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The Solution

Data and Information

Coordination, resources and time

Stamping out the illicit trade in cigarettes won’t happen overnight and requires coordinated and committed action by the public and private sectors on a continuous basis. Local and international cooperation involving governments, enforcement agencies, manufacturers, retailers and consumers is critical.

A comprehensive global effort

Key elements of an effective effort to stop the illicit tobacco trade include:

  • Use of research and intelligence to better understand the problem and its drivers;
  • A policy framework that regulates the legal supply chain and severely penalizes those involved in illicit trade;
  • Significant human and financial resources devoted to enforcement to ensure that laws are properly enforced and criminals are brought to justice;
  • A tracking and tracing system based on open standards that can be used by all relevant stakeholders in the supply chain across different technological platforms, geographies and industries to prevent product diversion;
  • Strict control of the supply chain to avoid product diversion from one country to another
  • Education campaigns that raise public awareness of the problem and its impact on society.

Coordination, resources and time

Stamping out the illicit trade in cigarettes won’t happen overnight and requires coordinated and committed action by the public and private sectors on a continuous basis. Local and international cooperation involving governments, enforcement agencies, manufacturers, retailers and consumers is critical.

A comprehensive global effort

Key elements of an effective effort to stop the illicit tobacco trade include:

  • Use of research and intelligence to better understand the problem and its drivers;
  • A policy framework that regulates the legal supply chain and severely penalizes those involved in illicit trade;
  • Significant human and financial resources devoted to enforcement to ensure that laws are properly enforced and criminals are brought to justice;
  • A tracking and tracing system based on open standards that can be used by all relevant stakeholders in the supply chain across different technological platforms, geographies and industries to prevent product diversion;
  • Strict control of the supply chain to avoid product diversion from one country to another;
  • Education campaigns that raise public awareness of the problem and its impact on society.

Where to start?

The first step in tackling illicit trade is understanding the scope of the problem, its origin, and what is driving supply and demand. Reliable research methodologies exist to accomplish this, however, they have not been applied consistently or globally. By taking a more comprehensive approach to collecting data about the illegal tobacco market we can improve understanding of trends, product types, volumes, sources, and destinations.

For example, collecting random samples of empty discarded cigarette packs can be a means for determining proportion of illegal and legal cigarettes being consumed in a specific location. These “empty pack surveys” also help identify the areas within a city or town that are most affected by the black market and, importantly, the likely origin of the illicit products. 

Criminal gangs involved in smuggling are quick to respond to enforcement efforts. They change production centers, smuggling routes, and distribution networks in next to no time. For this reason thorough, comprehensive, and regular monitoring to identify and anticipate changing trends and patterns is essential.

Regulation of the supply chain

As new legal frameworks emerge around the world to tackle the issue of illicit trade in tobacco, it is imperative that they assist in identifying where products are being manufactured, sold, or distributed outside of the legitimate supply chain.

Alvise Giustiniani, PMI’s Head of the Anti-Illicit Trade Department, August 2016.

According to INTERPOL

"It is in the interest of all governments to establish due diligence frameworks and ‘know your customer’ programs such as those required for banks, and to demand track and trace systems for key component manufacturers to help combat the illicit trade in tobacco products and avoid millions being siphoned out of the public purse."

PMI believes the following regulatory measures should be part of any tobacco policy framework to combat illicit trade and apply equally to all participants regardless of the size of their business:

  • “Know your customer”: Legal tobacco manufacturers, wholesalers, distributors and transporters should be required to conduct due diligence with respect to their customers. This due diligence should include:
    • Verification of a customer’s legal right to trade in or purchase tobacco products;
    • An assessment of whether or not the volumes being purchased are consistent with the customer’s demand or sales;
    • A process for reporting suspicious transactions; and
    • A policy requiring the termination of business relationships when laws have been broken
  • Tracking and tracing: Effective track and trace processes and protocols are an essential part of maintaining supply chain integrity. The term “track” can be defined as the ability to monitor the movement of products through specified stages of the extended supply chain and the term “trace” the ability to recreate the movements, application or location of the product which is under consideration back up the supply chain to a certain point (Source: GS1, Business Process and System Requirements for Full Supply Chain Traceability, November 2012).
  • Security features: Tobacco products require anti-counterfeit features enabling the authentication of a product by industry, investigators, and ideally the wider public. A layered approach to security features is optimal, with a variety of different features all working in conjunction with each other, thus presenting the most insurmountable obstacle to criminals.
  • Record keeping: The legal tobacco supply chain should be required to maintain complete and accurate records of all relevant transactions for five years and to make records available to relevant authorities.
  • Licensing: Combined with strong enforcement and deterrent penalties, a licensing or equivalent approval system that ensures only legitimate and law-abiding businesses can engage in the manufacture, import and export of tobacco products, manufacturing equipment and key components of cigarette manufacturing, especially cigarette paper and filters.
  • Enforcement in Free Trade Zones: These tax-free locations were originally developed to enhance global trade and the free flow of goods. Recently however, they have become a preferred place of doing business for smugglers and illicit whites manufacturers. Therefore, the measures highlighted above should be implemented and enforced in these zones.

