The hotly anticipated annual KPMG Project SUN report is just out, and it makes for fascinating reading. For those not in the know, Project SUN is a study of the illicit cigarette market in the EU, Norway and Switzerland.
According to the report, counterfeit and contraband (C&C) of cigarettes fell by almost 10% in 2016. On the face of it, this looks like great news, until you see that an estimated 48.3billion illegal cigarettes were still consumed last year in the region. That’s 9% of the total consumption of cigarettes. Still a huge problem. A chunk might have been taken out of the mountain, but it is still a mountain.
It is important to recognize the hard work that goes into controlling the supply and demand of rogue products. This year’s report identifies a number of factors attributed to the decline. I like to think of them as panaceas.
On the supply side, ongoing law enforcement has contributed to reducing the supply of C&C. The closing down 55 illegal factories in the EU, increased border securities, and greater cooperation between law enforcement and authorities, appear to have driven numbers down. Law enforcement should be praised for their excellent work, and I would encourage more cooperation between private and public sector in tackling this issue.
While these factors have led to a welcome drop in illicit consumption, we should not become complacent. The force to tackle illegal trade should be stronger than ever. We must continue the fight to eliminate the issue for good. Simply put, 48.3 billion illegal cigarettes being consumed are 48.3 billion illegal cigarettes too many! That’s more than the size of the entire cigarette market of Spain. This must stop. Zero should be our ultimate goal.
According to the report, the majority of C&C consumed in the EU in 2016 came from outside the bloc, around 86%. This continues to be a global issue, and the solution will only be as strong as the weakest link. For that very reason, we must not lower our guard. We must take the insights and learnings from the report, replicate best practices that have a positive impact, and crack down on the hot spots.
Tax dodging ‘illicit whites’, cigarettes usually manufactured legally in one country and then illegally sold in others, amounted to 16.4 billion, over one third of the total C&C in the EU. That’s a big business. That’s a big criminal business. The report concludes that 63% of illicit whites brands were misleadingly labelled ‘Duty Free’ or had no country specific labelling. Essentially, consumers of these products are being duped.
This year’s KPMG Project SUN report was commissioned by the Royal United Services Institute for Defence and Security Studies (RUSI). A couple of months ago I wrote about its excellent report ‘On Tap Europe: Organized Crime and Illicit Trade in Tobacco, Alcohol and Pharmaceuticals’, which exposed how organized crime groups (OCGs) exploit free-trade zones. In its reflection of the KPMG report, RUSI shines a spotlight on how OCGs are able to slip under authorities’ thresholds for investigation by adopting ‘little and often’ approaches to smuggling. It also calls out the commonly held views by consumers of illicit trade being a victimless crime. Sad, but true.
Last year a joint agreement between the European Commission and PMI to tackle illicit trade in the EU expired. Some feared this could lead to an escalation of the problem, and some even suggested PMI could become complicit in illicit trade. Those fears were nonsense, and this report proves they were misplaced. Recently, the head of the EU anti-fraud office (Olaf), Giovanni Kessler, is reported to have confirmed that PMI has shown "the same commitment" in continuing the fight against tobacco smuggling since the agreement ended. Despite the expiration of the EC Agreement we continue to be committed to the same anti-diversion practices, because we want to see the figures for diversion of our products continue to fall.
So while this year’s KPMG SUN report offers a welcome and encouraging glimmer of hope, a holistic cure still needs to be found. We must keep the momentum and keep motivated. We must also continue to collaborate, communicate, take affirmative action, and maintain strong partnerships to deliver a collective strength of force and resilience against organized crime.
If you would like more information about how PMI is tackling the problem of illicit trade in tobacco products click here.
Written by Alvise Giustiniani