Corruption-busting hero Van Loggerenberg: ‘Tobacco ban has criminalised cigarette smokers’

Johann van Loggerenberg is no stranger to the underhand tactics of the all-powerful tobacco industry. In this podcast, Tobacco Wars author Van Loggerenberg chats to BizNews founder Alec Hogg about the influx of foreign transnational organised crime syndicates and their newly formed liaisons and new modus operandi and channels that they're setting up during this time of lockdown. Van Loggerenberg estimates that by month three of the lockdown – around R6bn had gone into the unrecorded economy. While he believes that the government's intentions behind the alcohol and cigarette bans were ultimately good, smokers have been put in the same category as criminals. Van Loggerenberg says that no where in the world has a ban ever worked and that in these unprecedented times we need to be more creative. – Nadya Swart.Welcome to Johann van Loggerenberg, who is pretty well known in the BizNews community for the work that you've done in shining the light into places where those who are in there, don't necessarily want to see those lights shone. You've been involved in a global roundtable on illicit crime. How did you get the invitation to that? .I'm not quite sure. I suspect it was by chance because it's a roundtable of experts. It was certainly a privilege to be part of the process. Effectively, it consisted of a number of experts throughout the world from different continents that had a look at the illicit trade in Covid era. .___STEADY_PAYWALL___.What were their conclusions? This is important for us to understand, Johann, because here in South Africa – we sometimes are somewhat isolated. We think: why only us – particularly with what's going on with cigarettes and alcohol – and I'm sure you can apply your mind to that in a moment. What were the major conclusions that were derived? .It might be useful to just reflect on what the purpose was. The purpose was really to look at the different factors within organised crime worldwide under the Covid period. What were the key drivers and what ought to be done and they were looking towards coming up with recommendations in that respect. Common to all the different countries that have been looked at, which is effectively the entire world, was the conclusion that – different from what we heard from some of your other speakers now of the doom and gloom and negativity within the licit economy – there is certainly an increased number of illicit activities that have been experienced worldwide. It's expected to continue growing. .Some of the areas that have been highlighted which are of significant concern are things like human smuggling and trafficking, the medicine and pharmaceutical industry, alcohol (this is now the alcohol that you consume), tobacco, personal protection equipment, home care products, wildlife, narcotics and cybercrime. There were some examples, particularly around the rise in fake medical products related to Covid 19. .There were a number of 60 people that had been reported to have passed away as a result of consuming tainted alcohol, which is not something uncommon to the South African experience in what's known as poisoned liquor. There was a case study on how the mafia in Italy capitalised on the Covid pandemic, both to curry political favour and to take over businesses in distress. .The South African tobacco ban also featured and, ultimately, because of the volatility on the markets economically and the value of gold, that directly seems to have an impact on the illicit mining sector, particularly around gold and precious stone. In terms of conclusions, they came to a consensus that what would be required would be an integrated, multi-sector, multilateral approach, meaning it should be government, private sector and civil society that must operate collectively. .This is also the time to continue to empower and educate consumers to increase awareness and sense of responsibility, which is obviously more difficult under lockdown regulations. They also concluded that perhaps governments ought to consider revising measures that would balance public health needs on the one end and the unintended consequences of restrictive policies, not only in respect to the economy, per say, but in a general sense – the relationship between citizenry and government. .Lastly, there was an acknowledgement that we don't really know enough. We need a comprehensive analysis of what's going on in the world of organised crime. Perhaps there's an opportunity to improve international cooperation and leverage off international instruments that have not yet fully matured or been used properly in some of the parts of the world. .Great stuff. Bring it back to South Africa and when we last spoke, we were talking about the cigarette ban – which was bad enough – and the excise duties lost. In your former life I'm sure you have been tearing your hair out now given that SARS or the fiscus is not getting its due from cigarette sales. Yet, the feedback we get from cigarette smugglers (or maybe they're ex-cigarette smugglers) is that the prices have gone up 600% to 700%. You can still get your smokes, you can still buy them – but there's only one group that is profiting and that's the smugglers and the illicit sector. .Yes, I agree with that. I've been on record on a number of platforms on this. My estimation was that by month three – around R6bn had gone into the unrecorded economy and, as you know, that's notoriously difficult to claw back and go and find. Some of it has left our shores, that's going to be even more difficult to go and find. The South African tobacco ban featured at this round table discussion, because people can still access cigarettes. South Africa is the only country in the world that's banned the sale of tobacco and we have around 7.5 million adult smokers. .You immediately cut off a supply like that and what's going to happen with the demand? The criminals and opportunists are going to leap onto that. And, there's the fiscal argument of loss to the Revenue Service to the country in terms of taxes. But, my concern is more the influx of foreign transnational organised crime syndicates and their newly formed liaisons and new modus operandi and channels that they're setting up during this time of lockdown. And they're strengthening. We're already moving off a very low base thanks to the state capture going on with a weakened criminal justice system on revenue authority. So, I don't think things