REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT Progress report on the implementation of the Commission Communication "Stepping up the fight against cigarette smuggling and other forms of illicit trade in tobacco products - a comprehensive EU strategy (Com (2013) 324 final of 6.6.2013)"
Date: 2017-05-12
Institutions: European Anti-Fraud Office, European Commission
Subjects: administrative cooperation, customs cooperation, customs fraud, fight against crime, illicit trade, international cooperation, tobacco, tobacco industry

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 12.5.2017  COM(2017) 235 final   REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT Progress report on the implementation of the Commission Communication "Stepping up the fight against cigarette smuggling and other forms of illicit trade in tobacco products - a comprehensive EU strategy (Com (2013) 324 final of 6.6.2013)"  
 
 
SECTION A:  

INTRODUCTION 

Cigarette  smuggling  has  been  a  major  concern  in  Europe  for  some  time.  The  illicit  tobacco 
trade makes cigarettes available at prices lower than those set to discourage smoking. At the 
same time, illicit products typically do not comply with product regulation, such as labelling. 
The illicit tobacco trade also causes considerable losses to public revenue: if all cigarettes sold 
on  the  black  market  were  sold  legally,  the  budget  of  the  EU  and  its  Member  States  would 
receive above EUR 10 billion annually. Last but not least, cigarette smuggling is a source of 
revenue for organised criminal groups from Europe and beyond, and there are indications that 
in some instances it is also linked to financing terrorism1. Fighting the illicit tobacco trade is 
therefore also  key to protecting the security of the EU2.  

In 2013, the Commission presented a comprehensive Strategy3 to step up the fight against the 
illicit tobacco trade. Based on a detailed analysis of the phenomenon of smuggling in the EU 
and  the  factors  driving  it,  the  Strategy  proposed  ways  to  counter  the  illicit  tobacco  trade, 
building on an earlier Action Plan to fight the smuggling of cigarettes and alcohol along the 
EU’s  eastern  border4.  The  2013  Strategy  was  accompanied  by  a  new  Action  Plan5  with  50 
items to be implemented by the Commission and/or Member States. Strategy and Action Plan 
were  endorsed  by  the  Council  through  conclusions  on  10  December  20136.  The  European 
Parliament  has  recently  underlined  the  need  to  intensify  the  fight  against  the  illicit  tobacco 
trade, in particular with regard to cheap whites7. 

This report fulfils a 2013 commitment by the Commission to monitor implementation of the 
Strategy and the Action Plan8, with special regard to the specific factors driving the problem. 
Section B of the report offers an overview of the main initiatives taken since the presentation 
of the 2013 Strategy. Section C briefly describes the current situation with the illicit market. 
Section  D  discusses  lessons  learned  since  then  and  makes  some  suggestions  for  further 
reflection.  

SECTION B:  

MAIN INITIATIVES IMPLEMENTED SINCE 2013 

The  2013  Strategy  called  for  targeted  internal  and  external  measures  to  step  up  the  fight 
against cross-border smuggling of cigarettes and other tobacco products. The overarching aim 
of these measures was to secure the legal supply chain, strengthen enforcement and address 
the  incentives  underpinning  the  illicit  trade.  Ultimately,  the  Strategy  recognised  that  the 
territorial  limits  of  national  law  imply  that,  in  addition  to  measures  taken  at  national  level, 
only coordinated action at European and international level can adequately address this global 
phenomenon. With this in mind, several important measures have been taken since 2013: 

1. 

Changes to the legislative and policy framework 

a) At the global level, since the outset the Commission has been in the forefront of the work 
on  the  Protocol  to  Eliminate  Illicit  Trade  in  Tobacco  Products  to  the  WHO  Framework 

1   See also the UN Security Council Resolution no. 2199 of 12 February 2015. 
2   The European Agenda for Security, COM2015) 185 final of 28 April 2015, pp. 4 and 6. 
3   COM(2013) 324 final of 6 June 2013. 
4   SEC(2011) 791 final of 24 June 2011. 
5   SWD(2013) 193 final of 6 June 2013. 
6   https://ec.europa.eu/anti-fraud/sites/antifraud/files/docs/body/council_conclusions_en.pdf  
7   European Parliament resolution of 9 March 2016 (2016/2555(RSP)). 
8   For ease of reference, this report links specific paragraphs to action items in the 2013 Action Plan. 

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Convention of Tobacco Control (‘FCTC Protocol’) (Actions 2.1, 2.2). The Protocol aims to 
secure  the  supply  chain  of  genuine  cigarettes  in  particular  by  tracking  and  tracing  tobacco 
products by parties to the Protocol, within five years of its entry into force.  The Protocol also 
foresees the licensing of certain activities; due diligence rules for producers, as well as rules 
for  internet  sales,  duty  free  sales  and  free  zones.  The  Protocol  also  supports  international 
cooperation between enforcement authorities. 

Today the Protocol embodies the main response of the international community to the cross-
border illicit tobacco trade. Showing its commitment to the Protocol, the EU was among the 
first Parties to ratify9 it in June 2016. The Protocol must be ratified by 40 parties before it can 
enter into force. As of 31 December 2016, 25 parties had ratified, including six EU Member 
States10. 

