Ceylon Tobacco Company - The illicit cigarette trade

The black-market in tobacco involves criminal gangs, drug smugglers and terrorists smuggling cigarettes across borders, engaging in large-scale tax evasion. With weak penalties for perpetrators, poor border controls, low arrest rates and high tobacco taxes creating disparity between neighbouring countries, it’s a problem that’s set to grow.

The smuggled cigarettes trade undermines tobacco control policies implemented by governments and results in a massive loss in revenue, while funding of transnational criminal activities, terrorism and drugs. Smuggled cigarette earnings have been linked to funding narcotics, weapons, terrorist organizations, human and sex trafficking.

A Global Problem

Cigarettes are among the most commonly traded products on the black market due to high profit margins, relative ease of production and movement and low detection rates and penalties. The global smuggled cigarette trade is now more lucrative than narcotics.

Some research indicates that over 480 billion cigarettes a year are sold illegally in the global tobacco market – whether smuggled, counterfeited or sold in other ways without taxes being paid. The shadowy nature of this trade makes the scale of it hard to estimate, but we have developed research methods to help our companies and governments to understand it better. These include market surveys and analysing sticks and packs collected from consumers to estimate the difference between duty-paid products and actual consumption.

For governments too, there is a huge cost. The illegal trade in tobacco products cheats governments out of around US$40 billion each year in taxes. It’s obvious why we see illegal tobacco as a major threat to our business. Yet some governments are unaware of how bad the problem is and do not acknowledge its link to tax levels.

Legitimate retailers – often small or family businesses – are also damaged as smugglers and criminals steal their trade, while rules for retailers to prevent sales to children are undermined by illegal sales away from the eyes of the authorities.