ALDERMAN, Mr Tony, Coordinator, Legislation Program, Australian Federal Police

CONNELLY, Assistant Commissioner Shane, National Manager, Crime Operations, Australian Federal Police

GEDDES, Ms Linda, First Assistant Secretary, Traveller, Customs and Industry Policy Division, Department of Immigration and Border Protection

GRANT, Mr Richard, National Manager, Operations and Investigations, Australian Crime Commission

NEWMAN, Dr Nathan, Acting National Manager, Strategic Intelligence and Strategy, Australian Crime Commission

OSBORNE, Commander Paul, Manager, Crime Operations, Australian Federal Police

SEEBACH, Mr Anthony, Acting Assistant Commissioner, Investigations, Australian Border Force

[14:42]

CHAIR: Welcome. I remind committee members and officers that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policy or factual questions about when and how policies were adopted.

Thank you all for appearing before the committee today. Firstly, I invite each group to make a brief opening statement, and the committee will then ask questions.

Mr Grant : The Australian Crime Commission will not be making an opening statement.

Ms Geddes : Thank you, Chair. The Department of Immigration and Border Protection has an opening statement. Stopping illicit tobacco is one of the Australian Border Force's key operational priorities. The department, including the ABF, is committed to combating tobacco smuggling in collaboration with government, industry and international partners. The department detects, deters and disrupts the illicit trade of tobacco before the border, at the border and in the post-border environment. The department is also responsible for managing the flow of legitimate trade across the border and collecting customs duties and taxes on legitimately imported tobacco products.

We undertake a range of activities to regulate and enforce illicit tobacco, working with other Commonwealth policy, regulatory and enforcement agencies as well as industry. We have stood up a cross-agency illicit tobacco interdepartmental committee, which develops and drives whole-of-government responses to illicit tobacco. The department recognises that, if we are to be successful in combating trade in illicit tobacco, we must also work with industry. To that end, we have established the Illicit Tobacco Industry Advisory Group to provide a forum in which government and industry members can share information about the illicit tobacco environment and work together on measures that address illicit tobacco.

On 16 October last year, the Minister for Immigration and Border Protection announced the establishment of a tobacco strike team within the ABF. The strike team focuses on identifying, disrupting and dismantling criminal groups engaged in the supply of illicit tobacco. My colleague Anthony Seebach will talk more about that shortly.

The department's approach at the border is risk based and intelligence led, enabling us to respond effectively to threats and opportunities. The department has established a specialist illicit tobacco intelligence unit. The unit has enhanced the department's understanding of the illicit tobacco trade and provided actionable intelligence products that have led to the detection of significant quantities of tobacco and cigarettes.

It is a crime for anyone to bring tobacco across the border without paying revenue. Illicit tobacco, however, is not just a risk to Commonwealth revenue. Criminals see trade in illicit tobacco as low-risk high-reward, and the illicit tobacco trade has serious criminal implications. There are clear links between tobacco smuggling and smuggling of other commodities. Trade in tobacco or illicit tobacco is used to launder money, and tobacco smuggling funds more serious criminal activity. Thank you.

Mr Connelly : I thank the committee for inviting us here today. The AFP works closely with key partners, including Australian Border Force, state and territory police, the Australian Taxation Office, the Australian Crime Commission and AUSTRAC, by combining skills, intelligence and investigative resources with respect to illicit tobacco importation and cultivation. Within the Commonwealth, each agency brings its own powers and capabilities to the table to jointly address serious criminal activity, such as organised criminal involvement in the trade of or creation of illicit tobacco. Primarily the AFP works with the Australian Border Force to identify, deter and disrupt organised transnational criminal groups and to prosecute breaches of Australia's border legislation.