The  Commission  is  actively  promoting  the  Protocol  within  the  EU  and  worldwide,  making 
use  of  its  diplomatic  influence  in  its  international  relations,  including  the  institutional 
framework's with Neighbourhood countries (Action 3.2.12) and East Asia (Action 3.2.1). In 
this  context  the  Commission  supported  the  FCTC  Secretariat  in  organising  a  Regional 
Workshop in Myanmar in December 2014. At the 7th Conference of the Parties to the WHO 
Framework  Convention  in  November  2016,  the  EU  initiated  global  discussions  on 
implementing the Protocol in the future (Action 3.2.13). The Commission has also provided 
other financial support to the process since the outset11. 

b)  In  parallel,  the  EU  has  updated  and  strengthened  its  tobacco  control  legislation.  The 
revised  Tobacco  Products  Directive12  (TPD)  was  adopted  in  2014.  In  relation  to  the  illicit 
trade in tobacco, the TPD aims to secure the supply chain on the basis of an EU-wide tracking 
and tracing system and tamper-proof security features at unit pack level. By implementing the 
relevant obligations of the TPD concerning tracking and tracing the Member States will also 
comply with the corresponding provisions of the FCTC Protocol. Cigarettes produced in, or 
for,  the  EU  Single  Market  will  be  tracked  and  traced  under  the  TPD  as  of  May  2019.  The 
Commission  is  currently  preparing  the  legislation  required  to  establish  the  EU’s  future 
tracking and tracing system (Actions 2.3, 2.4). 

c)  The  EU  has  also  strengthened  its  investigative  tools  to  detect  customs  and  excise  fraud 
through  the  reform  of  Council  Regulation  (EC)  No 515/97  on  mutual  administrative 
assistance  in  customs  matters13.  The  new  Regulation  enables  investigators  to  compare 
physical container movements with import and transit data as well as export data for excisable 
goods, notably cigarettes. It also facilitates the use of evidence from other EU jurisdictions in 
national  administrative  and  judicial  proceedings.  Once  fully  implemented,  the  new  Union 
Customs  Code  (UCC)14  will  create  an  IT  environment  that  contributes  to  more  effective, 
risk-based customs controls, including in the area of cigarette smuggling. 

In  a  similar  vein,  in  2014,  the  Commission  adopted  an  EU  Strategy  and  Action  Plan  for 
customs risk management15 to protect the security and safety of the EU and its citizens, the 
interests of legitimate traders and the EU’s financial interests, while at the same time enabling 

9   Council Decisions (EU) 2016/1750 and 2016/1749 of 17 June 2016, OJ L 268 of 1.10.2016, p. 1.  
10   Ratification by the EU does not count towards the requirement of 40 ratifications. 
11   E.g. most recently from the EU Health Programme (EUR 400 000). 
12   Directive 2014/40/EU of 3 April 2014, OJ L 127, 29.4.2014, p. 1. 
13   Regulation (EU) 2015/1525 of 9 September 2015, OJ L 243, 18.9.2015, p. 1. 
14   Regulation (EU) No 952/2013 of 9 October 2013, OJ L 269, 10.10.2013, p. 1. 
15   COM(2014) 527 final of 21 August 2014. 

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the  smooth  flow  of  trade.  In  July  2016  the  Commission  adopted  a  progress  report  on  the 
implementation of the actions16. 

d) In addition, the Commission is currently carrying out an impact assessment on the possible 
revision of the fiscal framework, namely Directive 2011/64/EU17 on the structure and rates of 
excise duty applied to manufactured tobacco. An external evaluation report18 has helped to 
identify  options  to  reduce  administrative  burdens  and  costs  for  both  Member  States  and 
economic operators, to reduce distortion within the internal market19  and also to decrease the 
incentives driving the illicit tobacco trade. The Commission is currently studying the impact 
of  these  options,  and  in  this  context  is  also  looking  at  the  definitions  and  tax  treatment  of 
tobacco  products  across  the  EU  (Action  1.1).  Furthermore,  it  is  reflecting  on  whether  to 
include raw tobacco in the scope of excisable goods under Directive 2011/64/EU, which is 
not the case now. It is therefore currently not possible to use the key tools in the fight against 
fraud (i.e., administrative cooperation, exchange of information and the Excise Movement and 
Control System, or EMCS) with respect to raw tobacco.  

In this context the Commission has considered harmonising anti-forestalling measures in the 
EU (Action 1.3). However, this was deemed neither feasible nor desirable by Member States. 
With respect to the travellers’ allowance (based on Directive 2007/74/EC20 on the exemption 
from VAT and excise duty of goods imported by travellers), the Commission concluded that 
this issue could be addressed in non-legislative measures21 (Action 1.2). 

e)  Directive  (EU)  2015/849  on  preventing  the  use  of  the  financial  system  for  money 
laundering  or  terrorist  financing  (the  ‘4th  Anti-Money  Laundering  Directive’)22  marked  a 
significant step towards improving effectiveness of the EU's efforts to combat the laundering 
of  money  from  criminal  activities  and  to  counter  the  financing  of  terrorist  activities.  It  sets 
high standards to prevent money laundering, such as the requirement for Member States to put 
in place national registers of beneficial owners of companies and designated trusts. This will 
help  to  better  track  the  financial  flows  related,  say,  to  the  illicit  tobacco  trade  and  prevent 
criminals from laundering proceeds generated through such activities.  

