How organized crime is profiting from flaws in anti-smoking policies

The trade in counterfeit and contraband cigarettes is booming in Europe. Criminal gangs are costing governments billions of euro in lost revenue and frustrating efforts to get smokers to switch to much safer smoke-free products. A new survey shows that the problem is worst in France, where an estimated 16.9 billion illicit cigarettes were sold last year, nearly half the EU total, writes Political Editor Nick Powell.

After centuries of controlling tobacco, the mighty French state is letting go of the market, forfeiting €7.2 billion in tax revenues lost in a single year. Half of the illicit trade is highly visible, with the gangsters’ wares sold outside nearly every metro station in Paris, the other half is distributed using social networks online, including to children and young people who start smoking as a result.

Once consumers are lost to the black market, it is hard to get them back. Switching to safer smoke-free products is less likely if instead of being an alternative to taxed legitimately sold cigarettes, they are competing with counterfeit and contraband cigarettes, sold for less than half the price.

The number of smokers in France hasn’t changed in 20 years but that disguises a massive social shift. The better off are making healthier lifestyle choices, with those who smoked quitting, often with the aid of heated tobacco products or by vaping. On the other hand, half the unemployed smoke, overwhelmingly buying cheaper illicit cigarettes.

It’s important to have a commercial route, as well as medical route, to smoking cessation, argues Grégoire Verdeaux, the Senior Vice-President for External Affairs at Philip Morris International (PMI). It’s more effective, especially amongst deprived groups with poorer access to medical help. But that is undone by easily available illicit cigarettes.

PMI commissions an annual survey of illicit cigarette consumption, which now covers the EU, UK, Norway, Switzerland, Moldova and Ukraine. The latest survey reveals that in 2022, 35.8 billion illicit cigarettes were consumed across the EU alone, costing governments an estimated €11.3bn in lost tax revenue - 8.5% more than in 2021.

The growth of the illicit market in the EU was partly driven by the continued rise in consumption of illegally produced counterfeit cigarettes. The vast majority of counterfeits (61.5%) were consumed in France. A major factor is the unwillingness of public health authorities in some countries to embrace innovation and make better alternatives to cigarettes available to adults who continue to smoke.

“The cost of ignoring the negative impact of illicit cigarettes on adult smokers, and on public health, is too high to turn a blind eye to,” said Grégoire Verdeaux (pictured). “It has truly become a ‘made in the EU’ problem, as fake cigarettes are being manufactured, distributed, sold, and consumed in countries within the EU, undermining efforts to reduce and eliminate cigarette smoking -and public health goals altogether.”

According to interviews with law enforcement agencies included in the KPMG report, the production and distribution of counterfeit cigarettes within EU borders is booming. Criminal gangs are focusing their activities on the higher-taxed and higher-priced EU member states, where the largest profits can be made.

Belgium, Denmark, France, and Germany are all witnessing a growth in cigarette seizures and raids on clandestine manufacturing operations. “The KPMG report clearly shows how the growth of the illicit cigarette market poses an existential threat to the industry’s sustainability and transformation in Europe”, added Grégoire Verdeaux. “We can observe how the illicit cigarette problem in the EU has become highly concentrated in a handful of countries, where governments have not embraced innovative approaches to effectively deter millions from continued smoking.”

“Traditional tobacco control policies are simply not enough”, he continued. “Aggressive fiscal policies, prohibitionist approaches, and lack of deterrence in countries like France and Belgium are only benefitting criminals and pushing adult smokers toward the black market.”

Despite the overall illicit consumption increase, the KPMG study notes that the majority of EU members -21 out of 27 countries- experienced a stable or declining share of illicit cigarette consumption in 2022. Excluding France, overall illicit consumption in the remaining markets in the study declined by 7.5%, largely due to decreases in Greece, the Netherlands, Portugal, and Romania. In Poland and Romania, illicit consumption reached the lowest-ever incidence since KPMG began publishing its annual studies in 2007.

Moldova and Ukraine were included in the KPMG report for the first time. The 2022 findings placed Ukraine as the second-largest market in Europe for illicit cigarette consumption, with 7.4 billion cigarettes, behind France’s 16.9 billion. The third-largest illicit market in Europe is the UK, with 5.9 billion illicit cigarettes, on the rise since 2020. All three countries have high taxes on cigarettes relative to average incomes.

“In these times of economic hardship, with inflation putting extra pressure on consumer purchasing power, we need robust law enforcement, comprehensive regulatory approaches and forward-thinking policies that can help improve the lives of millions of adults who continue to smoke,” argued Grégoire Verdeaux. He stated that PMI’s business model is driven by its smoke-free vision, a goal of ending the consumption of cigarettes.

But governments had to play their part. “This includes the adoption of differentiated policies on alternatives to cigarettes, including access to information about better alternatives, and smoke-free products that are available and affordable for all. No one should be left behind.”

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