Category: Illicit Trade

KPMG: EU Illicit Cigarette Market at Record Low
Photo: Tobacco Reporter archive
The European market for illicit cigarettes reached a record low in 2019, even as consumption of counterfeits continues to grow, according to a KPMG study commissioned by Philip Morris International (PMI).
In 2019, EU consumers purchased 38.9 billion illicit cigarettes—the lowest number since the KPMG study first took place in 2006. The figure represents represented 7.9 percent of total EU cigarette consumption, 0.7 percentage points less than in the previous year.
Despite the overall decline of illicit cigarette consumption, which continued for the seventh consecutive year, the consumption of counterfeit cigarettes continued to grow, reaching 7.6 billion, a 38.3 percent increase compared to 2018 and the highest level recorded to date.
“The continued decline of illicit tobacco trade in the EU is a positive development and reinforces the importance of supply chain control measures, strict enforcement, and collaboration in combating this issue,” said Alvise Giustiniani, vice president of illicit trade prevention at PMI.
“We must remain focused on these collective efforts, as there continue to be worrying trends like the increase of counterfeit cigarettes and the persisting problem of illicit whites. The first ever EU-wide tracking and tracing system that was introduced last year under the European Tobacco Products Directive is an important tool for law enforcement and one that we should continue to enhance through close collaboration and information-sharing to remain highly vigilant on emerging risks.”

Graphic: KPMG
According to PMI, illicit trade undermines efforts to reduce smoking prevalence and makes unregulated tobacco products easily accessible. “For PMI to deliver a smoke-free future and enable millions of people who would otherwise continue to smoke to switch to better alternatives to cigarettes, it’s essential to eliminate illicit tobacco trade wherever it exists,” the company wrote in a statement.
Interviews with law enforcement conducted by KPMG as part of the study indicate that the manufacture of illicit whites and counterfeit cigarettes in illegal factories located in the EU is increasing. Insights from law enforcement also refer to emerging organized crime groups that specialize in the smuggling and sale of illicit raw tobacco.
Other report findings reveal that:
Counterfeit cigarettes represent 19.5 percent of total illicit cigarette consumption. Compared to 2018, the biggest increases in counterfeit consumption occurred in the U.K. (by 137 percent, to 2.1 billion cigarettes) and France (by 82 percent, to 840 million cigarettes).
Illicit whites continue to be a major element of illicit cigarette consumption, representing 35.6 percent of illicit consumption in the EU, or 13.8 billion cigarettes, up from 29.8 percent in 2018.
For the first time since the research began in 2006, counterfeit cigarettes and illicit whites represent more than 50 percent of total illicit cigarette consumption in the EU.
The countries with the largest volumes of illicit cigarette consumption in the EU were France, with 7.2 billion illicit cigarettes, and the U.K., with 5.5 billion illicit cigarettes.
The highest shares of illicit cigarette consumption were found in Greece (22.4 percent), Lithuania (17.7 percent), and Ireland (17.5 percent). Compared to 2018, both Greece and Ireland saw a declining trend in illicit cigarette consumption, while Lithuania marked a slight increase.
Illicit flows from identifiable markets outside the EU, such as Ukraine and Belarus, continued to decline. However, illicit products reportedly originated from within the EU—and destined to another EU country—increased in 2019.
June 19, 2020
Malaysia: Action Urged Against Illicit Market

Photo: BAT
British American Tobacco (BAT) Malaysia has urged its shareholders to speak up against the illicit trade in cigarettes, which has severely impacted the company’s financial performance in the country, reports the New Straits Times.
BAT Malaysia’s profit from operations declined 24.9 percent to MYR478 million ($111.8 million) for the financial year 2019.
According to BAT Malaysia Managing Director Jonathan Reed, continued growth of the black market has forced the company to aggressively manage its cost base.
“This is not sustainable in the long term,” said Reed at BAT Malaysia’s 59th annual general meeting on June 15. “To effectively stop the black market, more drastic and radical actions are required.”
For 2020, BAT Malaysia said its growth strategy would depend on the recovery of the legal tobacco market, a regulated nicotine landscape, sensible fiscal policies and a resolution to the affordability issues affecting consumers.
“We are ready to invest our resources to continue tackling this issue,” said Reed. “However, full recovery can only happen if we are able to work hand-in-hand with all relevant parties to implement effective structural reforms to manage the extraordinarily high levels of illegal trade.”
June 16, 2020
UAE Postpones Digital Tax Stamps

