Tag: kpmg

  • Illicit Market Remains a Concern: KPMG

    Illicit Market Remains a Concern: KPMG

    Photo: Europol

    European smokers bought more than 35 billion illicit cigarettes in 2023, accounting for 8.3 percent of total EU cigarette consumption, according to a KPMG study commissioned by Philip Morris Products.

    Counterfeit cigarettes remain one of the main sources of illicit tobacco consumption in the region, with 12.7 billion (36 percent) cigarettes consumed, as criminal networks increasingly target higher-taxed and higher-priced markets. Overall, governments in the EU lost an estimated €11.6 billion (12.82 billion) in tax revenue, up from €11.3 billion in 2022. France is still leading the ranking as the country with the largest illicit consumption in all of Europe, with 16.8 billion illicit cigarettes and an estimated €7.3 billion in tax revenues lost.

    “We are witnessing an evolution of organized crime groups in Europe, as they are increasingly locating production facilities nearer Western European countries,” said PMI Senior Vice President of External Affairs Christos Harpantidis in a statement.

    “We consider this phenomenon to be a direct consequence of failed policy approaches that have not done enough to curb illicit trade and reduce smoking prevalence, and it is putting consumers, governments, legitimate businesses, and society alike at risk.”

    We consider this phenomenon to be a direct consequence of failed policy approaches that have not done enough to curb illicit trade and reduce smoking prevalence, and it is putting consumers, governments, legitimate businesses, and society alike at risk.

    Christos Harpantidis, senior vice president, external affairs, PMI

    Interviews with law enforcement agencies included in the KPMG report shed light onto transnational organized crime’s professionalization of their role in the supply chain of illicit cigarettes. According to information from law enforcement agencies, publicly available media articles, and PMI estimates, criminals have expanded the setup of illegal cigarette factories; in 2023 alone, law enforcement data shows that at least 113 clandestine cigarette manufacturing sites in 22 European countries were disrupted by regional and local authorities.

    The steady increase of counterfeit cigarette consumption for the fourth consecutive year across Europe—mainly driven by the U.K. and Ukraine—is now coupled with the rise of all other illicit trade categories, including illicit whites and contraband. Combined with the continued recovery of cross-border legal volumes, after Covid-related travel restrictions ended in 2022, total non-domestic consumption across the 38 European countries in the study has also reached its highest level ever (15.5 percent), equal to more than one cigarette out of six.

    Despite this scenario, KPMG revealed that in 26 European countries illicit consumption share was less than 10 percent of total consumption. Of these, 16 markets had an illicit consumption share of less than 5 percent. And in 25 of the 38 European countries included in the study, the share of illicit cigarette consumption was either stable or declining, compared to 2022.

    We need to continue working together with law enforcement agencies and governments to ensure that illicit trade does not become an even larger problem across the EU.

    Massimo Andolina, president, Europe region, PMI

    “It’s truly encouraging to see a decrease in illicit consumption in countries like Italy, Poland, Romania, and Spain. We need to continue working together with law enforcement agencies and governments to ensure that illicit trade does not become an even larger problem across the EU,” stated Massimo Andolina, president, Europe region, PMI.

    For the first time since its publication in 2006, the KPMG annual research study has broadened its scope and incorporated all Balkan countries. Now, the research covers 38 countries: the 27 EU member states, as well as Albania, Bosnia and Herzegovina, Kosovo, Moldova, Montenegro, North Macedonia, Norway, Serbia, Switzerland, Ukraine, and the U.K.

    The Balkan region has shown lower presence of illicit cigarettes compared to some of the Western European countries, such as France or the U.K. Ukraine, on the other hand, remains the country with the second highest volume of illicit cigarettes consumed, at 8.4 billion.

  • KPMG: Illicit Trade up in Europe

    KPMG: Illicit Trade up in Europe

    Photo: Europol

    Illicit cigarette consumption increased by an estimated 3.9 percent, or 1.3 billion cigarettes, in 2021, reaching 35.5 billion cigarettes consumed across the European Union, according to a KPMG study commissioned by Philip Morris International. Meanwhile, the study estimates that total EU cigarette consumption declined over the same period.

    The increase of illicit consumption was largely driven by an estimated 33 percent increase in counterfeit consumption in France, where it grew to 8 billion cigarettes last year. Overall, France remains the largest market for illicit cigarettes in the EU, with a total of 15.1 billion illicit cigarettes consumed in 2021, comprising 29 percent of total cigarette consumption in the country, which represents a significant growth from 13 percent in 2017.

    “The findings of the KPMG Report should be a real wake-up call. It’s alarming that in countries that maintain high excise taxes on cigarettes, such as France, instead of driving a decrease in smoking prevalence, we see a rise in counterfeit cigarette consumption. In fact, in France in the past five years, while the average price of a pack of legitimate cigarettes has increased by more than half, the number of adult smokers has only marginally decreased,” said Gregoire Verdeaux, senior vice president, external affairs, PMI, In a statement.

    “But there is also hope. Other EU countries have adopted differentiated policies on alternatives to cigarettes that support the continued decline of cigarette consumption while reducing illicit trade, and they are already yielding encouraging results. The European Commission in Brussels should make this the foundation for the future.”

    The annual KPMG report focuses on the consumption and flows of illicit cigarettes in 30 European countries—the 27 EU member states, as well as the United Kingdom, Norway, and Switzerland—and indicates that had these cigarettes been legally purchased, an additional €10.4 billion ($10.93 billion) in taxes would have been collected by governments in the EU.

