KPMG. Damage of 255 million euros, due to illegal cigarettes

KPMG. Philip Morris International (PMI) warns of an increase in the number of smuggled and counterfeit cigarettes in the European Union (EU) year on year.

In 2023, 35.2 billion illicit cigarettes were consumed in the region, representing 8.3% of total consumption in the EU, i.e. an increase of 0.1 percentage points compared to 2022.

KPMG – Romania reaches a new historical low regarding illicit cigarette consumption

In Romania, according to data published in the KPMG study, illicit cigarette consumption has reached an all-time low. Thus, in Romania, the illicit consumption of cigarettes decreased in 2023 and reached an annual average of 5.8%.

„We are glad that we continue to be a positive example at European level in terms of reducing the illicit trade in cigarettes. This is due to the fact that our country has adopted an approach to reduce the harmful effects of tobacco and at the same time has integrated the best practices to combat illicit trade.

In such a regulatory environment – ​​where illicit cigarette consumption declines and governments allow the expansion of smoke-free products – we can achieve a long-term positive impact on reducing smoking prevalence. Philip Morris Romania will continue to support the state authorities in combating the illicit trade in cigarettes and other tobacco products.”- Mircea Scaunașu, General Manager, Philip Morris Romania.

Despite the historic decrease in illicit cigarette consumption, in 2023, the Romanian state lost 255 million euros to the state budget due to illicit cigarettes (1.5 billion illicit cigarettes consumed).

„The historically low level of the cigarette black market that Romania recorded last year is due to the sustained effort of the control authorities and a predictable public fiscal policy of moderate increase in excise duties. Given that Romania is the European country with the most expensive cigarettes, relative to purchasing power, the historical minimum level of the black market also shows a very good border security.

Because we are very concerned about strengthening security at Romania’s borders, as well as at the external borders of the European Union, we work in partnership with the Border Police, to which we donated, in April, through the PMI Impact program, two surveillance drones worth nearly $700,000. They will be used by the Border Police in the hard-to-reach areas of the country’s borders, with the aim of combating illicit trade.” – Roxana Pîntea, Director of External Affairs, Philip Morris Romania.

KPMG. Almost one in 10 cigarettes on the continent is of illicit origin

PMI applauds European law enforcement agencies for their continued action against criminal networks profiting from the illicit tobacco trade. At the same time, PMI calls on regulators to promote modern, evidence-based public policies that place consumers and public health at the center of their concerns.

Only in this way can the challenges posed by the millions of adult smokers who turn to the black market instead of quitting or, for those who do not, switch to smokeless products, be effectively addressed.

“We are witnessing an evolution of organized crime groups in Europe, which are increasingly locating their production facilities closer to Western European countries. We believe this phenomenon is a direct consequence of failed policy approaches that have failed to reduce the illicit trade and the prevalence of smoking, putting consumers, governments, companies and society alike at risk.”a declarat Christos Harpantidis, Senior Vice President External Affairs, PMI.

More than 35 billion illicit cigarettes were consumed in the 27 EU Member States in 2023

The results of KPMG’s 2023 annual study on illicit cigarette consumption, commissioned by Philip Morris International, reveal that the illicit market in the EU continues to be a major threat to public health and safety, as well as to national economies.

Counterfeit cigarettes remain one of the main sources of illicit consumption in the region, with 12.7 billion (36%) cigarettes consumed – as criminal networks increasingly target higher-taxed and higher-priced markets.

Overall, EU governments lost an estimated €11.6 billion in tax revenue, up from €11.3 billion in 2022. France continues to lead the list of countries with the highest illicit consumption in Europe, with 16 .8 billion of illicit cigarettes and €7.3 billion in lost tax revenue.

“Law enforcement agencies have been instrumental in uncovering criminal networks involved in clandestine cigarette production in Europe as well as cross-border smuggling operations. However, if we are to annihilate illicit trade in the region, we need a holistic approach that complements tough sanctions and consistent law enforcement with awareness and education campaigns about the real impact of illicit trade. We also need a predictable fiscal and regulatory environment where adult smokers are not pushed into the black market, as well as well-coordinated and implemented public-private partnerships.”