In 2016, Philip Morris International published a position paper that outlines solutions for tackling the illicit trade in tobacco within the EU. The Position paper calls for a dialogue to create a strategic framework for open standards, a competitive environment for technology solutions and independent auditing.

Control of key components

Cigarettes are made of three main components: tobacco, paper, and filter. Without any of these components cigarettes, legal or illegal, can’t be produced. Implementing strict controls over the production and supply of each of these key components can therefore be one way to make the production of illegal cigarettes more difficult for criminals.

Tough penalties and strong enforcement

There are numerous ways of tackling the problem of the illegal cigarette trade, but little can be achieved without tough penalties and strong enforcement. If not punished adequately, illicit tobacco trade is a low risk, high profit crime.

Given the huge profits derived from cigarette smuggling, the penalties in most countries for those convicted are much less significant than for those convicted, for example, of smuggling drugs or weapons. This encourages criminals to shift from the latter to the former.

In Germany, for example, convicted drug smugglers regularly face a minimum prison term of two years, whereas convicted cigarette smugglers may get away with only a monetary fine. Similarly, in France, convicted drug smugglers face up to 30 years in prison, while convicted cigarette smugglers face a maximum prison term of ten years.

There are several ways governments can make illegal tobacco trade less attractive to criminals, including by:

  • Implementing rules such as zero-tolerance for anyone in possession of counterfeit tobacco products;
  • Routinely destroying seized products and manufacturing machineries;
  • Forfeiting assets of convicted tobacco traffickers; or
  • Entering into agreements with the legal industry to share resources and information

Zero-tolerance of counterfeit

In many countries it is not an offense to possess a small quantity of counterfeit goods if they are for personal use. This means there is no deterrent for travelers to bring back small quantities of counterfeit cigarettes.

Countries like Switzerland, however, apply a zero-tolerance approach to the importation of counterfeit goods and law enforcement authorities are empowered to seize any quantity of counterfeit goods and apply severe penalties. Even though it is not subject to penalties, private import is also forbidden and any counterfeit goods imported privately are seized as well.

Seize and destroy

Enforcement authorities should be empowered to destroy confiscated manufacturing equipment, materials used to make cigarettes, and illegal tobacco products themselves. This is essential in order to prevent these items from finding their way back into the illicit trade or being used to produce more illicit products.

In some instances, this is happening already. In March 2014, approximately 90 million counterfeit cigarettes were destroyed by the Antwerp Customs in Belgium. In October 2014, two tons of raw tobacco and 250 thousand illicit cigarettes that had been seized in an illicit cigarette factory in Stryków (Poland) were also destroyed.

Another good example took place in February 2011, when 45 machines that had been confiscated by German customs authorities during raids at illegal cigarette manufacturing facilities in Cologne and Koblenz in 2005, were destroyed. It is believed that the machinery had been used to produce approximately 400 million counterfeit cigarettes before it was confiscated.

During 2016, in Poland 34 illicit cigarettes factories with a potential production capacity of approximately 4 billion cigarettes, including counterfeit product, were raided by local law enforcement authorities. In addition, 28 tobacco processing facilities with a production capacity of approximately 2,000 tons of tobacco were also raided. Following these raids, 3 big contraband networks involved in the contraband of at least 0.5 billion cigarettes were dismantled and over 350 members of organized crime groups were arrested.

Unfortunately, this isn't standard practice. Some countries actually hold public auctions for seized cigarettes and machinery at which illicit traders purchase the goods that should have been destroyed and kept out of their hands and the cycle continues.