In addition, the Commission has adopted a comprehensive Action Plan to step up the fight 
against terrorist financing23. One of the plan’s aims is to introduce measures to criminalise 
money  laundering  by  establishing  a  common  definition  of  money  laundering  offences  and 
sanctions across the EU24. 

f)  Moreover,  the  Commission  has  also  taken  the  initiative  of  approximating  sanctions  for 
customs-related  offences,  including cigarette  smuggling.  To  this  effect,  it  has  put  forward  a 
legislative  proposal25,  which  the  Council  and  the  European  Parliament  are  currently 

16   COM(2016) 476 final of 19 July 2016. 
17   Directive 2011/64/EU of 21 June 2011, OJ L 176, 5.7.2011, p. 24. 
18   Study on the measuring and reducing of administrative costs for economic operators and tax authorities and 
obtaining in parallel a higher level of compliance and security in imposing excise duties on tobacco products 
http://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/excise_duties/tobacco
_products/studies_reports/ramboll-tobacco-study.pdf 

19   COM (2015) 621 of 21 December 2015. 
20   Directive EC/2007/74/ of 20 December 2007, OJ L 346, 29.12.2007, p. 6 
21   COM(2013) 849 final of 3 December 2013. 
22   Directive (EU) 2015/849 of 20 May 2015, OJ L 141, 5.6.2015, p. 73. 
23   COM(2016) 50 final of 2 February 2016. 
24   COM(2016) 826 final. 
25   COM(2013) 884 final. 

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negotiating.  In  addition,  after  political  agreement  between  the  co-legislators  on  a  new 
Directive  on  the  fight  against  fraud  detrimental  to  the  Union’s  financial  interests  by 
means of criminal law26, the Council adopted its position at first reading in April 2017.  

In parallel, the Commission has sponsored a study on the effectiveness of sanctions applied in 
Member  States  on  offences  relating  to  the  illicit  trade  in  tobacco  (Action  3.3.1).  The  study 
confirms  that  existing  penalties  for  cigarette  smuggling  and  the  way  relevant  legislation  is 
applied in practice in courts differ substantially among Member States. 

2. 

Strengthening enforcement authorities and inter-agency cooperation 

A major element of the 2013 Strategy was to strengthen law enforcement at EU and Member 
State level and to enhance cooperation between the relevant actors. 

a)  The  European  Anti-Fraud  Office  (OLAF)  is  the  only  EU’s  investigative  body  for  the 
protection  of  the  EU  budget,  on  the  expenditure  and  revenue  side  alike.  The  Office’s  role 
includes  detecting  and  investigating  cases  of  customs  fraud,  and  coordinating  transnational 
anti-smuggling  operations.  Revised  Regulation  No  883/201327  governing  OLAF’s  work 
builds  on  the  experience  gained  since  its  creation  in  1999  (Action  3.1.19).  It  codifies  past 
practice  and  reinforces  the  effectiveness  of  OLAF’s  investigative  activities.  The  Regulation 
also  provides  for  better  cooperation  and  exchange  of  information  between  OLAF  and  its 
partners.  Since  2012  OLAF’s  policy-making  and  investigative  functions  have  been  clearly 
separated. A dedicated policy team focusing on the fight against the illicit tobacco trade has 
been created. OLAF’s work in this area is supported by liaison officers in Ukraine, China and 
the  United  Arab  Emirates  (Action  3.2.10),  all  of  which  are  important  source  and  transit 
countries. 

b)  Regulation  794/201628  has  strengthened  the  legal  framework  for  Europol  activities; 
enforcement powers remain with Member States. The fight against the illicit trade in tobacco 
is  a  priority  for  both  OLAF  and  Europol,  and  both  institutions  are  now  stepping  up  their 
bilateral  cooperation.  This  includes  reciprocal  access  to  data  and  technical  networks  so  that 
the  institutions  can  complement  each  other  and  leverage  their  respective  strengths  (Action 
3.1.20). Discussions are also under way to strengthen Eurojust29 (Action 3.1.21). 

c) More broadly, efforts have recently been made to strengthen inter-agency cooperation in 
this  area.  As  illustrated  below  (see  point  3),  officials  from  OLAF,  Europol,  Frontex,  the 
World Customs Organisation and Interpol regularly carry out joint operations (Actions 3.1.17, 
3.1.18). Additionally, in 2013 the EU set up a new European Border Surveillance System30, 
EUROSUR,  to  improve  Member  States’  situational  awareness  and  reaction  capability  in 
combating cross-border crime and tackling irregular migration (Action 3.1.22). 

