Illicit Tobacco Trade

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The World Health Organization (WHO) defines “illicit tobacco trade” (ITT) as “any practice or conduct prohibited by law and which relates to production, shipment, receipt, possession, distribution, sale or purchase including any practice or conduct intended to facilitate such activity”.1 In other words, illicit tobacco trade encompasses any illegal activity over the entire lifetime of a tobacco product. Illicit trade encompasses three categories of products: those that are smuggled, counterfeits and illicit (also known as cheap) whites.

The tobacco industry (TI) has been complicit in illicit tobacco trade. Leaked documents from the 1990s revealed that transnational tobacco companies (TTCs) deliberately smuggled their own products. The scale was massive — a third of global cigarette exports at the time were estimated to end up on the illicit market,2 with TTCs supplying some markets almost entirely via illicit channels.34

The illegality of illicit tobacco trade makes it difficult to measure and make transparent. Public data on the topic is limited, and, in many countries, non-existent. Different sources use different methods and vary widely in their estimates, which makes between country comparisons difficult. Tobacco companies have exploited this complexity by commissioning reports on the topic that have been found to overestimate the scale of the problem when compared with independent research. Despite their inaccuracy, tobacco companies regularly use this data to support their claims about the illicit tobacco trade and its drivers. Unfortunately, since many countries do not collect their own data on illicit trade, governments use industry-generated data for official purposes.5

By the late 1990s, investigations and lawsuits6789 had led to guilty verdicts910 and legal agreements including between the European Union (EU) and all four of the largest transnational tobacco companies (TTCs) — Philip Morris International (PMI), British American Tobacco (BAT), Japan Tobacco International (JTI) and Imperial Tobacco.11

The negative impacts of the illicit tobacco trade are wide ranging. First and foremost, increased consumption of tobacco leads to public health harms and increases the economic costs of tobacco-related illness. Illicit trade makes more product available on the market, at lower cost,12 and so leads to direct increases in harms disproportionately affecting younger and poorer people.13 It also causes significant losses in government revenue, with estimates ranging as high as $40.5 billion worldwide in 2011.12

Types of illicit tobacco products

Within this broader category of “illicit”, there are three kinds of products most commonly discussed: smuggled tobacco products, counterfeits and illicit/cheap whites.

Smuggled

Smuggled products are those produced legally by a manufacturer, but then diverted and sold illegally somewhere other than their intended destination.

Tobacco companies have historically participated in the smuggling of their own products.11 Cigarette smuggling has also been linked to terrorist organisations141516 and money laundering.17

Historically, TTC distributors worked with an extensive range of criminal groups to accommodate cigarette smuggling including the Italian Mafia, Triads in Asia, Colombian drug cartels and motorcycle gangs in the US.18 In some cases, TTCs were accused of endorsing these activities. For more information on one prominent example of this behaviour, see our page detailing leaked Gallaher documents concerning its smuggling activities.19

There is also growing evidence that the TI remains involved in tobacco smuggling, with research published in 2018 estimating that TI cigarettes accounted for around two-thirds of the illicit cigarette market.11 For more information, see our page on Tobacco Smuggling.

Counterfeits

Counterfeits are products bearing the trademark of a legal manufacturer without their consent.20 These products may be sold in the country of origin, or also smuggled to another market. While tobacco companies regularly emphasise counterfeit products as a major contributor to illicit tobacco trade,21 World Customs Organization data suggests that counterfeit product only makes up about 2% of the global illicit tobacco market.22

Cheap/illicit whites

Cheap whites, also known as ‘illicit whites’, are defined by the European Commission as: “brands manufactured legitimately in one market, either taxed for local consumption or untaxed for export, and sold knowingly to traders who transport them to another country where the products are sold illegally without domestic duty paid”.23 Either term, however, can be misleading: however you choose to refer to them, illicit whites are not always illicit, and cheap whites are not always cheap.24

Cheap/illicit cigarettes include those legally manufactured by brands distinct from TTC trademarks, which often end up being smuggled into other markets. However, previous research has identified that some cheap/illicit white brand trademarks are actually owned by TTCs.

