The Problem

Drivers of illicit trade

Drivers of illicit trade

A major driver of the growth in illicit trade is the substantial profits to be made by criminal organizations from selling illegal cigarettes, but other factors also contribute to the problem.

 

Price disparities encourage smuggling

The price of legitimate cigarettes varies substantially across countries (and sometimes within states or provinces of the same country) because of often vastly different tax rates and consumer disposable income levels. These large disparities motivate smugglers to target high-price countries with product from lower-price countries. The increased free flow of people and goods across national borders in areas such as the European Union brings many benefits but significantly reduces the risk for criminal gangs by providing easier access and transportation links between countries.

 

eacfb072-ad5f-463c-a91f-f9dbe3e3668f The Problem

 
Excessive taxation and regulation

Taxation and regulation play an important role for governments as part of a public health policy to reduce smoking rates. However, when taken to an extreme, a heavily taxed and regulated market makes the unregulated and untaxed black market attractive for criminals.

Tax increases on cigarettes that go well-beyond inflation rates give smokers the incentive to increasingly seek out less expensive products. Criminals have taken advantage of this trend by offering illegal tobacco products at a significant price discount compared to legal products.

 

Inadequate penalties and overstretched enforcement authorities

While the profits may be comparable, the penalties for smuggling cigarettes in some countries are far lower than for crimes such as smuggling drugs or firearms. 

For example, in Germany, criminals caught and convicted of smuggling drugs regularly face a minimum prison term of two years, whereas convicted cigarette smugglers may get away with only a monetary fine. Coupled with the often limited government resources to combat the illegal tobacco trade, it is easy to see why cigarette smuggling has become an attractive proposition for criminals. 

Poland, for example, has numerous border crossings with Russia, Ukraine and Belarus. High pedestrian and vehicle traffic at these borders combined with limited enforcement resources make it difficult to control the flow of goods. These borders are routinely used by smugglers to move cigarettes into Poland and from there the goods are transported to other EU countries without further border controls.