The AFP continues to have a critical role in tobacco investigations. The joint waterfront task forces are multi-agency initiatives established to target serious and organised crime on the waterfront across the east coast of Australia. The task forces commenced with the establishment of Task Force Polaris in New South Wales in July 2010. Under the administration of Task Force Polaris, a significant amount of work was conducted to identify vulnerabilities in the waterfront environment for the purpose of developing recommendations regarding changes necessary to reduce the impact of criminality and improve security on the waterfront and related supply chain environment. This has since been replicated in Victoria, with Task Force Trident, and in Queensland, with Task Force Jericho. To date, the task forces, with the support of the AFP-led Criminal Assets Confiscation team, have conducted investigations resulting in numerous arrests, significant forfeiture of proceeds of crime and disruption of organised crime.

The AFP considers all referrals from the AFP and any other agency on a case-by-case basis to ensure the Commonwealth's resources are applied to those matters with most significant impact and highest priority. Factors that contribute to the AFP accepting a matter for further investigation include whether the detection meets the agreed threshold, whether there is an identified organised crime element involved and whether the acceptance of the investigation is balanced proportionately against competing operational priorities.

Importantly, as you will see in our submission, the AFP notes that, while we consider section 233BABAD of the Customs Act provides a useful offence and a strong deterrent to criminals considering importing illicit tobacco, there are some changes that could strengthen the offence, such as a rebuttable presumption of intent to defraud the public revenue. This would address the challenge of establishing one of the elements of the offence, that being the offender intended to defraud the revenue. The AFP has suggested that the committee may wish to consider whether the model under section 307.14 of the Criminal Code, 'Presumptions for importing and exporting border controlled precursors', would benefit. That is our submission. Thank you, Chair.

Senator LEYONHJELM: Just a quick aside for the Australian Crime Commission and also the department: we had the Australian Institute of Health and Welfare in just earlier, and they conceded that their survey was not intended to determine the size of the illicit market, yet both of you have quoted them as indicating the size of the illicit market. I am not going to labour the point; I just make the point to you that the Crime Commission has said 'the best estimate', and the institute have said it is not even an estimate. The Institute of Health and Welfare did concede that they could not see anything wrong with KPMG's methodology, yet the department's submission says they consider the findings unreliable. I am just pointing that out to you.

What I am interested in is understanding what you can tell us about the nature of the people doing the importing of illicit tobacco. Just before you came along, we heard from Sir Ronnie Flanagan, who knows about Dubai as a source of illicit tobacco. Are you finding that that correlates with your investigations? We also heard earlier today that South Korea and China are the principal sources of illicit tobacco. Do you have a fix on where the tobacco is coming from and who is involved in it? I am not looking at anyone in particular but for anyone who feels they can answer.

Mr Seebach : We would concur with those views. The evidence suggests that most of the illicit tobacco imported from Australia comes from the Middle East and Asia.

Senator LEYONHJELM: So you are finding Middle East sourced stuff as well?

Mr Seebach : Correct.

Senator LEYONHJELM: Not just that single seizure?

Mr Seebach : No.

Senator LEYONHJELM: So there is more than that from the Middle East?

Mr Seebach : Yes.

Senator LEYONHJELM: All right. Thank you. 'Asia' is South Korea and China?

Mr Seebach : They would be two of the key countries, but there are other countries as well.

Senator LEYONHJELM: What do you know about the product? Is it made just for the Australian market, or is it the same as what they sell domestically and then, because of the price difference, it is just worth their while to take what is manufactured for their local market, and then it ends up being imported into Australia illegally?

Mr Seebach : On some of this, I will probably take the opportunity to provide a little bit more detail in camera. However, those that are involved in these activities will use a range of different methodologies. Some of it will be manufactured legally in those other countries and then, by deception, ultimately end up in the Australian marketplace or as attempted imports into Australia. There may be cases where some of that tobacco is manufactured, still legally, within those countries but with the intention of ultimately importing it into Australia and avoiding duties.

Senator LEYONHJELM: What I am trying to establish is: is the Australian illicit market sufficiently attractive, big enough, to warrant manufacturing specifically for it?

