Gangsters cash in on contraband cigarettes

By David Cronin

Date: 07/07/05

The nature of cigarette smuggling could be changing.

"The impression we get from our analysis is that the smuggling in genuine cigarettes is decreasing but the smuggling in fake cigarettes is increasing," says a spokesman for the EU's anti-fraud office OLAF.

If the impression is accurate, then it signifies that the EU's litigation against major tobacco companies has been effective, even if it has not yet come to an end. On the downside, it indicates that organised crime gangs are viewing cigarette smuggling as more and more lucrative.

A case brought by EU member states against British American Tobacco, Reynolds American and Philip Morris remains before the US courts. These US-based tobacco firms faced accusations of using European ports (without paying excise duties) to facilitate the smuggling of cigarettes into Iraq through Kurdish Workers' Party (PKK) guerillas.

In May, the European Commission received a boost when the US Supreme Court decided to refer the case back to lower courts. While the latter had previously accepted arguments from the tobacco firms that cases relating to foreign tax matters could not be handled by the US courts, judges on the high and supreme court rejected those claims.

Although Philip Morris was one of the companies initially sued, in July 2004 the Commission and ten EU states signed a landmark anti-fraud deal, in which Philip Morris agreed to pay roughly Û1 billion in compensation to the EU over 12 years. The states that joined the legal action were Belgium, Finland, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Last month a majority of MEPs urged that the payments should be used to finance measures against cigarette smuggling, including anti-forgery activities. But the Commission has said it is still discussing with the ten EU governments what precisely should be done with the money. Under the relevant financial rules, it is to be entered into the EU's coffers as "non-earmarked funds".

Separately, a probe by the Council of Ministers revealed earlier this year that smuggled cigarettes may account for one-fifth of the tobacco market in some EU states.

A report by the Council's working party on customs co-operation found that the phenomenon is on the rise in some of the Union's newer entrants. In Hungary and Slovakia the market share of contraband cigarettes could be as high as 20%, while the authorities in the Czech Republic have referred to "the sophistication and professionalism of crime rings" involved in tobacco smuggling, in particular how they bribe law enforcement officials.

The UK remains the "priority destination" for contraband cigarettes, particularly from the former Soviet Union and the Far East. More than seven billion illicit cigarettes were seized in the UK in 2000-04.

The working party's report found that cracking down on cross-border smuggling had been hindered by inadequate co-operation between the authorities of different states. Finland, Sweden and Slovenia have complained that poor co-ordination does not allow crime gangs to be correctly identified.

Article takes a look at the fight against cigarette smuggling and the counterfeiting of cigarettes across the European Union.