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The Problem

Drivers of illicit trade

A problem with an explanation

Illicit trade in cigarettes and other tobacco products is a complex and growing issue. The significant profits to be made by criminal organizations from selling illegal cigarettes are part of the reason, but other factors also explain the problem.

Price disparity encourages smuggling

The price of legitimate cigarettes varies substantially across countries (and sometimes within states or provinces of the same country) as a result of different tax rates and varying consumer disposable income levels.

This large disparity incentivizes smugglers to target high price countries with smuggled product from lower price countries. The increased free flow of people and goods across national borders in areas such as in the European Union has exacerbated the problem, significantly reducing the risk for criminal gangs by providing easier access and transportation links.

Criminals make huge profits

In China, counterfeiters are producing 190 billion counterfeit cigarettes annually. Just one container of counterfeit cigarettes produced in China could generate up to US$2.3 million in profit when sold in Europe. If all 190 billion Chinese counterfeit cigarettes were exported and sold in Europe, this criminal trade could be worth up to US$44 billion a year.

Excessive taxation and regulation

Taxation and regulation play an important role for governments as part of a public health policy to reduce smoking rates. However, when taken to an extreme, a heavily taxed and regulated market makes the unregulated and untaxed black market attractive for criminals.

Tax increases on cigarettes that go well-beyond inflation rates give smokers the incentive to increasingly seek out less expensive products. Criminals have taken advantage of this trend by offering illegal tobacco products at a significant price discount compared to legal products.

Inadequate penalties and overstretched enforcement authorities

While the profits may be comparable, the penalties for smuggling cigarettes in some countries are much lower than for other crimes such as drugs or arms smuggling. For example, in Germany, criminals caught and convicted of smuggling drugs regularly face a minimum prison term of two years, whereas convicted cigarette smugglers may get away with only a monetary fine. Coupled with the often limited government resources to combat the illegal tobacco trade, it is easy to see why cigarette smuggling has become an attractive proposition for criminals.

Poland, for example, has numerous border crossings with Russia, Ukraine and Belarus. High pedestrian and vehicle traffic at these borders combined with limited enforcement resources make it difficult to control the flow of goods. These borders are routinely used by smugglers to get cigarettes into Poland and from there the goods are transported to other EU countries without further border controls.

In 2015, European Union Member States reported total seizures of 4 billion cigarettes to the European Anti-Fraud Office (OLAF).

Lack of information and education

With little education about how the illicit trade operates, where illegal cigarettes come from, how they are made, and the extent to which the proceeds fund organized criminal activity and threaten national security, it’s not surprising that adult smokers are increasingly purchasing from the black market where they can obtain cigarettes at low cost with little risk of being caught or charged.