Asset forfeiture

Many countries, including those where illicit trade is flourishing, do not have laws that allow law enforcement authorities to seize the assets of those involved in the illegal cigarette supply chain. However, some countries have adopted a tough stance. Hong Kong and the UK, for example, allow for the seizure of property purchased with money earned through criminal activity. The confiscated assets can then be sold and the proceeds can be used by enforcement.

Public & Private sector cooperation

Policy can also be complemented by cooperation agreements between law enforcement, the legal industry, and others who have a role to play in tackling this problem.

Currently, PMI has 22 memoranda of understanding in force in 20 countries related to the fight against the illicit trade in tobacco products. In 2015, PMI cooperated on many levels with authorities worldwide, including inspecting 3,222 seizures in 29 countries and helping to train 361 law enforcement officers globally.

On July 9, 2004, Philip Morris International (PMI), the European Union, and 10 Member States entered into a 12-year cooperation agreement to fight illicit trade in cigarettes.

The agreement between the European Union and PMI expired on July 9, 2016 and the European Commission decided not to prolong it. Although the agreement was not extended, the supply chain control measures outlined in the agreement will remain an integral part of how we do business in the European Union and around the world. With or without the agreement, our commitment to fight illegal trade around the world remains intact and stronger than ever.

European Commission Vice-President Georgieva said on 6th July 2016:

“This agreement has served its purpose, reducing PMI contraband on the illicit tobacco market and providing public revenues of around USD1 billion to Member States and the EU budget. In a changing legal and market environment, we will redeploy our resources and continue to fight illegal tobacco trade by focusing on cheap whites, strict law enforcement and strengthened international cooperation."

Regulation of the supply chain

As new legal frameworks emerge around the world to tackle the issue of illicit trade in tobacco, it is imperative that they assist in identifying where products are being manufactured, sold, or distributed outside of the legitimate supply chain.

Alvise Giustiniani, PMI’s Head of the Anti-Illicit Trade Department, August 2016.

According to INTERPOL:

"It is in the interest of all governments to establish due diligence frameworks and ‘know your customer’ programs such as those required for banks, and to demand track and trace systems for key component manufacturers to help combat the illicit trade in tobacco products and avoid millions being siphoned out of the public purse."

PMI believes the following regulatory measures should be part of any tobacco policy framework to combat illicit trade and apply equally to all participants regardless of the size of their business:

  • “Know your customer”: Legal tobacco manufacturers, wholesalers, distributors and transporters should be required to conduct due diligence with respect to their customers. This due diligence should include:
    • Verification of a customer’s legal right to trade in or purchase tobacco products;
    • An assessment of whether or not the volumes being purchased are consistent with the customer’s demand or sales;
    • A process for reporting suspicious transactions; and
    • A policy requiring the termination of business relationships when laws have been broken
  • Tracking and tracing: Effective track and trace processes and protocols are an essential part of maintaining supply chain integrity. The term “track” can be defined as the ability to monitor the movement of products through specified stages of the extended supply chain and the term “trace” the ability to recreate the movements, application or location of the product which is under consideration back up the supply chain to a certain point (Source: GS1, Business Process and System Requirements for Full Supply Chain Traceability, November 2012).
  • Security features: Tobacco products require anti-counterfeit features enabling the authentication of a product by industry, investigators, and ideally the wider public. A layered approach to security features is optimal, with a variety of different features all working in conjunction with each other, thus presenting the most insurmountable obstacle to criminals.
  • Record keeping: The legal tobacco supply chain should be required to maintain complete and accurate records of all relevant transactions for five years and to make records available to relevant authorities.
  • Licensing: Combined with strong enforcement and deterrent penalties, a licensing or equivalent approval system that ensures only legitimate and law-abiding businesses can engage in the manufacture, import and export of tobacco products, manufacturing equipment and key components of cigarette manufacturing, especially cigarette paper and filters.
  • Enforcement in Free Trade Zones: These tax-free locations were originally developed to enhance global trade and the free flow of goods. Recently however, they have become a preferred place of doing business for smugglers and illicit whites manufacturers. Therefore, the measures highlighted above should be implemented and enforced in these zones.

In 2016, Philip Morris International published a position paper that outlines solutions for tackling the illicit trade in tobacco within the EU. The Position paper calls for a dialogue to create a strategic framework for open standards, a competitive environment for technology solutions and independent auditing.