Mr Connelly : Maybe I could help with just one case that the Polaris task force was able to dismantle. In this case, there were both 121 tonnes of smuggled tobacco leaf products and 94 million smuggled cigarettes. I think the answer is at best, 'Yes,' and, 'Both'—both manufactured cigarettes and loose leaf tobacco that can be utilised either through manufacture or through other means of smoking.

Senator LEYONHJELM: I guess where I am heading with this is that in China there are more smokers than you can poke a stick at. If they are making for the Chinese market and then they just do an extra two hours run, they would probably have enough to supply everyone in Australia for a year. I am wondering whether that is the primary source or whether people are sitting there saying: 'Okay, that Australian market looks pretty good. I think we'll make some just for them.' I am happy if you say 'I don't know' or 'I can't tell you.' I am just interested to know whether you are able to let us know.

Mr Connelly : I think in terms of any illicit good, ultimately, a wealthy country where the price of a commodity is high will make the illicit good attractive. We see that in narcotics, and I do not think it is a bad assumption that we would not also see that in illicit tobacco, particularly, as your previous speaker said, if it is significantly cheaper to the user than the licit market.

Mr Seebach : I will add a couple of things. In the scenario that you put forward in China, I guess we would say that, based on some of the things that we are seeing, it would not only be made for the Australian market potentially but for markets around the world. We have a number of cases that have involved products made and packaged for the Australian market—for example, we have seized or seen tobacco commodities in plain packaging, so clearly it has been manufactured for the Australian market.

Senator LEYONHJELM: Yes, I do remember reading that. I will think about some more questions, Chair.

CHAIR: This may be a question to all of you. Is it an issue when you are undertaking your jobs that, where you are enforcing other drugs—whether it be cannabis, marijuana, cocaine, methamphetamines—that those products are all illegally made in the country of origin and therefore you have a certain level of cooperation with international law enforcement agencies; however, when it comes to cigarettes, it is highly likely that the products are actually lawfully made and the crime is actually not committed until they are illegally imported into Australia?

Mr Seebach : That is correct. It is a different dynamic in the context of tobacco but, nonetheless, we still receive and seek collaboration from our international partners around the world. They have assisted us and continue to assist us in addressing crimes committed in this country where the source of the commodity may be in their own country.

CHAIR: But, if the product is, say, made lawfully in that country, it may not actually be a criminal offence committed in that country. The offence is in Australia with fraudulent documentation and attempting to evade the duty; whereas, if it were other drugs, there is an offence in both countries.

Mr Seebach : That is correct, but a number of the individuals who may be involved in trying to defraud the Commonwealth and move the illicit tobacco into this country may also be present in those host or home countries. So there are opportunities for us to leverage the capabilities of our foreign partners to obtain information and other intelligence on those individuals in terms of the ways in which they may be operating. That may well support or help criminal investigations in this country.

Mr Connelly : We would agree with what has been said and, ultimately, in a situation where you are going for mutual assistance, it is certainly easier if you have got a dual criminality situation than if you do not. Depending on the source country, the desire to show attention to that can be from very strong to very weak. In a dual criminality situation, I think it is fair to say you are in a stronger position to mutually assist each other through normal means.

CHAIR: So there is no offence committed in those countries by actually dispatching the goods to Australia?

Mr Connelly : We could not answer that. It would vary on a country-to-country basis. There may well be but there may not. It would depend on the country, because there may well be exportation excises being collected that are not being declared to. As I said, it depends—

CHAIR: But, generally, the process is lawfully made product in the country of origin, you would imagine, in most circumstances.

Mr Seebach : I probably would not be prepared to say in most cases. I think it does happen and, as the assistant commissioner said, there may well be relevant offences in those countries but it will depend on the nature of the country. Indeed some of the methodologies might involve trying to hide the nature of the commodities being imported into Australia to falsely declare on export as well, in which case there may well be offences in those countries that we could leverage for gaining that extra support.

