Part 1 * Part 2 * Part 3 * Part 4 * Part 5 * Part 6 (Notes)
The retail market for untaxed cigarettes in Germany is supplied
through four major channels:
1. the smuggling of Western made cigarettes legally purchased
in non-EU countries,
2. the smuggling of cigarettes legally manufactured and purchased
in non-EU, primarily Eastern European countries,
3. the diversion of cigarettes manufactured in Germany or other
Western countries officially designated for export to non-EU,
primarily Eastern European, countries, and
4. the illegal re-import of cigarettes manufactured in Germany
or other Western countries after having been legally exported
to non-EU countries.
While the first two supply routes are characteristic of the early
stages of the development, the latter seem to be the more important
ones today. (Slide: Supply Routes for the Illegal Cigarette Market)
In contrast to the sales end, the upper levels of the business,
the smuggling and wholesale distribution of untaxed cigarettes,
have not only become much more sophisticated over the years. They
also show clear signs of a concentration process. However, no
evidence as of yet points to the excercise of market power.
The first dealers of untaxed cigarettes in Germany, it seems,
were smugglers and vendors in one person, bringing into the country
only the amount of cigarettes they could sell themselves. But
very early on a specialization between smugglers, primarily from
Eastern Europe, on the one hand and vendors, mostly Vietnamese,
on the other could be observed(43). Along with this division of
labor the smuggling of cigarettes took on new proportions. While
individuals have continued to bring small amounts of cigarettes
across the border, reports on the confiscation of contraband cigarettes
indicate that soon the major supply for the German consumer market
came from shipments ranging from the size of a full car trunk,
about 50.000 cigarettes, to entire containers holding several
million cigarettes, being brought into the country in all imaginable
forms of disguise(44).
Parallel to the extended use of traditional smuggling methods
more elaborate schemes to put large quantities of untaxed cigarettes
on the black market have evolved. Dummy corporations are set up
to legally purchase tax-free cigarettes by the truck loads from
companies in Germany and other Western countries, even the U.S.,
supposedly to be exported to Eastern Europe. Before the cargo
reaches the border, however, it is unloaded and sold to illegal
wholesale dealers. The trucks are then either supplied with false
documents or customs officials are bribed to issue genuine documents
in order to keep the impression that the cigarettes have in fact
been transported out of the country. In one case discovered in
1992, Polish smugglers had paid two German customs agents 10.000
Marks each per truck for confirming the proper crossing of the
border(45). In recent years big time operators have turned to
exporting bulk shipments of legally purchased cigarettes to Eastern
Europe, only to smuggle them back into Germany later with false
customs declarations. Presumably this is a less risky alternative,
namely because the bribing of German customs officials is not
required while the danger of contraband being detected at the
border is rather limited(46).
The legal procurement of large quantities of untaxed cigarettes
is apparently linked to a concentration process on the upper levels
of the black market. While it is the cheapest and potentially
most profitable way to obtain untaxed cigarettes, it is open only
to a few rather sophisticated and well funded operators. A carton
of 200 cigarettes designated for the export to Eastern Europe
costs between 6 and 9 Deutsche Marks and can be resold to illegal
wholesale dealers for between 12 and 25 Marks(47). A truck load
of cigarettes, including the service of drivers, carriers, forgers
and various small time accomplices, according to one estimate,
costs about 500,000 Deutsche Marks and produces net profits of
close to 1.5 million Deutsche Marks(48).
In Berlin during the mid 1990s, according to information supplied
to journalists by a former high level insider of the business,
the wholesale market was divided up between three so-called cigarette
syndicates(49). One can surmise from the available data that this
oligopoly had come into being only because of the economies of
scale involved and not through efforts to actively restrict access
to the market. No indications exist of any violent competition
or, reversely, of any cartel agreements.
The concentration on the top level of the market has apparently
lead to a similar development on the wholesale level. Assumptions
to that effect are plausible because it seems unlikely that truckloads
of untaxed cigarettes would be sold directly to great numbers
of vendors. For practical reasons and to reduce the risk of detection,
top level operators will be inclined to deal with as few customers
as possible. In the case reported by the above mentioned former
high level insider, a smuggling ring of Polish, Lithuanian and
German membership operating in the Berlin area sold its merchandise
exclusively to one Vietnamese wholesale dealer who in turn passed
the cigarettes on to several intermediate distributors(50). Interestingly,
this dealer supposedly maintained excellent relations with the
Vietnamese embassy in Berlin. The embassy, the informant claims,
was used several times to complete cash payments. Embassy members
are also suspected to assist Vietnamese in money laundering operations(51).
In sum, the sale of untaxed cigarettes takes place in two geographically
and technically divided sub-markets, an open market primarily
confined to East Germany and a clandestine market gradually expanding
primarily in West Germany. The retail market as a whole is increasingly
supplied by large-scale smuggling operations who are capable of
procuring large quantities of untaxed cigarettes from legal sources.(Slide: Basic Model of a Distribution Network for Untaxed Cigarettes).
Organized Crime Research (kvl-homepage)
The Nicotine Racket. Trafficking in Untaxed Cigarettes: A Case Study of Organized Crime in Germany, by Klaus von Lampe
