National models and systems for combating cigarettes smuggling in Romania, Hungary, Lithuania, Latvia and Estonia

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1 National models and systems for combating cigarettes smuggling in Romania, Hungary, Lithuania, Latvia and Estonia 1. INTRODUCTION Before starting a comprehensive analysis on the national models and systems for combating cigarettes smuggling in all the 5 countries participating to the project we need to underline the fact that all these countries are at the EU border, being the first line of defence for the economic and social interests of the entire EU. Also, a description of the actions enforced by EU for counteracting the phenomenon should be described, especially for the all 5 countries implemented the EU recommendations and/or designed their internal legislation based on these. In this regard, the aim of this document is to provide a comprehensive image of the cigarettes smuggling phenomenon in general, EU actions, internal legislation of the analysed countries when talking about cigarettes smuggling as well as some of the actions enforced for tackling the smuggling phenomenon. This document further will serve as a key background document for the drafting of the Handbook, including the conclusions and recommendations of the participating countries. From the available statistics we can observe that large-scale smuggling of cigarettes into the EU takes place via its Eastern border. This illegal activity is leading to important financial losses for the EU budget and the budget of the Member States. While there are no accurate statistics on the total fraud situation, the direct loss in customs revenue as a result of cigarette smuggling is estimated to amount to more than 10 billion a year. Tackling the influx of smuggled excisable goods, especially cigarettes originating in particular in Moldova, Ukraine, Russia and Belarus has therefore become a priority for the European Commission. Thus, the European Commission is permanently improving and modernising its Anti-Fraud Strategy. The overall objective of the Commission Anti-Fraud Strategy is to improve prevention, detection and the conditions for investigations of fraud and to achieve adequate reparation and deterrence, with proportionate and dissuasive sanctions, and respecting the due process, especially by introducing anti-fraud strategies at Commission Service level respecting and clarifying the different responsibilities of the various stakeholders. Article 325 of the Treaty on the functioning of the European Union (TFEU) requires the Commission and the Member States to counter fraud and any illegal activities affecting the financial interests of the Union. Preventing and detecting fraud is therefore a general obligation for all Commission Services in the framework of their daily activities involving the 1

2 use of resources. Financial management and accountability have been strengthened. The Commission Services are responsible for the management of the operational and administrative resources allocated to them to implement EU policies or to contribute to the smooth functioning of EU institutions in a costeffective way and reducing administrative burden as far as possible. In this respect, Commission Services are responsible for taking the necessary measures to provide reasonable assurance of achieving prevention and detection of fraud and irregularities. Fraud prevention and detection are at the core of the Commission s anti-fraud policies. However, other factors are equally important, namely effective and efficient investigation, swift recovery of money unduly paid from the EU budget, and deterrent sanctions. The Member States administer nearly all the revenues of the EU budget. They also share the management of around 80 % of budget expenditure with the Commission. The remaining 20% is administered directly by the Commission Services, partly together with the administrations of non-eu countries and international organisations. In recommendations on discharge procedures and various other resolutions and reports, the European Parliament (EP), the Council and the European Court of Auditors have called for better protection of EU financial interests against irregularities and fraud. However, the Council and Parliament have also called for simplification and the avoidance administrative burden in European programmes. The Commission therefore needs to strike the balance between cost effective control and simplification. In 2010, the Council adopted the multi-annual Stockholm Programme for policies in the area of justice, civil liberties and security. It called on the EU and its Member States to step up their efforts to combat corruption and other forms of financial crime. This included building capacity for financial investigations and making it clearer who are the beneficial owners of assets. Starting with 2011, several initiatives were taken to step up the fight against fraud and corruption affecting EU public money: The Commission s proposal for amending the legal framework of OLAF aimed at increasing the efficiency and speed of OLAF investigations, at strengthening procedural guarantees, at reinforcing OLAF s cooperation with Member States and at improving its governance. The European Anti-Fraud Office (OLAF) conducts administrative investigations. It draws on its experience and expertise to support other Commission Services in the prevention and detection of fraud. The Communication on the protection of EU financial interests by criminal law and administrative investigations sets out how the Commission intends to safeguard taxpayers money at EU level against illegal activities, including 2

