Tobacco Smuggling

Tobacco companies have facilitated the smuggling of their own cigarettes and roll your own tobacco for decades. Internal company documents reveal that in the 1990s smuggling was an integral part of tobacco companies’ business strategies. By the late 1990s and early 2000s, the tobacco industry’s involvement in smuggling had been exposed leading to public investigations, court cases and extremely negative publicity for the tobacco companies. Using a massive public relations drive, they claimed they had changed and were now the victims, not the perpetrators of tobacco smuggling. But contemporary evidence indicates significant ongoing tobacco company involvement in the illicit tobacco trade.¹²

Why Would Tobacco Companies Smuggle their Own Product?

The tobacco industry can benefit from smuggling in the following ways:¹²³⁴

• The tobacco companies are paid for the product whether it is smuggled or not. In other words, they are paid when they sell to the distributor regardless of whether it then enters the legal or illegal channel.
• The reduced average market price as a result of smuggling discourages quitting and increases total sales, particularly sales among key industry targets – the young and the least well off.
• Illegal sales undermine tobacco control measures including packaging laws, and age restrictions on sales.
• The industry uses smuggling to press the case for reduced excise taxes, leading to increased sales in the legal market.
• The industry uses smuggling to argue against tobacco control policies claiming that every policy will increase tobacco smuggling (this despite their documented involvement).
• The industry uses smuggling as a market entry strategy – where imports are restricted or tariffs are high, it smuggles to avoid these restrictions and tariffs. It then argues that the presence of illicit on the market indicates a need to lift the import restrictions or privatise the state owned tobacco company.⁵

Historic Tobacco Smuggling

Major tobacco companies have an extensive history of facilitating the illicit trade. By the late 1990s, it was estimated that one third of global annual cigarette exports could not be accounted for via legal distribution routes.⁶ Despite the tobacco industry knowing that cigarette smuggling increased sales to children, documents from the Truth Industry Documents Archive and other evidence has shown the extensive involvement of the industry in facilitating smuggling by shipping huge quantities of cigarettes to ‘smuggling hubs’. The cigarettes were then forwarded via these hubs via the black market, often back to the countries from where they were shipped.

See also:

• BAT Involvement in Tobacco Smuggling
• Imperial And Gallaher Involvement in Tobacco Smuggling
• Gallaher versus its Cypriot distributor
• New Gallaher Documents Reveal Extent of Smuggling Activities
• Ocean Traders
• Michel Poirier

Ongoing Tobacco Industry Involvement in Illicit Trade

Following damaging revelations of tobacco industry involvement, litigation and inquiries, the tobacco industry claimed it had changed. Over recent years it has claimed it is now the victim of tobacco smuggling.¹² researchers,⁸ investigative journalists,⁹¹⁰ and government investigations and reports¹¹¹²¹³ all indicate that industry involvement in tobacco smuggling has continued since the 1990s.² This is supported by data as detailed below.

Tobacco companies often suggest that cheap/illicit whites (cigarettes that are legally produced, usually not by a transnational tobacco company, but have no legitimate market and are manufactured with the intent of being smuggled elsewhere) and counterfeits (products bearing a trademark of a tobacco manufacturer that are manufactured by a third party without consent) are the key components of illicit tobacco trade.¹⁴

However, diverse data covering the UK, the European Union (EU), and the world, consistently show that the single largest component of the illicit tobacco market is tobacco products that are actually manufactured legally by large tobacco companies before ending up on the illicit market (hereby referred to as tobacco industry illicit).² The UK Department of Health commissioned the Trading Standards Institute to systematically collect data on tobacco seizures regardless of size in 2014 and 2015/6. It found that approximately 70% of seized cigarettes were tobacco industry illicit (Image 1). Note: Image 1 involved some re-coding of the source data because two highly seized TI brands had been erroneously coded as illicit whites.²

Data from the World Customs Organization also indicate that, globally, approximately 70% of seizures are tobacco industry illicit (Image 2).¹⁵ Even studies funded by tobacco companies show that tobacco industry’s illicit remains the single largest problem within the illicit cigarette market across the EU, comprising an estimated 89% of the illicit market in 2007 and 58% in 2016 (Image 3).^{16171819202122} However, industry-funded reports do not tend to highlight that their own findings show that tobacco industry illicit is the single largest component of the illicit market.⁴

It is noteworthy that, by contrast, levels of counterfeit which the industry claims ‘are increasingly growing’²³ are tiny – around 5% of the market in these comprehensive data sources.