KPMG. France continues to be the largest illegal market in the EU, with 47.7% of total illicit cigarette consumption in the region

Interviews with law enforcement agencies included in the KPMG report reveal how much transnational organized crime has become professional in the illicit cigarette supply chain. According to information from law enforcement agencies, publicly available media articles and PMI estimates, criminals have expanded the structure of illegal cigarette factories.

In 2023 alone, data from law enforcement agencies shows that at least 113 clandestine cigarette production facilities in 22 European countries were discovered by regional and local authorities.

KPMG shows that in 26 European countries the share of illicit consumption was less than 10% of total consumption. Of these, 16 markets had an illicit consumption share of less than 5%. 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.

“It is really encouraging to see a decrease in illicit consumption in countries such as Italy, Poland, Romania and Spain. We must continue to work together with law enforcement agencies and governments to ensure that the phenomenon of illicit trade does not become an even bigger problem in the EU.”declared Massimo Andolina, President Europe Region, PMI.

“Illicit trade undermines efforts to reduce smoking prevalence; harms public health and consumers, and creates losses for governments and legal operators. Regulators must prioritize this fight while allowing smoke-free products to be available and accessible to all adult smokers who do not quit.”

“If we are to tackle the problem of illicit trade, governments must take strong enforcement action against the criminals who take advantage of the existence of the black market. This approach has proven successful in contrast to overtaxing – or even banning – consumer goods“, added Christos Harpantidis.

“To eradicate smoking, traditional tobacco control policies must be complemented with innovative approaches. Governments need to recognize that the adoption of alternative products by adults who would otherwise continue to smoke will reduce smoking-related harm much faster than existing measures.”

The KPMG report covers 38 European countries

For the first time since its publication in 2006, the annual KPMG research study has broadened its scope to include all Balkan countries. The research now covers 38 countries: the 27 EU member states, as well as Albania, Bosnia and Herzegovina, Kosovo, the Republic of Moldova, Montenegro, North Macedonia, Norway, Serbia, Switzerland, Ukraine and the UK.

The Balkan region showed a lower presence of illicit cigarettes compared to some of the Western European countries, such as France or Great Britain. Ukraine, on the other hand, remains the country with the largest volume of illicit cigarettes consumed, with 8.4 billion.

This is the 18th consecutive year that KPMG has estimated illicit cigarette consumption in Europe.

KPMG. What do the Europeans say?

Illicit trade has a direct impact on the lives of people in Europe. One consequence is that illegal and low-quality tobacco products are easily accessible – which discourages quit efforts, undermines measures to prevent youth access, and prevents adult smokers from considering better alternatives to cigarettes. It also has serious consequences for consumers, as illegal cigarettes are produced under substandard conditions, in disregard of the rule of law and existing tobacco control regulations.

To better understand society’s views on illicit trade, PMI asked the independent public opinion research firm Povaddo to conduct a survey of adults in 14 European countries. The survey, carried out in January 2024, found that:

• More than half (60%) of citizens believe that their country (and the EU as a whole) has a problem with illicit tobacco and illicit products containing nicotine.
• Almost three-quarters (74%) agree that governments need to consider illicit trade as an unintended consequence when deciding how to regulate and tax products containing tobacco and nicotine.
• 77% agree that illicit trade deprives governments of significant tax revenue.

Illicit trade fuels the proliferation of criminal networks, impacting the most vulnerable communities and populations. It deprives governments of the tax revenue needed to provide public services, including security. Proceeds from illicit trade often lead to other serious crimes such as human trafficking, corruption and money laundering.

Eliminating the illicit tobacco trade is a long-term priority

For PMI, eliminating the illicit tobacco trade is a long-term priority. We implement prevention and protection measures to combat illicit trade and collaborate with the public and private sectors to continue efforts against this global problem.

As we move forward on our journey to a smoke-free future, we are stepping up our efforts to secure both our supply chain and the products we sell, and to protect consumers and our brands from smugglers and counterfeiters. We work with law enforcement agencies and other organizations around the world to root out and shut down illegal activities, including counterfeiting and smuggling operations. PMI also continues to support relevant European regulations such as the tracking and tracing provisions of the EU Tobacco Product Directives.

A detailed presentation of the findings and methodology in the KPMG report is available here.

For more information on PMI’s efforts to prevent illicit trade, visit PMI.com.