3 threats posed by corruption inside and outside the EU institutions. The Communication on the Commission anti-fraud strategy from June 2011 pointed to opportunities for improving the criminal law framework and the procedural tools for investigators and prosecutors, and to possible institutional developments such as the setting up of a European Public Prosecutor s Office, which in 2014 is still under consideration. Complementing those initiatives, the Communication on Fighting Corruption in the EU sets an EU anti-corruption reporting mechanism for periodic assessment of Member States ( EU Anti-Corruption Report ). The Commission Work Programme for 2011 also included a Proposal for a new legal framework on the confiscation and recovery of criminal assets under the heading Initiatives on Protecting the Licit Economy, implemented partially in some EU countries. There are several factors contributing to this large-scale smuggling. Exchange of operational information between competent authorities on the national and international level in the region is not always sufficient. Gaps still remain in the infrastructure and equipment at the external borders. Corruption remains a prevalent tool used by the smugglers to cover and to facilitate their illegal activities. Significantly diverging legislative provisions on penalties in Member States can give smugglers an incentive to use entry points to the EU where the lowest penalties are foreseen and/or actually applied. The high price and tax difference between the EU and its neighbours with lower tax levels is also an important factor. So, the fight against this type of fraud is a shared responsibility and the problems related to the smuggling of cigarettes are not related or in the burden of the analysed 5 countries but to the entire EU. It requires urgent and streamlined action at all levels, i.e. from the Commission, the Member States and the neighbouring countries. It is absolutely necessary to build on the successes of the cooperation so far by further exchanging information and building strong relationships to jointly tackle the problem of cigarette smuggling at the Eastern border. Member States with high excise rates need to exercise the appropriate internal control. Those bordering third countries need to increase controls both on internal consumption and on smuggling from their neighbours, contributing towards stopping outflows from their territory towards other Member States. To provide an effective answer to these challenges, the European Commission has identified a number of mainly short and medium-term actions to be carried out with the help of the Member States as well as Russia and the Eastern Partnership countries (Armenia, Azerbaijan, Belarus, Georgia, Moldova, and 3

4 Ukraine). Although this Action Plan focuses on a particularly problematic geographical area, several actions envisaged will address the issue of cigarette smuggling at a wider level and will therefore also be relevant for other regions. Smuggling of cigarettes is of course a global phenomenon requiring also global solutions. By proposing actions focusing on the Eastern Border the European Commission also aimed at contributing to these global efforts against smuggling. 2. THE SCALE, IMPACT AND NATURE OF SMUGGLING AT THE EASTERN BORDER 2.1. Cigarettes The evolution and growth of the illicit tobacco market in the European Union has been remarkable in the past years. Contraband and counterfeit cigarettes can be found in all of the EU Member States. Eastern Partnership countries, in particular Moldova, Ukraine and increasingly Belarus and Russia are one of the main sources of the seized cigarettes performed by EU law enforcement agencies, and this trend appears to have increased in Cigarette seizures include the following three categories: genuine cigarettes produced by multi-national manufacturers which are smuggled into the EU (contraband); "cheap whites" which are cigarettes produced legitimately in their country of origin at very low cost and which are smuggled; and counterfeit cigarettes. In the early 2000s, the problem of smuggling at the Eastern border of the EU related largely to the smuggling of genuine product. Today the situation is somewhat different. The majority of cigarettes entering the EU illegally via the Eastern border are either cheap whites or counterfeit. Cheap whites now account for approximately 20% of seizures in the EU and are an increasing feature of the illicit tobacco trade. Although many of the illegal cigarettes that enter the EU via the Eastern border are destined for the illegal markets in Western Europe, particularly Germany and the United Kingdom (because of the higher prices they can be sold for), a significant portion of the smuggled cigarettes is targeted on the local markets. It is estimated that in some border regions consumption of illegal cigarettes 4

5 exceeds 90% of the total. Tax rises in the new Member States in line with the EU acquis have led to an increase in consumption of illicit cigarettes in some new Member States. Besides large-scale smuggling, ant-smuggling, making frequent journeys across the border with small amounts of cigarettes, is still a significant problem at certain border crossings. The negative impact of the illicit trade in cigarettes is diverse. From an economic point of view it results in significant revenue losses and harms legitimate business interests at both manufacturing and retail level. It is also leading to sales and consumption of tobacco not complying with EU tobacco control legislation. From a health point of view it may result in the rise in consumption of tobacco products and decrease public health protection, especially involving vulnerable groups such as young people. One of the less obvious but more serious impacts of cigarette smuggling is that it is almost exclusively the domain of organised crime groups who are making substantial financial gains from their illegal activities. As cases show, these groups operate internationally and are often involved in other types of serious organised crime. 3. EXISTING MEASURES TO FIGHT SMUGGLING The Commission and EU Member States have a number of instruments at their disposal to tackle the problem of smuggling at the Eastern border. These include operational cooperation, including joint investigations and exchange of intelligence and information, technical and financial assistance to Member States and third countries, engagement with legitimate traders, negotiation of agreements with the neighbouring countries and within a global context, approximation of excise rates and legal provisions concerning penalties Anti-fraud measures OLAF, the Commission's Anti-Fraud Office, coordinates a number of largescale investigations covering several Member States and third countries on the basis of requests for assistance from Member States under Council Regulation (EC) No 515/976 or requests authorities of the Member States and cooperation between the latter and the Commission to ensure the correct application of the law on customs and agricultural matters (OJ L 82, , p. 1). Under the HERCULE II Programme8, Member States receive co-funding for the purchase of technical equipment as well as for technical assistance and training. OLAF holds an Annual Task Group Cigarettes Conference with experts from the Member States and key third countries which bring together OLAF s 5

