COVID pandemic exposes growing illegal trade threat to ASEAN region

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In January, police seized illegal cigarettes valued at over HK$150 million. Policymakers, business leaders, trade negotiators, academics and economists must join forces to stamp out illegal trade across all industries.

Photo by Chester Ho on Unsplash.

It seems like almost every other day there’s a major illicit cigarette bust in Hong Kong. As the COVID-19 pandemic stretches law enforcement and border force agencies to a breaking point, criminal networks strengthen their hold on the black market.

Last year, Hong Kong customs confiscated more than HK$560 million (US$72 million) worth of contraband cigarettes, up 270 per cent from the HK$151 million in seizures made in 2019. Yet in January 2021 alone, authorities in Hong Kong seized more than HK$150 million worth of illegal cigarettes

As the pandemic has thrown countries into chaos — claiming lives, disrupting supply chains, stretching healthcare systems, and distracting law enforcement — criminal networks have flourished. Globally, smuggling, counterfeiting and related illegal activities account for US$2.2 trillion annually, while trade in counterfeit goods was valued at US$461 billion in 2013.

Criminal networks are using COVID-19 to make a fast buck from fake medicine. The leader of a multi-million-dollar scam was recently arrested in China for passing off saline solution and mineral water as COVID-19 vaccines. This is one of 70 similar arrests, as Beijing cracks down on the vaccine fraud that is now gripping the country. 

The man, identified as Kong, had researched packaging designs of real vaccines before making more than 58,000 of his own concoctions. According to a court ruling, his team made a profit of CN¥18 million (US$2.78m).

These fake COVID-19 vaccines are only the latest pharmaceutical scam to hit the region. According to the Organisation for Economic Cooperation and Development (OECD), the most frequently counterfeited medication class is antibiotics, which accounts for 35.4 percent of the value of all seized counterfeit drugs, followed by male impotence pills (15.6 percent), painkillers (10.4 percent) and anti-malaria pills (8.9 percent).

The UN Office on Drugs and Crime (UNODC) says there has been an alarming rise in falsified medicines detected in Southeast Asia in recent years, including falsified rabies vaccines, anti-cancer medications, antimicrobial treatments, anabolic steroids, sleeping pills, pregnancy test kits, and drugs for infertility and weight loss.

The OECD’s “Illicit Trade in a Time of Crisis” report warns that labour shortages, lockdowns and shifting priorities in government agencies, together with global transport restrictions, are resulting in an increase in illicit trade.

Meanwhile, e-commerce is the ideal sales channel for counterfeit COVID-19 related medicines, face masks and other goods, as more people stay home and shop online. In fact, the boom in e-commerce, along with ineffectively enforced customs procedures, is providing the perfect opportunity for criminals to exploit the broken supply chain.

Indeed, the International Chamber of Commerce predicts that global counterfeit trade will reach US$4 trillion by 2022, primarily fueled by e-commerce.

Illicit alcohol is also a major problem, with unlicensed distilleries packaging products to look like established brands or filling fake liquid in original bottles. Such operations harm brand reputation, cause tax shortfalls, and have also taken lives, according to the Transnational Alliance to Combat Illicit Trade (TRACIT). In fact, a WHO report forecasts that ASEAN will be the region with the highest consumption of unregistered alcohol by 2025, at 4.5 to 6.2 litres per capita per year.

Though almost all industries are affected, illicit trade in alcohol, tobacco, toys, games, automotive parts, and pharmaceuticals is particularly rife in Asia. Copyright piracy is also a perennial issue. In the automotive industry, fake brake pads and airbags, which are critical to car safety, are being found in large volumes.

Not only do counterfeit and substandard goods pose an enormous threat to public health, but they also rob the global economy of trillions. In ASEAN, the counterfeit goods market was worth US$35.9 billion in 2018, according to a paper published by the EU-ASEAN Business Council (EU-ABC), with US$3.3 billion in tax revenue lost annually from smuggled cigarettes. 

Instead of helping to rebuild the economies of countries navigating their way out of the COVID-19 crisis, this money is lining the pockets of criminals. Worse, in the case of the illegal tobacco trade, it provides an ideal funding source for corrupt officials, people traffickers and even terrorist groups. 

Policymakers, business leaders, trade negotiators, academics and economists must join forces to stamp out illegal trade across all industries, as well as ensure access to legitimate products for consumers.