Berlin, 25th November 2022 – The event exposed illicit trade for what it is - an insidious detriment to society. This gets even worse in an economic downturn, and that's why Economist Impact, supported by Philip Morris International, have got together to highlight the real risks the European Union faces in tackling the illicit trade crisis. The salon took place yesterday at Hotel Palace Berlin and convened an intimate multi-stakeholder group of policymakers and industry leaders to explore the financial and economic impacts of illicit trade and the role of governments, businesses, and law enforcement to better collaborate and tackle the challenge of illicit trade at a time of economic crises.
Moderated by John Ferguson, practice lead, new globalisation at Economist Impact, the event experts included:
- Dr Tim H. Stuchtey, executive director, Brandenburg Institute for Society and Security (BIGS)
- Till Mansmann MP, member of the German Bundestag; innovation commissioner for green hydrogen, German Federal Ministry of Education and Research
- Stefano Betti, deputy director-general, Transnational Alliance to Combat Illicit Trade (TRACIT)
- Roderick Parkes, research director, German Council on Foreign Relations (DGAP)
- Rishaad Hajee, head of regulatory market activation, global communications, Philip Morris International
The event was also an opportunity for Economist Impact to present early findings of its research on the impact of the economic crisis on illicit trade and its consequences to consumers, businesses, governments and society as a whole. Early key findings revealed:
- Businesses and governments still remain largely unprepared to tackle illicit trade
- E-commerce has become crucial for illicit trade operations.
- Criminals are exceptionally quick in adapting to changing environments and the needs and preferences of consumers
- During economic downturns, individual budgets are squeezed and purchasing power decreases, leading to demand for cheaper goods, inadvertently increasing demand for illicit goods
- The availability of cheap smuggled goods creates unfair competition and can lead to increased unemployment. These effects can be amplified during economic downturns
- Licit firms incur consequential litigation and surveillance costs to combat illicit trade, which can represent an additional burden during times of economic downturn
- During an economic recession, the financial effects of illicit trade for businesses are amplified
- Industries or sectors in which illicit trade proliferates can have lower incentives to invest in research and development (R&D) reducing profits and market competitiveness
The full report will be available in December 2022.
Discussing the financial impacts of illicit trade, Dr Tim H. Stuchtey from BIGS commented ‘’The most obvious impact that arises from illicit trade is the impact on tax return, for governments in general. Most traders of illicit goods will not pay sales taxes, so clearly it will have a negative impact on the tax income of our governments. On top of that, demand will shift from the legal market to the illegal market, and again with no sales tax, there will be less money available for governments, for many things, including for fighting illicit trade.’’
Till Mansmann MP, member of the German Bundestag added: ‘’As a parliamentarian and member on the finance committee, the first thing I think of is the budget effect of lost money for the state, but also the task of protecting all companies selling legal goods from unfair competition. It is also important to keep in mind the steering effect of taxation. We don’t like steering effects but we need to bear in mind harm reduction’’.
On the policy front he mentioned: ‘’The new government is acting to strengthen the authorities against tax fraud, money laundering, and strengthening the financial intelligence unit. People need to see that the authorities are acting and strengthening the system, (however) German authorities (may not be approaching illicit trade in the right way) - we need to follow the money more’’.
During the panel discussion Stefano Betti from TRACIT mentioned: ‘’one practical measure that governments can take is partnering with civil society organisations and the private sector to reduce the attractiveness of this criminal money offered by criminal groups for the entrepreneur’’.
Rishaad Hajee from Philip Morris International, pointed to another problem: "The illegal suppliers are not investing in research and development to come up with better options. Instead, they are flooding the market with illegal, old products that are often of inferior quality and harm consumers. When consumers buy these questionable products, it hinders continued research and development, as well as innovation and progress towards better products’’.
Roderick Parkes from DGAP commented that ‘’in the illicit finance field, we became aware that other states were weaponizing our vulnerabilities, in a way we lost sight of in illicit trade. Now geopolitically, when it comes to illicit trade, we are waking up to that, because of the control of trade flows, sanctions, investment, and intellectual property rights, have suddenly become super important.”
So who benefits from recession? Criminals benefit. Illicit trade may be seen by some as a victimless crime, but it has real-world impacts and disadvantages consumers, businesses, and even governments. More work is needed to tackle this inconspicuous crime.
To access the event on-demand, please click here.
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