6 designated national contact points for tobacco issues from the Member States and third countries. The 15 th Annual Task Group Cigarettes Conference took place from September 9-13 in Marseille, France. The 16th Annual Task Group Cigarettes will take place in Austria in October The 18 th took place in November 2013 in Bucharest, co-organised by the Romanian National Customs Authority. The Annual Task Group Cigarettes Conference brings together investigators, analysts and policy makers to review the results achieved over the previous 12 months and to identify emerging trends and threats in order to set priorities. The Conference also helps to cement operational relationships between the Member States and other countries so that there can be rapid exchanges of operational information to target smuggling and counterfeiting. Engagement with legitimate traders is also an important part of the Commission s strategy to combat contraband and counterfeiting. The European Union and the Member States have signed four legally binding and enforceable multi-year Cooperation Agreements with the four largest tobacco manufacturers. These Agreements ensure that the manufacturers carry out certain procedures to prevent the diversion of their product into illicit trade channels. These agreements and the resulting cooperation with the tobacco manufacturers have been very successful, notably in reducing the illicit trade in genuine products. In July 2010 the EU Commission obligated the company British American Tobacco (BAT) to invest in the next twenty years 134 million euros in a system for the prevention of cigarette smuggling and counterfeiting. In September 2010 the European Commission concluded a similar agreement with Imperial Tobacco, so that Imperial will pay 207 million euros to the EU in the following 20 years. The task is to reduce the smuggling and to compensate the EU for the former smuggling of Imperial products. The EU Commission is currently increasing its pressure for several years on the tobacco industry, forcing companies to control their distribution better. Similar concessions as BAT made previously two other of the world's largest manufacturers Japan Tobacco International (JTI) and Philip Morris International (PMI). The Commission had accused them of not having done enough to combat the smuggling of cigarettes from their production and have taken profits of it silently. Those who reject the deal with Brussels, have to pay damages. This three companies are now required to control their customers more closely and to monitor the ways in which their cigarettes reach the smokers. 6

7 But the trade in counterfeit cigarettes brings such great losses of business to tobacco companies, that it is worthwhile for them to employ their own investigators. Large corporations such as Reemtsma, British American Tobacco and Philip Morris therefore have a department for brand protection or against illegal trade. In 2004, EU Member States have signed a binding and enforceable agreement with Philip Morris International against cigarette smuggling and counterfeiting. The EU accused the Western companies to produce surplus for example in the Ukraine and accept consciously that this is used as contraband. So, Philip Morris made a commitment, in the event of confiscation of untaxed cigarettes of its brands to pay its tax value. The British American Tobacco group now holds itself seminars for customs officials in Poland and Ukraine, for instance to help to identify counterfeit brand cigarettes Framework Convention on Tobacco Control (FCTC), a binding WHO Treaty currently ratified by 172 parties, entered into force in The Commission is the EU negotiator for the EU and the 27 Member States at the International Negotiating Body (INB) to negotiate a Protocol to the FCTC to eliminate the illicit trade in tobacco products. The protocol, in its preamble, stresses that Parties shall take "into account that effective action to prevent and combat illicit trade in tobacco products requires a comprehensive international approach to, and close cooperation on, all aspects of illicit trade". Part III of the Protocol, the Supply Chain Control has often been referred to as the Heart of the Protocol. As a central provision, it requires that a global tracking and tracing regime shall be established within five years of entry into force of the Protocol, comprising national and/or regional tracking and tracing systems and a global information-sharing point, located at the Convention Secretariat within the WHO. Based on Article 8 of the Protocol, Parties shall require, within 5 years of entry into force, that "unique, secure and non-removable identification markings" (like codes or stamps) are affixed to unit packets and packages and the outside packaging of cigarettes; within 10 years for other tobacco products. Other provisions to ensure the control of the supply chain cover licensing (Article 6), due diligence (Article 7) and record keeping (Article 9). Parties shall establish a mandatory licensing system for anyone manufacturing, importing or exporting tobacco products and manufacturing equipment. Other activities such as retailing or tobacco growing can be made subject to licensing. The Protocol also covers important matters concerning offences, including liability (Arts. 14 and 15), prosecutions and sanctions (Art. 16), seizure payments (Art. 17) and special investigative techniques (Art. 19), as well as the disposal and destruction of confiscated products (Art. 18). Another important section addresses 7

