53 billion illegal #cigarettes consumed in EU last year

New KMPG report finds that governments lose up to €11.3 billion in revenues -  non-EU contraband and counterfeit increased to 88%.

53 billion illegal cigarettes were consumed in the European Union (EU) in 2015, which exceeds the legal market volume of Spain, according to a new report published today (8 June) by KPMG. Accounting for one in every 10 cigarettes consumed, this criminal activity costs EU governments up to €11.3 billion in lost tax revenues.

This annual study investigates the levels and drivers of counterfeit, contraband and Illicit Whites in the 28 EU countries, as well as Switzerland and Norway.

While the illegal cigarette market in the EU accounts for around 10% of total consumption, this volume has declined marginally compared to 2014 as a result of several factors including increased activities to fight illegal trade and improved economic conditions.

The industry believes their strict supply chain controls and shared intelligence, combined with authorities’ law enforcement, has resulted in a decline of around 20% in the illegal flow originating from within the EU. This means that 88% of illegal cigarettes now come from non-EU countries.

A key trend identified in the KPMG report is the growing proportion of counterfeit and Illicit White brand flows compared to previous years. Illicit Whites accounted for over one third of all illegal cigarettes, whilst counterfeit grew to 4.7 billion cigarettes. The largest portion of Illicit Whites – 5.3 billion cigarettes – were in packs with Belarusian labelling.

The industry believes the changing mix of source countries and the increasing number of Illicit White brands demonstrates the adaptability of criminals who profit from the illegal tobacco market.

Key insights from the report:

• Total illegal cigarette volumes accounted for 9.8% of all cigarettes consumed in the EU in 2015, representing 53 billion cigarettes;
• Poland and France recorded the highest volumes of illegal cigarettes;
• 88% of illegal cigarettes were coming from non-EU contraband and counterfeit;
• Illicit Whites represent more than one third of the illegal cigarettes consumed in the EU, 28% of which were cigarettes in packs with Belarusian labelling, and;
• 1.3 billion Illicit White cigarettes are thought to originate from the Jebel Ali Free Trade Zone in the United Arab Emirates;
• Belarus is the largest source country for Illicit Whites;
• counterfeit increased by 28% to 4.7 billion cigarettes;
• seizures of illegal cigarettes with the support of the EU Anti-Fraud Office (OLAF) doubled in 2015;
• in excess of 0.6 billion cigarettes were seized, compared with 0.3 billion in 2014, and;
• if the illegal volume in the EU had been consumed legally, an additional tax revenue of EUR 11.3 billion would have been raised.

Charlie Simpson, lead partner of the study at KPMG said: “Overall, levels of illicit cigarette consumption in the EU declined slightly during 2015. Despite this, illicit tobacco continues to represent a sizeable proportion of overall cigarette consumption. It’s clear that the ever-evolving illegal tobacco market continues to affect countries throughout the EU. This year our research found that counterfeit and Illicit White brand flows made up a larger proportion of illicit consumption compared to previous years, which seems to demonstrate the flexibility of illicit cigarette flows.”

The industry believes the 2015 report results indicate that the increased joint efforts of governments, law enforcement agencies, manufacturers, and retailers contribute to efficiently addressing the illegal cigarette flows in EU. As criminals increasingly concentrate on illegal products such as Illicit Whites and shift to new source countries outside the EU, it is clear that efforts to fight illegal trade must be maintained in order to disrupt criminal networks.

British American Tobacco (BAT), Imperial Tobacco (Imperial), Japan Tobacco International (JTI) and Philip Morris International (PMI) remain committed to working together with authorities across the world and continue to invest in combating this problem.

The 2015 KPMG study on the illicit cigarette market in the EU, Switzerland and Norway is available on KPMG’s website.

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