Control of key components

Cigarettes are made of three main components: tobacco, paper, and filter. Without any of these components cigarettes, legal or illegal, can’t be produced. Implementing strict controls over the production and supply of each of these key components can therefore be one way to make the production of illegal cigarettes more difficult for criminals.

Tough penalties and strong enforcement

There are numerous ways of tackling the problem of the illegal cigarette trade, but little can be achieved without tough penalties and strong enforcement. If not punished adequately, illicit tobacco trade is a low risk, high profit crime.

Given the huge profits derived from cigarette smuggling, the penalties in most countries for those convicted are much less significant than for those convicted, for example, of smuggling drugs or weapons. This encourages criminals to shift from the latter to the former.

In Germany, for example, convicted drug smugglers regularly face a minimum prison term of two years, whereas convicted cigarette smugglers may get away with only a monetary fine. Similarly, in France, convicted drug smugglers face up to 30 years in prison, while convicted cigarette smugglers face a maximum prison term of ten years.

There are several ways governments can make illegal tobacco trade less attractive to criminals, including by:

  • Implementing rules such as zero-tolerance for anyone in possession of counterfeit tobacco products;
  • Routinely destroying seized products and manufacturing machineries;
  • Forfeiting assets of convicted tobacco traffickers; or
  • Entering into agreements with the legal industry to share resources and information

Zero-tolerance of counterfeit

In many countries it is not an offense to possess a small quantity of counterfeit goods if they are for personal use. This means there is no deterrent for travelers to bring back small quantities of counterfeit cigarettes.

Countries like Switzerland, however, apply a zero-tolerance approach to the importation of counterfeit goods and law enforcement authorities are empowered to seize any quantity of counterfeit goods and apply severe penalties. Even though it is not subject to penalties, private import is also forbidden and any counterfeit goods imported privately are seized as well.

Seize and destroy

Enforcement authorities should be empowered to destroy confiscated manufacturing equipment, materials used to make cigarettes, and illegal tobacco products themselves. This is essential in order to prevent these items from finding their way back into the illicit trade or being used to produce more illicit products.

In some instances, this is happening already. In March 2014, approximately 90 million counterfeit cigarettes were destroyed by the Antwerp Customs in Belgium. In October 2014, two tons of raw tobacco and 250 thousand illicit cigarettes that had been seized in an illicit cigarette factory in Stryków (Poland) were also destroyed.

Another good example took place in February 2011, when 45 machines that had been confiscated by German customs authorities during raids at illegal cigarette manufacturing facilities in Cologne and Koblenz in 2005, were destroyed. It is believed that the machinery had been used to produce approximately 400 million counterfeit cigarettes before it was confiscated.

During 2016, in Poland 34 illicit cigarettes factories with a potential production capacity of approximately 4 billion cigarettes, including counterfeit product, were raided by local law enforcement authorities. In addition, 28 tobacco processing facilities with a production capacity of approximately 2,000 tons of tobacco were also raided. Following these raids, 3 big contraband networks involved in the contraband of at least 0.5 billion cigarettes were dismantled and over 350 members of organized crime groups were arrested.

Unfortunately, this isn't standard practice. Some countries actually hold public auctions for seized cigarettes and machinery at which illicit traders purchase the goods that should have been destroyed and kept out of their hands and the cycle continues.

Asset forfeiture

Many countries, including those where illicit trade is flourishing, do not have laws that allow law enforcement authorities to seize the assets of those involved in the illegal cigarette supply chain. However, some countries have adopted a tough stance. Hong Kong and the UK, for example, allow for the seizure of property purchased with money earned through criminal activity. The confiscated assets can then be sold and the proceeds can be used by enforcement.

Public & private sector cooperation

Policy can also be complemented by cooperation agreements between law enforcement, the legal industry, and others who have a role to play in tackling this problem.

Currently, PMI has 22 memoranda of understanding in force in 20 countries related to the fight against the illicit trade in tobacco products. In 2015, PMI cooperated on many levels with authorities worldwide, including inspecting 3,222 seizures in 29 countries and helping to train 361 law enforcement officers globally.

On July 9, 2004, Philip Morris International (PMI), the European Union, and 10 Member States entered into a 12-year cooperation agreement to fight illicit trade in cigarettes.

The agreement between the European Union and PMI expired on July 9, 2016 and the European Commission decided not to prolong it. Although the agreement was not extended, the supply chain control measures outlined in the agreement will remain an integral part of how we do business in the European Union and around the world. With or without the agreement, our commitment to fight illegal trade around the world remains intact and stronger than ever.

