Illegal alcohol turnover in Latvia a brief situation description

1
Illegal alcohol turnover in Latvia a brief
situation description

• Andrejs Vilks - European Cities against Drugs,
  Head of Latvian representation
• Riga, October 2005

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Structure of the presentation (aspects covered)

• 1. Food and alcohol market characterization in
  Latvia
• 2. Illegal alcohol market trends
• 3. Legal responsibility vis-à-vis the breach of
  alcohol turnover regulation stipulated in the
  Latvian law
• 4. Future trends in the illegal alcohol market
  public alcohol addiction myth and reality

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1. Food and alcohol market characteristics in
Latvia
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Major food producers in Latvia GRAPH 10 major
food producers in Latvia (2002/million LVL)





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Alcoholic beverage sales figures and income from
the excise duty in Latvia (first 6 months of the
year 2005)Left pie graphIncome from excise
tax (1st half of 2005)Right pie graph Alcoholic
beverage sales (1st half of 2005)Red wines
purple brewed beverages blue standard
products yellow other alcoholic beverages
green beer
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GRAPH Total volume of alcoholic beverages sold
in Latvia (excluding beer) red thousands of
decalitres green thousands of decalitres
absolute alcohol 1st half of 2004 1st half of 2005
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Origin of the ethyl alcohol (thousands of
decaliters, absolute alcohol) Green alcohol
importedRed alcohol manufactured in Latvia1st
half of 20041st half of 2005
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Net turnover of Latvijas balzams from 1998-2002
(million LVL)
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2. Illegal alcohol market trends
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A conclusion from program on alcohol consumption
limitation and alcohol addiction limitation for
2005-2008

• Smuggling and illegal alcohol turnover
• In Latvia there exists sizeable turnover of
  unregistered alcohol mainly related to
  destruction of national economical interests
  (decreasing budgetary income due to the unpaid
  excise duties and value added tax), and also
  related to harmful and risky use of such drinks
  Frequently the drinks in this turnover are
  characterized by low quality, they may contain
  various harmful and even poisonous add-ins or
  mixtures (including methyl alcohol).
  Additionally, illegal alcohol turnover is mainly
  lower-income population orientated thus further
  enhancing the social degradation of this part of
  population. A certain role is played
  (particularly in rural areas) by the so-called
  moon-shining practice that is not aimed at
  generating sales, however, most frequently such
  practice is linked to organized crime, therefore
  it is essential issue not only from the
  perspective of alcohol problem elimination but
  also from that of the crime prevention.

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A program on alcohol consumption limitation and
alcohol addiction limitation for
2005-2008(approved by the Order of the Cabinet
of Minister No. 40, issued on 19.01.2005)

• As to the calculations of the State Revenue
  Service (SRS), illegal alcohol turnover in only a
  few categories of alcoholic beverages exceeds the
  official, declared amounts by 20-25. As to the
  WHO expert opinion at least 30 (maybe even 50)
  of the alcohol consumed is alcohol from the
  illegal turnover and adding the respective
  figures, Latvia saves itself a place in the
  group of countries with the highest alcohol
  consumption per capita within the WHO European
  region. An indirect proof to such calculations is
  the fact that the decrease observed has been
  almost exclusively on the account of the strong
  alcoholic beverages that is the most often traded
  good in the illegal turnover.

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Opinion of the Latvian Community of Producers and
Sellers on the current volume of trade in alcohol

• The volume of the product category subject to
  excise duty (alcohol) traded illegally has
  increased by at least 23 in the course of the
  last year. The ban on legal trade made illegal
  trade flourish and a simultaneously to witness
  increase in the illegal trade volume. Similarly
  the turnover in the illegal trade outlets has
  increased. Thus, in figures, Latvian State
  Treasury fails to receive at least 2,1 million
  LVL a year (01.09.2005) in taxes from the
  respective categories of goods.