8 international cooperation, such as measures concerning information sharing (Arts. 20, 21 and 22), technical and law-enforcement cooperation (Arts. 23, 24 and 27), protection of sovereignty (Art. 25), jurisdiction (Art. 26), mutual legal and administrative assistance (Arts. 28 and 29) and extradition (Art. 30). The Protocol was opened for signature and ratification by all Parties on 10 January 2013 at WHO headquarters in Geneva. It is hoped that the Protocol will bring additional instruments for the law enforcement agencies engaged in fighting the cigarettes smuggling phenomenon, plus it will bring more responsibilities on the cigarettes producers shoulders Customs and tax measures: The Customs 2013 and Fiscalis 2013 programmes, administered by the Commission's Directorate-General for Taxation and Customs Union (TAXUD) are used in support of political or operational initiatives in the customs and tax areas. In the framework of the Fiscalis programme, a first working visit of experts from a number of Member States took place in Romania. The discussions centred on sharing experiences, elaborating best practices and coordinating common actions. Technical assistance, including expert opinions and logistical assistance, in tax administration issues and the fight against fraud is provided by the Commission upon request of Member States. Approximation of legislation. The approximation of excise rates between the EU and its neighbours would be the most effective medium to long-term solution to the smuggling of tobacco and other excisable products. The Commission has proposed provisions in this respect in the new Association Agreements with Ukraine and the signed agreement with Moldova Penalties The EU's current Customs Code does not contain specific provisions on criminal penalties. Article 21 of the Modernised Customs Code, however, sets out the obligation for Member States to provide for penalties in case of failure to comply with customs legislation and confirms that these penalties should be effective, proportionate and dissuasive. Member States must also notify their penalty regimes to the Commission. The 1995 Convention on the protection of the financial interests of the EU (and its protocols) covers fraud also on the revenue side and fixes a minimum standard for penal law protection. In two reports (2004 and 2008) the Commission identified gaps and loopholes in the national legislation transposing the Convention, thereby allowing certain offences to go unpunished, and noted the considerable differences between Member States as 8

9 regards criminal penalties, leading to doubts as to whether these are always effective, proportionate and dissuasive. The Commission recently set out its vision for a strengthened protection of financial interests by criminal law and by administrative investigations. The new tools suggested in this Communication include an initiative on substantive criminal law which would build upon the Convention on the protection of the financial interests of the EU, taking into account the remaining loopholes and the deficiencies identified in its implementation. A comparative study of Member States' legislation on customs infringements and penalties national regimes have shown significant differences in criminal penalties part of which are applicable also for cigarette smuggling Regional and cross-border measures The trade and customs objectives of the Eastern Partnership include combating customs fraud and facilitating the development of legitimate trade at the Eastern border. Specific actions include support to Partner countries' customs reforms, the promotion of joint border controls at EU borders with Ukraine, Belarus and Moldova and multi-country seminars on specific subjects. Smuggling of tobacco products is covered under the Eastern Partnership's Integrated Border Management Flagship Initiative (IBM Flagship Initiative). These activities can be further supported by measures on preventing and combating corruption among border police and customs as foreseen in the work programme of the IBM Flagship Initiative. One of the main objectives of the Cross-Border Cooperation programmes of the ENPI (European Neighbourhood and Partnership Instrument) is to ensure efficient and secure borders. Some of the ongoing programmes foresee measures under this objective. A high-level Conference on Customs co-operation at the Eastern border of the EU took place on April 2011 in Budapest. The agenda included discussions on cooperation in prevention of smuggling of cigarettes and other goods. The Seminar resulted in the Budapest Declaration, which included recommendations to "Strengthen and coordinate joint customs actions to fight smuggling of high-taxed goods, such as cigarettes and other goods posing an economic risk or security and safety threats" and to "Increase efforts in the fight against the illicit trade in tobacco products and finalise a strong Protocol under the Framework Convention on Tobacco Control as soon as possible to eliminate such trade". Within the context of the Eastern Partnership a Panel on the Fight against corruption was established in order to enhance the anti-corruption and good 9