European Commission Vice-President Georgieva said on 6th July 2016:

“This agreement has served its purpose, reducing PMI contraband on the illicit tobacco market and providing public revenues of around USD1 billion to Member States and the EU budget. In a changing legal and market environment, we will redeploy our resources and continue to fight illegal tobacco trade by focusing on cheap whites, strict law enforcement and strengthened international cooperation.

Enforcement

Implementing laws to criminalize the illicit trade in tobacco products is not effective without adequate enforcement and strict application of meaningful penalties. All too often, governments are not fully aware of the scale or consequences of the illicit cigarette trade and tackling the problem is not given sufficient priority. As Kunio Mikuriya, Secretary General of the World Customs Organization put it:

"We need to make governments and the public aware of the implications of illicit trade and gain their full support."

A strategy for success

The successful elements of an enforcement strategy against illicit trade include:

  • Deterrent legislation, such as asset forfeiture laws and laws that provide for deterrent prison sentences for convicted illicit tobacco traders;
  • Well-funded law enforcement teams, with a mandate to take action against illicit tobacco as a key government priority;
  • Properly trained officers who are knowledgeable about the issue and with the right tools, such as container scanners, mobile scanners for trucks and sniffer dogs;
  • Funding intelligence efforts, enabling law enforcement to investigate the criminal networks;
  • Partnerships with the legitimate industry, which are critical for sharing intelligence among manufacturers, retailers and the public;
  • Clear ethics policies and fair remuneration for enforcement authorities to overcome corruption.

When enforcement works

Experience in a number of countries has shown that aggressive, well-funded enforcement combined with strong legal deterrents can make a significant impact. In 2013, increased law enforcement actions in Italy by the Finance Police resulted in over 250 arrests, the closure of 23 illegal warehouses and the shuttering of several illegal retailers. The results speak for themselves, with the level of illicit trade (non-domestic) dropping from 11.4% in the fourth quarter of 2012 to 5.2% in the same period of 2013.

Similarly, an integrated anti-contraband strategy by the UK’s HMRC has delivered results. According to Priti Patel, former Exchequer Secretary to the Treasury:

"Since 2000, when Her Majesty’s Customs & Excise [HMRC] introduced its first strategy to tackle illicit tobacco, the progress in the fight against tobacco smuggling has been considerable. The size of the illicit cigarettes market has been halved and the illicit market for hand-rolling tobacco has reduced by a third. More than 26 billion cigarettes and 4,300 tonnes of hand-rolling tobacco have been seized. There have been more than 4,000 criminal prosecutions for tobacco offences. We have achieved a lot, but even this reduced illicit market still costs the taxpayer over £2 billion a year in lost revenues."

Enforcement

Implementing laws to criminalize the illicit trade in tobacco products is not effective without adequate enforcement and strict application of meaningful penalties. All too often, governments are not fully aware of the scale or consequences of the illicit cigarette trade and tackling the problem is not given sufficient priority. As Kunio Mikuriya, Secretary General of the World Customs Organization put it:

"We need to make governments and the public aware of the implications of illicit trade and gain their full support."

A strategy for success

The successful elements of an enforcement strategy against illicit trade include:

  • Deterrent legislation, such as asset forfeiture laws and laws that provide for deterrent prison sentences for convicted illicit tobacco traders;
  • Well-funded law enforcement teams, with a mandate to take action against illicit tobacco as a key government priority;
  • Properly trained officers who are knowledgeable about the issue and with the right tools, such as container scanners, mobile scanners for trucks and sniffer dogs;
  • Funding intelligence efforts, enabling law enforcement to investigate the criminal networks;
  • Partnerships with the legitimate industry, which are critical for sharing intelligence among manufacturers, retailers and the public;
  • Clear ethics policies and fair remuneration for enforcement authorities to overcome corruption.

When enforcement works

Experience in a number of countries has shown that aggressive, well-funded enforcement combined with strong legal deterrents can make a significant impact. In 2013, increased law enforcement actions in Italy by the Finance Police resulted in over 250 arrests, the closure of 23 illegal warehouses and the shuttering of several illegal retailers. The results speak for themselves, with the level of illicit trade (non-domestic) dropping from 11.4% in the fourth quarter of 2012 to 5.2% in the same period of 2013.

