According to the collector of some Orkney fireside yarns ,
It is not more than 50 years (ie 1820) since smuggled gin is said to have been disposed of quite publicly in a bank in town: and forty years ago some heavy cargoes were landed in Kirkwall, which were disposed of to hotel-keepers and others.
Most of the smuggling on Orkney, though, consisted of illegal malting of Barley and stilling of whiskey, and many of the tales speak of how wiley Orcadians concealed their stills and steeping malt from the prying eye of the gauger. There are exceptions to this rule: the most renowned of Orkney's smugglers was probably George Eunson. He started his adult life as a cooper's apprentice, but soon became restless, and took command of a smuggling ship. He was too greedy, however, and soon the ship's owners were looking for a new master. For Eunson, there followed a succession of adventures, featuring besides smuggling, the press gang and privateering. Eunson eventually found himself back on Orkney, and embroiled in a political dispute which had divided the island. One faction contrived to have Eunson made officer of excise, and in this post he pursued the smugglers with all the vigour of poacher-turned-gamekeeper.
His principal targets were the local magistrates, who were widely suspected of smuggling, and he made many enemies among the upper classes of the island. When he took one step beyond the law, the magistrates were quick to pounce, and Eunson was locked up for 10 weeks without trial. He later sued them for £2000 apiece, and wrote a diatribe against the 'Petty Tyrants, or Grinders of the Poor' which was published in 1788. Eunson did not stay revenue man for long: he returned to smuggling, with a lucrative side-line as a pilot. It was in this role that he died on a man-of-war.
A smuggler from Kirkwall shared George Eunson's surname, though the two were not related. Mansie Eunson was especially noted for his sense of humour, and his ability to squeeze his way out of the most desperate situations. One story which illustrates his wily nature tells of how Mansie wanted to bring in some kegs from Deerness, and hatched a plan to be rid of the opposition. He knew that a local villager was in the pocket of 'the guagers' so he confided in this untrustworthy individual that he would cross the Bridge of Wideford between midnight and 1am with the kegs on the back of three horses. The excisemen hid under the bridge, and shivering in the cold, were glad to hear the sound of horse's hooves at around one. Sure enough, it was mansie, but he was on his way out of town, carrying empty kegs. He explained to the waiting excisemen that he'd taken the spirits into town earlier that night, but that it seemed a pity to leave them out in the cold until dawn.
The numerous inlets and hills of the Shetland islands favoured the smugglers' purpose, and the considerable distance from the principal sources of contraband does not seem to have acted as deterrent. Much contraband came in from France, Holland and even from Spanish ships, but — given Shetland's famous lack of trees— it is hardly surprising that this was supplemented by a thriving trade in contraband timber that was carried on with Norway, principally through Bergen.
The pattern of smuggling in the Shetland Islands had its ups and downs, as elsewhere, with foreign wars and high taxes providing temporary boosts. A time-honoured technique frequently used by largely legitimate traders was simply to avoid declaring dutiable goods at customs, and this practice was so widespread as to be almost an expected part of everyday trade in the islands. A cargo from Hamburg in the mid 18th century was declared as consisting of 'Salt, lines, iron and tar' — all commodities that attracted little or no duty at that time. The cargo invoices tells a different story: half the cargo was made up of corn brandy, cognac, claret and other wines
This sort of smuggling trade was principally amateur, and was supplemented by small time illegal trade among foreigners visiting the islands. Shetland coastal towns were ports-of-call for many sea-going vessels that stopped to take on food and water. For example, at Lerwick's summer fair there was a thriving business in barter, with fresh victuals and clothing exchanged for brandy and tobacco.
In the 1760s, large-scale gin smuggling began. In 1764-5 the customs authorities made a vain attempt to get all ships to unload at Lerwick in order to make detection easier, and by 1770 the trade had become sufficiently lucrative for businessmen from outside the island to take an interest. The gin ships were often bound for the Faroes, and used the weather as an excuse to shelter in the Shetlands, where they took the opportunity to unload some of their cargo.
The gin trade was largely run by merchants known as the 'Rotterdam gentry' (Rotterdam was the centre of the gin trade), whereas the 'Hamburg gentry' of local landowners organised the small-time smuggling of necessary everyday items such as tea, carrying out a little gin smuggling as a sideline. The landowners withdrew from this part of the trade in 1791, leaving the field open for entrepreneurs and merchants.
In the late 18th and early 19th centuries most of the smuggling ships came from Hamburg, Bergen, Christiansand and Rotterdam, and the main commodities imported were timber, tea, tobacco and spirits. A Royal Navy blockade of foreign ports between 1807 and 1814 more or less brought smuggling to a standstill but there was an explosion of activity between 1814 and 1823. Shetland merchants over this period took less active parts in the trade, and instead relied on international smuggling rings based in London (Ewarth and Sons), Holland and west Norway. The thriving business was stamped out only by a concerted government effort, a drop in the duty on spirits, and by the rise of home stilling. In the years that followed the principal sources of smuggled goods were the many fishing vessels that constantly plied the waters around the islands. Indeed, there is some evidence to suggest that the cod fisheries around the Shetlands were established as a cover for illegal import.
It's possible to get a taste of how Shetlanders mixed smuggling in with illicit trade by following the course of a typical trip, the Catharine, in 1814. The ship first sailed to Orkney, and loaded up with an illegal cargo of meal, which was landed at Bergen, where a load of hides and tallow (legal) was waiting. This travelled to London, and from there it was just a short cross-Channel journey, loaded with coils of rope (legitimate) to pick up a cargo of 600 ankers of gin from Rotterdam. This was then run in Shetland, and the coils of rope were bound for Orkney. The process would have continued had the smugglers not been caught and the vessel seized at Kirkwall.
The impact of smuggling on the economy of the Shetlands was considerable, though possibly at times exaggerated. Between 1796 and 1798 there was actually a shortage of money on the islands because so much had been paid out by merchants buying gin; and the minister of Unst at one stage reported that gin imports were worth half the rent of the island. One writer complained that illegally imported gin had 'drained the poor of this country...of every shilling they could spare or raise'. Ultimately, the poverty of the islanders contributed to the decline of the smuggling trade.
For an excellent and detailed account of the smuggling trade in the Shetlands, read Shetland Life and trade, 1550-1914 by Hance D Smith (1984)
Exaggeration is not unknown in smuggling yarns, but one tale from the Orkneys has to take the prize for the most unbelievable. A Harryman had hidden a barrel of contraband liquor in the stables, forgetting to tell his wife, who tied up the horse as usual that night. It so happened that the barrel was open, or easily opened, and the following morning they found the horse stretched out stiff and apparently lifeless. Lamenting, they resolved to make the best of a bad job, and dragged the animal out and skinned it. Soon afterwards, the horse — which had been merely drunk — got up and started eating. The farmer had recently slaughtered and skinned some sheep, so he quickly covered the horse with the hides '...it being cold...' The hides stuck and grew, and the horse gave the farmer several stones of wool each year. 
A Hoyman renowned for his muscle was smuggling in 4 ankers of spirits to Stromness, when he was caught red-handed. As he arrived at the harbour, he saw several guagers peering down at him. He decided to brazen it out, and lodged a barrel under each arm, and grabbed the remaining two by the rims. He did this so effortlessly that the guagers assumed the barrels to be empty.
 Around the Orkney Peat Fires
 JT Leask, 1931
 JT Leask, 1931