Senator LEYONHJELM: On enforcement—this is probably for Mr Connelly and Commander Osborne—you mentioned the proceeds-of-crime provisions. At what point can you apply them in the case of illicit tobacco?

Mr Connelly : Paul is getting the relevant section. Certainly we have applied restrained assets in terms of the proceeds of crime. Obviously, as is the case with all proceeds of crime, we need that underpinning criminal act, which we would have, depending on the circumstances of the offence. I am fairly sure that, in one case that was around December this year, about $8 million worth of assets were seized in relation to one of those Polaris activities. So you have your primary investigation—as was the case there by the Polaris task force—in terms of the criminality and the importation, and then you have, I guess as a parallel process, the proceeds-of-crime unit working to build a proceeds brief and showing the link between the criminality and the profits that have led to their achievements.

Senator LEYONHJELM: Am I right in assuming that you can only do that in relation to an import if somebody is apprehended importing the product? It is just the offence relating to the border, if you like, where that can be applied? Am I right there?

Mr Alderman : You are correct. There needs to be, generally, some sort of link to criminality before it can be seized.

Senator LEYONHJELM: I know it needs to be linked to criminality. I am talking about which criminality.

Mr Alderman : The Proceeds of Crime Act provides a fairly broad basis, in some senses, to be able to—initially as well—restrain proceeds of crime. The actual offence may be proved afterwards, so we have two phases there that it is important to consider. At first, when there is established a sort of suspicion or criminal activity that has been identified and someone has been charged, that may provide grounds to apply for restraint of those proceeds of crime. However, they are effectively then held in trust, almost, by the Commonwealth, or, if it has been undertaken under state based proceeds-of-crime legislation, it may be under that scheme there. Those goods are then not necessarily forfeited until after the criminal offence has been proven.

Senator LEYONHJELM: Am I right in assuming that the offence on which you would base that would be evading excise, if you like—bringing them in and not paying excise? Would that be right?

Mr Alderman : Not necessarily. As I think I was saying, there is an offence for the importation under 233BABAD, the smuggling offence, bringing in illicit goods.

Senator LEYONHJELM: Bringing in illicit goods?

Mr Alderman : Yes. I can provide you on notice, perhaps, with a list of some of the offences that we have actually looked at and where we have restrained in these matters. I can provide that to you on notice.

Senator LEYONHJELM: If you would, yes, that would be good. Where I am heading with this is to get your perspective on some of the complaints we heard from the tobacco companies this morning that the legal options, if you like, for suppressing the illicit trade are not as good as they would like them to be, anyway. If the goods are apprehended—so someone has a container full of smokes from China or Korea or the UAE or somebody like that and you apprehend them—and you find out who the individuals are, you can jump on their assets and restrain them? I am assuming that that would be the normal course of events.

Mr Connelly : They conduct an investigation of the predicate offence—the breach of the Customs Act, the Crimes Act, the state act; whichever act it is—and then the secondary process is the proceeds-of-crime process.

Senator LEYONHJELM: Fairly similar to drug importers?

Mr Connelly : Absolutely.

Mr Seebach : If I might add: when we are dealing with criminal syndicates, whether they are involved in the importation of illicit tobacco or narcotics or other things, we look at all the capabilities that we have available to us collectively. So while we may well be running a criminal investigation we will also be exploring opportunities to confiscate proceeds of crime and look at things like unexplained wealth as well. We will not always be able to take those forward but certainly those options are considered in a holistic way as we move forward in those investigations.

Senator LEYONHJELM: Suppose a container full of smokes gets past you at the border—arrives in Australia—and you are not aware of it but then it becomes obvious at a later stage that they are being sold into the community, retailed around the place and maybe even transported around the country to be retailed. From a Commonwealth perspective, what are your options at that point? I realise there are state laws here too but, from a Commonwealth, perspective what are your options at that point?