The packaging of cheap/illicit whites is generally not compliant with health warnings or tax stamps in the country in which they are available.24

Tobacco industry narratives around illicit trade

The illicit tobacco trade is used by tobacco companies to promote key misleading narratives that advance their own business goals. These include arguments against effective tobacco control policies:

  • Against standardised packaging: The industry argues that standardised packaging, which is designed to limit the appeal of tobacco products, will make it easier for illicit products to be bought and sold.25 This claim is contradicted by research evidence from the UK26 and Australia27 that showed no increase in illicit after standardised packaging laws were introduced.
  • Against tax increases: Tobacco companies argue that increases in price caused by tax will lead to increased volume of illicit products – a claim that is not born out by evidence. In 2019, a World Bank review of country experiences with illicit tobacco trade demonstrated that tobacco taxes play only a minor role in illicit trade, with countries with higher cigarette prices often having lower levels of illicit trade than countries with lower prices. For example, the UK has seen a decline in levels of ITT even as it has increased its tax on tobacco products.28

It has also used illicit to:

  • Argue against bans: During COVID-19 in South Africa, the government put in place a ban on tobacco product sales and distribution – the industry argued that the ban was increasing illicit trade and so should be overturned.29 You can read more on the ban and its alleged links to illicit trade in our South Africa country profile.
  • Diverting attention away from the industry’s own role in ITT: Transnational tobacco companies (TTCs) misleadingly stress the role that counterfeit and other non-TTC products, and criminal organisations including terrorist and human trafficking groups, play in ITT.11 In reality, TTC products continue to account for the majority (at least two thirds) of all illicitly traded products.28

Benefits to industry of illicit tobacco trade

The industry benefits from illicit trade in several ways. Illicit trade increases consumption of tobacco products by offering artificially cheap tobacco products.30 The affordability of illicit products widens health inequalities and directly undermines tobacco control, including by circumventing tax increases31 and graphic health warnings32 designed to lower demand for tobacco products. Tobacco companies profit when they sell to a distributor regardless of whether their product then enters the illegal market. Even if the distributor sells the product illegally, the lower cost of the product can lead to more sales, meaning the distributor will order more product from the TTC.33

Strategic increases in the volume of illicit products are used by the industry to counter tax rises. For example, in the 1990s, TTCs legally exported products from Canada to the US and then smuggled them back via First Nations reserves. They then successfully lobbied the Canadian government to reduce cigarettes taxes in a context of increased illicit trade.184

Tobacco companies have also historically used illicit trade to open up or soften entry to new markets. A prominent example is BAT’s use of smuggling as a means of entering the former Soviet Union, following its collapse in 1991. BAT used smuggling as a means to import products into the market and create brand awareness, providing an infrastructure for a fully integrated distribution network to develop later.3 You can read more about BAT’s historic use of smuggling on our page, BAT Involvement in Tobacco Smuggling.

Industry involvement in efforts to address illicit trade

The illicit tobacco trade provides an opportunity for the tobacco industry and its allies to get involved in customs and law enforcement responses to address ITT which, in turn provides opportunities to influence policy more broadly.11 Given the tobacco industry’s involvement with illicit trade, it is perhaps unsurprising that it has also attempted to undermine and control efforts to address tobacco smuggling.  Strategies that tobacco companies have used to attempt to ingratiate themselves with authorities tasked with addressing illicit tobacco trade and to influence policy measures to address ITT include:

  • Tobacco companies working collaboratively to endorse and promote a pack market system developed by PMI to governments as “independent” despite the fact that it was developed by industry. Read more on our page on Codentify.
  • Forming front groups and funding allies to promote its interests to regulators without revealing links to the tobacco industry. See our pages on The Coalition Against Illicit Trade (CAIT), TRACIT and Crime Stoppers International.
  • Making direct donations to “key stakeholders”, including the European Antifraud Office (OLAF), UN Office on Drugs and Crime (UNODC)34 and Interpol.35
  • Launching its own initiative, PMI Impact, to promote its own reports and further strengthen links with influential stakeholders through partnerships around the world. Read more on our page on PMI Impact.
  • Using payments to secure confidential information on competitors, as was the case of British American Tobacco (BAT) in Africa, to then gain commercial and political influence and suggest to authorities that its smaller competitors were evading taxes.36
  • Providing training for law enforcement agencies around the world. PMI calls cooperation with law enforcement officers “central” to addressing illicit trade. In 2019, it says it trained over 6,000 law enforcement officers across 23 countries.37 For example, Crime Stoppers International has partnered with the tobacco industry to train police forces in El Salvador.38

For more examples of tobacco industry attempts to influence control of the illicit tobacco trade, see this 2019 paper by TCRG members: Tobacco industry’s elaborate attempts to control a global track and trace system and fundamentally undermine the Illicit Trade Protocol.