d)  The  Commission  supports  Member  States  with  technical  assistance  to  strengthen 
operational  and  intelligence  capacities.  The  Hercule  III  programme31  has  a  budget  of 
EUR 104.9  million  for  the  period  2014-2020  to  help  the  relevant authorities in  the  Member 
States to fight fraud, corruption and other illegal activities. Hercule III supports actions such 
as the purchase of x-ray scanners (which help to e.g. detect cigarettes hidden in trucks) and 

26   COM(2012) 363 final of 11 July 2012. 
27   Regulation (EU, Euratom) No 883/2013 of 11 September 2013, OJ L 248, 18.9.2013, p. 1. 
28   Regulation (EU) No 794/2016 of 11 May 2016, OJ L 135, 24.5.2016, p. 53. 
29   COM(2013) 535 final. 
30   Regulation (EU) No 1052/2013 of 22 October 2013, OJ L 295, 6.11.2013, p. 11. 
31   Regulation (EU) No 250/2014 of 26 February 2014, OJ L 84, 20.3.2014, p 6. 

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other  technical equipment by customs authorities,  as  well as  training activities to  share best 
practices.  In  addition,  the  AFIS    IT  platform  (Commission  Anti-Fraud  Information  System) 
supports  other  Member  State  initiatives  in  this  area,  such  as  Joint  Customs  Operations  (see 
point 3b below). During the lifetime of the former Task Force Greece, the Commission also 
provided Greek Customs with institutional expertise on anti-fraud matters (Action 3.1.23). 

3.  

Stepping  up  law  enforcement:  operational  activities,  risk  management  and 
intelligence gathering 

Successful policy actions to rein in the illicit tobacco trade must be complemented by robust 
and coordinated law enforcement activities.  

a) Enforcement agencies in the EU have stepped up their fight against the illicit tobacco trade: 
seizures  of  illicit  tobacco  products  (predominantly  cigarettes),  which  had  been  in  decline 
since 2011, are increasing once again. According to figures from the Member States, seizure 
volumes  increased  from  3.1  billion  in  2013  to  3.8  billion  in  2015  (see  Graph  1).  These 
numbers are, first and foremost, the result of daily work by the national authorities. Over the 
last  two  years,  OLAF  operations  contributed  to  the  seizure  of  more  than  one  billion 
cigarettes.  

Graph 1: Development of total cigarettes seizures in the EU, 2005-2015 

b)  Joint  customs  operations  (JCOs)  are  operational,  coordinated  and  targeted  measures, 
implemented by customs authorities for a limited time, to combat cross-border trafficking in 
goods.  In  addition  to  the  operational  results,  JCOs  greatly  contribute  to  stepping  up  cross-
border  cooperation  and  building  trust  between  law  enforcement  agencies  in  the  Member 
States. Since 2013, OLAF has organised or contributed to a number of JCOs focusing either 
entirely  or  in  part  on  the  illicit  tobacco  trade.  Several  of  these  operations  (see  Table 1) 
concentrated on the EU’s eastern border, since around half of all seizures of cigarettes in the 
EU take place in the Member States in that region (Actions 3.1.3, 3.1.7). 

Table 1: Major Joint Customs Operations organised across the EU since 2013 

Year 

2013 

JCO Name 

Led by 

Cigarettes seized 

Romoluk 

RO, OLAF 

23 million 

5 

 
 
 
2013 

2014 

2015 

2015 

2016 

Warehouse 

Replica 

Baltica 

Romoluk II 

Magnum 

LT, OLAF 

OLAF 

PL, OLAF 

RO, OLAF 

EE, OLAF 

45 million 

130 million 

13 million 

3.74 million 

11 million 

Furthermore,  the  Commission  coordinated  the  ‘DISMANTLE’  Priority  Control  Action  in 
2013 and 201432 under the common risk management framework with all EU Member States. 
It lasted over 12 months, led to the seizure of 816 million cigarettes and, based on its findings, 
a  number  of  specific  recommendations  for  better  risk-targeting  of  smuggled  excise  goods 
were  presented  (Action  3.1.2).  In  2015  and  2016  OLAF  also  supported  the  ‘HANSA’  Joint 
Action Day, implemented by Member States with the support of Europol as part of the excise 
fraud priority in the EU policy cycle on serious and organised crime.33  

c)  Alongside  these  operational  activities  in  Europe,  global  actions  take  place.  Initiated  and 
coordinated by the World Customs Organisation (in 2014 and, with the support of OLAF and 
Europol, again in  2016), around 100 customs administrations took part in  the GRYPHON  I 
and II operations. They resulted in the seizure of 1.39 billion cigarettes, 287 000 cigars, and 
several  hundred  tons  of  other  tobacco  products  around  the  globe.  Several  machines  and 
components used to manufacture cigarettes were also seized, as along with 12 million excise 
duty stamps. Several illegal tobacco factories were dismantled, and over 150 persons involved 
were arrested in those two operations.  

d) Customs authorities have also intensified their efforts to better analyse trends in the illicit 
tobacco market. Experts met in May 2014 to discuss ways of strengthening  data gathering 
on  seizures  (Action  3.1.12).  These  efforts,  combined  with  new34  and  improved  tools,  have 
provided a clearer picture of seizures across the continent (Actions 3.1.11, 3.1.10). 

e) When customs authorities seize cigarettes, it is often difficult to link individual seizures in 
one place to other cigarettes from the same illicit batch seized in another place. Here, customs 
laboratories  can  provide  analytical  support  to  investigators.  To  this  effect,  in  2015  the 
Commission’s Joint Research Centre set up a laboratory for the independent analysis of any 
type of seized cigarettes. The laboratory is also designed to carry out verification taks in the 
context  of  the  implementation  of  the  anti-fraud  agreements  with  three  major  tobacco 
manufacturers (Actions 3.1.8, 3.1.9). 

