The Challenges of Regulating Counterfeit Alcohol: Identifying the ‘Capable Guardians’

by | Jul 18, 2017 | Counterfeit Alcohol, Food Crime | 0 comments

In this blog post, Dr Cecilia Flores Elizondo, the Research Associate on our Alcohol Research UK funded project, analyses some key challenges of regulating counterfeit alcohol. Cecilia draws on criminological theory to consider the concept of ‘capable guardianship’ and ask whether consumers, the industry and the public authorities are (cap)able actors in the regulation of counterfeit alcohols.

Key Challenges in Regulating the Legal Alcohol Sector

There are several regulations in place to control the production, distribution, sale and consumption of counterfeit alcohol in the UK but there are a number of challenges associated with these.

The Alcohol Wholesaler Registration Scheme

For example, HMRC has recently introduced the Alcohol Wholesaler Registration Scheme designed to eradicate fraud in the alcohol market, namely, the sale of counterfeit alcohol and duty evasion. Under the scheme, wholesalers (alcohol wholesalers, brokers, auctioneers and alcohol retailers) will have to register in order to sell alcohol.

As of April 2017, purchasers of alcohol for further sale are obliged to ensure they buy alcohol exclusively from registered wholesalers. Certainly, this is a step forward in dealing with the sale of counterfeit alcohol. However, the question remains whether the implementation of the scheme will be fruitful in a rapidly changing market which is becoming less formal.

The licensing scheme was based on formal trading such as pubs and off-licences. However, the sale of alcohol is becoming more mobile, where online sales and 24/7 delivery services have increased in recent years. Whilst these outlets surely need to be registered and be licensed, enforceability would become more difficult for authorities due to their mobility and the irregularity of their operations.

The Licensing Act 2003

A recent consultation on the Licensing Act 2003 has recommended the transfer of functions from the licensing committees to the planning committees. Although the recommendation is to transfer those functions as a pilot before introducing them in the whole of England and Wales, there are questions about the suitability of those changes to deal with more mobile forms of alcohol sales.

A level of complexity is added when these mobile outlets are advertised with catchy names such as ‘boozebulance’. In order to be effective, the implementation of law and regulation should respond to these new tendencies in the sale of alcohol, changes that are found not only in the distribution of alcohol but also in consumption patterns.

Minimum Unit Pricing (MUP)

Authorities are taking steps to reduce the consumption of counterfeit alcohol. In Scotland, the authorities are expecting to introduce the MUP with the aim of reducing the accessibility of cheap (and potentially) counterfeit alcohol. However, the MUP as well as tax increases could have counterintuitive consequences insofar as the market for consumption of counterfeit alcohol subsists. It is important to understand both the market of distribution and of consumption.

In our project Distribution and Consumption of Counterfeit Alcohol: Getting to Grips with Fake Booze, we are trying to further understand the distribution and consumption of counterfeit alcohol in order to identify mechanisms that enable the authorities to better deal with this pressing problem. One aspect of this is to question which actors can play a role in ‘regulating’ counterfeit alcohols and we can draw on criminological theory to inform our thinking on this.

Counterfeit Alcohol and ‘Capable Guardianship’

In criminology, routine activity theory informs us that crime events occur when there is physical convergence in time and place of a motivated offender, a suitable target and an absence of a capable guardian. Capable guardians are those who intervene or witness the commission of an offence (not necessarily human actors), and their absence is a necessary aspect of crime. In the case of the production, distribution and/or sale of counterfeit alcohol, capable guardianship could involve many stakeholders and here we focus on three groups: consumers, public authorities and industry.

Consumers as Capable Guardians?

Consumers, for instance, can act as capable guardians when they raise complaints about the nature of the alcohol they purchase. Consumer complaints are an important source of information to stop the sale of counterfeit alcohol, leading to seizures in diverse areas in the UK.

However, consumer complaints are not straightforward. Identifying counterfeit alcohol can be difficult in spirits such as vodka which are odourless and usually consumed with mixers that potentially camouflage taste inadequacies. Some consumers would knowingly buy or consume counterfeit alcohol because of price, group pressure, and so on. Hence, consumers may be ‘incapable’ guardians as they may lack the knowledge or will to report incidents to the authorities.

Industry as Capable Guardians?

The industry may act as a capable guardian due to their interest to protect their intellectual property rights and ultimately, their reputation. Whilst this may hold true, the seizure of counterfeit alcohol has an impact on the brand’s reputation. Thus, the industry might be willing to cooperate with the authorities, but keep the information as quiet as possible in order to protect their brand from reputational damage.
Moreover, the sale of alcohol is a legitimate business activity provided businesses are licensed and follow the legal requirements regarding pricing, underage sales, and so on. Hence, counterfeit alcohol would enter into, and be concealed within, legitimate distribution channels, for which legitimate business structures are necessary – for instance, licensed and off-licensed premises. Whilst counterfeit alcohol could be sold through illegal distribution channels, seizure data shows that counterfeit alcohol has been found in legitimate businesses such as convenience stores, pubs, and online sellers.

Public Authorities as Capable Guardians?

In the UK, diverse authorities have law enforcement powers that make them the expected capable guardians to intervene in the production, distribution and sale of counterfeit alcohol. A key question is which authority has ultimate responsibility for law enforcement, considering the fragmentation of domestic regulation.

In the UK, offences related to counterfeit alcohol would be pursued by myriad authorities depending on the kind of deviant conduct. The Food Standards Agency (England, Wales and Northern Ireland) has delegated law enforcement to local authorities – that is, Environmental Health deals exclusively with food safety (e.g. alcohol mixed with methanol) and Trading Standards deals with fraud (e.g. dilution of alcohol and fake labels). HMRC in turn enforces tax and duty evasion whilst the Intellectual Property Office (IPO) focuses on the breaches and damages to the brand owners’ intellectual property rights.

Such legal, regulatory and enforcement fragmentation requires a high degree of coordination and cooperation in order to provide capable guardianship. Moreover, the legal and regulatory framework should be fit for purpose to enforce a market for distribution and consumption that changes rapidly with new technologies and consumption preferences.

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