Mr Connelly : You have still got the importation offence. Just because it has left the water does not mean that offence has ceased. So as long as we can go back to that point in time and show the importation, there are still opportunities under the Commonwealth offences there. With the Polaris task force, which is in New South Wales, we work with the New South Wales police there so they can look at state based offences there as well. I am not au fait with state offences around tobacco revenues but certainly they can bring in their expertise there. So while the offence does not end just because it has crossed the border, the options can actually improve in some ways. But what I would say, though, is that you may have problems proving that what you have now got is what came in. There is no test that I am aware of to prove that a particular loose-leaf tobacco is from a particular country. We are not aware of DNA testing that would say whether it is a Middle Eastern tobacco or tobacco that was created in Mildura. So for loose-leaf tobacco that may cause some problems at law. Certainly, we do not just end the investigations at the border; that is not stopping point.

Mr Seebach : I will add a couple of things to that. It would be fair to say that the ability to prove a high-end tobacco smuggling offence becomes harder once that illicit tobacco starts to move around the domestic market. The thresholds that we have to establish—proof of knowledge, proof of origin and those sorts of things—are substantial. So in those cases it often becomes harder to make out that offence.

However, I want to dispel some myths around the lack of connectedness between agencies and those sorts of things. This is unsubstantiated. We work very well together at a Commonwealth level and, where there are opportunities to do so, we certainly share our intelligence and other information with state and territory authorities to enhance their ability to regulate and prosecute relevant offences at a state and territory level also.

Senator LEYONHJELM: I do not think we have had anybody suggesting you do not cooperate on this subject. There are plenty of other times we hear that, but not today. I suppose the main interface where there are suggestions that you guys might take it more seriously or less seriously than somebody else is at the state-federal level. We have heard complaints today that the state police do not regard illicit tobacco as a very high priority at all, so prosecution of low-end traders, for example, is either non-existent or relatively token. Does the AFP get involved at that level, or not?

Mr Connelly : If it is outside of the task force arrangement it is highly unlikely that we would.

Senator LEYONHJELM: You would leave it to the state police?

Mr Connelly : Yes. I cannot speak for the states—like them, we have other priorities—but it would be based on the priorities of that state at that time and in that town. Certainly in the task force arrangements the connectivity is there, as Anthony has said. I think the task force arrangement brings out an all-hazards approach—looking at criminality holistically rather than just by commodity.

Mr Seebach : I would like to reinforce that too. We have received some favourable comments about establishing the tobacco strike team and we welcome those, but it is not a one-trick pony. It goes to that all-hazards all-crime-types approach. We have done a lot over the recent years to harden the supply chain against criminal infiltration, and that has included working with our colleagues in the AFP and others to establish joint agency waterfront task forces. We have also implemented a range of other measures to harden that supply chain which also takes into account and leverages off our regulatory responsibilities over a number of entities that are involved in that supply chain—customs brokers, customs licenced depots and warehouses—where we have sharpened the arrangements with those entities to deter criminals from infiltrating those bodies.

Senator LEYONHJELM: Even in the time I have been in the Senate and attending estimates there has been a noticeable increase in your focus on illicit tobacco.

Ms Geddes : If I may add one last thing on proof of origin. I think we are all in agreement that it is an issue. We are working very closely with other agencies and we are listening to industry and bringing about legislative reform to increase prosecutions and penalties in this area as well.

Senator LEYONHJELM: Do you have some legislation on the works?

Ms Geddes : Very early stages.

Senator LEYONHJELM: Broadly speaking, what direction are you likely to head in that?

Ms Geddes : Some of the things that you would have heard from the tobacco industry this morning around determining proof of origin, the penalties around the Excise Act and tiered offences in the Customs Act. But we are at very early stages.