At best the above evidence suggest that tobacco companies are failing to control their supply chain. Evidence shows they are over-producing products in some markets and oversupplying to others, both in the knowledge that excess products will end up on the illicit market. For example, in 2016, British American Tobacco (BAT) was fined £650,000, reduced on appeal to £100,000, for over exporting hand-rolled tobacco to Belgium which then found its way back to the UK illegally.²⁴²⁵

In addition to evidence of continued facilitation of the problem, more serious allegations about contemporary tobacco company involvement in tobacco smuggling have also been made:

• Former Japan Tobacco International (JTI) employees have accused JTI of remaining actively involved, describing ‘rampant smuggling’ throughout the Middle East, Russia, Moldova and the Balkans.²⁶ See: JTI Involvement in Smuggling.
• Leaked tobacco industry documents suggest that BAT staff suspected JTI was facilitating smuggling into the Democratic Republic of Congo (DRC).²
• Meanwhile, BAT illegally moved millions of dollars in cash from Uganda to the DRC to buy tobacco leaf which was then transported to Kenya and Uganda by truck, according to a BAT whistleblower. ²⁷²⁸
• In 2011-2012, BAT cigarettes being distributed by a company previously implicated in tobacco smuggling were ending up in the illicit market across Africa, the Middle East and Europe with BAT staff agreeing not to discuss the problem by email.²

TobaccoTactics Resources

• Illicit Tobacco Trade
• Illicit Trade Protocol(ITP)
• Tobacco Smuggling in the UK
• Tobacco Smuggling in the Ukraine
• Countering Industry Aruguments Against Plain Packaging: It will Lead to Increased Smuggling
• Codentify
• Digital Coding & Tracking Association (DCTA)
• PMI IMPACT
• Coalition Against Illicit Trade(CAIT)
• Kenya- BAT’s Tactics to Influence Track and Trace Tender
• Companies which produced illicit trade reports funded by tobacco companies: Deloitte and KPMG
• All Party Parliamentary Group (APPG) on illicit trade
• A list of pages in the TobaccoTactics category Illicit Tobacco Trade

TCRG Research

• Tobacco industry’s elaborate attempts to control a global track and trace system and fundamentally undermine the Illicit Trade Protocol, A.B. Gilmore, A.W.A. Gallagher, A. Rowell, Tobacco Control, Published Online First: 13 June 2018
• Tobacco industry data on illicit tobacco trade: A systematic review of existing assessments, A.W.A. Gallagher, K.A. Evans-Reeves, J.L. Hatchard, A.B. Gilmore,  Tobacco Control, 2019;28:334-345, doi:10.1136/tobaccocontrol-2018-054295
• Assessment of the European Union’s illicit trade agreements with the four major Transnational Tobacco Companies, L. Joossens, A.B. Gilmore, M. Stoklosa, et al, Tobacco Control, 2016;25:254-260
• European watchdog is failing to hold tobacco industry to account over smuggling, M. McKee, A.B. Gilmore, BMJ, 2015; 351, h6973
• Exposing and addressing tobacco industry conduct in low-income and middle-income countries, A.B. Gilmore, G. Fooks, J. Drope, et al, The Lancet, 2015; 385:1029-1043
• Illicit trade, tobacco industry-funded studies and policy influence in the EU and UK, G, Fooks, S. Peeters, K. Evans-Reeves, Tobacco Control, 2014;23:81-83
• The transnational tobacco companies’ strategy to promote Codentify, their inadequate tracking and tracing standard, L. Joosens, A. Gilmore, Tobacco Control, 2014;23:e3-e6
• Tobacco industry manipulation of data on and press coverage of the illicit tobacco trade in the UK, A. Rowell, K. Evans-Reeves, A. Gilmore, Tobacco Control, 2014;23:e35-e43
• Towards a greater understanding of the illicit tobacco trade in Europe: a review of the PMI funded ‘Project Star’ report, A. Gilmore, A. Rowell, S. Gallus, et al, Tobacco Control, 2014;23: e51-e61
• Moving East: how the transnational tobacco industry gained entry to the emerging markets of the former Soviet Union-part I: establishing cigarette imports, A.B. Gilmore, M. McKee, Tobacco Control, 2004;13:151-160