10 governance reform processes in the Eastern Partnership countries through a multilateral approach and with a view to bring them closer to the international standards (particularly those formulated in the Council of Europe and the United Nations by facilitating the exchange of information and best practices on building integrity, prevention and prosecution of corruption. Participants include the Eastern Partnership Countries, Member States, EU institutions, the Council of Europe and representatives of the civil society. The EU Border Assistance Mission to Moldova and Ukraine (EUBAM) is an advisory, technical body that was established at the joint request of the Presidents of Moldova and Ukraine, to assist these countries in tackling a range of criminal activity taking place across the common border including smuggling and illegal migration and to help with the modernization of management of their border services with European standards. The Mission is entirely funded by the European Union and has a staff of over 200, including around 120 customs and border experts from EU Member States who provide advice and training to the Moldovan and Ukrainian law enforcement agencies. Since it was established the Mission has made a substantial contribution to controlling the Ukraine-Moldova border and reducing smuggling in the region. Cigarette smuggling on the Ukrainian-Moldovan border was monitored by the Mission and assessed in 2013 as one of the most serious threat to border security, according to EUBAM Common Border Security Assessment Reports. An evaluation report on the export of cigarettes to Transnistria in terms of quantities, brands of cigarettes, and countries of origin was performed. The analysis included the estimated demand for cigarettes in Transnistria as well the amount which exceeds the demand, both key indicator for consequent scenarios and modi operandi with regard to the smuggling of cigarettes out of Transnistria. It was observed that during a period of twelve months, from 01 December 2012 to 30 November 2013, 8 billion cigarettes were exported to the Transnistrian part of Moldova. The cigarettes were exported mainly from the producers located in Russia (Donskoy Tabak CJSC in Rostov-on-Don and Baltic Tobacco Factory Ltd in Kaliningrad) and in Belarus (Tobacco Factory Neman in Grodno). Relatively smaller quantities originated in Moldova (Tutun CTC in Chisinau) and other countries (China, Germany, Italy, Lithuania, Poland, and the UAE). The quantity of the exported cigarettes is twenty times higher than the estimated demand in TN. The surplus of cigarettes, if smuggled to Ukraine, could cause financial loss of EUR 150 million in the budget of Ukraine, due to unpaid customs duty, VAT, and excise tax. If the cigarettes were smuggled to Moldova, it could cause financial loss of EUR 100 million; and if smuggled to the EU, the financial loss would amount to almost EUR 700 million. The cigarettes smuggled to TN are of lower price segment, in the vast majority of cases. In the mentioned report, the possible scenarios of illegal outflow of cigarettes from Transnistria took into consideration both directions: to Ukraine 10

11 and Moldova, with a possibility of further extending the smuggling routes to the EU Member States. And this is only one example of the modalities that EUBAM is implementing in the two countries as regard cigarettes smuggling, not mentioning the fact that a special Task Force was created on EUBAM HQ level aimed to support the law enforcement agencies from Ukraine and Moldova in better fight cigarettes smuggling Convention on mutual assistance and cooperation between customs administrations (Naples II) - tool to be used in fighting cigarettes smuggling At this point of the analysis the focus will not be on the general tools that the prosecutors and the law enforcement agencies in EU Member States are using in combating cigarettes smuggling, but only on the Convention on mutual assistance and cooperation between customs administrations (Naples II). This very useful tool is used by 4 of the participating countries, except Romania where the National Customs Authority nominated a contact person, but because of the lack of criminal investigation powers the use of the Convention is at minimum. General objective of the Napoli II Convention is to regulate particular forms of cooperation involving cross-border actions for the prevention, investigation and prosecution of certain infringements of both the national legislation of Member States and Community customs regulations. The legal basis is the Council Act 98/C 24/01 of 18 December 1997 drawing up, on the basis of Article K3 of the Treaty on European Union, the Convention on mutual assistance and cooperation between customs administrations. According to the Convention the Member States of the European Union will provide each other with mutual assistance and will cooperate with one another through their customs administrations, with a view to (Art.1): preventing and detecting infringements of national customs provisions, and prosecuting and punishing infringements of Community and national customs provisions. The Convention does not affect the provisions applicable regarding mutual assistance in criminal matters between judicial authorities, or more favorable provisions in bilateral or multilateral agreements between Member States governing customs cooperation. The customs authorities will apply the Convention within the limits of the powers conferred upon them under national provisions (Art. 2). Member States will appoint in their customs authorities a central unit (coordinating unit). It will be responsible for receiving all applications for mutual assistance under the Convention and for coordinating mutual assistance (Art. 5). Member States may make agreements between themselves on the exchange of liaison officers for limited or unlimited periods, and on mutuallyagreed conditions (Art. 6). In order to provide the assistance required under this Agreement, the requested authority or the competent authority which it has addressed will proceed as though it were acting on its own account or at the request of another authority in its own Member State. The requested authority 11