4.  

Enhanced bilateral cooperation with major source and transit countries 

To improve cross-border coordination and cooperation in the fight against the illicit tobacco 
trade, the Commission has also worked bilaterally with key source and transit countries: 

a) When fighting customs fraud, customs authorities cooperate across borders based on rules 
treaties.  Since  2013  mutual 
on  mutual  administrative  assistance 

international 

in 

32   Commission Press Release available here: http://europa.eu/rapid/press-release_IP-14-679_en.htm 
33   The ‘EU policy cycle’ is a methodology adopted by the EU in 2010 to address the most important criminal 
threats affecting the EU. Operational Action Plans are drafted annually to coordinate cross-border law 
enforcement activities on priorities determined by the Member States. Excise fraud is one such priority for 
the 2014-2017 cycle. 

34   Such as the Tobacco Seizure Management Application (ToSMA) for the processing of seizures under the 
anti-fraud agreements with the major manufacturers; see SWD(2016) 44 of 24 February 2016, p. 24. 

6 

 
 
                                                 
administrative  assistance  provisions  with  an  additional  14  countries  have  come  into  force. 
Today, treaties including such rules are in place with more than 70 countries. 

b) Since 2015 experts from Member States and the Commission/OLAF have stepped up their 
bilateral  dialogues35  on  customs  issues  in  particular  with  Russia,  Belarus  and  Ukraine. 
These  meetings  at  technical  level  seek  to  improve  day-to-day  cross-border  cooperation, 
focusing in particular on the illicit tobacco trade (Actions 3.2.4, 3.2.5). 

c)  A  key  driver  for  cross-border  trade  in  general  and  illicit  trade  in  particular,  is  the  big 
differences in the price differentials between EU Member States and neighbouring countries 
such  as  Belarus,  Ukraine  and  Russia.  To  reduce  this  fiscal  incentive  for  smuggling,  in  the 
association  agreements  reached  with  the  EU  recently,  Moldova,  Ukraine  and  Georgia 
undertake  to  raise  and  adjust  their  level  of  tobacco  excise  rates  and  structures  (Action 
3.2.3). 

d)  The  EU has  an  established  policy  of  negotiating  anti-fraud  clauses  when  granting  tariff 
preferences to third countries. Today, such clauses are in place with many partner countries to 
promote  cooperation  in  customs  investigations  that  also  relate  to  cases  of  illicit  tobacco 
trading. Since 2013, anti-fraud clauses have been negotiated with Canada, Georgia, Moldova, 
Singapore and Vietnam, and negotiations with other countries are ongoing (Action 3.2.11). 

e)  OLAF  also  uses  administrative  cooperation  arrangements  (ACAs)  with  competent 
authorities in third countries  to facilitate practical investigative cooperation. In recent years, 
OLAF has stepped up the negotiation of ACAs in the customs area. Today, OLAF has ACAs 
with  customs  authorities  from  Australia,  Bangladesh,  Belarus,  China,  Moldova,  Morocco, 
Taiwan and Ukraine (Actions 3.2.6, 3.2.7). 

5.  

Addressing the demand side of the illicit tobacco market 

The 2013 Strategy also saw the need to develop a better understanding of the  demand side. 
To this effect, the Commission funded36 a Eurobarometer37 survey on people’s perception of 
the illicit tobacco trade. The key findings of this first survey in this area showed that: people’s 
main concern with black-market cigarettes is the loss of revenue for the state; that they buy 
them  because  they  are  cheap;  and  that  the  penetration  of  black-market  cigarettes  is 
significantly  higher  in  Central  and  Eastern  Europe.  Only  14 %  of  people  believe  it  is  an 
important source of revenue for organised crime groups (Action 1.4). 

SECTION C: AN UPDATE ON THE ILLICIT TOBACCO MARKET IN THE EU 

Despite  the  implementation  of  the  2013  Strategy  at  European  and  national  levels  in  recent 
years, the extent of the illicit tobacco trade in the EU remains overall high and troubling.  

Quantifying  a  clandestine  activity  is  inherently  difficult.  With  this  in  mind,  illicit  tobacco 
consumption  in  the  EU  has  been  estimated  by various  sources38  to  have remained  broadly 
stable – in the range of 55 billion to 65 billion sticks – despite an overall decline in tobacco 

35  Such as under the EU-Ukraine free trade agreement, the Strategic Framework for EU-Russia customs 

cooperation; the EU-Russia Working Group on Custom Border Issues; or the Action Plan for the EU-Belarus 
customs dialogue. 