Photo: Gerd Altmann from Pixabay
The United Arab Emirates Federal Tax Authority (FTA) has postponed the starting date of its requirement for waterpipe tobacco and electrically heated cigarettes to carry digital tax stamps until Jan. 1, 2021, reports Gulf News.
The measure, which seeks to discourage commercial fraud, minimize health risks and combat tax evasion, had previously been scheduled to come into effect on June 1, 2020.
The FTA explained that the deadline was extended to address the challenges posed by the coronavirus pandemic, which is preventing producers, importers, distributors and stockpilers from meeting the previously set deadline.
“This extension on the timeline provides them with seven additional months to prepare for the mandatory implementation of the ban,” said FTA Director General Khaled Ali Al Bustani.
“It also comes in response to the concerns expressed by stakeholders in the tobacco sector and their requests for such an extension that would allow them to sort out any issues resulting from the current difficult circumstances and the necessary precautionary measures that were enforced to prevent the spread of the novel coronavirus.”
Emirati authorities have implemented strict precautionary measures to curb the spread of Covid-19, including temporarily closing cafes and restaurants and banning them from serving waterpipes.
May 28, 2020
Pakistan Court Cancels Track-And-Trace Contract

Photo: Taco Tuinstra
A court in Pakistan canceled a multi-million dollar track-and-trace contract for tobacco products after complaints that the company awarded the contract was given undue preferential treatment.
The National Radio and Telecommunication Corp. (NRTC) was awarded the contract after submitting a very low bid. The bid was apparently in error, and the NRTC was allowed to correct the bid before the contract was awarded. According to the rules, the contract should have been awarded to the next lowest bidder following the error.
“If modifications in financial bids are allowed after the results of the bidding were made known … it would afford a pretext for unscrupulous bidders to prey on the public,” the judge stated in his decision.
May 14, 2020
Court Rejects Challenge to Traceability Rules

The EU Court of Justice (EUCJ) has rejected a legal challenge brought by the International Tax Stamp Association (ITSA) against the EU Tobacco Products Directive (TPD).
Brought in the 2018, the ITSA claim contends that that the TPD implementing regulations on traceability and security features do not conform to the World Health Organization (WHO) FCTC Protocol to Eliminate Illicit Trade in Tobacco Products.
The association believes that the TPD implementing regulation contravenes the FCTC Protocol’s Article 8. This article requires that the track-and-trace system for tobacco products is under government control, that duties should not be performed by or delegated to the tobacco industry and that public officials should interact with the tobacco industry and those representing its interests in tobacco track and trace only to the extent strictly necessary.
In May 2019, the EUCJ dismissed the claims on the grounds that ITSA could not challenge the EU track and trace system because it did not have “a direct interest” in the TPD implementing regulation.
The ITSA subsequently appealed this ruling citing the EUCJ’s “misunderstanding of certain basic facts”—but the appeal has now been rejected
Juan Yanez
ITSA Chairman called the ruling disappointing and curious. “The EUCJ determined that ITSA has no material interest in the directive’s derived regulation and the association’s claim was therefore not admissible,” he said. “ITSA members are independent of the tobacco industry and provide traceability systems as part of effective anti-illicit trade program, so how is it possible that ITSA and its members do not have a material interest in the regulations?”
The FCTC Protocol to Eliminate Illicit Trade in Tobacco Products came into force in 2018 and track-and-trace provisions must be implemented by its parties by 2023. The WHO has yet to define detailed requirements, which are scheduled to be discussed at the second Meeting of the Parties to the Protocol later this year.
The European Commission has committed to a review of the TPD in 2021.
April 23, 2020
India: Production Stoppages Drive Up Cigarette Prices

Photo: Taco Tuinstra
Since the lockdown due to the coronavirus outbreak, the black market price of cigarettes has risen by 50 percent to 100 percent as production has ceased in many places.
A 10-pack of Gold Flake Kings costs between INR250 and INR300 ($3.28 and $3.93), whereas it would normally cost INR165, according to local reports.
“The situation is bad. All paanwallas have shut shop in the city. A few grocery stores are keeping stock, but they sell it only to those they know and that too at a premium,” Piyush Gupta of Delhi was quoted as saying.
The price of cigarettes rose in phases, according to Chirag Gudipaty of Bengaluru. “In the first week of the lockdown, cigarette packs used to be sold for MRP. By the second week, they were attracting a 20 percent premium. Now, the premium is anywhere between 30 [percent] to 100 percent depending on how well you knew your retailer before,” he said.
Experts recommend that those who have been abstaining from smoking during the lockdown use the opportunity quit for good.
April 13, 2020
Tax Stamp Group Recruiting to Fight Illicit Trade

