PROJECT: THE ILLICIT CIGARETTE TRADE - BILLIONS LOST AND CRIME FUNDED
- Isabel Spies
- 3 days ago
- 4 min read
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South Africa’s illicit tobacco trade is not a minor smuggling issue; it is a sophisticated, multi-billion-rand shadow industry.
It drains vital public revenue, fuels organised crime, and exploits systemic weaknesses in law and enforcement.
The consequences reach every citizen: less funding for services, weakened institutions,
and a thriving underground economy that undermines national stability.
CORE CHALLENGES:
MASSIVE REVENUE LOSS:
Up to 70% of cigarettes sold in South Africa are illicit, costing the fiscus over R27 billion annually in lost tax revenue.
ORGANISED CRIME LINKS:
Proceeds fund high-level corruption, political party financing, and other serious criminal activities.
WEAK PENALTIES:
Consequences for illicit cigarette trafficking remain moderate compared to drug or arms smuggling, reducing deterrence.
PUBLIC ACCESSIBILITY:
Illicit cigarettes are sold in approximately 76.6% of stores, with some packs priced as low as R5, making them widely accessible and normalising illegal trade.
THE ECOSYSTEM: HOW THE TRADE WORKS
SUPPLY CHAIN MANIPULATION:
Illegal operators exploit gaps from manufacturing to retail, using fake exports, misdeclarations, and counterfeit products to avoid taxes.
GHOST EXPORTS:
A key tactic involving fraudulent export documentation to claim VAT refunds or evade excise duties, often with no real export occurring.
MULTI-AGENCY EVASION:
Smugglers bypass ports of entry, use informal distribution networks, and collaborate with corrupt officials to move large volumes undetected.
CONSUMER COMPLICITY:
Low prices drive demand, creating a stable market for illegal products despite public awareness of their harmful impact on the economy.
GOVERNMENT AND ENFORCEMENT RESPONSE:
SARS-LED STRATEGY:
The South African Revenue Service has adopted a multi-pronged approach:
Front-Line Interceptions:
Joint operations with other agencies at ports of entry.
Compliance Audits:
Tracking tobacco from raw materials to factory output to detect irregularities.
Specialised Investigations:
The Syndicated Tax and Customs Crimes Investigations unit focuses on smuggling, ghost exports, and misdeclaration schemes.
Prosecutions:
Between 2019–2024, 129 customs cases were submitted to the NPA, with 32 convictions secured.
High-profile cases, such as the sequestration of Roy Muleya (owing R155 million in excise duties), signal a tougher stance.
FATF GREYLIST IMPACT:
South Africa’s greylisting in February 2023 highlighted systemic failures in combating money laundering and terrorist financing—both linked to illicit trade.
Although delisted in October 2024 after reforms, the episode exposed how illicit tobacco fuels broader financial crimes and erodes international trust.
THE BIGGER PICTURE: ILLICIT TRADE AS A NATIONAL THREAT
The illicit cigarette trade is part of a larger underground economy that includes counterfeit goods, clothing, textiles, and media piracy.
According to the TRACIT report, illicit trade in tobacco and alcohol alone costs South Africa R30 billion annually.
This undermines:
Economic stability.
Legitimate businesses.
Governance and rule of law.
Public safety and security.
RECOMMENDATIONS FOR ACTION:
STRENGTHEN LEGAL FRAMEWORKS:
Align penalties for tobacco trafficking with those for drug and weapon crimes to increase deterrence.
ENHANCE INTER-AGENCY COOPERATION:
Improve data sharing and joint operations between SARS, SAPS, HAWKS, and the NPA.
BOOST PUBLIC AWARENESS:
Educate citizens on how illicit tobacco harms the economy and funds crime, reducing consumer demand.
SECURE THE SUPPLY CHAIN:
Implement track-and-trace technologies and stricter monitoring of licensed manufacturers and exporters.
SUPPORT WHISTLEBLOWERS:
Protect and incentivise reporting within the industry and supply chains.
MAINTAIN FATF REFORMS:
Continue strengthening anti-money laundering and counter-terrorist financing systems to prevent re-greylisting.
End the Demand.
Disrupt the Supply.
Defund the Crime.
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