    Tax revenue losses will limit governments’ ability to invest in areas such as public safety, public services, or infrastructure, at a time when people across Europe are also facing higher prices of many basic goods. The risk that more adult smokers—especially those among the lower-income population—turn to illicit trade is now significant. This creates an even more urgent need to ensure that smoke-free alternatives are available and affordable for all, to enable them to make a better choice instead of buying from the black market,” said Verdeaux.

    Consumers need to be incentivized so that they don’t have to turn to illicit cigarettes. This means focusing on education and awareness, and ensuring the availability of better alternatives.

    Gregoire Verdeaux, senior vice president, external affairs, PMI

    The KPMG report also shows that roughly half—16 out of 27—of the member states experienced declining or stable consumption of illicit cigarettes in 2021. Among these countries, Poland saw one of the largest declines in illicit volumes, showing a 3.7 percentage point decrease in its share of illicit cigarette consumption.

    “The decreasing consumption of illicit cigarettes in countries like Poland is remarkable and reassuring. It showcases the impact of effective law enforcement against criminals profiting from illicit trade in a market where better alternatives to smoking are available and more affordable to adult smokers. These are outcomes other countries should aspire to emulate,” said Alvise Giustiniani, vice president, illicit trade prevention. “It has never been more important to provide in particular the most vulnerable in society with access to information, as well as to develop and implement innovative policies that truly include everyone and facilitate access to better alternatives.”

    Counterfeit consumption was the main driver of illicit trade in the EU; consumption of fake cigarettes reached an estimated total of 12.3 billion—accounting for 34.6 percent of total illicit consumption. The study indicates that due to continued travel and border restrictions related to the Covid-19 pandemic, organized criminal groups shifted their focus toward manufacturing counterfeit cigarettes directly within EU borders. Interviews conducted by KPMG with seven different law enforcement agencies found that illegal manufacturing sites are increasingly moving west in Europe to get closer to higher-priced end markets, such as France and the U.K.

    The continued growth of a black market where fake and unregulated cigarettes are easily available seriously undercuts legitimate efforts to reduce and eventually eliminate cigarette smoking.

    “We are convinced that consumers need to be incentivized so that they don’t have to turn to illicit cigarettes. This means focusing on education and awareness, and ensuring the availability of better alternatives, such as scientifically substantiated smoke-free products,” said Verdeaux. “Making them accessible as a better option for millions of adult smokers in Europe who don’t quit should be our common top priority.”

  • KPMG: Illicit Cigarette Trade up in Europe

    KPMG: Illicit Cigarette Trade up in Europe

    Photo: IvanSemenovych

    While total cigarette consumption continues to decline, the share of illicit cigarettes in Europe increased by 0.5 percentage points to 7.8 percent in 2020, according to a new study by KPMG.

    The increase of the illicit cigarette market—which comprises contraband, counterfeit and illicit whites—was driven by an unprecedented 87 percent surge in counterfeit consumption. The tax loss for governments of the EU’s 27 member states now amounts to approximately €8.5 billion ($10.15 billion).

    The annual study, conducted independently by KPMG and commissioned by Philip Morris International, evaluated the consumption and flows of illicit cigarettes in 30 European countries—the 27 EU member states as well as U.K., Norway and Switzerland.

    It shows how legal and illicit cigarette consumption was impacted by the Covid-19 pandemic, a period of lockdowns and restricted movement of people within the EU coupled with declines in affordability. The report estimates that total consumption of cigarettes declined by 4.7 percent in 2020 to 438.8 billion in the EU member states, while the Covid-19-related border controls and travel restrictions resulted in a sharp decrease of nondomestic consumption, which declined in 2020 by 18.5 percent (11.9 billion cigarettes). The decline in total cigarette consumption also coincided with the growth of 6 billion cigarette equivalent units in the fine-cut tobacco category in 2020.

    Consumption of illicit whites and other contraband cigarettes decreased year-over-year, but these declines were more than offset by an increase in counterfeit, which almost doubled in 2020, equating to 10.3 billion fake cigarettes, up from 5.5 billion in 2019. This was estimated to be driven mainly by an unprecedented 609 percent increase in counterfeit cigarette consumption in France, reaching 6 billion fake cigarettes consumed in the country alone.

    It is crucial to protect consumers against counterfeits and that law enforcement, governments and trademark owners come together as one to address and eradicate illicit trade.

    Alvise Giustiniani, vice president of illicit trade prevention, PMI

    “It is crucial to protect consumers against counterfeits and that law enforcement, governments and trademark owners such as ourselves in the private sectors come together as one to address and eradicate illicit trade in Europe and beyond,” said Alvise Giustiniani, vice president of illicit trade prevention at PMI, in a statement. “Eliminating illicit trade is particularly important within the context of PMI’s transformation toward a smoke-free future, and we need to continue working in partnerships to address any potential illicit trade threats, including in our novel products. Compliance to the law and effective enforcement against criminals profiting from illicit trade is an absolute must.”

    Interviews with law enforcement, conducted by KPMG as part of the study, indicate that organized criminal groups continued to move their operations inside the EU borders as a large proportion of illicit whites and counterfeit cigarettes are also believed to be manufactured in illegal factories within the EU. This is further supported by the increasing number of illegal cigarette factory raids in multiple European countries.

  • KPMG: EU Illicit Cigarette Market at Record Low

    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.