Blog Type, IPT Blog, Industry Sector, Culture & Creative, Digital, Ethics & Sustainability, Manufacturing | December 2015

Illicit Trade and the Effect on the UK Economy

The trade of illicit goods puts a significant burden on the UK economy. Illicit trade in the UK amounts to around £90m each year. All parts of the retail sector suffer with consumers often unaware of the dangers of fake toys, clothing, cosmetics, tobacco and medicines. Additionally, businesses lose trade to “black market” goods, and manufacturers suffer reputational damage through illicitly branded products.

Meanwhile, public agencies are fighting to ensure standards are maintained across the retail sector as well as tackling the sale of counterfeit goods. Recognising the rising problem of illicit trading, the 2015 Budget increased funding to combat the problem.

The Cost

It has been estimated by HMRC that the financial cost of illicit goods is £40 million a week in lost money to the treasury. In many instances the goods people are buying are sub-standard, so the illicit market is far more than a financial cost to many people. Drugs that are not properly mixed giving an inconsistent dose so fail to treat the problem, make-up with floor sweepings containing all sorts of things and hi-visibility jackets that don’t offer any additional illumination have all been found during seizes of counterfeit goods. Some reports have counterfeit cigarettes as 400 times more dangerous than a genuine cigarette. The social effects of these products are just as alarming as the financial ones. The scale of the problem is huge not just in terms of the number of counterfeit goods but the range of products that are being counterfeited and the problem is getting worse. Roughly 10% of cigarettes consumed worldwide are counterfeit. The illicit trade of cigarettes currently has the 4th biggest market share, and their market share is increasing. Many of the costs of illicit goods are hidden costs. The retailer loses profit but their brand also loses integrity. For the illicit trade to function there needs to be some sort of corruption in the supply chain.

Some illicit goods in themselves are not dangerous to people’s health. Passports are a prime example of this, as such ID experts have dubbed them “gold dust” to criminals. The secondary crimes with the counterfeit passport are the problem; they are being used to open bank accounts in other countries to have their business base moved, launder money and illegally get credit or a mortgage. Counterfeit passports are used in people trafficking and the end destination can be far worse than the passport used to get there.

Taking Counterfeit Goods off the Market

The Police Intellectual Property Crime Unit (PIPCU) is a unit that is outside the core police funding, and has its funding secure until 2017 to help take these dangerous good out of the public domain. The work of PIPCU is focused on both hard goods and online streaming of books and goods. The unit is also trying to have a more global focus. At the moment they find it very easy to take down UK websites, but the website owners find it just as easy to re-upload them with a few tweaks. As a result of this PIPCU are looking to follow a model Canada has been using for 6 years. Canada have been working in collaboration with major credit card companies to take down the bank accounts of the website owners, this will make it harder for them to continue their illegal trades. PIPCU and Canada are hoping to spread this model to the G7 and then the G20 to have a globally corroborated approach.

The efforts to remove counterfeit goods are not solely done by the Police and Trading standards. Imperial Tobacco has an Anti-illicit trade team. This team works in two ways, removing counterfeit goods but making their products harder to copy. Some contraband products are genuinely made by Imperial, but exported to Europe. The average price of a premium brand of 20 cigarettes in Russia is £1.15, the equivalent in Britain would set you back around £9.16. Buying goods abroad and bringing them home is not illegal, but this system is being exploited. The profit from a container’s worth of cigarettes has been estimated at £1,100,000. The big four tobacco makers in Britain are now adding a serial number to each packet that can be traced to a box, to a crate and to a container. If these numbers are scanning frequently and outside typical trading routes it can be suggested that the products are being moved on the black market and the cigarettes can be seized.

Solving the Unsolvable?

A major issue faced with illicit goods can be the public. People are always pleased when they return from their holiday with a really cheap designer item, obviously a fake to the person buying it but it looks very realistic. Luxury handbag designers, for example, had to close a factory in China as staff were staying late to use genuine products and techniques to make ”fakes”. While people are happy to buy cheap designer fakes, the trade will continue. The British passport has become so hard to counterfeit, people are now trying to corrupt the staff rather than create fake passports. A further issue with counterfeit goods is the potential for cigarettes to have plain packaging. Australia currently has plain packaging laws and estimates suggest that as a direct result of this there has been a 14% increase in the illicit trade. Recently the EU has revised the Tobacco Products Directive, reducing the option to have smaller packs, for many EU members this doesn’t really affect them, however Britain have a lot of smaller packs that will be removed from the shelves, some people may not want 20 packs, or are on a tight budget so can only afford to get their cigarettes from the “black market.”

The discussion concluded, suggesting the only way to solve the trade of counterfeit goods is to make it uneconomical to counterfeit. The current line of PIPCU is to disrupt rather than convict. This is a new approach to policing with the aim to stop the business being passed on or managed from jail, but to stop the business from being able to operate.

Written by Catherine Hunter.