CHAIR: Table 3 of your submission has the example of the potential profit from one 40-foot container. The import cost is roughly a dollar a packet and the black-market price is around $10 a packet. That seems consistent with other evidence that the committee has had. Is that ratio of a dollar cost to $10 profit, 10 to one, substantially less than other forms of illicit trade? I apologise. That was in the confidential submission. I should speak in general terms. It is a thousand per cent mark-up on a product. Is that a little below what you normally see for other forms of illicit activity?

Mr Seebach : If I could respond in a general way. The profitability for trading in illicit tobacco is very, very high, particularly compared to other commodities when you also take into account the risk. There are significant profits and small risks.

CHAIR: There is less risk of getting caught and the penalties if you do get caught are less than other activities, or a combination of both?

Mr Seebach : Probably a combination of both. There is certainly a perception out there with criminals that the risk of getting caught and/or receiving a significant sentence if they are caught is much lower than if they were involved in something like narcotic trafficking.

CHAIR: The other one is the importation of cigarettes through the mail. The example I give is that of one of my staff members who imported some telephone covers from China. The entire cost was $1.30, which included the postage from China and the goods that they were purchasing. If someone were to order cigarettes online and have them posted through the mail in a small quantity, what are the current penalties they could face?

Mr Seebach : They would still be subject to a range of Customs Act offences if they were seeking to evade the payment of duty on those cigarettes, and they could vary from low-level pecuniary penalties to more significant pecuniary penalties. It would be highly unlikely that you would reach the threshold for applying something like the serious tobacco smuggling offence to that type of importation, but again there would be a range of offences—false declaration and those sorts of things—that would potentially apply. We also have a number of other administrative sanctions that we might be able to apply in that context as well—infringement notices in lieu of prosecution.

Mr Connelly : I could add to that. You will see from our submission that one of the concerns we had was that there is a need under the current section 233BABAD to prove a person is importing, conveying or possessing tobacco products 'with the intention of defrauding the revenue'—that is, evading the relevant duty. The example that you give, proving the defrauding of the revenue, may be more difficult than prosecuting someone who has a large quantity—an importer who does this on a day-to-day basis. Anthony is quite right about that. We have suggested that the intention to defraud needs to be reconsidered. Clearly, there is tobacco that is coming here legitimately, where duty is being collected, and it is being sold through the retail network—professional importation that meets all the requirements of the law. To go through a criminal process for a case like that, you would have more issues with police having other priorities for a start and then you would have a long legal process that you could well lose in any case because you have not shown the intent to defraud. It is something we pointed out in our submission and it is something we think is worthy of considering.

Mr Seebach : That is right. Our response has to be proportionate. There will be opportunists who seek to buy cigarette online and move them through the mail stream and those sorts of things, which is quite different to an organise criminal network who systematically abuses the system to import large quantities of illicit cigarettes through that channel or other channels.

Senator LEYONHJELM: There is the intention to defraud point that Mr Connelly made. We have made a note of that and will have a closer look at that.

CHAIR: Going on to the types of cigarettes that we are seeing imported, you mentioned earlier that some of them are in exactly the same plain packaging that we are seeing, so there would be very little to distinguish them at the retail level, that it is not actually a legal product. Is that less prevalent or more prevalent, or are there only one or two of those?

Mr Seebach : I will make a general comment. Those cigarettes are clearly made for the Australian market. That does not mean they are counterfeit goods. In fact, we have only found one instance of counterfeit goods in plain packaging. The reality for us is that plain packaging really makes no material difference to our ability to identify, detect and investigate illicit tobacco offences. In that context, plain packaging itself probably does not make material difference to us in terms of our—

CHAIR: I am talking about the retail level, when it is sold in a shop. It would be much harder for a consumer to distinguish whether they are buying a lawful product or an unlawful product.

Mr Seebach : If they were being sold for the same price, probably so, but, if the plain packaged cigarettes were being sold for half the price, I would suggest that the individual purchasing them would have a fair idea that they were, you might say, under the counter.

