LEGCO PANEL ON SECURITY
Measures to Tackle Smuggling of Cigarettes into Hong Kong

This information note explains the problems of smuggling and illegal sale of cigarettes and the measures taken by the Customs and Excise Department and the Police Force to combat these illicit activities.

Smuggling and Illegal Trade of Cigarettes

2. Cigarette smuggling has become a lucrative trade because of the substantial price differential between Hong Kong and neighbouring areas ($30 per packet in Hong Kong as compared to $8-10 per packet in the Mainland, for example). The quantity of duty-paid cigarettes has dropped by 32% from 4,986.3million in 1992 to 3,367.9million in 1998, and cigarette smuggling is possibly a contributing factor.

3. Cigarettes are smuggled into Hong Kong mostly by sea and over land. These involve cigarettes previously exported to neighbouring cities under proper permits, which were subsequently re-routed back into the local market in Hong Kong or transhipped to the Mainland. Substantial quantities of cigarettes are smuggled by sea-borne containers under false declaration of general cargoes, with each container holding up to about 800 cases of 10,000 cigarettes each. Fishing vessels, river trade vessels and trading vessels between Hong Kong and Macau with secret compartments are often used to smuggle smaller quantities of cigarettes of up to 100 cases each. Over land, some cross-boundary goods vehicles are exploited for smuggling, carrying between 10 to 150 cases of cigarettes each time, concealed in false compartments or stashed away among bona fide cargoes, under false declaration as general cargoes. Small quantities of cigarettes are also smuggled into Hong Kong by itinerant passengers and residents returning from the Mainland.

4. Street level peddling of duty-not-paid cigarettes which operates in a mobile mode to avoid law enforcement actions is found in densely populated and crowded areas. The problem is relatively more serious in the districts of Wanchai, Yaumatei, Mongkok, Shamshuipo, Kwun Tong and Sheung Shui. Illicit sale activities usually take place during the rush hours in the morning and in the afternoon, and during lunch time. Some peddlers even advertise their illicit sale by distribution of leaflets in residential areas, soliciting orders which can be placed by phone.

Measures to Combat Smuggling and Illegal Trade of Cigarettes

5. The prevalence of cheap duty-not-paid cigarettes in Hong Kong not only erodes our duty revenue, but also causes health hazards to the community. To tackle the problems of smuggling and illegal sale of cigarettes, we have adopted a five-pronged strategy -

1. we have in place a framework of tough anti-smuggling legislation;

2. enforcement has been stepped up;

3. close liaison and cooperation are maintained with the customs regimes in other jurisdictions, including that in the Mainland;

4. rewards for informants are increased; and

5. cooperation with the tobacco industry is enhanced.

(a) Legislation

6. Smuggling of cigarettes constitutes criminal offences under a number of legislation. Indictable smuggling offences under the Import and Export Ordinance (Cap.60) attracts a maximum penalty of seven years imprisonment and a fine of $2 million. To import, possess or buy dutiable goods otherwise than in accordance with the provisions of the Dutiable Commodities Ordinance (Cap.109) constitutes a criminal offence. The Dutiable Commodities Ordinance was amended in 1995 to increase the maximum penalty from $100,000 to $1,000,000, coupled with a maximum imprisonment of up to two years, as a deterrent against the smuggling, illegal distribution and retail of dutiable commodities. The Organised and Serious Crimes Ordinance (Cap.455) which came into operation in 1995 further enables heavier penalties to be imposed on cigarettes smugglers and confiscation of their proceeds from smuggling.

(b) Enforcement

7. The Customs and Excise Department is the primary enforcement agency for suppression of smuggling activities in Hong Kong. Vigorous enforcement actions are taken at the land and sea boundary control points. Suspicious shipments are closely monitored and surveillance of notorious landing areas was mounted for detection of smuggled cigarettes. Vigilant operations targeted at distribution centres and street level peddling are launched regularly. The Department has also set up a dedicated Anti-Cigarette-Smuggling Task Force since 1994 to combat the smuggling of cigarettes, focusing on the investigation of syndicated smuggling and distribution of duty-not-paid cigarettes in large quantities. The Task Force has been very effective in curbing smuggling of cigarettes, accounting for three quarters of the cigarettes seized. The enforcement statistics in the last three years are at the Annex.