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Objects and places of illegal alcohol origin

• Alcohol production as well as ethyl alcohol,
  other alcohol containing product production
  companies both legal and illegal manufacturing
  sites.
• Alcohol production, processing and packaging
  companies
• Excise tax product wholesale storaga sites
• Sales companies of alcoholic beverage (packaged
  and draft)
• Illegal alcohol sales counters

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The most popular alcohol smuggling methods

• Fictitious transit and re-exportation of goods
  that defines unfinished customs procedures
  (country of origin actual, country of reception
  fictitious)
• Provision of falsified information on the product
  code (hence decreased the amount to be paid in
  taxes)
• Hiding goods within other goods, and providing
  documentation on the legally transported goods.

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The most popular alcohol smuggling methods

• Adjusting the product appearance with that of
  other goods, providing forged documentation. In
  the country of trade a wrong product code,
  incorrect recipient, back details, etc.
• Cutting the value of correctly declared goods via
  the use of an off-shore company documentation

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Ethyl alcohol smuggling

• On September 14, the State Revenue Service
  department of Customs Affairs forwarded to the
  Prosecutors Office a Criminal case subject to
  criminal investigation, initiated on January 25,
  on 12 709 kg of undenaturated alcohol in the
  value of Ls 4454 on the charge of illegal
  movement of the goods across the border of the
  Republic of Latvia through Ainazi customs
  control, using forged documentation, therefore
  avoiding customs duties in the amount of 110
  539,87 LVL. The criminal activities were carried
  out in the period from September 15, 2003, until
  April 16, 2004. A certain limited liability
  company in the above mentioned period of time
  brought in goods from Estonia nine times applying
  customs procedure for free turnover. Using
  forged accompanying documents, goods were
  declared in Latvia as car-wash liquid, however,
  in reality it was undenaturated ethyl alcohol.
  Even after May 1, 2004 Latvian accession to
  the European Union the company continued its
  illegal activities, by continuing internal
  transportation activities resulting in the
  confiscation of 1528 kf of undenaturated ethyl
  alcohol that was to serve as factual evidence for
  a criminal case.

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Volume of alcohol smuggling

• In Latvia around 300 forty-square feet containers
  are brought in illegally (around 25 containers a
  month), which equals 6 million liters of alcohol.
• By selling the alcohol, annual profit amount is
  estimated at 27-30 million USD (profit per 1l
  4,5-5 USD). Therefore the state fails to receive
  excise duty and faces the loss of 33 million LVL
  (52 million USD)

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Article Title Latvia leads in alcohol
consumption (newspaper clipping/foreign news
section)
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3. Legal responsibility on the breach of alcohol
turnover regulation
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Criminal responsibility on the breach of alcohol
turnover regulation (1)

• Article 190 Smuggling
• (1) The activity of moving goods or other value
  over the customs border of the Republic of Latvia
  failing to meet the customs control requirements
  or through hiding goods or other value from such
  controls, or using forged customs or other
  documentation or through other illegal means
  (smuggling) and in case the activity is done is
  sizeable amount -
• is subject to punishment by imprisonment for a
  period of time from one year to five, or
  detention or money fine amounting to one hundred
  and twenty minimum monthly salaries, with
  confiscation of property or without confiscation
  of property

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Criminal responsibility on the breach of alcohol
turnover regulation (2)

• (2) the same activity, if performed in a group of
  persons subject to prior agreement -
• is subject to punishment by imprisonment for a
  period of time up to eight years, or money fine
  amounting to one hundred and eighty minimum
  monthly salaries, with confiscation of property
  or without confiscation of property.
• (3) Smuggling, if performed in a group of
  persons, as well smuggling of narcotic,
  psychotropic, strong acting, poisonous or
  radioactive substance, goods of strategic
  importance or other values, explosives, weapons,
  ammunition, gas pistols (revolvers), their
  cartridges or gas balloons filled with substances
  or poisonous or strong acting substance filled
  objects -
• is subject to imprisonment for a period of time
  up to ten year with confiscation of property.

