Australia's love affair with illegal tobacco | 7.30

Key Concepts: Illicit Tobacco Market, Vape Retailers, Tobacco Control Policy, Therapeutic Goods Administration (TGA), Victoria Police, AUSTRAC (Australia's financial crime and anti-money laundering agency), Money Laundering, Funds Transfer Operations (FTOS), Organized Crime, Tobacco Excise, Laffer Curve, Intelligence Operations.

The Pervasive Illicit Tobacco and Vape Trade in Australia

The summary begins by highlighting the widespread issue of illicit tobacco and vape sales, exemplified by coordinated raids on suspected retailers on Chapel Street, one of Melbourne's busiest shopping strips. Former federal police officer and illicit tobacco expert Rowan Pike describes these efforts as "only the tip of the iceberg," estimating at least 20 illicit stores with a Chapel Street address and another 10 within 100 meters. A specific example, "Big Boss Asai Convenience," was raided by the TGA and Victoria Police but was observed selling illicit products again less than a week later. Pike critically assesses Australia's tobacco control policy in 2025 as "failed," stating, "We've taken the control out of tobacco control," and noting that the illicit tobacco problem is worsening nationwide, moving from a medium risk to an increasing trajectory.

Scale and Economic Impact of the Illicit Market

Internal tobacco industry data, revealed by 7:30, estimates the illicit market now constitutes a staggering 64% of all total tobacco consumed in Australia and 82% of the total nicotine consumed as of September this year. This translates to billions of dollars in profits leaving Australian shores and directly funding overseas criminal organizations. The transcript provides stark examples of what $1 million in illicit profits can buy an organized crime entity offshore: approximately 400 stolen cars (at ~$2,000 each), 100 arsons, about 40 semi-automatic pistols with rounds, or 20 assault rifles.

Combating Financial Crime: AUSTRAC's Role and Challenges

Australia's financial crime and anti-money laundering agency, AUSTRAC, plays a crucial role in tracking money from the illegal tobacco trade. In August, AUSTRAC was instrumental in exposing an $11 million syndicate in Queensland. In Victoria, it helped uncover a network that allegedly laundered more than $83 million over four years using a takeaway shop. An AUSTRAC analyst embedded with the investigation team successfully followed money trails to identify new leads.

AUSTRAC identifies specific risks in money laundering:

• ATMs at the point of sale: Businesses take cash, place it into private ATMs, allowing the money to be recirculated and reused by different customers, while the business receives an electronic credit.
• Funds Transfer Operations (FTOS): While often a record of transaction exists, once proceeds become digital, they can move quickly into the financial system electronically, then be moved within Australia or overseas. AUSTRAC possesses tools to follow these trails, but the sheer volume presents significant challenges, as evidenced by the $83 million sent from just one store overseas in a recent Victorian case.

Key Figures in Organized Crime: The Case of Kazem Hamad

The store involved in the $83 million money laundering operation was linked to Kazem Hamad, described as a notorious criminal allegedly at the center of the illicit tobacco trade. According to the transcript, Hamad is "across virtually every aspect of it" and is considered "the biggest name in illicit tobacco in Australia." This former Melbourne organized crime figure has reportedly amassed a fortune from the trade over the last two years and, according to police, has waged a "fiery and bloody underworld war from Iraq," gaining control of large segments of the Australian black market. His group is connected to Iraqi organized crime entities, funneling money offshore to individuals directing serious crimes into Victoria and the rest of Australia.

The Laffer Curve and Tobacco Excise Policy

At the start of September, the federal excise on tobacco increased by a further 5% on top of regular indexing, pushing the average price for a legal packet of 20 cigarettes to more than $40. This has led to large retailers reporting further plunges in legal tobacco sales. The federal government's tobacco excise revenue has fallen dramatically since 2020, from over $16 billion to $7.4 billion this year, with further falls forecast. Conversely, tobacco industry data estimates the size of the illicit tobacco market as of September this year at almost $10 billion.

Some experts connect this drop in revenue to the Laffer Curve, an economic model associated with US free-market economist Dr. Arthur Laffer. The Laffer Curve suggests there is an optimal point of taxation that maximizes government revenue for any product. This model, made famous 50 years ago when Dr. Laffer drew it on a napkin for Ford administration officials Dick Cheney and Donald Rumsfeld, explains how a "sweet spot" exists for taxes to optimize revenue. The transcript suggests Australia's maximum return was about five years ago at $16.5 billion, and since then, despite tax increases, there has been a diminishing return, now down to $7.7 billion and "looks like falling off the cliff."

Government Response and Future Outlook

The Australian government's position on the tobacco excise remains unchanged, asserting it as a central component of tobacco control aimed at reducing smoking rates and protecting Australians from harm. However, the Home Affairs Minister, Federal Health Minister, and the Illicit Tobacco and E-cigarette Commissioner all declined interviews on this issue.

In a statement, Illicit Tobacco and E-cigarette Commissioner Amber Shuittita emphasized that "A simplistic focus on excise as the solution doesn't make sense when you consider the profit margins of elicit tobacco. A much more complex approach is required, which will take time to see results." She also noted that "much that is being done behind the scenes with law enforcement that can't be made public," referring to intelligence operations designed to break the criminal business model. The Australian government has invested $345 million to counter illicit tobacco since January 2024, acknowledging the challenging scale of the problem. Despite these efforts, the summary concludes that smokers and vapers looking for the cheapest products still do not have to search far.

Conclusion

The transcript paints a grim picture of Australia's illicit tobacco and vape market, revealing it as a pervasive, rapidly growing problem with significant economic and criminal implications. The current tobacco control policy, heavily reliant on excise taxes, appears to have inadvertently fueled the black market, leading to a dramatic fall in government revenue and a surge in illicit trade profits that fund serious organized crime. While law enforcement agencies like AUSTRAC are actively combating money laundering and the government has committed substantial funding, the complexity of the issue, the speed of digital transactions, and the entrenched nature of criminal networks like that of Kazem Hamad necessitate a more sophisticated and long-term strategy beyond simple excise adjustments. The continued easy availability of illicit products underscores the ongoing challenge.