Europe’s black market for cigarettes has grown for the fifth consecutive year, according to a new report, with organized crime groups expanding illegal operations in higher excise countries.
The annual study, published by KPMG, found that illicit trade rose by 3% in 2023, with more than 35 billion illegal cigarettes consumed across the 27 EU Member States. This illegal trade cost European taxpayers some €16 billion in lost revenue.
Speaking at an event to present the findings this month, Christos Harpantidis, Senior Vice President of External Affairs at Philip Morris International, warned of the growing sophistication among the organized criminal groups behind the industry. He urged policymakers to act, noting that the revenue generated from illicit trade often funds other criminal activities, such as human trafficking, corruption, and money laundering.
"We are witnessing an evolution of organized crime groups in Europe, as they increasingly locate production facilities closer to Western European countries," Harpantidis said.
He warned that the illicit tobacco industry is putting consumers, governments, legitimate businesses, and society at risk, attributing the problem to “failed policy approaches” that have neither curbed illicit trade nor reduced smoking prevalence.
According to the report, organized crime groups have expanded their network of illegal cigarette factories. In 2023 alone, law enforcement data shows that authorities disrupted at least 113 clandestine cigarette manufacturing sites across 22 European countries.
We need to move past policies that have failed in their objective to reduce smoking prevalence and instead exacerbated illicit trade, and prioritize policies that have contributed to reducing illicit trade, and to reducing smoking
While praising law enforcement agencies for their cross-border operations to combat these “crime rings,” Harpantidis emphasized the need for a more comprehensive strategy. He called for a “holistic approach” that combines strict penalties and strong law enforcement with public awareness campaigns about the real-life impact of illicit trade. He also advocated for a predictable fiscal and regulatory environment to prevent adult smokers from turning to the black market, and stronger public-private partnerships.
“A sensible approach to curbing illicit cigarettes’ trade avoids excessive, unaffordable taxation, provides tools and resources for law enforcement to vigorously pursue and penalize those dealing with illicit goods, and informs consumers about the black market's wide-reaching impact.
“We need to move past policies that have failed in their objective to reduce smoking prevalence and instead exacerbated illicit trade, and prioritize policies that have contributed to reducing illicit trade, and to reducing smoking.
“We need policies that make better alternatives to cigarettes affordable and accessible to adult smokers who don't quit, encouraging them to switch to them and give up cigarettes once and for all.”
KPMG has studied illicit cigarette consumption in Europe for the past 18 years. The latest report—commissioned by PMI—analyzes 38 European countries, including the 27 EU Member States, as well as Albania, Bosnia and Herzegovina, Kosovo, Moldova, Montenegro, North Macedonia, Norway, Serbia, Switzerland, Ukraine, and the UK.
At the press conference, Harpantidis highlighted the expansion of organized crime groups in countries like France, Ukraine, and the UK. France remains the largest illicit tobacco market in the EU, accounting for 47.7% of illegal cigarette consumption in the region. Some 43% of all cigarettes consumed in France are untaxed. This is the highest level ever recorded in France since KPMG initiated its annual reporting back in 2006 and it represents a financial loss for the French Treasury of an estimated €7billion.
The ongoing war in Ukraine and instability along Belarus’s borders have also disrupted cigarette flows to other European markets. Harpantidis noted that criminal groups have expanded their illegal operations, evidenced by the dismantling of 113 clandestine cigarette manufacturing sites in 2023.
Countries beating illicit and licit cigarette consumption
Despite these challenges, the report highlights some positive developments. Sixteen European markets now have an illicit consumption share of less than 5%, and in 25 of the 38 countries studied, illicit cigarette consumption remained stable or declined compared to 2022. Notable examples of this downward trend include Spain, Italy, Poland, and Romania.
At the event, Luigi Pio Scordamaglia, CEO of Filiera Italia (the Italian Agrifood Association), expressed pride in Italy’s success in reducing illicit cigarette consumption. Since 2019, illicit trade in Italy has dropped by more than half, from €2.61 billion to €1.07 billion. Scordamaglia credited “transparent collaboration between the public and private sectors” for this achievement.
PMI made available to media attending the KPMG report presentation thefindings from a survey conducted by public opinion research firm Povaddo, revealing that 60% of Europeans believe their country has a problem with illicit tobacco and nicotine-containing products. Moreover, 74% of respondents think governments should consider the unintended consequences of regulating and taxing tobacco, while 77% agree that illicit trade results in significant lost tax revenue for national treasuries.
“If we want to tackle illicit trade, governments must deploy relentless law enforcement action against the criminals profiting from the black market,” Harpantidis added. “This has proven more effective than excessive taxation or prohibition. To reduce smoking-related harm, traditional tobacco control policies should be complemented by innovative approaches. Governments must embrace alternatives to cigarettes for adults who would otherwise continue to smoke.”
Mr Harpantidis added that PMI was committed to achieving its goal of “Delivering a Smoke-Free Future”, by moving away from traditional cigarettes and focusing on scientifically substantiated smoke-free products. But added: “We cannot fully succeed alone. We believe that well-designed regulatory frameworks are crucial to fostering good innovation and to making smoke-free products accessible and affordable for all adult smokers.”