Policing the illicit trade of tobacco in Australia

Published date07 January 2019
Pages146-161
DOIhttps://doi.org/10.1108/JFC-12-2017-0121
Date07 January 2019
AuthorMichael King
Subject MatterAccounting & Finance,Financial risk/company failure,Financial crime
Policing the illicit trade of tobacco
in Australia
Michael King
School of Justice, Queensland University of Technology, Brisbane, Australia
Abstract
Purpose The purpose of this study is to identify factors that have led to the rebirthing of the illicit
cultivation of tobacco in Australia known as chop-chop. Limited research has been conducted on the
Commonwealth policingof tobacco-related criminal activity, but no prior studies have investigateddomestic
cultivationsince the tobacco farming ceased legal production.
Design/methodology/approach To ll the void of the literature, this study used datacollected from
Australian Government publications, court cases and newspapers to develop an understanding of the
nancial aspectsand policing of the rebirth of chop-chop. Newspaper articles for a rangeof publications for a
two-year periodwere used to examine policing efforts to disrupt criminalsengaged in domestic cultivation of
tobacco.
Findings As tobacco was rst legally grown in Australia, authorities have alwaysfaced the problems
associated with the illicitcultivation of tobacco. Findings indicate that as a result of the increased numberof
successful interception of illicit tobacco at the border, the domestic cultivation of chop-chop is growing as
criminalenterprises nd alternative means to fund their activities.
Originality/value The paper improves upon a neglected topic by offering a current contribution to a
topic lookingat the illicit tobacco, chop-chop trade.
Keywords Australia, Tax crime, Organized crime, Tobacco smuggling
Paper type Research paper
Introduction
Much of the internationalresearch into the illicit tobacco trade has focused on the smuggling
of tobacco between jurisdictions and policing of this nancial crime (Allen, 2012;Beare,
2002;Daudelin, Soiffer and Willows,2013;Joossens and Raw, 2012), as well as the negative
health implications of smoking illicit tobacco (Aitken et al.,2009;Joossens et al., 2010). In
Australia, the research into tobacco has been limited to the associated health risks of
smoking (Borland and Hill, 1997;Borland et al.,1999;Chapman and Carter, 2003;Chapman
and Dominello, 2001) and government policy (including plain packaging) and social
implications of tobacco and smoking (Chapman and Wakeeld, 2001;Scollo et al.,2003).
There is a dearth of research into the policingof the illicit domestic tobacco trade (Fry et al.,
2008;Geis, 2004;Scollo et al.,2015). Nearly a decade ago, Fry et al. (2008) decried the small
body of Australian literature on illicit tobacco. The most recent study of the illicit trade
focused on the smuggling of tobacco into Australia (Lauchs and Keane, 2017). However,
Lauchs and Keanes research provides only limited coverage of the domestic cultivation of
tobacco and its historical origins.Acknowledging this and other historical contexts is lost in
Lauchs and Keanes paper. Such factors are necessary for us to fully understand the nature
of the domestic illicit tobacco tradein Australia, commonly referredto as chop-chop, as well
as the role of the Commonwealth in policingthis illicit trade. This is not to say that Lauchs
and Keanes paper should fall on deaf ears, just that it needs to have a historical basis to
enhance our understanding of the present issues to better understand this signicant
domestic nancialcrime.
JFC
26,1
146
Journalof Financial Crime
Vol.26 No. 1, 2019
pp. 146-161
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-12-2017-0121
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
This paper examines a neglected area of nancial crime, the rebirth of the Australian
cultivated domestic chop-chop tobacco trade. This rebirth as evidenced in media reporting
of individual cases is due in part to the high cost of smoking tobacco in Australia and the
successful measures of borderinterdiction of illicit tobacco and the perception that the illicit
market is a relativelylow risk, but highly protable for criminal enterprise.
Background
Since the settlement of the Australian colony, there has always been domestic tobacco
cultivation.
Governor Macquarie introduceda tariff on the cultivation of domestic tobacco leaf in the
New South Wales (NSW) colony in 1818 (Lloyd,2016). By the 1820s, tobacco was cultivated
across NSW, and this extended through the 1850s to Victoria and Queensland. Both states
would introduce their own duty acts but the tariff on tobacco largely mirrored the rate
applied in NSW.
Excise became a sole Commonwealth responsibility in 1901 with the introduction of the
Excise Act 1901, and with it, commenced tobacco regulation by the Commonwealth. From
the sale of the seeds, the cultivation, to the distribution of the nished product, the small
Australian tobacco industry was highly regulated by the Commonwealth. In 1936 the
Commonwealth introduced the LocalLeaf Content Scheme, to encourage the manufacturers
to use a minimum percentage of locallygrown leaf. The scheme was designed to support the
small locally cultivated tobaccofarming operations. The scheme entitled the manufacturers
to a tariff concession on the balance ofimported leaf they used as the local farms could not
cultivate sufcienttobacco leaf to meet production demands.
In addition to Commonwealth regulation, the Australian state governmentsalso
regulated and taxed tobacco, throughwholesaler and retail licensing fees between 1972 and
1998. These fees differed between the state governments in denitions and treatment of
tobacco stock. These licensing fees were abolished in 1998 due to the 1996 High Court
decision in Ngo Ngo Ha and Anor v. State of New South Wales and Ors which found thatthe
fee was in fact an excise and was unconstitutional.
On January 1, 1995, the Commonwealth began to deregulate tobacco production in
Australia. The objective was to reduce the protective tariff on imported tobacco leaf
products to zero. This reduced the incentive for manufacturers to purchase Australian
tobacco, and had the effect that many growers moved out of the tobacco industry. Despite
deregulation, the tobacco market remained one of the most tightly regulated in the world
(KPMG, 2016). The Australian Taxation Ofce (ATO) Assistant Commissioner Excise,
Margot Rushton observed at the International Conference of Illicit Tobacco Trade that, it
was fascinating to nd out that we are the only developed country with a licensingregime
(Global Crime, 2002,p.1).
In recent times, there have been some signicant events that have inuenced the
growing, manufacturing and retailing of tobacco in Australia. Including the cessation of
domestic production of tobacco in 2006 (Figure 1). Now licensed tobacco companies no
longer grow or manufacture tobacco in Australia. Therefore all legal tobacco products sold
domestically are now imported.
Revenue from Commonwealth excise and custom duty on tobacco was highest in real
and per capita terms in the mid-1970s.This was when smoking prevalence in Australia was
at its highest. Since then, tobacco consumption in Australia has steadily declined. It is
estimated that the daily number of smokers has now halved over the past two decades
(ABC, 2016a). This decline is likely to be a result of sustained government tobacco control
strategies for example high tobacco taxes, advertising bans, mass media public education
Illicit trade of
tobacco
147

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