are looking all that grand. .That's very concerning. I am sure you recall in 1994 when there was a change in regimes, if you like, where there were a lot of the old cops who were kicked out and new cops came in, hadn't quite found their feet yet, and the criminal syndicates from around the world made hay for a period of time until the new cops got their feet on the ground. What I'm hearing from you is that it's almost a situation like that. People forget post 94, 95, 96, 97 – you didn't walk around the streets. We've only just regained those streets fairly recently and we might be going back into that kind of an environment given what you are saying. .If we're the only place in the world where cigarettes are banned – surely it's like a magnet to the underworld. .Yes, of course. I'm not sure if I agree with you on the issue around 1994, you must remember we lived in a country that deliberately shut itself off from the world. As a consequence, the world shut itself from the apartheid regime and the manner in which our borders were managed more to prop up the regime than anything else. Certainly when the borders started opening up in the early 90s, even before the elections, we did become very attractive to transnational organised crime. .It took us a little while, it took a couple of years to introduce systems and we saw things like the Financial Intelligence Centre coming about, the asset forfeiture unit and the Special Investigations Unit. There were those golden years of visible successes against organised crime and I think the Revenue Service played a key role, too. As I said, the State Capital Gang really broke that down, that little bit of gain that we got. .The net effect for me is that if you're going to ban something, you must have something in place to deal with that ban. .Especially when you've got 7.5 million odd consumers who want that product and they want it today and they're prepared to pay up to five or six times the value. They're not interested in where it's coming from anymore. They're effectively all criminals, they're no different to a guy who goes and buys cocaine or illegal firearms. .They've all been criminalised. My worry is the money and the fact that these gangs and transnational organised crimes are getting a foothold in the country, that post ban, post lockdown is going to cause a big headache for this government. .We know that certainly from the many medical practitioners and specialists that we've engaged with, that the alcohol ban has been widely celebrated in the hospitals, because South Africa's got a terrible drinking problem. So, if you stop South Africans from drinking – they don't kill each other quite as much or commit violence as much as they do otherwise. That might also play into the hands of organised crime, because if people want booze – they're going to get it some way. .I've known organised crime my entire adult life. I started working in Organised Crime Intelligence Unit in late 1993, and I moved amongst them. In that period that you spoke of, I saw the growth of organised crime and how it matured over the years. Later, at my time at the Revenue Service, I again dealt with some pretty big transnational groupings and local groupings. Absolutely, if you're going to impose a general prohibition on a particular item – it's going to have a particular effect. .Nowhere in the world has a ban ever worked. I know of no example in modern times where a ban of anything has had the desired effect or stated desired effect that the government may have had in mind. I do know of many examples where regulatory or control mechanisms were implemented by government and that certainly had a market positive effect on whatever government was trying to do. .Good examples would be alternative pharmaceuticals to replace the addiction to heroin in some European countries. At the same time, one of the big problems was the sharing of needles, because heroin is often consumed intravenously. These were being administered by qualified medical trained people at clinics funded by the government. So, on the one end, they dealt with HIV transmission and other transmissions and so on and reduced that significantly, but at the same time, they were also able to monitor and regulate those people that were addicted to heroin. .It's not a 100% solved at all but we live in modern times – we're living in unprecedented times and we need to be more creative. We cannot manage by decree, by simply banning something. There will be a consequence and we're seeing that consequence. .David Shapiro, I'm sure you've got a question or two for Johann. My view on this is it reminds me of big corporations that issue memos and expect that their staff have all read the memos and we know that nobody's read the memos, but it's a very blunt tool. Dave, what's your take on all of this? .My overall concern is the companies that are going to be affected by this. South Africa is a tobacco-growing country or I assume it is – and if not, it's certainly on our borders. In the same way, the ban on liquor. The whole of the Cape, I won't say survives on it, but it's a very big liquor producer in the sense of wines. My big concern is that this is a South African industry that we're killing ourselves. .I don't know how it affects the exports – whether they can still export – but by allowing or entrenching other forces to come in, you're basically breaking up your own industry – you're breaking up your own economy in favour of others. What kind of numbers do you have on the liquor side? There are 7.5 million smokers. How many people are consuming wine or other forms of liquor? You mentioned alternatives: if we're going to stop liquor, if we're going to stop cigarettes – does this help the trade of other substances – whether it's cocaine, marijuana, or others? Do you see a spike up in that area? .Let me first say, just to be fair, I think the government has good intentions to implement these bans by decree. The stated intent is good. When it comes to exports, both tobacco manufacturers and the wine, and spirits – they are allowed to export currently under lockdown. At least the government's given them a midway out. .Part of the problem is that a lot of those export products end up back into the market, because they've been round-tripped or ghost exported or whatever the case might be. That, in turn, then feeds the illicit economy. .Explain ghost export please? Because I know Rob Rose wrote about this a couple of weeks ago – that we've seen a surge