CHAIR: There is obviously the potential for a retailer or a wholesaler, somewhere along the chain, to pocket the profit for themselves rather than pass it on.

Mr Seebach : I think the important thing for us is the fact that it becomes increasingly difficult for us to prove the offence where that occurs, because for the individual concerned, regardless of whether they may or may not have known that it was illicit tobacco, I guess it would be harder for us to prove those fault elements for the offence where the illicit tobacco looked exactly the same as the licit tobacco.

CHAIR: I have a question for the assistant commissioner. Say someone rings up on one of the police's anonymous lines and reports that the shop down the road is selling illegal cigarettes. What are the general steps you would go through? Is that something you would pass on to your state colleagues? Is it something the AFP does? Is there a set process by which you would handle an inquiry like that?

Mr Connelly : Most of those sorts of reports would come through the Crime Stoppers network—that is probably the major receipt of police information in Australia—or direct to state police, and then it is incumbent on the receiving agency to provide that down the line. Obviously the main players in this would be Border Force in relation to the collation of that intelligence to see where we could take this, and testing the allegation, because sometimes people make malicious or spurious allegations. Ultimately it comes back, though, to a point you made earlier, and that is that at a local level in a small country town that may not be seen as a priority; it may be a simple case of providing the intelligence report through to the central intelligence collection part of that state or territory police force, and then provision to Border Force through the existing networks.

Where we become involved is the other way around, where we are looking at large-scale criminality, usually in a joint task force arrangement, and then all illegal activity of that transnational crime group is looked at, including, as would be the case, illicit tobacco importation. So, as I said earlier, it is more of an all hazards approach for us. The commodity is not important; what is important is that there is a breach of Commonwealth law, dismantling for breaches of Commonwealth law is, at the end of the day, our game.

Mr Seebach : If I could just add something to that, we also have, similar to Crime Stoppers, Border Watch, and we certainly encourage those who may be part of the licit tobacco supply chain to come forward where they suspect criminality and to report that through Border Watch. All those tobacco related allegations at present are moving to the tobacco strike team to assess and triage. We would encourage the community to come forward and utilise Border Watch in that way where they suspect criminality around illicit tobacco. I would also add that we have a very good relationship and an improving relationship with the tobacco industry in terms of intelligence and referrals. Indeed, some of the investigations that are now in train are the result of referrals from the tobacco industry. So, again, we would like to encourage the community—and they can do so anonymously if that is what they choose to do—to communicate those things through Border Watch, and those in the broader industry, such as retailers and other importers, if they suspect criminality, to do the same.

CHAIR: I know it is not your jurisdiction, but we have had some comments from some of the smaller retailer groups that think they are doing the right thing and have had another retailer down the road doing the wrong thing, selling illegal product, and they have reported it but no action has been taken, because, as you said, it seems to be a low-level activity at the moment where the high level is stopping it at the border.

Mr Connelly : Yes, I think that is fair.

Mr Seebach : And the reality is that we have increased the focus on dealing with illicit tobacco over the past couple of years, and we are certainly interested in getting as much information and intelligence as we can from industry and the community to be able to inform our own activities. So, while in some instances there may have been no action, we would look at anything that is referred through the Border Watch system. But also not every allegation is actioned, for a range of reasons, and that may well be because those allegations lack substance.

Senator LEYONHJELM: This may be relevant to the Crime Commission, but anybody can address it. There were suggestions in some submissions—including yours, I think—that organised crime is the concern. Sir Ronnie Flanagan spoke to us previously, before you came in, about his experience, and he said that organised crime is involved and also that terrorists are using illicit tobacco to fund their activities. Somebody mentioned Middle East crime gangs. To what extent are you seeing evidence of that? And to what extent is the line between this and other criminal activities, such as illicit firearms or drugs, getting bundled up with tobacco? Or is it that they are running their own races and you can discriminate between the two?