Similarly, an integrated anti-contraband strategy by the UK’s HMRC has delivered results. According to Priti Patel, former Exchequer Secretary to the Treasury:

"Since 2000, when Her Majesty’s Customs & Excise [HMRC] introduced its first strategy to tackle illicit tobacco, the progress in the fight against tobacco smuggling has been considerable. The size of the illicit cigarettes market has been halved and the illicit market for hand-rolling tobacco has reduced by a third. More than 26 billion cigarettes and 4,300 tonnes of hand-rolling tobacco have been seized. There have been more than 4,000 criminal prosecutions for tobacco offences. We have achieved a lot, but even this reduced illicit market still costs the taxpayer over £2 billion a year in lost revenues."

Fighting illicit trade with technology

There are many technologies that claim to prevent illicit trade but in reality none will stop copies being made or cigarettes being smuggled. However, some technologies can give governments, retailers, and consumers the ability to rapidly determine whether or not duty has been collected on a product, as well as if the product is genuine or fake.

Specifically these technologies can improve the security of the supply chain in three primary ways:

  1. Tracking and tracing can help address smuggling of tobacco products across borders.
    • Tracking is the ability to monitor finished goods as they make their way down the supply chain from the point of manufacture.
    • Tracing is the ability to recreate the movement of packaged tobacco products back up the supply chain to a certain point.
    • A track-and-trace regime can contribute to preventing the diversion of tobacco products into illegal channels.
  2. Authentication can help address counterfeiting.
    • Authentication is the ability to determine genuine products from counterfeit.
    • Security features: Tobacco products require anti-counterfeit features enabling the authentication of a product by industry, investigators, and ideally the wider public. A layered approach to security features means a variety of different features all working in conjunction with each other, thus presenting the most insurmountable obstacle to criminals.
    • One of the most secure authentication solutions used today by various industries is to print a unique code on each and every pack. Used today by various industries, this code can then be scanned by consumers, retailers and law enforcement officials to determine whether or not that pack is genuine.


3. Digital Tax Verification can help to address tax evasion.

  • Tax verification involves verifying that the declared volume of tobacco products manufactured matches the amount of excise tax due and paid.
  • Digital fiscal marking of tobacco product packaging is used in many countries around the world as a tool to verify the payment or collect tobacco taxes. Codes or paper stamps that are directly printed on, or attached to the pack, are very common ways of doing this. The markers are used by auditors to ensure the number of codes or stamps used by the manufacturer match the number of tobacco products sold, in stock, or rejected during the production process.

All of these technologies can contribute significantly to tackling illicit trade and should be considered as part of a comprehensive strategy.

Fighting illicit trade with technology

There are many technologies that claim to prevent illicit trade but in reality none will stop copies being made or cigarettes being smuggled. However, some technologies can give governments, retailers, and consumers the ability to rapidly determine whether or not duty has been collected on a product, as well as if the product is genuine or fake.

Specifically these technologies can improve the security of the supply chain in three primary ways:

  1. Tracking and tracing can help address smuggling of tobacco products across borders.
    • Tracking is the ability to monitor finished goods as they make their way down the supply chain from the point of manufacture.
    • Tracing is the ability to recreate the movement of packaged tobacco products back up the supply chain to a certain point.
    • A track-and-trace regime can contribute to preventing the diversion of tobacco products into illegal channels.
  2. Authentication can help address counterfeiting.
    • Authentication is the ability to determine genuine products from counterfeit.
    • Security features: Tobacco products require anti-counterfeit features enabling the authentication of a product by industry, investigators, and ideally the wider public. A layered approach to security features means a variety of different features all working in conjunction with each other, thus presenting the most insurmountable obstacle to criminals.
    • One of the most secure authentication solutions used today by various industries is to print a unique code on each and every pack. Used today by various industries, this code can then be scanned by consumers, retailers and law enforcement officials to determine whether or not that pack is genuine.



3. Digital Tax Verification can help to address tax evasion.

  • Tax verification involves verifying that the declared volume of tobacco products manufactured matches the amount of excise tax due and paid.
  • Digital fiscal marking of tobacco product packaging is used in many countries around the world as a tool to verify the payment or collect tobacco taxes. Codes or paper stamps that are directly printed on, or attached to the pack, are very common ways of doing this. The markers are used by auditors to ensure the number of codes or stamps used by the manufacturer match the number of tobacco products sold, in stock, or rejected during the production process.