in ghost exports of cigarettes, for instance. .Yes. Two months into the lockdown, the government conceded that the regulations did not prohibit the manufacturing for export of cigarettes. All of the local tobacco manufacturers opened up again and started manufacturing their product for the export market. The bulk of our South African manufacturers export to our neighbouring states. I think it's only British American Tobacco and Gold Leaf Tobacco Corporation that also have manufacturing plants in Zimbabwe, Mozambique and some of our neighbouring states in southern Africa. .A ghost export and its cousin round trip, is effectively the same scheme. It purports to send locally manufactured cigarettes to a bordering state – to Botswana or Zimbabwe or even further afield – and then either it never leaves the shores or never crosses the border. It's an empty container or, in some cases, just the paperwork that's being done. .Its more complicated cousin would be when it actually leaves the country, but then gets smuggled straight back into the market for local consumption. The net effect of that – when it comes to cigarettes and the same applies to alcohol – is that because these products attract high levels of excise tax (in the case of a packet of cigarettes, it's close to R20 a packet of cigarettes) – that's not paid because these goods are supposedly exported for foreign consumption. That's then where the profit margin lies. On a packet of cigarettes, these crooks make around R17.5 a packet. .What would they – in a legal scenario – be making per packet? .It depends. You have what they call cheapies which sell for around R20 to R25, close to R30 a packet, of which R17.5 is excise and around R2 to R3 is the cost to manufacture the pack. Then you get the more expensive brands, the more well-known multinational types, some of them that retail up to in the 40s – R43 to R45 a packet. That's more or less what you're looking at. So, when you say people are paying up to five times the value of a packet of cigarettes – that's the five times value they pay. .Azeem Carim was a self-confessed former smuggler and he said that it was quite easy. They worked with a guy, the late John Bredenkamp, who had a manufacturing factory in Zim, but they would just use their connections at the border post. They'd come through into the country and be sold into the market and no customs were paid. .All of this seems so obvious, it seems so logical that there has to be, in most rational beings' minds something more to this. Surely, we don't have a government that thinks it can, by edict, have bans that people are going to adhere to when we do know from all evidence that is available that the underworld is thriving. .Why would this be? As an expert in this field having seen all of this, do you put it down to (my question which I asked many people during the lockdown) incompetence or is it because those involved are corrupt or are they captured? .You know, Alec, I'm very hesitant to speculate. If you forced me to I would say that it's probably a combination of naivety. Your example of let's send the email to all the staff in the big corporation and then they'll all comply – there's an element of not understanding the illicit trade and the effects of banning something under conditions like this or even banning things under normal conditions. .Thirdly, there's a level of arrogance there, because there's absolutely no attempt to find the midway – which you've seen with the taxi industry, for instance, or with the spaza shops. There's just no engagement, it's all litigious from the word go. I don't know what the solution is. The solution may well ultimately be that cigarette sales ought to be banned – but why not ban smoking then for that matter? Why ban the sale? I think it's a combination of those sort of factors. .It's as confusing to me as it is to many other people. Smoking is bad for you, drinking alcohol is bad for you and we understand hospitals are full on weekends because people misbehave. South Africa does have a bad reputation when it comes to alcohol, but there's something in between banning and a free for all. I do believe there's something in between, but in order to find that, you're going to have to get all the different role players around the table. .That is missing for me as well as the explanations, that's why you are asking me to speculate. I just honestly don't know. It doesn't make sense. I've seen no evidence that money goes to politicians, I've seen no evidence that government benefits. In fact, the government does not benefit. The government does not benefit because it holds a significant stake in one of our local tobacco manufacturers, the big one, through the PIC. They're not benefiting from that. They're also not benefiting from excise taxes and they're also not benefiting because the crooks are getting richer. In game theory, there is no Zero-Sum here. I just don't know what else to say, if I have to speculate, I must just shake my head. .As we all do, but it is a democracy and everyone's got a vote and we're gonna be able to vote in two years time. It'll be interesting to see whether South Africans do hold the government to account at that point. .Just to remind you, Bredenkamp Masters International was shut down by us as part of Project Honey Badger. Mr Azeem Carim perhaps forgot to tell you. We also shut down their little operation called Delta Tobacco, which perhaps he neglected to tell you or there wasn't time to reflect on that. We were well on our way to shut down a few others too if state capture did not happen at the Revenue Service..Johann, you're a hero to many of us. It's many people's wish that you could get involved again. All of those who were illegally victimised by the state capture project. That's another big question mark that hangs in the minds of many rational South Africans: if these are the people who were prepared to stand up against state capture, why are they not brought back in now that state capture has apparently been shown the door? .Thank you for reminding us about that, Johann. I have no doubt that God's in his heaven and these things do tend to have a way of working out in the right way in the long term. Thanks again for your contribution to us here on Rational Radio and indeed for the way you've always shared your insights on BizNews as a whole.

Corruption-busting hero Van Loggerenberg: ‘Tobacco ban has criminalised cigarette smokers’

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