8. The Police which assumes an overall role in maintaining law and order also helps prevent and detect smuggling. The two enforcement agencies work closely at various levels, coordinate the exchange of intelligence and information, develop operational strategies and tactics, and undertake joint operations. The joint Anti-Smuggling Task Force (ASTF) established between the Customs and Excise Department and the Police since 1991 has successfully deterred smuggling by speedboats, which has also deterred smuggling of cigarettes by sea. At district level, the Police has also conducted enforcement actions against street peddlers. Referrals are made by the Police to the Customs and Excise Department for follow-up actions and prosecutions, where appropriate. Statistics on referrals by the Police are at the Annex. Police also supports Customs operations upon request, especially where involvement of triads and organised crimes are suspected.

(c ) Liaison and cooperation with other customs regimes

9. The Customs and Excise Department maintains liaison and cooperation with over 20 customs administrations and law enforcement agencies in other jurisdictions. Bilateral agreements on cooperation and mutual assistance have also been concluded with 10 other customs administrations and organisations. Information and intelligence on cigarette smuggling are shared and exchanged, which facilitates efficient and effective enforcement actions against cigarette smugglers. In particular, the Department has established an effective liaison channel with the Customs General Administration in the Mainland and the Guangdong Customs. The two sides closely cooperate by -

1. exchange of information and intelligence. Regular meetings are held to discuss strategies and actions on drug interdiction and anti-smuggling efforts.

2. parallel operations along the land boundary; and

3. joint efforts in monitoring movements of suspicious shipments.

In 1998, there were 3 seizures, totalling 21.38 million smuggled cigarettes, as a result of information and intelligence from the Mainland Customs.

(d) Rewards for Informants

10. The Customs and Excise Department operates a reward scheme which is funded by the tobacco industry, under which members of the public are rewarded for coming forward with information on cigarette smuggling. Statistics relating to the Scheme are also set out in the Annex.

(e) Cooperation with the Tobacco Industry

11. The Customs and Excise Department has also enhanced its liaison and cooperation with the tobacco industry for valuable exchange of information and intelligence on cigarette smuggling, based on which investigation and enforcement actions may be effectively undertaken.

Review

12. The Administration will shortly initiate a review of the current enforcement strategy against the smuggling and illegal sale of cigarettes, taking into account our fiscal and health policy objectives. The Hong Kong Council on Smoking and Health and the tobacco industry will be consulted before formulating our way forward.

Security Bureau/Finance Bureau
March 1999

Secpan1.doc

Annex

Statistics on smuggling and illegal trade of cigarettes

1)			Street peddling cases	Distribution/ storage cases	Smuggling at entry/exit level
No. of cases	:	(1996)	1,691	137	290
		(1997)	1,066	168	722
		(1998)	979	121	736
			_______	_______	_______
			3,736	426	1,748
No. of Arrests	:	(1996)	1,366	208	260
		(1997)	948	241	663
		(1998)	921	182	723
			_______	_______	_______
			3,235	631	1,646
Seizure	:	(1996)	20m	39m	315.6m
		(1997)	13m	43m	61.0m
		(1998)	16m	44m	39.5m
			_______	_______	_______
			49m	126m	416.1m
2)Referrals from Police			No. of cases	No. of arrests	Seizure
		(1996)	365	394	14.4m
		(1997)	283	300	5.2m
		(1998)	483	508	9.2m
			1,131	1,202	28.8m
3) Reward Scheme
No. of reports received	:	(1996)			123
		(1997)			80
		(1998)			43
					_____
					246
			No. of cases	No. of arrests	Seizure
Cases effected	:	(1996)	19	40	32.2m
		(1997)	14	20	24.6m
		(1998)	16	35	33.1m
			_______	_______	_______
			49	95	89.9m

* All seizures in million (m) sticks.

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