EC reports suggests illicit tobacco market share is growing

Seizures of illicit tobacco products in the EU have risen by a fifth over the past two years, suggesting the black market may be growing, a report from the European Commission says.

According to figures from member states, seizure volumes increased from 3.1 billion in 2013 to 3.8 billion in 2015, while operations by the European Anti-Fraud Office (OLAF) contributed to the seizure of more than one billion cigarettes.

The figures feature in the recent progress report by the EC detailing updates on the implementation of the 2013 EU strategy to step up the fight against illicit tobacco trade.

The strategy, which built on an earlier action plan targeting smuggled cigarettes and alcohol along the EU's eastern border, includes 50 measures to be implemented by the Commission and/or member states, as well as the commitment to monitor progress of the implementation of these measures.

According to the document significant milestones have been achieved in securing the legal supply chain, strengthening enforcement and addressing the incentives underpinning the illicit trade. These include: changes to the legislative and policy framework; strengthening enforcement authorities and inter-agency co-operation; improving law enforcement such as operational activities, risk management, and intelligence gathering; enhanced co-operation with source and transit countries; and addressing the demand for illicit tobacco.

Specifically, the 2014 Tobacco Products Directive and EU's commitment to the World Health Organization Protocol to Eliminate Illicit Trade in Tobacco Products have been instrumental, as will the upcoming track and trace measures.

However, the report notes that "despite the implementation of the 2013 Strategy at European and national levels in recent years, the extent of the illicit tobacco trade in the EU remains overall high and troubling".

The EU believes the consumption of illicit tobacco has "remained broadly stable" – in the range of 55 billion to 65 billion sticks – yet tobacco consumption overall has declined in the EU.

"Seizures of illicit tobacco products in the EU have risen by a fifth over the last two years, which indicates a stable or possibly even growing share of illicit cigarettes," the report says, adding that seizures had initially been in decline since 2011. "In some member states the share of the illicit market may well exceed one quarter of the entire tobacco market."

The increase in seizures also reflects the improved enforcement framework that has been put in place, the report says.

The Commission points out one troublesome trend - that the average size of individual seizures has gone down in recent years as larger smuggling consignments grow less frequent, while smaller quantities and multiple border crossings have become more popular. Some activities are being spearheaded by criminal gangs and organised operations, the EC says. "These small-scale activities pose different challenges to law enforcement authorities than containerised traffic," the report notes.

The EC has also observed that the composition of the illicit tobacco market has changed. "Contraband from the major international producers is much less prominent in large seizures in the EU today than in the past," the report notes. "On the other hand, cheap whites and counterfeits (including the counterfeiting of cheap whites) dominate in large-scale seizures, and in particular in seizures related to containerised transport."

The EC has also seen an upsurge in illicit tobacco manufacturing inside the EU – seen with the discovery of numerous illicit tobacco factories – possibly in response to the stringent monitoring of the EU's external borders.

One scenario that was uncovered had cigarettes produced inside the EU and declared for export but were either not exported or were smuggled back into the EU after export. The report noted that this was very lucrative for criminals, and called for strengthened enforcement at EU levels, as well as a review of the powers of OLAF.

The EC also called for the consideration of additional measures such as reducing incentives for smugglers and curtailing access to input materials.

One of the major tobacco firms - Japan Tobacco International - fears however that stringent new measures on smaller pack sizes about to be introduced in the UK could encourage more people to buy illicit cigarettes and tobacco, according to an article in The Times. An investigation by the firm found one in eight retailers were selling illegal tobacco products, with some products found to contain asbestos, dead flies, rat droppings and human excrement.

The EC believes the 2013 strategy remains relevant, although it is too early to judge its effectiveness, it says.

However, it notes: "The EU and its member states have no choice but to continue to address the threat from illicit tobacco and its changing patterns with determination, since this illicit activity is detrimental to public health, finances and security."

A further review of the strategy will occur in 2018.

The full report can be accessed here https://ec.europa.eu/anti-fraud/sites/antifraud/files/tobacco_implementation_report_12052017_en.pdf