Behind the Headlines

Changing the law to tackle counterfeiters

A number of methods have been used over the past four years to deal with the growing problem of counterfeit and smuggled vodka.

One of those has been through tackling the counterfeit black market, which is estimated to cost the taxpayer £8bn pounds a year, through legislation and increased operational activities.

In 2001 consumer minister Melanie Johnson made a pledge of no tolerance for sellers of counterfeit goods, including vodka.

Later that year Vince Cable, the man heralded as the Liberal Democrats economics expert, stood up in Parliament and introduced the Copyright and Trade Marks (Offences and Enforcement) Bill.

The bill was passed in July 2002 making it into an Act of Parliament. It is a broad piece of legislation meant to cover a number of issues including the use of brand names on counterfeit goods.

Before the introduction of the Act producers and manufacturers with intellectual property rights to trademarks, such as Glen’s vodka only could only pursue counterfeiters through the civil courts.

The effect of the Act was to make it a criminal offence to sell goods, packaging or labels bearing a trademark that had been applied without the consent of the trade mark owner.

It amended the s.92 of the Trademarks Act 1994 and is now used by trading standards officers when they bring a prosecution against retailers for selling counterfeit products.

Balihar Khalsa

The National Picture

Although the sale of illegal vodka rarely makes national headlines it is still an issue that commands national importance.

As a map compiled by behindtheheadlines, showing incidents and warnings relating to the sale of illegal vodka over the past 13 years, highlights, much of the United Kingdom has been affected by the trade in one way or another.

View Illegal Vodka UK and Ireland in a larger map

(vodka glasses indicate an incident relating to illegal vodka sale and distribution and ‘i’s represent a warning issued by local press)

Behindtheheadlines understands that the first reported incident of illegal vodka sale and manufacture occurred in Edinburgh in 1996 when trading standards officers sent out a warning to residents about this dangerous substance being on sale throughout the region. Since then local newspapers throughout the UK have been peppered with warnings and reports of sales of illegal vodka.

In 1997, for example, police in West Yorkshire seized 2,000 bottles of illegal vodka that was intended for sale across the country, between January and March 2001 customs officials seized over 7,000 of bootleg spirits in the North East alone. More recently, in Paisley, near Glasgow, 20 cases of fake vodka were seized in December of last year while in March of this year newspapers in Newcastle warned that millions of pounds worth of illegal vodka could be on sale throughout the region.

Illegal vodka has managed to make it onto the shelves of off-licences and pubs throughout the UK. In November 2000 reports warned that illegal vodka could be found on sale at Wembley market in London and in August 2003 a landlady in Liverpool was fined £2000 for selling fake Smirnoff sold to her by a gang targeting local pubs. In November 2004 a shop keeper in Bedminster, near Bristol, was fined thousands of pounds for the sale of fake Kirov and St Petersburg vodka. 

Alarmingly, reports have surfaced linking the production and sale of illegal vodka to organised crime networks. A seizure of 4000 gallons found in South Yorkshire in 2003 sparked an investigation by MI5 who believed the Real IRA were behind the production.

But these incidents provide just a snapshot of the problem. As our map shows, the problem of production and sale spans a number of decades and affects most regions of the UK.

Behindtheheadlines now aim to understand just how a big a problem this national issue has become. 

Olly Laughland

The Extra-governmental Organisations Who Deal With The Issue

In the run up to the new behindtheheadlines film on the illegal vodka trade we profile some of the key organisations focused on ending the counterfeit trade throughout the UK.

Gin and Vodka Association:

The gin and Vodka Association was created in 1944 and currently has 35 members that represent around 98 per cent of gin and vodka traders in the United Kingdom, The Association claim to work for ‘fairer’ excise taxation on spirits and ensure that members’ products reach quality standards. The Association therefore has a vested interest in stamping out counterfeit vodka that is neither taxed nor quality assessed. Behindtheheadlines are in the process of arranging an interview with a representative from the association.

Anti Counterfeiting Group:

The Anti Counterfeiting Group, founded in 1980, represents over 200 organisations whose products are susceptible to counterfeit. This includes companies from diverse industries including the film and games industry, clothing industry and the food and drink industry. The group plays a large role in the lobbying group Alliance Against Intellectual Property Theft which lobbies the government to issue harder counterfeiting laws. The group state their desired goal is to ‘change society’s perception of counterfeiting as a harmless activity, by exposing the worldwide economic and social cost of intellectual property’. Behindtheheadlines also aims to interview a representative from this organization during the investigation.

International Federation of Spirit Producers:

The International Federation of Spirit producers is a global organisation that some of the largest spirit producers in the world and the United Kingdom including Diageo, the makers of Smirnoff vodka and Bacardi, one of the most famous spirit companies in the world. It states that its sole purpose is ‘to co-operate in combating the counterfeiting of its members products wherever it occurs.’ Behindtheheadlines will be interviewing Phillip Scatchard from the Federation in the coming weeks.

Olly Laughland

The Medical Consequences Of Consuming Illegal Vodka

While we should not be worried about an outbreak of the ‘yellow death’ here in the UK the health risks associated with consumption of illegally produced vodka are very real.

In March 2003 a 42 year-old woman in West Lothian, Scotland, died after consuming illegally produced vodka containing fatal amounts of ethanol.