12 will extend this assistance to all circumstances of the infringement which have any recognizable bearing on the subject of the request for assistance without this requiring any additional request (Art. 8). The competent authorities of each Member State will, as laid down in the Convention, subject to any limitations imposed by national law, provide assistance to the competent authorities of the other Member States without prior request (Art. 15). Customs administrations will engage in cross-border cooperation in accordance with the Convention. They will provide each other with the necessary assistance in terms of staff and organisational support. Requests for cooperation will, as a rule, take the form of requests for assistance in accordance with paragraph 7 (Art. 19). Based on the same article, the crossborder cooperation may be permitted for the prevention, investigation and prosecution of infringements in a lot of criminal cases, including the illegal cross-border commercial trade in taxable goods to evade tax or to obtain unauthorised State payments in connection with the import or export of goods, where the extent of the trade and the related risk to taxes and subsidies is such that the potential financial cost to the budget of the European Communities or the Member States is considerable (combating fraud). When talking about controlled deliveries (activity that requires fast reaction from the law enforcement agencies), the Convention stipulates that each Member State will undertake to ensure that, at the request of another Member State, controlled deliveries may be permitted on its territory in the framework of criminal investigations into extraditable offences (Art. 22). By mutual agreement, the authorities of several Member States may set up a joint special investigation team (not to be mixed with the Joint Investigation Teams which are set up on the 2000 EU Convention on Mutual Legal Assistance in Criminal Matters) based in a Member State and comprising officers with the relevant specialisations who will have the following tasks (Art. 24): implementation of difficult and demanding investigations and coordination of joint activities. When information is exchanged, the customs administrations will take into account in each specific case the requirements for the protection of personal data. They will respect the relevant provisions of the Convention of the Council of Europe of 28 January 1981 for the protection of individuals with regard to automatic processing of personal data and the provisions of the Convention concerning the use of information technology for customs purposes (Art. 25). The customs administrations will take account, in each specific case of exchange of information, of the requirements of investigation secrecy (Art. 27). The Convention will apply to the territories of the Member States as referred to in Article 3(1) of Council Regulation (EEC) No 2913/92 of 12 October

13 establishing the Community Customs Code and Regulation (EC) No 82/97 amending Regulation (EEC) 2913/92 (Art. 31). The Convention is open to accession by any State that becomes a Member State of the European Union. To date, almost all the Member States have ratified the Naples II Convention, except Italy Joint Investigation Teams (JITs) A Joint Investigation Team (JIT) is an investigation team set up for a fixed period, based on an agreement between two or more EU Member States and/or competent authorities, for a specific purpose. Non EU Member States may participate in a JIT with the agreement of all other parties. The aim of a JIT is per definition to investigate specific cases, it is not possible to establish a generically competent task force for a certain type of crime, nor is it possible to set up a permanent operational team by using the JIT setup and concept. The concept of the Joint Investigation Teams originated from the 2000 EU Convention on Mutual Legal Assistance in Criminal Matters (2000 MLA Convention) with the aim of improving cooperation between judicial, police and customs authorities by updating existing mutual legal assistance provisions. The conditions under which JITs are to be set up are laid down in Article 13. However the Council of the European Union recognised the slow ratification and implementation of the 2000 MLA Convention. The provisions of Article 13 of the 2000 MLA Convention were therefore incorporated into the Framework Decision of 13 June (FD) 2002, which equally provides a basis to set up JITs. Member States were to comply with the provisions of this Framework Decision by 1 January The 2000 MLA Convention provides for specific forms of mutual agreements, inter alia the setting up of JITs. Subject to mutual agreements between two or more Member States, the competent authorities of the respective States may set up a JIT for a specific purpose and for a limited period. This period may, however, be extended by mutual consent. Any Member State investigating offences with a cross border dimension may request the setting up of a JIT. The composition of the team will consist of law enforcement officers, prosecutors and judges and other relevant personnel. The team will be led by a person from the State in which the JIT operates. Although the members of the team may originate from various jurisdictions they are to carry out their duties in accordance with the national law of the territory where the investigation is taking place. Investigations may be carried out in the Member State of operation by seconded members provided the approval is granted by the Member State of operation and seconded Member State. 13

14 Paragraphs 6 and 7 reflect the novelties of this concept and it presents the advantages of increased cooperation and coordination. The provisions allow for investigations to be carried out in the Member State of operation by seconded members and introduce the possibility for seconded members stationed abroad with the team to request investigative measures from their competent national authorities without the need for any further requests under the traditional mutual legal assistance regime. Such requests shall be regarded as if they were put forward on national territory within a national investigation. Additionally, paragraph 9 permits a member of a JIT to make available to the team relevant information accessible in their State, provided it is in accordance with national law and that it falls within the limits of the seconded member s competence. Where investigative measures are being carried out the seconded team member is entitled to be present provided that the competent authorities do not decide otherwise. The team leader may also assign the seconded member to perform investigative measure as long as approval is granted by the Member State of operation and the seconding Member State. The legal framework for setting up Joint Investigation Teams between EU Member States can be found in Article 13 of the 2000 MLA Convention as well as in the Framework Decision on Joint Investigation Teams from This legal framework has been implemented in all the 5 countries participating in the SPECIFIC project, but to date none of the countries used this tool for combating cigarettes smuggling, but mostly on drug trafficking investigations. Europol and Eurojust are strongly supported the use of JITs when investigating crimes with EU criminal dimensions and, under a project named Project JIT jointly produced a Guide to EU Member States Legislation on JITs. The JITs Project is run by Eurojust and Europol. This project aims to support the setting up of JITs by providing: manual on JITs - which list practical issues to be dealt with when setting up JITs and which the parties to a JIT could use as guidelines; JITs webpage available on Eurojust and Europol s respective websites; annual meeting of the Network of National Experts on JITs. 4. PROPOSED AND IMPLEMENTED ACTIONS UNDER AN EASTERN BORDER ACTION PLAN TO FIGHT AGAINST SMUGGLING OF CIGARETTES Recent trends in smuggling have shown that the ongoing efforts and measures are not sufficient to tackle the problem. As already described above, gaps and 14

