Auditors call for more ‘robust’ EU response to illicit tobacco trade
EU auditors warn that fragmented rules are hampering the fight against illicit tobacco
The EU is failing to keep pace with increasingly sophisticated criminal networks behind the illicit tobacco trade, according to the European Court of Auditors (ECA), which has called for a more robust and coordinated response from the European Commission and member states.
“The EU cannot afford to let its fight against the scourge of illicit tobacco go up in smoke,” said Petri Sarvamaa, the ECA member who led the audit. “If we are serious about safeguarding citizens’ health, wallets and security, the Commission and member states must up their game to fight criminal activity head-on.”
More than €13 billion in lost revenue
The auditors estimate that illicit tobacco costs EU and national budgets more than €13 billion a year in lost tax revenue. But they caution that the true figure remains uncertain because the Commission lacks a reliable, independent and EU-wide estimate of the size, structure and economic impact of the illicit market.
The ECA therefore recommended that the Commission work towards more robust and harmonised estimates of the scale and economic impact of illicit tobacco.
Measuring a clandestine market is inherently difficult. The auditors point to a KPMG study commissioned by Philip Morris International, which estimated the cost to EU governments at €14.9 billion in lost tax revenue in 2024. However, the ECA notes that the methodology behind the industry-funded study has been contested and says its findings should “therefore be interpreted with due caution”.
The Commission rejected the recommendation for harmonised estimates, arguing that member states use different methodologies according to their circumstances and available resources. It also said such estimates would add little operational value because the EU’s anti-fraud agency, OLAF, already has access to relevant and reliable intelligence.
An EU-wide problem
Illicit tobacco production is no longer concentrated in a handful of countries, with illegal manufacturing sites now detected in almost every EU member state.
Sarvamaa said the nature of the threat had changed markedly since his time as an MEP on the European Parliament’s Budgetary Control Committee, when the problem centered largely on cigarettes smuggled into the EU and when there were few illicit production sites within the EU.
Concerns at the time were focused particularly on eastern EU countries, he said. Now, illegal manufacturing has spread much more widely. “It’s really a totally different world nowadays,” Sarvamaa said.
Gaps in controls on machinery and materials
Gaps in EU rules governing the machinery and materials needed to manufacture tobacco products are giving criminal groups opportunities to exploit differences between member states, the auditors warned.
Controls vary significantly across the EU not only for raw tobacco, but also for production machinery, cigarette papers, filters and packaging. Some countries have introduced specific licensing, registration or monitoring requirements, while others rely on more limited controls.
The ECA said greater EU-level harmonisation was needed to close the resulting enforcement gaps. It pointed to national measures introduced to varying degrees in Spain, Poland and Romania, while also identifying examples of stronger enforcement practices, including enhanced investigative powers in Belgium and Poland and specialised anti-illicit tobacco structures in Romania and Poland.
But the auditors warned that individual national measures cannot fully compensate for a legal framework that remains fragmented at EU level. The differences are particularly significant as organised criminal groups can identify and exploit weaknesses in national enforcement regimes.
Transparency concerns over tobacco industry agreements
The ECA also raised concerns over a lack of transparency surrounding memoranda of understanding (MoUs) between some member states and tobacco manufacturers.
Senior auditor Esther Torrente Heras said interactions between public authorities and tobacco manufacturers should be transparent, limited and consistent with international standards established under the World Health Organization’s Framework Convention on Tobacco Control (FCTC).
The auditors could not determine whether the existing agreements complied with those requirements because they did not have access to the MoUs.
What does the report mean for tobacco taxation?
The report comes as the EU debates changes to tobacco taxation, with the relationship between tax levels and the illicit market a contentious part of the debate.
Asked about wording in the report’s annex identifying high tobacco taxes as a potential incentive for illicit trade,a view contested by the WHO FCTC Secretariat as a tobacco industry argument, Sarvamaa stressed that the audit had not established a causal relationship between higher taxation and illicit tobacco.
He nevertheless said large differences in tobacco taxes between member states could potentially influence where illicit products are most profitable.
“It’s maybe common sense to think that the big differences in taxes by member states can have maybe a channeling effect to where especially would be the lucrative markets for the illegal tobacco product,” he said. “So, I would not be surprised if it had something to do with it.”
But Sarvamaa cautioned against drawing a simple link between higher taxes and higher levels of illicit trade, stressing that numerous other factors are involved. High-tax Nordic countries, for example, do not necessarily experience correspondingly high levels of illegal production, he said.
The auditors ultimately stopped short of assessing the relationship between tobacco taxation and illicit trade, saying they did not have sufficient evidence to quantify the role played by tax levels.
The Smoke Free Partnership welcomed the report: “[It] confirms that illicit tobacco trade is no longer a peripheral enforcement issue. Europe needs a comprehensive approach that combines effective taxation with stronger supply-chain controls, independent traceability, better enforcement data and coordinated action against organised crime.
“The EU must now use the forthcoming revision of its tobacco legislation to close these enforcement gaps and build a coherent system capable of securing the entire tobacco and nicotine supply chain.”
Catherine Feore