Much of vodka produced illegally contains dangerously high levels of ethanol due to the way in which it is distilled and the fact it is not subjected to any regulation.

The distillation process is often highly unhygienic with old and unclean equipment being used and extraction of ethanol often coming from dangerous substances like paint remover.

Doctors describe the symptoms of consuming dangerous illegal vodka as abdominal pain, blurred vision and breathing difficulties. Heath experts have said that consumption of the substance can also lead to permanent blindness. 

Diane Nelson, from Gorton in Manchester consumed the substance back in 2003. In an interview the Manchester Evening News she said she went “to hell and back” having been rushed to hospital after drinking the vodka she believed to be legitimate. 

Behindtheheadlines is now investigating in more death the serious health consequences associated with consumption of illegal vodka. 

Olly Laughland

The Yellow Death - Russia’s Illegal Vodka Crisis

Nowhere in the world are effects of the illegal vodka trade felt more than in Russia.

In 2006 thousands of Russians were diagnosed with toxic hepatitis, a liver condition resulting from sustained consumption of harmful toxins contained in illegal vodka. The outbreak proved a massive burden upon Russia’s state hospitals, often ill-equipped to deal with the disease.

In that year alone some 40,000 people died from the poisoning with their skins often turning yellow, leading to the nickname of ‘the yellow death’.

A patient treated for toxic hepatitis in Russia (source: gdb.rferl.org)

But deaths resulting from consumption of illegal vodka in Russia can only be expected to rise as illegal or ‘moonshine’ vodka becomes even more widely available.

As the St Petersburg Times reported in March this year, illegal vodka sales are expected to account for half of Russia’s vodka market by next year. Already 4.9 million litres of the 17 million litres of vodka sold a year in Russia are made illegally, but experts predict this amount will double within a year.

Industry insiders have blamed both the high excise tax on legal vodka and the global recession for making the cheaper and dangerous vodka more attractive to consumers.

Pavel Shampkin, chairman of the National Alcohol Association, told the St Petersburg Times: “Sales aren’t down but production is falling. This indicates that the state is losing to crime and the consumer is encountering products that are not properly regulated.”

Previously labelled a ‘national tragedy’ by the Russian government, the predicted rise in the sale of illegal vodka and accompanying rise in the death toll has brought about a change in government policy.

President Medvedev has now handed regulation of the domestic alcohol market over to a new state body, it is hoped the new policy will allow for a more focused approach to a market that was previously regulated by a number of different government agencies.

Whilst the death toll and extent of the problem may not be as large in the UK, behindtheheadlines asks whether the UK government might not also benefit from a more centralised approach to deal with a rising illegal vodka trade at home.

Olly Laughland

Duty stamps - an attempt to reduce alcohol fraud

Duty stamps on the sale of alcohol stronger than 30 per cent was introduced in April 2006 as part of a range of measures designed to prevent fraud.

Alcohol fraud is moving duty-free goods from warehouse to warehouse to avoid paying excise tax.

The recommendation to introduce the measure was originally made in the Roques Report on excise diversion fraud, which was an attempt at examining the extent of the problem and a number of ways to stop the activity.

Out of 62 suggestions the government decided to adopt 44 of them, one of those being the duty stamp scheme.

A consultation with industry representatives took place in 2001. From that process, it emerged that the introduction of a new taxation scheme would place a heavy financial burden on wholesalers and retailers, and there was resistance to the measure.

Representatives claimed that the cost of the scheme would be disproportionate to the benefits and offered a range of alternative suggestions. However, the government decided to press ahead with duty stamps after an estimate that the Exchequer had lost £600m to spirit fraud and that was a trend set to continue.

Despite the introduction of duty stamps as a means of tracing duty paid goods, counterfeiters are now reproducing fake versions of the stamps to get around the rules.

Balihar Khalsa

Tackling spirit fraud - government and industry

Spirit fraud entered the spotlight in 2005 when the government introduced a number of measures to tackle the problem.

The Memorandum of Understanding (MoU) was one of those measures. It is an agreement between government and various trade bodies including: The Gin and Vodka Association, The Scotch Whisky Association and The Wine and Spirits Trade Association.

Edwin Atkinson, director of the Gin and Vodka Association, speaking in 2005, said: “UK spirits producers will be actively working with HMRC to tackle the spirits fraud problem.

“Particularly the large scale organised freight diversion frauds, which deprive the government of millions of pounds of revenue each year.”

Each year the MoU is amended and renewed in order to maintain the information sharing relationship between the regulators and the alcohol sector.

However, a report produced by HMRC earlier this year indicated that the MoUs have not been as successful as was expected. The ‘Alcohol Activity Report’ published in January said:

“The usefulness of information was generally low as it contained little risk information or information that HMRC was not already obtaining from other industry sources.”

The revelation has led to a renegotiation of the terms putting more of an emphasis on fraud, rather than distribution and supply chains.

One of the main problems that emerged in the run-up to the introduction of the MoU was the disparity between estimates of the amount of money that was being lost in spirit fraud.

HMRC estimates were much higher than the trade associations and no conclusive figures were available to demonstrate the amount of money being lost through the fraudulent spirit trade.

Balihar Khalsa