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Criminal responsibility on the breach of alcohol
turnover regulation (1)

• Article 191 Stocking and selling illegally
  imported goods and other values
• (1) Stocking and transportation, sending or
  selling goods or other values that have been
  brought into the Republic of Latvia without the
  required documentation that would prove the
  legality of such values crossing the customs
  border and provided that such activity has been
  carried out repeatedly during one year -
• is subject to punishment by imprisonment for a
  period of time up to two years, or detention or
  money fine amounting to one hundred minimum
  monthly salaries, with confiscation of property
  or without confiscation of property.

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Criminal responsibility on the breach of alcohol
turnover regulation (2)

• (2) Stocking and transportation, sending or
  selling goods or other values that have been
  brought into the Republic of Latvia without the
  required documentation that would prove the
  legality of such values crossing the customs
  border and provided that such activity has been
  carried out by a group of persons subject to
  earlier agreement or that the activity has been
  sizeable in the volume, -
• is subject to punishment by imprisonment for a
  period of time up to five years, or money fine
  amounting to one hundred fifty minimum monthly
  salaries, with confiscation of property.

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Criminal responsibility on the breach of alcohol
turnover regulation

• Article 205 Breaching regulation on trade
• Conscious breach of trade regulations issued by
  public authorities with consequential essential
  harm to the state rights and interests of
  consumers under legal protection is subject to
• punishment by imprisonment for a period of time
  up to five years or detention or forced labor or
  monetary fine in the amount of one hundred
  minimum monthly salaries, stripping from the
  right to carry out certain professional
  activities for a period of time of five years or
  without it.

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Criminal responsibility on the breach of alcohol
turnover regulation

• Article 208 Ban on business activity
• For doing business that is subject to special ban
• shall be subject to imprisonment for a period of
  time up to five years or detention or monetary
  fine up to eighty minimum monthly salaries,
  stripping from the right to perform business
  activities for a period of time from two to five
  years.

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Criminal responsibility on the breach of alcohol
turnover regulation

• Article 221 Breaching the regulation on stocking
  and movement of alcohol and alcoholic beverages
• (1) Breach of the regulation on stocking and
  transportation of alcohol or alcoholic beverages,
  provided this activity has been carried out
  repeatedly within a year, -
• is subject to punishment or forced labor or
  monetary fine up to fifty minimum monthly
  salaries.
• (2) Breach of the regulation on stocking and
  transportation of alcohol or alcoholic beverages,
  provided this activity is carried out in a group
  of persons following an earlier agreement or if
  stocking and transportation breaching the
  respective regulations has been carried out in
  sizeable amounts, -
• is subject to punishment by imprisonment for a
  period of time up to two years, or monetary fine
  amounting to one hundred minimum monthly
  salaries, with confiscation of property.

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Administrative responsibility on the breach of
alcohol turnover regulation

• Article 155.3 Trade in alcoholic beverages and
  tobacco products in unsanctioned places The
  activity of trading alcoholic beverages and
  tobacco products in unsanctioned places is
  subject to monetary fine from one hundred to five
  hundred LVL or administrative detention for a
  period of time up to fifteen days, with
  confiscation of beverage and tobacco products
  found at the place of trade.(17.03.2005. version
  of the Law, that came into force on 15.04.2005)

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4. Future trends in the illegal alcohol market
public alcoholization myth and reality
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Changes in illegal alcohol turnover in Latvia as
an EU member state

• - Insufficient technical equipment (at the
  customs and border control)
• - Decreasing numbers of customs and border guard
  employees
• - The transparency of the EU internal borders
• - Increasing stability of organized criminal
  groups at the EU buffer zones
• - The increase of the total transit operations
• - Minimum control of transportation activity and
  goods
• Illegal trade under the current circumstances, on
  the basis of objective preconditions is
  increasing dramatically. Eventual public alcohol
  addiction a dangerous and objectively defined
  reality.

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THANK YOU.