36   The survey was carried out among 27 672 respondents in all Member States in autumn 2015. 
37   https://ec.europa.eu/anti-fraud/public-perception-illicit-tobacco-trade_en.  
38   SWD(2016) 44 of 24 February 2016, pp. 10-11 

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consumption in the EU39. Seizures of illicit tobacco products in the EU have risen by a fifth 
over the last two years (see point 3a above) which indicates a stable or possibly even growing 
share  of  illicit  cigarettes.  In  some  Member  States  the  share  of  the  illicit  market  may  well 
exceed one quarter of the entire tobacco market. 

The average size of individual seizures has come down over recent years. Smuggling illicit 
tobacco  products  in  very  large  quantities,  in  particular  in  containers,  is  less  frequent  today. 
Conversely, multiple border-crossings with smaller quantities are gaining in frequency; some 
of  these  are  organised  operations  by  criminal  gangs.  These  small-scale  activities  pose 
different challenges to law enforcement authorities than containerised traffic.  

As  observed  in  February  201640,  the  composition  of  the  illicit  tobacco  market  has 
significantly changed over the years. Contraband from the major international producers is 
much  less  prominent  in  large  seizures  in  the  EU  today  than  in  the  past.  On  the  other  hand, 
cheap  whites  and  counterfeits  (including  the  counterfeiting  of  cheap  whites)  dominate  in 
large-scale  seizures41,  and  in  particular  in  seizures  related  to  containerised  transport.  In  this 
context,  the  European  Parliament  has  called  on  the  Commission  to  take  actions  setting  out 
new measures to tackle the problem of cheap whites42. 

The  increasing  consumption  of  shisha  in  the  EU  is  reflected  in  Member  States’  substantial 
seizures of smuggled water pipe tobacco.  

Furthermore, there also seems to be an upsurge in illicit tobacco manufacturing inside the 
EU, which is a hypothesis supported by large-scale seizures of raw tobacco and the discovery 
of  numerous  illicit  tobacco  factories43.  In  increasing  illicit  production  inside  the  EU, 
smugglers may be reacting to more stringent monitoring of the EU’s external borders. 

The countries identified as key source and transit countries in the 2013 Strategy remain a 
source  of  concern,  although  the  involvement  of  individual  countries  seems  to  be  shifting. 
There now seems to be more diverse sourcing in East Asia, whereas smuggling from China 
may  have  declined.  Moreover,  the  weakening  of  governance  structures  in  countries  such  as 
Libya facilitates smuggling in the Mediterranean. Smuggling of Belarusian cheap whites, and 
transit  and  illicit  production  activities  in  the  free  zones  in  the  UAE,  remain  of  particular 
concern. 

Criminals and smugglers continue to abuse certain customs and excise procedures allowing 
for  the  movement  of  goods  under  duty  suspension.  One  of  the  scenarios  used,  which  is 
lucrative to criminals, is that cigarettes are produced inside the EU and declared for export but 
are actually not exported or are smuggled back in the EU after export. Similarly, imports can 
be  moved  inside  the  customs  union  under  the  transit  procedure  using  multiple  fictitious 
movements in order to conceal the real destination of the cigarettes. Instead, these cigarettes 
are distributed illegally on the EU illicit market without payment of VAT and excise. 

39   According to figures compiled by the Commission based on data from Member States, releases for 

consumption of cigarettes declined from 728 billion (2005) to 486 billion (2014). See 
http://ec.europa.eu/taxation_customs/resources/documents/taxation/excise_duties/tobacco_products/tobacco_
products_releases-consumption.pdf. 
40   SWD(2016) 44 of 24 February 2016 
41   According to Member States’ seizure data from 2013, eight of the ten most seized cigarette ‘brands’ were    
‘cheap whites’. Of the more than 1 billion cigarettes seized with support from OLAF over the last two years, 
more than 90% were cheap white ‘brands’. 

42   European Parliament Resolution of 9 March 2016 (2016/2555(RSP)). 
43   According to the Polish authorities more than40 factories were discovered in Poland alone in 2016, with an 

estimated combined capacity to produce several billion cigarettes per year. 

8 

 
 
                                                 
SECTION D: KEY EXPERIENCES AND FURTHER REFLECTION 

1.  

Building further on the 2013 Strategy 

The main pillars of the 2013 Strategy and virtually all items of the Action Plan have been 
implemented.  With  the  phenomenon  persisting  and  some  key  measures  still  awaiting 
application, work should continue in the current direction with some adjustments:   

a)  Together, the TPD and the FCTC Protocol will be instrumental to secure the supply 
chain for legally produced cigarettes destined for the EU market, along with cigarettes 
produced in the EU for export. However, the full effect of both instruments will only 
be felt in a few years’ time. 

