrity through having counterfeit products available for sale. 

For the public, there are associated health risks from buying and consuming products that have not been tested and approved for sale, particularly food and medical products.

For the government, a reduced market for legitimate brand owners means reduced government income through excise and taxes.

Stepping up the war

There is a need for intensified collaborative efforts to deal with illicit and counterfeit trade.

It should be abundantly clear that what is needed is a multistakeholder and multidisciplinary approach if we are to win the war against the illicit and counterfeit trade.

This requires increased collaboration between the relevant government departments and agencies, law enforcement, business and communities.

Information sharing is particularly key as is the ongoing enforcement by the SAPS working together with agencies such as SARS.   

One of the biggest challenges remains the successful prosecution of offenders, and this can only be achieved if we have a strengthened National Prosecuting Authority (NPA) to ensure successful prosecutions and secure clear deterrent sentences.

The problem of the illicit trade is certainly large and serious enough to warrant a permanent investigative and prosecutorial agency. The CGCSA was pleased that President Cyril Ramaphosa announced, when he released the government’s response to the Zondo Commission, that the Investigating Directorate would now be a permanent anti-corruption agency in the NPA. 

We also need to intensify training of law enforcement officers because in some cases, officers intercept goods and products but don’t know what to look for, and end up releasing them back into the market.

Community awareness should also be intensified, while collaboration is needed with research and academic institutions to explore the full nature and depth of the problem.

This will help guide policymakers and law enforcement to devise appropriate and relevant strategies to deal with this seemingly intractable problem.

Toll-free hotline

The CGCSA, through our crime risk initiative and with the support of our members, launched a toll-free number (0800 014 856) in 2020 so that members of the public can anonymously report any suspected illicit manufacturing and trading activities.

The CGCSA has and continues to receive tips via the hotline which, after verification, are shared with the relevant law enforcement agencies for further investigation and action.

As a result, there have been successful raids by the SAPS together with SARS against businesses involved in illicit trade, particularly tobacco, alcohol and apparel. This shows that the CGCSA hotline is effective. 

In addition to sharing information received through the hotline, we are also training law enforcement personnel to be able to identify illicit and counterfeit products, and keep up to date with the relevant legislation.

We also organise regular awareness projects in communities in partnership with other role players, such as tavern owners and taxi associations, to educate the public on the dangers of buying counterfeit and illicit products

The CGCSA will accelerate its work with law enforcement and other stakeholders to ensure this illicit economy is brought under control, that the public is protected, and that the fiscus earns its full share of what is due. DM