15 loopholes remain in the infrastructure and equipment at the Eastern border for which it is not always easy to find sufficient financing; operational cooperation among competent services and authorities is sometimes difficult and not always sufficient; corruption of border police and customs remains a prevalent problem at the Eastern border; different penalties in the various Member States and their different application give smugglers a strong incentive to engage into "penalty shopping" and hamper cross-border investigations; and, last but not least, the high price and tax differences between the EU and its neighbours make it worthwhile for criminals and organised groups to take their chance. Concerted and urgent efforts are therefore needed on behalf of the Commission, the Member States and the neighbouring countries to try to find appropriate solutions in order to tackle those problems and fight against this type of fraud To ensure a coherent response, it is necessary to define clear objectives addressing all contributing factors to the problem Objective I: Support enforcement capacity with capacity building, technical assistance and training Strengthening enforcement capacity on both sides of the border particularly controls at key entry/exit points with adequate infrastructure and equipment is part of an effective solution. Reinforcing border infrastructure needs to be combined with setting up equipped and trained mobile units to improve control and enforcement on the "green" borders. Adequate equipment includes providing additional tools such as scanners, automated recognition tools, night vision etc. New equipment and infrastructure requires additional funding which may prove to be difficult in these times of economic and budgetary constraints. It is therefore necessary to use existing EU funding in a coherent way and to find flexible solutions for such funding in the medium and long term. To use and further develop existing initiatives in order to exchange best practices, design guidelines and benchmarks for future actions is also a must. This should include supporting the setting up and further development of sound mechanisms for prevention, detection and repression of corruption among border police and customs officers. Strengthening the enforcement capacity can also be done by providing the necessary training to customs and police officers and border guards in order to enable them to detect illicit goods, as well as to prevent and report any corrupt practices. 15

16 Objective II: Strengthen the disincentives and raise awareness (make smuggling less profitable) The national regimes on sanctions for smuggling activities need to be sufficiently tough and provide for effective and equivalent protection in all Member States in order to avoid penalty shopping and the negative impact on the economy. These regimes should send a clear dissuasive message to all the actors (both legal and natural persons) engaged in smuggling activities and thus also have a strong preventive effect. Member States authorities should be encouraged to translate the available sanctions into practice by applying the existing penalties to maximum effect. One of the most important factors behind the increased smuggling through the Eastern Border is the difference that exists between taxes and excise rates in the EU and in the Eastern Partnership countries and Russia. The approximation of excise rates between the EU and its neighbours would be the most effective medium to long-term solution to the smuggling of tobacco and other excisable products. Raising awareness can also be a strong tool in order to discourage people from buying illicit cigarettes or other illicit excisable goods. It is also a tool that can be used relatively easily by all actors at all levels. In fact, awareness raising actions can accompany all existing or foreseen measures as well in order to achieve a multiplying effect. A good example can be taken from Germany which is using media in sending good messages to population on actions taken by authorities in fighting cigarettes smuggling, cases solved by law enforcement agencies as well as Court decisions taken against the smugglers. For example, in Romania there is starting with 2010 an inter-ministerial task force focus on tax evasion phenomena, with 9 main crimes that leads to tax evasion including cigarettes smuggling. The results of the actions undertaken by this group could be made public every semester, once a year or upon needs (major case finalised by Prosecutor Office or a Court). Like this, general public will see that the Government is taking care of the general budget and also the smuggler could see that if you are involved in cigarettes smuggling you could face detention Objective III: Strengthen enforcement through improved operational cooperation including shared intelligence Fighting against organised crime operating across borders implies smooth cooperation among competent authorities on both sides of the border in the region including sharing information and intelligence among them. Enhanced cooperation and information sharing between national customs authorities and 16

