Can Kieswetter Crack Down on Illicit Tobacco?

In the first weeks of his tenure at the head of the embattled South African Revenue Service (SARS), Edward Kieswetter has pledged to clean up the agency and to crack down on the rampant illicit economy in South Africa, with a particular focus on the country’s extensive tobacco smuggling problem.

It is estimated some ZAR7 billion in tax revenue is lost to the illicit tobacco trade each year, with underground smokes reportedly smuggled across the border from South Africa’s neighbours or produced in illegal, unmonitored factories throughout the country. At the same time, allegations of bribery and spying permeate the toxic industry, implicating players in both the private and government sectors.

Kieswetter hasn’t minced words when asked about his appointment as incoming head of the ever-embattled tax collection agency: “I have been here for about a month, but it feels like 10 years already,” he told reporters last week. Kieswetter certainly has his work cut out for him to reverse the agency’s ZAR100 billion hole in revenue collection, which reared its head under Kieswetter’s disgraced predecessor Tom Moyane.

Moyane’s tenure was a nearly-unmitigated disaster, with SARS officials at the highest levels allegedly in bed with the tobacco industry. At the same, excise duties under Moyane’s watch rapidly declined, curbing the agency’s ability to collect tax by 15 percent. Following the Nugent Commission of Inquiry investigating tax administration from 2014 to 2018, Moyane was ultimately removed from his post by President Cyril Ramaphosa.

A study by research firm Ipsos has supported allegations made by the Nugent Commission, finding the illegal tobacco market “exploded” after a Moyane-led SARS brought all investigations and inspections of cigarette factories to a halt. Worse still, just one manufacturer’s products, Gold Leaf Tobacco Company (GLTC), accounts for three quarters of the illegal trade nationally— this despite GLTC cigarettes being made in an officially SARS-licensed factory. Indeed, it is becoming increasingly clear the main benefactors of the illicit tobacco trade are the major tobacco players themselves.

Reports of the reality under SARS’ roof are similarly grim. Senior SARS internal fraud investigator Yousuf Denath last year accused Moyane of deliberately undermining investigations into the illegal trade, and simultaneously sabotaging internal corruption cases. Denath was suspended for 15 months as a result of what he claims were false allegations made by a well-known tobacco trader.

At the same time, the former head of the State Security Agency (SSA), Arthur Fraser, has alleged SARS was the target of deliberate intelligence operations aimed at curbing the agency’s investigation into tobacco smuggling and the local tobacco industry. Fraser’s allegations add to an already mind-boggling narrative befitting a Hollywood production, replete with “illegal interceptions”, triple agents, and mysterious thumb drives.

Unfortunately, it’s not an encouraging sign that Kieswetter has already delayed a tender for a system to track and trace tobacco products designed expressly to cut down on this underground trade. With the original deadline of 20 June fast approaching, the fact that SARS has not provided concrete next steps does not bode well for the agency’s supposed plans for reform.

The World Health Organisation (WHO) has deemed track and trace schemes essential to fighting the tobacco black market. These systems function by monitoring the movement of tobacco products from factory conveyor belts to customers’ pockets, as per the WHO Framework Convention on Tobacco Control (FCTC). As an international tobacco control standard to be implemented by signatory countries, the FCTC and the policy measures it recommends represent a major step toward eliminating the global black market; South Africa signed on in 2005.

“Tracking and tracing systems that enable states to follow the movement of tobacco products from the starting point of production to the end points of sale will be key to global efforts to block the illicit tobacco trade,” according to Dr. Filip Borkowski, Deputy Head of Unit at the European Commission’s Directorate General of the Health and Food Safety Unit.

Even so—indeed, likely because of these systems’ efficiency— these track-and-trace schemes have already been the target of worldwide interference by the tobacco industry. The FCTC is explicit that track and trace initiatives must be independent from the tobacco industry. Even so, international tobacco giant Philip Morris International (PMI) has mounted a concerted campaign to argue that its own system, Codentify, meets track-and-trace requirements. The fact that Codentify technology has been licensed, fee-free, to PMI’s competitors has raised eyebrows across the board. The fact that the major tobacco corporations have themselves been involved in cigarette smuggling has made it still clearer why they shouldn’t be entrusted with any of the responsibility for tracking their own products.

What’s more, despite the major players’ nominal support for a crackdown on illicit tobacco trade, allegations of industrial espionage, money-laundering and bribing of officials abound. As long as Big Tobacco is able to use the illicit tobacco trade to its advantage, it can never be trusted to be doing its fair share in contributing to SARS’ efforts to replenish the state coffers. With tobacco smuggling running rampant in South Africa, Kieswetter needs to take tangible steps fast, in order to restore the public credibility of SARS as an agency independent from the interests of the tobacco industry.