All of these technologies can contribute significantly to tackling illicit trade and should be considered as part of a comprehensive strategy.

Education about the reality of the illicit cigarette trade

Ultimately, the most effective way of reducing illicit trade in cigarettes is to help consumers identify the difference between legal and illegal products and the risks involved in purchasing illegal cigarettes. Unfortunately, low public awareness and understanding of the issue means that many smokers buy cheap, illegal cigarettes with little knowledge of where the product comes from, what it contains or the extent to which their money is contributing to fund organized criminal activity.

Public information campaigns

Informing consumers about the societal and financial impact of the illegal cigarette trade, as well as publicizing seizures made by enforcement authorities and prosecutions are part of any plan to tackle the illegal tobacco trade. A 2009 report conducted by the Business Action to Stop Counterfeiting and Piracy (BASCAP) observed,

“Only when consumers appreciate the full repercussions of their counterfeit purchase can they be expected to stop the practice.”

Numerous parties, including government agencies, tobacco manufacturers, media outlets, cross-industry groups and associations, and legal retailers, can and should, play an important role in developing education campaigns. Broad use of national and international media to raise public awareness of these campaigns is also critical and is an approach effectively adopted by the European Anti-Fraud Office (OLAF).

Education about the reality of the illicit cigarette trade

Ultimately, the most effective way of reducing illicit trade in cigarettes is to help consumers identify the difference between legal and illegal products and the risks involved in purchasing illegal cigarettes. Unfortunately, low public awareness and understanding of the issue means that many smokers buy cheap, illegal cigarettes with little knowledge of where the product comes from, what it contains or the extent to which their money is contributing to fund organized criminal activity.

Public information campaigns

Informing consumers about the societal and financial impact of the illegal cigarette trade, as well as publicizing seizures made by enforcement authorities and prosecutions are part of any plan to tackle the illegal tobacco trade. A 2009 report conducted by the Business Action to Stop Counterfeiting and Piracy (BASCAP) observed:

“Only when consumers appreciate the full repercussions of their counterfeit purchase can they be expected to stop the practice.”

Numerous parties, including government agencies, tobacco manufacturers, media outlets, cross-industry groups and associations, and legal retailers, can and should, play an important role in developing education campaigns. Broad use of national and international media to raise public awareness of these campaigns is also critical and is an approach effectively adopted by the European Anti-Fraud Office (OLAF).

Cooperation is key

Illicit trade is a global problem that no government or law enforcement agency can solve alone.

The cooperation between public and private sectors, international organizations and law enforcement is key to stamping out this problem. Only a coordinated effort by all concerned parties can help reduce the levels of illicit trade and prevent its serious consequences.

“Addressing the problem [of tax loss due to illicit tobacco trade] requires strengthening international collaboration, a focused and coordinated approach among all national enforcement bodies, and mutual assistance between government, industry and NGOs[.]”

Former Malaysian Customs Director General Datuk Seri Mohamed Khalid Yusuf. The Sun Daily. 30 September 2013.

The OECD Task Force on Countering Illicit Trade recommended public private partnership as a way forward in tackling illicit trade:

“Utilising the unique opportunities associated with public private partnerships (PPP) to share information and collaborate on strategies to counter the illicit trade may be of value to governments.”

OECD (2016), Illicit Trade: Converging Criminal Networks, OECD Publishing, Paris.

Cooperation is key

Illicit trade is a global problem that no government or law enforcement agency can solve alone.

The cooperation between public and private sectors, international organizations and law enforcement is key to stamping out this problem. Only a coordinated effort by all concerned parties can help reduce the levels of illicit trade and prevent its serious consequences.

“Addressing the problem [of tax loss due to illicit tobacco trade] requires strengthening international collaboration, a focused and coordinated approach among all national enforcement bodies, and mutual assistance between government, industry and NGOs[.]”

Former Malaysian Customs Director General Datuk Seri Mohamed Khalid Yusuf. The Sun Daily. 30 September 2013.

The OECD Task Force on Countering Illicit Trade recommended public private partnership as a way forward in tackling illicit trade:

“Utilising the unique opportunities associated with public private partnerships (PPP) to share information and collaborate on strategies to counter the illicit trade may be of value to governments.”

OECD (2016), Illicit Trade: Converging Criminal Networks, OECD Publishing, Paris.