The Ministry of Finance proposed to introduce criminal liability for the production and sale of tobacco products without a license. If it is adopted, the maximum penalty for manufacturers and suppliers of counterfeit goods will be three years in prison.
The draft laws "On Amendments to the Criminal Code of the Russian Federation and the Code of Criminal Procedure of the Russian Federation" and "On Amendments to the Code of Administrative Offences of the Russian Federation" have been submitted for consideration by the Government Commission on Legislative activity. The accompanying documentation to the laws prepared by the Ministry of Finance states that they are aimed at introducing state regulation of the production and turnover of tobacco products.
RBC has the corresponding package of documents, its authenticity was confirmed by a source in the government.
The project was approved by the departments involved in its implementation, including the Ministry of Agriculture, the Ministry of Internal Affairs, the Ministry of Economic Development, Federal Service for the Regulation of the alcohol market, the Ministry of Industry and Trade. The allocation of additional budgetary funds will not be required.
The press service of the Ministry of Finance confirmed that such a package of bills is being considered at the government site. "The Ministry of Finance has prepared a bill that introduces state regulation of the production and turnover of tobacco products, nicotine—containing products and raw materials for their production within the framework of a separate industry law with the establishment of specialized control," the press service of the Ministry reported. They also noted that it is proposed to use the already established system of state regulation and control of the alcohol market as a regulatory model; at the same time, comprehensive state regulation of the tobacco industry and a reduction in the volume of illegal production and turnover of tobacco and nicotine-containing products are expected. The ministry noted that this will ensure the safety of such goods for consumers, as well as protect the economic interests of the country, and that together with the draft industry law, the necessary amendments to the Administrative Code and the Criminal Code of the Russian Federation have been developed in terms of countering the illegal production and trafficking of tobacco goods, tobacco products, nicotine-containing products and raw materials for their production.
What strictures are contained in the draft laws
The bill provides for amendments to Article 171.3 (illegal production and (or) turnover of ethyl alcohol, alcoholic and alcohol-containing products). The words "tobacco goods, tobacco products, nicotine-containing products and raw materials for their production" are added to the title of the article.
In the final version, the article will state that the production, purchase, storage, supply (including when importing into the Russian Federation and exporting from the Russian Federation) of tobacco goods, tobacco products, nicotine-containing products and raw materials for their production without an appropriate license in cases where such a license is mandatory, committed on a large scale, will be punished with a fine from 500 thousand to 1 million rubles or in the amount of the convicted person's salary or other income for a period of one to three years, or forced labor for up to three years, or imprisonment for the same period with deprivation of the right to hold certain positions or engage in activities for up to three years.
It is also proposed to change the CPC, which will add provisions on the rules for the withdrawal of tobacco products and equipment for its production from illicit trafficking: "Tobacco goods, tobacco products, raw materials for their production, nicotine-containing products, nicotine-containing raw materials, semi-finished products, production, transport, consumer packaging (packaging), labels used for the production of tobacco goods, tobacco products, raw materials for their production, nicotine-containing products and nicotine raw materials are subject to destruction in accordance with the procedure established by the Russian government". Equipment for the production of tobacco products will be subject to disposal. During the investigation period, the products, raw materials and equipment seized from illegal circulation will be videotaped and sealed.
The rules for handling tobacco products withdrawn from illicit trafficking, as well as items that are used for illegal production and (or) trafficking, are similar to those that apply to illegal alcohol, equipment for its production and transportation, the explanatory note marks.
The draft law "On Amendments to the Code of Administrative Offences of the Russian Federation" introduces measures of administrative responsibility for offenses in the field of production and turnover of tobacco products — the system of fines will be similar to that applied to producers of illegal alcohol.
What is the reason for the changes in the Criminal Code
The explanatory note to the draft amendments to the Criminal Code states that the measures are due to an increase in the share of the shadow sector in the tobacco industry. According to experts, the share of illegal tobacco products in the Russian market has increased from 1.5% in 2016 to 10.7% in 2021. According to the Accounts Chamber, the amount of federal budget losses from the sale of illegal tobacco from 2016 to the first half of 2021 amounted to 295.6 billion rubles, including 246.3 billion rubles for lost excise taxes, 49.3 billion rubles for VAT.
The document also provides data on smoking—related mortality in Russia - 266.5 thousand people per year. The authors of the bill are sure that consumers of counterfeit products risk their health more, since they are not checked for compliance with technical regulations and state standards.
The authors of the novel suggest that changes in the Criminal Code will lead to a gradual decrease in the share of the illegal tobacco market, which will eventually amount to 10% by 2024, 8% by 2026, and 5% by 2028. At the same time, the growth of additional revenues to the budget is projected: in 2024 — 34 billion rubles, in 2026 — about 50 billion rubles, in 2028 — 74 billion rubles.
The Ministry of Internal Affairs reports on the results of the work of the internal affairs bodies to combat the illegal production and trafficking of counterfeit and counterfeit products included in the package of documents to the bills, states that in the first half of 2021, the police registered 1,146 such crimes, identified 512 persons, 350 criminal cases were sent to court. In 2020, the Department of Internal Affairs registered 1,727 crimes, identified 648 persons, and sent 478 criminal cases to the court. In 2019, the Department of Internal Affairs registered 1,263 crimes, identified 474 persons, and sent 337 criminal cases to the court.
How can these measures affect the counterfeit market
Representatives of the tobacco industry are confident that the bill will contribute to countering the illegal turnover of tobacco products. A representative of JTI in Russia (Winston, LD, Mevius, Camel brands) told RBC that over the past few years, the share of the illegal cigarette market has increased by an order of magnitude, from 1% in 2015-2016 to 12.9% in the third quarter of 2022, according to a research by the National Scientific Center Competence in the Field of Combating Illicit Trafficking Industrial Products.
"We support the package of bills developed by the Ministry of Finance, - says the interlocutor of RBC.
"Tightening liability is one of the important tools for combating illegal trade, which, in combination with digital marking, a single minimum price and other legislative measures adopted in recent years, will contribute to the whitewashing of the tobacco market and the market of nicotine-containing products." At the same time, systematic work is important to curb the illegal turnover of these products and to tighten control by law enforcement and supervisory authorities in each individual region of the Russian Federation, the representative of the company believes.
The representative of Philip Morris International affiliated companies in Russia (Marlboro, Parliament, as well as IQOS tobacco heating systems, etc.) believes that the measures being prepared, together with a number of other changes proposed by the draft law of the Ministry of Finance, are designed to systematize and improve existing practices of countering illegal trafficking, which will further reduce the share of the illegal market and as a consequence, an increase in the filling of the state budget.