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References

  1. ↑World Health Organization Tobacco Free Initiative (TFI), World Health Assembly Resolution 56.1, 21 May 2003, accessed November 2020
  2. ↑L. Joossens, M. Raw, How can cigarette smuggling be reduced?, BMJ, 2000;321:947–50, doi:10.1136/bmj.321.7266.947
  3. ↑abA.B. Gilmore, M. McKee, Moving East: How transnational tobacco industry gained entry to the emerging markets of the former Soviet Union – Part 1: Establishing cigarette imports, Tobacco Control, 2004;13(2):143-150, doi:10.1136/tc.2003.005207
  4. ↑abJ. Collin, E. Legresley, R. MacKenzie et al., Complicity in contraband: British American Tobacco and cigarette smuggling in Asia, Tobacco Control, 2004;13:ii104–11, doi:10.1136/tc.2004.009357
  5. ↑A.W.A. Gallagher, K.A. Evans-Reeves, J.L. Hatchard, A.B. Gilmore, Tobacco Industry data on illicit tobacco trade: a systematic review of existing assessments, Tobacco Control, 2019;28:334-345, doi:10.1136/tobaccocontrol-2018-054295
  6. ↑Home Affairs Committee – First Report: Tobacco smuggling, www.parliament.uk, 14 June 2014, accessed November 2020
  7. ↑J. Beltrame, G. Fairclough, Canada Sues R.J. Reynolds Tobacco For $1 Billion, Alleges Smuggling Plot, Washington Street Journal, 22 December 1999, accessed November 2020
  8. ↑US District Court, THE EUROPEAN COMMUNITY, Plaintiff, v. RJR NABISCO, INC., et al., Defendants, DEPARTMENT OF AMAZONAS, et al., Plaintiffs, v. PHILIP MORRIS COMPANIES, INC., et al., Defendants, 16 July 2001, accessed November 2020
  9. ↑abT. Haché, Smoking and Health Action Foundation, Non Smokers’ Rights Association, Tobacco-Related Litigation in Canada, March 2010, accessed November 2020
  10. ↑Tobacco firms to pay $550M over smuggling, CBC News, 13 April 2010, accessed November 2020
  11. ↑abcdeA.B. Gilmore, A.W.A. Gallagher, Tobacco industry’s elaborate attempts to control a global track and trace system and fundamentally undermine the Illicit Trade Protocol, Tobacco Control, 2019;28:127-140, doi:10.1136/tobaccocontrol-2017-054191
  12. ↑abL. Joossens, D. Merriman, H. Ross, M. Raw, How eliminating the global illicit cigarette trade would increase tax revenue and save lives, International Union Against Tuberculosis and Lung Disease, 2009, accessed December 2020
  13. ↑Action on Smoking and Health, Fresh, Association of Directors of Public Health, Faculty of Public Health, Public Health England, Smoking: Price and Affordability, ASH website, September 2019, accessed November 2020
  14. ↑F.S. Perri, R.G. Brody, The dark triad: organized crime, terror and fraud, Journal of Money Laundering Control, 2011;14(1):44-59, doi:10.1108/13685201111098879
  15. ↑L.I. Shelley, J.T. Picarelli, Methods Not Motives: Implications of the Convergence of International Organized Crime and Terrorism, Police Practice and Research, 2002;3(4):305-318, doi:10.1080/1561426022000032079
  16. ↑K. Titeca, L. Joossens, M. Raw, Blood cigarettes: cigarette smuggling and war economies in central and eastern Africa, Tobacco Control, 2011;20(3):226-232, doi:10.1136/tc.2010.041574
  17. ↑Financial Access Task Force, Illicit Tobacco Trade, June 2012, accessed November 2020
  18. ↑abSelect Committee on Health Minutes of Evidence, Supplementary Memorandum by Action on Smoking and Health: Tobacco Smuggling (TB 18B), 2 May 2000, accessed November 2020
  19. ↑M. Gillard, A. Rowell, Court case smokes out Gallaher, The Sunday Times, 27 April 2008, accessed November 2020
