SA loses an estimated 10% of its GDP due to illegal trade with major loses recorded in alcohol, tobacco, pharmaceuticals and counterfeit consumer goods, according to a new report by Transnational Alliance to Combat Illicit Trade (Tracit), with Business Unity SA (Busa).
Counterfeit pharmaceuticals and consumer goods are prevalent, flooding informal markets and undermining legitimate businesses, the report notes.
In 2022, the government lost an estimated R18bn in revenue comprising R15bn in excise duties and R3bn in VAT due to illicit activities such as illegal alcohol and tobacco trade.
“Over a 20-year period from 2002 to 2022, the cumulative revenue losses in excise and VAT amounted to about R119bn,” the report says.
“Despite authorities’ efforts to address illegal trade, corruption and money laundering, illicit trade remains deeply entrenched and highly damaging,” said Esteban Giudici, Tracit director of programmes. “If left unchecked, it will continue to rob the government of vital revenues, distort legal markets and deter domestic and foreign investment.”
The report, which was released on Tuesday, comes amid SA’s push to remove itself from greylist of the Financial Action Task Force (FATF). SA aims to be removed from the international financial crime watchdog’s greylist by October.
“Illicit trade continues to pose a serious threat to SA’s economic stability, governance and international standing,” the report says. This comes at a time when the country is endeavouring to get itself removed from the greylist of undesirable investment destinations,” it says.
The illicit alcohol trade poses challenges, with the SA Revenue Service (Sars) estimating an annual excise tax revenue loss of R11bn, worsened by Covid-19 restrictions and price disparities.
“For example, tobacco products remain a primary concern. Their small size, durability, ease of transport and especially high profit margins make them a favourite among smugglers. Similarly, counterfeit pharmaceuticals, substandard alcohol and falsified consumer goods also continue to flood informal markets, driven by weak regulation, high demand and gaps in enforcement,” the report says.
The report recommends that the government tighten controls on money laundering by tracing, freezing, seizing and confiscating assets related to illicit financial flows and equip Sars, the Reserve Bank and the Financial Intelligence Centre with the resources they need to effectively combat illicit financial gains.
“Denying access to entities and mechanisms used to launder proceeds of crime and thereby depriving criminals and their networks of related profits is one of the most effective ways to deter illicit trade. This requires a holistic, comprehensive anti-money-laundering regime including the ability to trace, freeze, seize and confiscate assets related to illicit financial flows.
“Notably, three of the six remaining action items outlined for the last scheduled FATF reporting cycle pertain to demonstrating a sustained increase in the investigation and prosecution of complex crimes, including money laundering, terrorism financing and unlicensed cross-border money or value transfer services.
“This also highlights the need for the National Prosecuting Authority to enhance its capacity to prosecute complex crimes, including those linked to illicit trade.”
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