The International Tax Stamp Association (ITSA) is recruiting new members, including government authorities, universities, foundations, nongovernmental organizations (NGOs) and other associations, who can help fight the fraudulent trade of tobacco, alcohol and other products.
All prospective associate members must have a legitimate and established interest in tax/security stamps or secure track-and-trace systems. Associate membership is not open to individuals or to organizations that collaborate significantly with manufacturers, distributors or sellers of excisable products or with their subsidiaries and associates.
“We want to increase our influence in the fight against the illicit trade of tobacco and other products by forging closer links with NGOs, research bodies, government authorities and other key bodies,” said Juan Carlos Yanez, chairman of the ITSA. “Tobacco fraud in particular leads to a rapid increase in poor health and costs revenue authorities millions of pounds in lost excise duty.”
April 6, 2020
Study: Anti-Counterfeit Technology to Grow

Anti-counterfeiting technology will continue to grow, according to a recent report cited by the International Hologram Manufacturers’ Association (IHMA).
The market for holograms is expected to grow by 27 percent over the next five years. The global anti-counterfeiting packaging market is expected to reach $133.72 billion by 2026 with a compound annual growth rate of more than 10 percent from 2021 to 2026.
“Digital solutions are a clear and growing addition to authentication solutions, sometimes in isolation, but within the holographic industry it’s the combination with packaging track-and-trace systems, among other solutions, that’s seen as the foreseeable future,” said Paul Dunn, IMHA chair. “In doing so, the opportunities for holograms to be at the forefront will drive sector growth.”
April 2, 2020
Blueprint for Tracking
The International Tax Stamp Association (ITSA) has created a blueprint for a global tobacco control system to help prevent fraudulent trade.
“Its aim is to contribute to the work being carried out on the implementation of a tobacco T&T [track-and-trace] system compliant with the World Health Organization’s (WHO) Framework Convention on Tobacco Control (FCTC) and its Protocol to Eliminate Illicit Trade in Tobacco Products,” the ITSA wrote in a press release.
The publication of this blueprint comes before the second meeting in Brazil in April of the FCTC working group on tracking and tracing systems.
The blueprint suggests a series of recommendations on operational aspects of a track-and-trace system and assignments of responsibility, including establishing a national and/or regional database to register stakeholders (manufacturers, distributors and wholesalers) and products, and affixing a tax stamp issued by the competent authority of the destination market on every pack of cigarettes. Many tax stamps contain a combination of aspects that make them difficult to counterfeit. The blueprint also aims to fill gaps in the EU Tobacco Products Directive (TPD), according to ITSA.
“We have seen examples around the world where T&T system tenders have been awarded to companies with close ties to the industry,” said Juan Carlos Yanez, chairman of ITSA. “This contravenes the spirit of the Protocol and could result in the implementation of systems that are not safe and secure. If this happens, it will make it more difficult to cut crime, improve health outcomes and enable revenue authorities to recoup taxes owed to them.”
March 18, 2020
A Holistic Approach

Christian Swan
PMI’s Impact project attempts to fight illicit cigarette trade by bringing together stakeholders from different backgrounds.
By Stefanie Rossel
One of the many side effects of globalization is the continuous rise of illicit trade. Smuggling, counterfeiting and tax evasion account for an estimated loss of $2.2 trillion, or almost 3 percent, of the world’s economy each year. The World Economic Forum (WEF) has worked out an interesting equation: If illicit trade were a country, its economy would be larger than that of Brazil, Italy and Canada. With an estimated 600 billion cigarettes worldwide being commercialized illegally each year, the tobacco industry is affected too; one in ten cigarettes is sold illicitly. According to data from the Organization for Economic Cooperation and Development, illicit tobacco trade accounts for $40 billion in lost revenue annually.
Transnational criminal networks profit from illegal trade in virtually any product imaginable. In addition to cigarettes, they deal in drugs, fake pharmaceuticals, endangered wildlife species and even humans. Illicit trade thus negatively impacts economic stability, public health and safety and serves to finance criminality and terrorism.
It’s a threat that affects developing and developed countries alike, albeit at varying degrees, and that governments have widely acknowledged as such. Twenty intergovernmental organizations currently deal with the problem, largely by sector or subject, the WEF reports. To efficiently address the interconnected, global nature of illicit trade, though, experts agree that a joint international, cross-sectoral approach is required.
Such an approach is the idea behind Philip Morris International’s (PMI) Impact project, which the company launched in 2016. “Illegal trade goes beyond any specific country, region or industry,” says Christian Swan, director of illicit trade prevention and coordinator of PMI Impact at PMI. “Its various forms—ranging from tobacco smuggling and the counterfeiting of pharmaceuticals and electronics to trade in drugs, arms and even human trafficking—are inevitably interlinked as the criminal networks behind these activities exploit the same trafficking routes and corrupt networks. We firmly believe that an inclusive approach that addresses this complex problem from multiple aspects and enhances collaboration and dialogue among impacted stakeholders is essential if we want to achieve meaningful progress against illegal trade.”
The global initiative, which is not limited to the illicit trade of cigarettes, supplements the company’s ongoing anti-illicit trade efforts, according to Swan, and stems from the realization that to make real progress against illegal trade, an inclusive approach for governments, the private sector and civil society was needed to work together to address the issue in its entirety—across a range of illegally traded goods and by tackling related crimes such as money laundering and organized crime. PMI Impact funds third-party projects against illegal trade and related crimes, covering a wide range of activities including research, training programs for law enforcement agencies, awareness raising initiatives, the development of technological solutions and the funding of equipment to help combat crime and communication initiatives to foster cross-sector and public-private collaboration.
“Importantly, the projects supported from PMI Impact tackle illegal trade in its many forms,” says Swan.