17 other competent authorities significantly improves the effectiveness of deterrent action against smugglers. They need to work in a coordinated manner. Where appropriate, consideration should be given to possible forms of cooperation with Europol in the light of its competences on organized crime, terrorism and other forms of serious crime. During the three workshops as well in the meetings with the law enforcement agencies from Romania, it was observed that there is regional border cooperation between the main actors involved in border security. For example, the Romanian Customs Authority is actively cooperating with the Moldova State Customs Service in various ways such as: common border operations, training of customs inspectors, sharing of operational data, training of canine units, deployment of Customs inspectors in Moldova under the framework of international missions (like EUBAM in Moldova and Ukraine). The same actions are taken by the Romanian Border Police, especially on the EU external borders Objective IV: Enhance international cooperation Smuggling is not only an EU problem and the EU alone cannot fight it. It is a global phenomenon, requiring global solutions. Since much of the smuggling, especially the tobacco smuggling takes place at the Eastern Border with cigarettes originating mainly in Moldova, Ukraine, and Russia and increasingly Belarus, EU needs to build a strong cooperation with these countries in order to tackle it. At the same time EU need to step up the efforts on the global level as well in order to reinforce the worldwide binding commitments (the aforementioned FCTC) In order to attain these objectives, the following actions could be undertaken under an Action Plan to fight against smuggling of cigarettes along the EU Eastern Border The actions can be classified under the following four categories corresponding to the above described objectives: 1) Capacity building, technical assistance and training; 2) Disincentives and awareness raising; 3) Strengthening operational cooperation; and 4) Enhanced international cooperation Capacity building and technical assistance Control actions on technical capacity at land borders (short term) "The C2013 Land Frontier contact group" is a network of the Member States customs officials working at the external EU land border (operational and 17

18 managerial staff). This group meets twice per year and can plan and fund operational activities. In appropriate cases in the future, participation of neighbouring countries could be envisaged. The group has already carried out in the past one operational risk based control action, the purpose of which was to test the implementation of the security amendments i.e. implementation of common risk criteria for security and safety at the external land border, supported by the CRMS (Custom Risk Management System, exchange of risk related information in real time to support risk based controls on the commonly agreed risk profiles). At that time the action involved 50 Eastern land frontier border points (out of 85 in total) which were directly connected to the CRMS. In addition, a subgroup was established to collect statistics each year. This network could be used for control actions tailored to this specific objective, on a voluntary basis. Customs 2013 and Fiscalis 2013 joint actions could be used to design guidelines and benchmarks to render border controls more efficient on the smuggling of excisable goods as well as to build better administrative capacities to tackle the illicit trade in the internal market and help strengthening cooperation among Member States. Based on these guidelines and benchmarks the Commission could provide technical assistance to Member States Promotion of integrity and reinforcement of anti-corruption measures The Commission could also support Member States through the "Prevention of and Fight against Crime" ISEC programme to identify best practices and implement more effective measures for prevention and repression of corruption among border police and customs officers. Such assistance may focus on the capacity of police and customs at local level to more vigorously address corruption. The Commission will also encourage the Member States to further develop and implement at national level sound strategic documents to tackle this issue. Improvement of integrity will be an important element of the strategic frameworks on customs cooperation with Eastern Partnership countries currently under preparation Funding for technical equipment (medium term) The EU Action Programme Hercule II is a tool to fund new technical solutions and equipment in the Member States. However, the current legal basis and financing decision requires a high (50 %) contribution from the beneficiary for funding related to the fight against cigarette smuggling. This seems to be too high in the current financial climate in the Member States. 18

19 The current Customs/Fiscalis 2013 Programmes on the other hand do not allow any sponsoring of technical equipment (scanners etc.). Appropriate solutions could be found in the medium term in order to facilitate the acquisition of relevant equipment without the burden for a participating country to find such substantial national funding for a project which has a wider European interest. This would enable all Member States to fully utilise the programmes and the EU to maximise its investments. Any solution should be reflected in the design of the spending programmes within the future Multi- Annual Financial Framework. As a result of the workshops, the representatives of the Tax and/or Customs authorities informed on the usage of technical equipment while securing the EU border; i.e. Rapiscan, Roboscan (Romania), X-Ray, K-9 tobacco units, as well as other types of equipment Financing under the EU Strategy for the Baltic Sea Region (EUSBSR) Implementation Facility (short and medium term) Cross-border projects against smuggling are covered by priority 15 of the EUSBSR ("To decrease the volume of, and harm done by, cross border crime"). Total funding available under the Implementation Facility is 10 m and should be used to its full extent Automated licence plate and container code recognition (medium term) As part of the Transition Facility Programme for certain Institution Building actions in the new Member States for the period , specific weaknesses were identified at the new external borders in automatically recognising and monitoring suspicious traffic at EU external border without unnecessarily interfering with law-abiding traffic flows. These weaknesses were tackled by strengthening the operational and enforcement capacity of relevant Member States border control services by providing 10 million for Automated Licence Plate and Container recognition tools at their external borders. Due to the importance of this project and the fact that some clear gaps in this infrastructure still remained the Kaliningrad region and the south-eastern border (BG, RO, GR) in particular, the Hercule II Programme was used to provide funding to fill identified gaps. However the 50% co-financing condition seems to be an obstacle to expand this useful and ambitious project. The possibility of reinforcing and upgrading Automated Licence Plate and Container recognition tool infrastructure at the Eastern Border and to expanding coverage to Eastern Partnership countries and Russia using other EU funds, such as the European Neighbourhood and Partnership Instrument (ENPI) should therefore be explored. 19