Illicit trade in the EU3 min read
A problem without borders
The illegal cigarette trade doesn’t begin or stop at EU borders. In fact, much of the illicit tobacco enters from outside Europe. That’s why concerted action within the EU can have a global impact. We're committed to encouraging open dialogue about the most effective ways to combat illicit trade in tobacco products by involving manufacturers, suppliers of key components, technology providers, customs authorities, and other law enforcement agencies.
We strongly support the objectives and principles of the WHO Framework Convention on Tobacco Control (FCTC) Protocol to Eliminate Illicit Trade in Tobacco Products and are encouraged by the growing number of countries joining this international treaty. We are convinced that the FCTC Protocol will help the EU gain the upper hand in fighting the black market in tobacco products and will pave the way for controls in tracking and tracing, licensing, and due diligence.
We continue with our considerable efforts to combat the illicit tobacco trade in the EU wherever we run our business. Effective regulation is fundamental to combating illicit trade and an important step forward was made with the implementation of the European Tobacco Products Directive, which established the first ever, multi-layer tracking and tracing system for tobacco products in the EU, operated by independent entities under the supervision of Member States and the EU Commission.
Illicit cigarette consumption in the European Union in 2020
The independent KPMG annual study, commissioned by PMI, found that, while total cigarette consumption continues to decline, the share of illicit cigarettes increased by one half of a percentage point to 7.8 percent of total consumption in 2020, reaching 34.2 billion cigarettes consumed across the 27 EU member states (EU27).
The increase of illicit cigarettes—which consist of contraband, counterfeit, and illicit whites—was driven by an unprecedented 87 percent surge in counterfeit consumption. The tax loss for governments in the EU27 now amounts to approximately EUR 8.5 billion.
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 six billion fake cigarettes consumed in the country alone.
“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, Illicit Trade Prevention. “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.”
The availability of cheap, fake, and unregulated cigarettes on the black market undermines efforts to reduce smoking prevalence and prevent youth from smoking. To succeed in PMI’s mission to achieve a smoke-free world, it is imperative that illicit trade is eradicated wherever it exists. In order to tackle the illicit tobacco trade, PMI is working closely with a broad range of law enforcement authorities and private actors worldwide to identify and shut down counterfeiting and smuggling operations.
Additionally, in its efforts to combat illicit trade, PMI continues to invest significantly in supply chain controls through preventive and protective measures, implements state-of the-art track-and-trace technology, and has strict due diligence protocols in place for all customers and suppliers. The company also supports regulations such as the FCTC Protocol to Eliminate Illicit Trade in Tobacco Products and the tracking-and-tracing provisions under the EU Tobacco Products Directive.
Effective supply-chain controls are key to how we run our business in the EU and beyond
These measures include:
Co-operating with the EU and its member states
In 2004, Philip Morris International, the European Union, and 10 of its member states signed a 12-year cooperation agreement, which by 2009 was ratified by all 28 member states. The purpose of the agreement was to coordinate efforts in combatting illicit trade in PMI brands within the EU.
As part of the agreement, we introduced stringent record-keeping, screening standards for potential business partners, and strict control of cash payments. We also provided USD 1.25 billion in funding to the Commission and member states to underpin these efforts over the course of the agreement.
"This agreement has served its purpose, reducing PMI contraband on the illicit tobacco market and providing public revenues of around USD 1 billion to member states and the EU budget. In a changing legal and market environment, we will redeploy our resources and continue to fight illegal tobacco trade by focusing on cheap whites, strict law enforcement, and strengthened international cooperation."
Kristalina Georgieva, former EU Commissioner, following the agreement’s expiration in July 2016
Results from the 2016 EU Commission report
The anti-contraband and anti-counterfeit cooperation between PMI and the EU has been highly successful.
- 85 percent drop in the volume of genuine PMI cigarettes seized by member states between 2006 and 2014 – The 2016 EU Commission report states that the PMI agreement has effectively met its objective of reducing the prevalence of PMI contraband on the illicit EU tobacco market as demonstrated by an 85 percent drop in the volume of genuine PMI cigarettes seized by member states between 2006 and 2014.
- 87 illegal cigarette factories were raided, inspected, and shuttered – Thanks to PMI’s support of investigative work and analysis of counterfeit cigarette seizures in the EU, investigators could establish links between different smuggling routes. The result of these efforts is the closure of a substantial number of illegal cigarette factories in the EU.
- Close to 50 percent of total PMI volume is covered by carton-level tracking & tracing – PMI has been progressively moving from master-level to carton-level tracking and tracing. Our products are tracked at the master-case level in over 120 countries. Now, close to 50 percent of our total volume, including duty free, is covered at the carton level. We have also informed authorities that we expect to increase pack-level tracing, prior to it becoming mandatory in the EU under the Tobacco Products Directive.