  20. ↑A.B. Gilmore, A. Rowell, S. Gallus, A. Lugo, L. Joossens, M. Sims, Towards a greater understanding of the illicit tobacco trade in Europe: a review of the PMI funded ‘Project Star’ report, Tobacco Control, 2014;23:e51-e61, doi:10.1136/tobaccocontrol-2013-051240
  21. ↑British American Tobacco, Illegal tobacco trade: A growing black market, BAT website, undated, accessed November 2020
  22. ↑Tobacco Atlas, Counterfeit Cigarettes, website, 19 December 2018, accessed November 2020
  23. ↑Answer given by Mr Šemeta on behalf of the Commission, Parliamentary questions, European Parliament, 9 February 2011, accessed November 2020
  24. ↑abH. Ross, N. Vellios, K.C. Smith, J. Ferguson, J.E. Cohen, A closer look at ‘Cheap White’ cigarettes, Appendix 1, Tobacco Control, 2016;25:527-531, doi:10.1136/tobaccocontrol-2015-052540
  25. ↑K.A. Evans-Reeves, J.L. Hatchard, A.B. Gilmore, ‘It will harm business and increase illicit trade: an evaluation of the relevance, quality and transparency of evidence submitted by transnational tobacco companies to the UK consultation on standardised packaging 2012, Tobacco Control, 2015;24:e168-177, doi:10.1136/tobaccocontrol-2014-051930
  26. ↑R. Hiscock, N.H. Augustin, J.R. Branston, A.B. Gilmore, Longitudinal evaluation of the impact of standardised packaging and minimum excise tax on tobacco sales and industry revenue in the UK, Tobacco Control, published online first: 12 July 2020, doi:10.1136/tobaccocontrol-2019-055387
  27. ↑M. Scollo, M. Zacher, K. Coomber, M. Wakefield, Use of illicit tobacco following introduction of standardised packaging of tobacco products in Australia: results from a national cross-sectional survey, Tobacco Control, 2015;24:ii76-ii81, doi:10.1136/tobaccocontrol-2014-052072
  28. ↑abS. Dutta, The World Bank, Confronting Illicit Tobacco Trade: A Global Review of Country Experiences, technical report, 1 February 2019, accessed November 2020
  29. ↑A. Gallagher, M. Zatonski, T. Hird, L. Ayo-Yusuf, The tobacco industry’s hypocrisy on illicit trade, The Daily Maverick, 9 July 2020, accessed November 2020
  30. ↑L. Joossens, M. Raw, Progress in combating cigarette smuggling: controlling the supply chain, Tobacco Control, 2008;17:399-404, doi:10.1136/tc.2008.026567
  31. ↑L. Joossens, M. Raw, Cigarette smuggling in Europe: who really benefits?, Tobacco Control, 1998;7:66-71, doi:10.1136/tc.7.1.66
  32. ↑World Health Organization, Tobacco industry tactics and plans to undermine tobacco control efforts, ggtc.world, 2012, accessed November 2020
  33. ↑L. Joossens, M. Raw, How can cigarette smuggling be reduced?, BMJ, 2000;321:947, doi:10.1136/bmj.321.7266.947
  34. ↑International Anti-Corruption Academy, Philip Morris International Contributes 55,000 EUR, IACA news release, 8 September 2013, archived 12 April 2019, accessed November 2020
  35. ↑L. Joossens, A.B. Gilmore, The transnational tobacco companies’ strategy to promote Codentify, their inadequate tracking and tracing standard, Tobacco Control, 2014;23(e1):e3-6, doi:10.1136/tobaccocontrol-2012-050796
  36. ↑The secret bribers of big tobacco paper trail, BBC News, 30 November 2015, accessed October 2020
  37. ↑Philip Morris International, Technology and continued collaboration are essential in the ongoing fight against illicit trade, PMI website, 6 August 2020, accessed November 2020
  38. ↑Crime Stoppers International, Illicit trade, CSI website, undated, archived August 2020

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