Promoting the FCTC Protocol vis-à-vis third countries (as well as Member States) to 
secure global supply chains and moving forward its internal implementation in the EU 
will  be  a  key  part  of  the  Commission’s  activities  in  the  fight  against  illicit  trade  in 
tobacco  in  the  coming  years.  In  the  end,  the  illicit  trade  in  tobacco  products  will  be 
tackled  most  effectively  if  the  FCTC  Protocol  is  implemented  by  a  framework  of 
coordinated action at international, European and national level.  

b)  Enforcement  authorities  such  as  OLAF  have  been  strengthened  and  inter-agency 
coordination  is  increasing.  This  improved  enforcement  framework  contributed  to 
significantly  higher  seizures  across  the  EU  since  2013.  To  counter  illicit  tobacco 
producers  moving  their  production  from  outside  to  inside  the  EU,  a  strengthened 
enforcement at EU level should be discussed, including the powers of OLAF. 

c)  In this respect, the EU and its Member States have also made progress in integrating 
analytical,  reporting  and  IT  capacities.  Customs  authorities  are  already  upgrading 
their analytical expertise and capacity to fully exploiting the available data sources44. 
This process could be supported by further pooling the analytical capacities available 
at European level, for instance by providing access  to the relevant IT systems and data 
bases.  Investigators  should  also  be  encouraged  to  fully  capitalise  on  the  potential  of 
the tobacco laboratory available at the Commission's Joint Research Centre. 

d)  Engagement  with  key  source  and  transit  countries  is  gaining  traction,  although 
diplomatic initiatives will inevitably take time before they translate into more effective 
enforcement.  There  has  been  good  progress  in  engaging  with  third  countries  at 
institutional and operational level, and bilateral contacts with key countries should be 
strengthened further. These contacts could also be used to promote the FCTC Protocol 
and the EU is in a good position to utilise its diplomatic influence to this effect. In this 
context, an increase in the number of OLAF liaison officers beyond the current three 
should also be considered, subject to available resources. 

e)  The  enforcement  community  focuses  on  the  demand  side  for  illicit  products  less 
consistently as compared to, for example, health authorities. However, some Member 
States,  such  as  Estonia,  have  undertaken  interesting  initiatives  in  this  area,  running 
public  awareness  campaigns  highlighting  the  links  between  illicit  cigarettes  and 

44   Such as the Container Status Messages and the Import, Export and Transit directories set up under Council 

Regulation (EC) No 515/97. 

9 

 
 
 
                                                 
organised  crime.  The  potential  of  measures  focusing  on  demand  could  be  exploited 
more routinely. 

2.  

Further reflections 

Despite  the  actions  taken  so  far,  the  size  of  illicit  trade  remains  by  and  large  stable.  In 
particular,  the  phenomenon  of  cheap  whites  and  counterfeits,  while  not  entirely  new,  has 
become  increasingly  troublesome  over  the  last  years.  Therefore,  now  seems  to  be  the  right 
moment for considering additional measures to effectively complement the 2013 Strategy in 
the future. The following issues are proposed for further reflection: 

a)  Incentives  for  smugglers  should  be  reduced.  Currently,  the  main  incentive  for  the  illicit 
tobacco trade is the possibility to exploit price differentials between EU Member States 
and  neighbouring  countries,  but  also  between  markets  in  EU  Member  States45.  One 
standard 40ft container holding some 20 million cigarettes smuggled into the EU can yield 
up to EUR 2 million in illegal revenue depending on the tax burden. The level of taxation 
is  a  major  factor  in  the  price  of  tobacco  products,  which  in  turn  influences  consumers’ 
smoking  habits,  following  the  rules  of  price  elasticity.  A  certain  degree  of  upward 
convergence  between  the  tax  levels  applied  in  the  Member  States  would  help  to  reduce 
fraud and smuggling. Neighbouring countries such as Belarus with an excessively low tax 
rate on tobacco products should be urged to approximate their excise duty rates with the 
minimum  rates  in  the  EU,  not  least  in  the  shared  interests  of  health  policy  and  raising 
public revenue. 

b)  The effect of reduced incentives could be enhanced if in parallel smugglers’ production 
and  distribution  costs  were  driven  up  and  if  sanctions  had  a  sufficiently  dissuasive 
effect. Such initiatives could include: 

i.  Curtailing  access  to  input  materials,  which  is  essential  for  illicit  tobacco 
manufacturers.  Curtailing  their  access  to  key  input  materials  would  disrupt  their 
business.  The  European  Parliament  has  called  on  the  Commission  to  take  actions  to 
ensure the effective control of input materials46. Apart from manufacturing equipment, 
three main product groups could be considered in this respect: 

  The control of the movement of  raw tobacco,  currently not subject to excise 
duty,  is  under  review  (see  point  B1d  above).  The  market  for  raw  tobacco  is, 
however  fragmented,  with  many  producers  operating  both  inside  and  outside 
the EU.  

  The paper used in cigarettes has special features. Monitoring and controlling 
paper  is  complicated  by  the  fact  that  there  are  numerous  paper  producers  all 
over the world,   

 

In contrast, the number of producers of the acetate tow used in cigarette filters 
is limited, which would increase the prospect of effectively controlling supply. 
In  view  of  global  sourcing  possibilities  in  this  industry  (not  to  mention  for 
cigarette  producers  in  third  countries),  it  would,  however,  be  difficult  to 

45   The average price for 20 cigarettes in Finland is EUR 5,01. It is only EUR 0,95 in Russia, and maybe half of 
that in Belarus. Also, a pack of 20 cigarettes has an average price of EUR 2.08 in Poland, compared to EUR 
9.09 for the same pack in Ireland (see Frontex Eastern European Borders Annual Risk Analysis 2015, p. 24). 