Mr Grant : It might be best to go in camera.

Senator LEYONHJELM: We are not enthusiastic about that as a general rule. You can speak in broad terms.

Dr Newman : I think at a higher level yes, Middle Eastern and Asian are the sources of the illicit tobacco. I would say that illicit tobacco, as has been identified earlier, is low risk and high reward, and because of that the funding from the sale of illicit tobacco can then be reinvested into other types of crime, such as illicit drugs. So, there is some intermix at that higher level. But the other observation I would make is that organised crime is involved in this, but it is opportunistic. If there is a dollar to be made then they will target that market.

Senator LEYONHJELM: So, without talking about specific cases, the general situation is that if you come across an illegal import of a lot of tobacco products—cigarettes—you do not find narcotics or base chemicals for meth manufacture in amongst it all; they do their own thing separately, do they?

Dr Newman : I will let the operational agencies speak to that.

Mr Connelly : We are not seeing tobacco mixed in with narcotics as a general rule, but I will preface that by saying that we are often surprised in law enforcement. That is not to say that there has not been a case or a number of cases, but we quite often see different narcotics together in the one importation.

Senator LEYONHJELM: I am aware of that.

Mr Connelly : That is quite common. But it is not something that is jumping out at us day to day.

Ms LEY: It has not come up so far, no.

Mr Connelly : But I would go back to what the Crime Commission said: where you have a high profit margin, where you have a good return and potentially a low risk, organised crime will seek out any venture to make good money. And we have seen that throughout Australian law enforcement history. You just have to go back to the docks. If you look at some of the major criminal investigations we have done in terms of specific crime families over the years, they have been involved in multiple elements of criminality and quite often covered in legitimate businesses, be they importations of fruit or whatever. So yes, I think the Crime Commission's assessment is very accurate there.

Mr Seebach : I could probably try to add maybe just a little bit of colour to that. And I think this is probably important too: we continue to make reference to or deal with illicit tobacco by reference to other crime types, but the reality is that that smuggling offence is serious; it carries a maximum penalty of 10 years imprisonment. So, I think the smuggling of tobacco is a significant crime in itself.

And I will make maybe just some general observations about some of the people who are involved in this. The organised criminal networks that are involved in the importation of illicit tobacco operate in a similar manner to others that trade in cross-border crime—the importation of contraband such as narcotics—and have access to a global network of tobacco-smuggling facilitators who can arrange and tailor the placement of commercial quantities of tobacco to accommodate various smuggling methodologies, such as into free trade zones. They actively seek to infiltrate and exploit unscrupulous members of the international supply chain, including those working as customs brokers and freight forwarders in Australia. They launder money to disguise funds for the purchase of tobacco and to legitimise the proceeds of their criminal profits. So, at a general level, the way they look, the way they behave, is very similar to those who might be involved in the importation of drugs, and in some cases they may be one and the same.

Senator LEYONHJELM: I am going to wrap up in a second, but I guess if I was a criminal thinking about what to import I might be pretty careful to separate narcotics and other illicit drugs from my tobacco shipments, because the penalties and the priorities of the law enforcement are fairly different. I would not want to get busted for a little shipment of narcotics and go to jail for 25 years when I have to go to jail for only 10 years for importing tobacco products. Would that be a reasonable way of looking at it?

Mr Connelly : It is very fair to say that organised crime manages risk, like with any business model, so I do not think your assertion is an unfair one, because they do manage their risk, and they spread their risk. We see cases in terms of the narcotics offences where they will import small quantities all over the place to manage the risk, knowing full well that some may be detected. So, that is not an unfair thing to say.

CHAIR: If there are no further comments, we thank everyone. I thank the witnesses for their appearance before this commitment. I would like to especially thank the three groups here today for the work you do in looking after our community and also protecting the revenue stream that comes into government.

Committee adjourned at 15 : 32