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Making progress
When PMI started its initiative, it initially committed $100 million. “PMI Impact is the first corporate initiative of its kind, and we are proud of the progress it has achieved to date,” says Swan. “Under the first two funding rounds, the initiative has allocated a total of $48 million to fund 60 projects in 30 countries. Our aspiration for PMI Impact has been to create a platform for groundbreaking ideas, engaging dialogue and progressive initiatives against illegal trade and related crimes, and we have been delighted to see this vision come to life.”
The projects come from organizations covering a broad range of public, private and academic sectors including think tanks, research institutions, universities and law enforcement authorities. According to Swan, establishing a network between these sectors is more valuable than any individual project.
To select suitable projects, a council of independent experts with profound knowledge in the fields of law, anti-corruption, human rights and technology was installed with an open and defined evaluation process. Projects funded so far include, for instance, the strengthening of the criminal justice response to illicit trade in southeastern Europe on the basis of a comprehensive understanding of local vulnerabilities in their regional context, an analysis of attitudes and behaviors that motivate consumers to buy counterfeit goods and the effectiveness of alternative strategies to combat illicit trade, and the creation of a digital platform to identify and track critical processes and produce relevant intelligence in the context of illegal trade.
“Overall, the innovative thinking and expertise that the grantees have put forward are a valuable addition to the global efforts against illegal trade, and the 2019 PMI Impact Report details the progress achieved by each of the funded projects individually,” Swan says. “Particularly in today’s hyper-connected world—with growing concerns around global security, the proliferation of criminal organizations and the surge of new digital tools—it’s more important than ever for public and private actors as well as civil society to take a common-sense and collaborative approach to accelerate progress against illegal trade and related crimes.”
According to Swan, the grantees retain full independence in the implementation of their projects, including in deciding how to best communicate the results of their work and share best practices. “For example, some of the grantees have presented their projects and results in public forums, to media and [to] other stakeholders. From our side, we strive to create opportunities for PMI Impact grantees to come together and share their perspectives, learn from each other and engage with other experts and leaders working around the world to address illegal trade. We have supported such public events in several locations throughout the years.”
Wanted: new projects
Despite its setup, critics have complained that projects financially supported by tobacco companies cannot be objective. That same argument also contributed to the end in 2016 of an anti-illicit trade agreement between cigarette manufacturers (including PMI) and the EU. “We understand some may be skeptical, and we invite constructive feedback and dialogue—even with those who disagree with us,” says Swan. “To that end—transparency is key for us. The initiative’s application terms and selection rules are publicly available on the PMI Impact website, we publicize the results of each funding round and we have also recently launched the first report detailing each funded project.”
Swan encourages everyone with an interest in eliminating illegal trade to review the initiative and the opportunities it creates for progress in this global issue and invites any organization interested in applying to visit the PMI Impact website for more information.
“Eliminating illicit tobacco trade has been a long-standing priority for PMI and is an integral part of the large-scale business transformation we are undergoing to deliver a smoke-free future,” says Swan. “Illicit trade makes cheap, unregulated tobacco products easily accessible—undermining efforts to reduce smoking prevalence and protect youth from smoking. It is clear that, in order to replace cigarettes with better alternatives for millions of men and women who would otherwise continue to smoke, we must also ensure that there are no illegal actors sustaining a black market for cigarettes. To that end, we continue to invest significantly in supply chain controls through preventive and protective measures and work with law enforcement and other stakeholders to promote strong action against illegal networks.”
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

March 1, 2020