Philip Morris International: New Study Finds EU Black Market for Cigarettes Reaches Record High; Member State Tax Loss an Estimated €12.5 billion

LAUSANNE, Switzerland--(BUSINESS WIRE)--Apr. 17, 2013-- For the sixth year in a row, the illegal trade of cigarettes in the European Union reached a new record high, a KPMG study revealed today. In 2012 the levels rose to 11.1%, compared to 10.4% in 2011, resulting in an estimated €12.5 billion in lost tax revenues to Member States.

“In the midst of the economic crisis and budget deficits, illegal cigarettes continue to plague Europe, costing Member States billions in lost taxes and destroying communities,” said Artyom Chernis, Philip Morris International's (PMI) Vice President, Illicit Trade Strategies and Prevention. “This problem cannot be ignored by decision makers. Action is needed, and needed now to curb this activity and to find and prosecute the criminals and the networks that promote it. In addition, a comprehensive and thoughtful approach to policies at the EU and Member State level to both combat this problem and ensure it is not made worse in the years to come is essential.”

The study, which is conducted annually by KPMG for Philip Morris International Inc. (PMI) (NYSE/Euronext Paris: PM), the European Commission and all 27 EU Member States also found that:

• Twelve countries’ consumption of illegal cigarettes exceeded the EU average (of total cigarette consumption), including: Lithuania: 27.5%; Ireland: 19.1%; Finland: 16.9%; UK: 16.4%; France: 15.7%; Greece 13.4%; Poland: 13%; and Germany: 11.1%.
• The UK, Greece, Italy, and Estonia are home to the sharpest increases in illegal cigarette consumption since 2011.
• Consumption of illicit cigarettes increased to 65.5 billion cigarettes – an amount equivalent to the entire legal markets of France and Portugal combined.
• It is estimated that had the cigarettes sold on the black market been sold in the legal market, Member State governments would have gained an additional €34.3 billion in tax revenue since the beginning of 2010.

• Southern European countries continued to increase their share of the illegal cigarette market, a trend that began in 2009. This is primarily a result of a 50% increase in Italy between 2011 and 2012.
• “Illicit white” cigarettes – cigarettes that are manufactured solely for the purpose of being smuggled – now constitute one-quarter (24.3%) of the illegal cigarettes smoked in Europe, compared to just 2.4% in 2006.

The illicit trade in tobacco products fuels organized crime and damages economies and societies in the EU and around the world. The primary drivers of this activity are: high profitability compared to low risk of penalties for criminals; insufficient financial and human resources and lack of cross-border cooperation to combat the problem; extreme tax and regulatory schemes that shift consumption from the legal to the illegal tobacco market; the current economic downturn; and low public awareness about the penalties and consequences of the illegal tobacco trade.

PMI has a dedicated team which works closely with governments and enforcement groups around the world to address this issue. Tackling the problem requires both the private and public sectors to address the supply and demand of illegal tobacco products, in addition to ensuring that the regulatory and fiscal environment does not further drive its growth.

To read KPMG’s report, understand more about the black market for tobacco and to learn what PMI is doing to meet this challenge, visit www.pmi.com.

About Philip Morris International Inc.

Philip Morris International Inc. (PMI) is the leading international tobacco company, with seven of the world’s top 15 international brands, including Marlboro, the number one cigarette brand worldwide. PMI’s products are sold in more than 180 markets. In 2012, the company held an estimated 16.3% share of the total international cigarette market outside of the U.S., or 28.8% excluding the People’s Republic of China and the U.S. For more information, see www.pmi.com.

KPMG Study on the illicit cigarette consumption in the EU

KPMG has conducted this study every year since 2006, as part of the cooperation agreement between PMI, the European Commission and the EU member states. The results of these studies have been shared with the European Anti-Fraud Office (OLAF).

Source: Philip Morris International

Philip Morris International
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E-mail: media@pmi.com