46   European Parliament Resolution of 9 March 2016 (2016/2555(RSP)). 

10 

 
 
 
                                                 
imagine that a control system limited to Europe could be effective. Therefore, 
cooperation from industry and their host countries would a priori be required. 

ii.  Tightening  of  the  logistics  chain  exploited  by  smugglers.  This  involves  closer 
monitoring of the customs processes frequently abused by smugglers (see Section C.). 
The fiscal regime applicable to imported cigarettes is a sequence of tax and customs 
rules; these are often implemented by different authorities. Cooperation between these 
national  authorities  may  be  further  intensified  such  as  by  the  interoperability  of  IT 
systems, for example. 

iii. 

Sanctions  and  guarantees.  There  are  questions  as  to  whether  the  administrative 
and/or penal sanctions actually applied in Member States on smuggling offences are 
sufficiently  dissuasive.  This  is  all  the  more  relevant  in  the  context  of  the  internal 
market,  since  the  attractiveness  of  the  illicit  tobacco  trade  in  one  Member  State  can 
easily trigger significant smuggling activity in another.  

Moreover,  there  are  similar  questions  as  to  whether  the  guarantees  required  by 
Member  States  for  certain  sensitive  activities  linked  to  the  duty-free  handling  of 
excise  products  (e.g.,  managing  a  bonded  customs  warehouse)  are  sufficiently 
calibrated to the illicit profits that criminal gangs can make. 

c)  The  Commission  has  for  years  supported  Member  States  in  the  fight  against  tobacco 
smuggling. In particular, the Member States on the EU’s eastern border are on the front 
line  against  the  smuggling  of  illicit tobacco  into  the  EU  via  land  borders.  The  question, 
therefore,  is  whether  it  would  be  in  the  general  interest  for  those  customs  authorities  to 
receive more targeted support. This question could be looked at as part of the review of 
the Hercule programme, also taking account of new obligations under the FCTC Protocol. 

d)  There  is  an  ongoing  discussion  about  whether  the  current  legal  instruments,  such  as  the 
mutual administrative assistance agreements, give sufficient possibilities to systematically 
exchange customs data with neighbouring countries. The Council has therefore called for 
new  instruments47  to  improve  this  situation,  based  on  the  new  Article  12  of  the  Union 
Customs Code. 

e)  There are many legitimate private and state intermediate actors involved in the supply 
chain, such as shippers, carriers, ports, freight forwarders, customs agents, or warehousing 
companies.  These  are  mindful  of  their  good  reputation  and  could  become  even  more 
valuable allies in the fight against the illicit tobacco trade. 

As the FCTC Protocol also recognises,  production  in  and smuggling out  of and through 
free  zones  pose  particular  challenges.  Often  it  will  only  be  possible  to  address  current 
difficulties  with  the  cooperation  of  local  authorities.  To  this  effect,  customs  cooperation 
agreements with relevant countries, including the UAE/Dubai, could be considered, where 
such agreements do not yet exist. 

f)  In addition, there is currently no independent estimation of the scale and development of 
the illicit tobacco market in the EU. Though statistics have improved, these are inevitably 
based on seizures, which cannot give a full and independent picture of the illicit market. 
Therefore,  additional  insights,  based  for  example  on  consumption  patterns,  may  be 
required to further support informed and targeted policy-making. 

47   Council Conclusions of 16 December 2016. 

11 

 
 
 
 
 
 
 
 
 
                                                 
SECTION E: CONCLUSIONS  

Despite  the  measures  taken  since  2013,  the  challenge  posed  by  the  illicit  tobacco  trade 
remains as preoccupying today as it has been in the past. The EU and its Member States have 
no choice but to continue to address the threat from illicit tobacco and its changing patterns 
with  determination,  since  this  illicit  activity  is  detrimental  to  public  health,  finances  and 
security. 

With  its  combination  of  strong  legislative  responses,  robust  law  enforcement  and  enhanced 
cooperation at national, European and international levels, the 2013 Strategy remains relevant. 
It is too early to pass final judgment on its effectiveness, since its key components – such as 
tracking and tracing – are not yet applicable.  

Looking  at  the  growing  threat  from  cheap  whites  in  particular,  the  FCTC  Protocol  –  once 
fully applied by a critical mass of countries, including key source and transit countries – will 
be  a  key  tool  in  combating  the  global  illicit  tobacco  trade.  However,  while  tracking  and 
tracing in particular will help to secure the legal supply chain, additional tools will be needed 
to address domestic or foreign clandestine cigarette production effectively. 

Against this background, based on the present analysis and further dialogue with stakeholders, 
the  Commission  will  complete  its  evaluation  of  the  present  strategy  and  decide  on  the 
appropriate follow-up in 2018. 

12