Big Tobacco doubling down on illicit trade manipulation amid EU’s regulatory overhaul

Released in early June, the 20th edition of KPMG’s annual study on illicit tobacco consumption in Europe – commissioned and funded by Philip Morris International (PMI) – has continued its tradition of making headline-grabbing claims on the continent’s black market.

According to the report, illicit cigarettes accounted for over 10% of the EU’s total consumption for the first time since 2014, reaching 41.8 billion sticks and costing governments an estimated €16.7 billion in excise tax losses last year.

Crucially, this exaggeration of the illicit market’s scale supports a longstanding Big Tobacco narrative used to discourage or dilute regulation, namely that higher tobacco taxes and tighter controls fuel illicit trade. Decried by anti-tobacco advocacy groups as a “disinformation tool” serving the industry’s interests, this year’s edition places particular emphasis on the rise of “Made in EU” counterfeit cigarettes, reflecting a claim increasingly amplified by the tobacco majors in order to divert attention from their complicity and interference in Europe’s illicit trade.

Wake up call for Brussels

Coming directly on the heels of the World Health Organization’s (WHO) World No Tobacco Day (WNTD), the new KPMG report underscores the importance of the EU reinforcing its tobacco control regulations through the ongoing revisions of the Tobacco Excise Tax Directive (TED) and Tobacco Products Directive (TPD). After years of inaction, the EU should therefore seize this opportunity to pass ambitious, WHO-backed reforms, such as independent traceability, country delivery quotas and strong tax hikes, that will help protect new generations from tobacco.

The 2026 WNTD notably spotlighted the critical threat posed by Big Tobacco interference in Europe’s illicit trade, honouring Dr Allen Gallagher of the University of Bath’s Tobacco Control Research Group (TCRG) with one of its six annual awards last month, recognising how his research on the illicit trade has helped “to counter misinformation” and strengthen “global efforts to reduce tobacco use and protect public revenues.”

A world-leading specialist, Dr Gallagher’s work has repeatedly exposed the weaknesses in industry-backed accounts by providing vital independent analysis on the scale of the illicit trade, the design of traceability systems and the industry narratives used to influence tobacco control policies. This scientifically-rigorous pushback has offered much-needed nuance to a debate that Big Tobacco has relentlessly tried to control and cloud in Europe, often with alarming success.

Cutting through the smoke

Through its commissioning of annual research, the tobacco industry shrewdly mixes in broad truths with blatant falsities to make the latter more difficult to detect for policymakers. While the new KPMG report correctly flags that the illicit tobacco trade is rising in Europe, its manipulation lies in the culprit it identifies and the policy conclusions it urges governments to draw from this growing market.

Commenting on the findings, PMI has, in familiar fashion, claimed that “countries that promote excessive tax increases, or, even worse, product bans, such as France and the Netherlands, see illicit trends worsening,” reviving a narrative long used to discourage strong tobacco tax hikes, which the WHO identifies as the single most effective anti-tobacco measure. Pointing to high and rising illicit tobacco consumption in France, Belgium and the Netherlands, PMI also highlights KPMG’s finding that “counterfeits have become the primary engine of the illicit cigarette market in the EU,” allegedly comprising 44% of the bloc’s illicit consumption in 2025 due to rising domestic counterfeit manufacturing.

This data conveniently masks the tobacco industry’s complicity in the illicit tobacco trade, from exerting control over the EU traceability system to feeding parallel markets. Let’s start with the latter: what the KPMG report neglects to mention is that the French, Belgian and Dutch illicit markets it puts front and centre all have in common that they are fuelled by the industry’s intentional oversupply of neighbouring Luxembourg.

Recently dubbed Europe’s “tobacco shop” by Luxembourg’s Cancer Foundation on World No Tobacco Day, Luxembourg receives roughly 5 billion cigarettes a year, while domestic consumption stands at just 600 million, leaving nearly 90% of this low-tax tobacco to spill into parallel channels across France, Germany and Belgium – where the industry can circumvent higher tax regimes and increase profits. As Margot Heirendt, director of the Cancer Foundation, has powerfully condemned, this parallel trade has placed Luxembourg in the woeful position of “exporting cancer.”

Moreover, the KPMG report’s emphasis on counterfeiting is particularly misleading given the sheer scale of the parallel cigarette trade in the EU, with the French market alone estimated at 16 to 18 billion cigarettes and the EU-wide total exceeding 100 billion. Reflecting a broader EU pattern, recent findings from France’s Customs authorities and MILDECA, the government body coordinating policy on drugs and addictive behaviours, show that the overwhelming driver of the domestic parallel market is not counterfeit production, but cross-border purchasing from lower-tax neighbours, which accounts for 80% of the total, while counterfeits remain peripheral. Tellingly, Ireland’s official quantitative analysis – the only comparable study conducted elsewhere in the EU – points in the same direction.

Against this backdrop, the discovery of a limited number of illegal factories in Europe cannot credibly account for the inflated figures put forward by KPMG. Furthermore, in the highly-concentrated tobacco industry, these clandestine workshops raise an uncomfortable question around the origins of the machinery, raw tobacco and filters used in counterfeit production. A 2020 OCCRP investigation in Pakistan revealed that this is not a theoretical concern, documenting cases in which illegal cigarette production was linked to facilities and equipment associated with PMI.

Historic opportunity to end industry’s influence

Complementing its role in the parallel trade, the tobacco industry has used its hand in the EU’s traceability system to help protect the profits this trade generates. Dr Gallagher’s research has been crucial in demonstrating how excessive industry influence shaped the EU’s “mixed” governance model for traceability. His work has notably shown how intensive lobbying during the system’s consultation phase helped secure a “friendly” selection of providers for the system ultimately implemented in 2019, leaving it dependent on tobacco-linked firms such as Inexto and Dentsu Tracking, both of which inherited technology from PMI’s controversial Codentify system.

This lack of genuine independence makes the EU model entirely incompatible with the requirements of the WHO Protocol to Eliminate Illicit Trade in Tobacco Products, with the consequences hard to ignore. Since Europe implemented its industry-backed system, illicit trade has only increased year after year. Ironically, the industry’s latest KPMG report claims that illicit consumption has reached its highest level since 2014 – the same year tobacco lobbyists successfully diluted the EU’s last TPD revision by stripping the bloc of the ability to implement an independent, WHO-aligned traceability system.

Looking ahead, the EU cannot afford to repeat the errors of the past. With the Commission having run a call for evidence from mid-May to mid-June on the TPD review, policymakers must be alert to the industry’s attempts to capture the process once again. Brussels must hold firm amid the coming onslaught of false industry narratives and use the TPD revision to finally implement the key WHO Protocol measures of independent traceability and country delivery quotas to curb abuses in low-tax countries such as Luxembourg, and stronger tax measures through the TTD revision. Only this package of mutually-reinforcing policies can give Europe real control over an illicit trade the industry has too long helped sustain.

Ultimately, Europe cannot allow industry-funded claims about illicit trade to set the terms of its tobacco policy. The continent’s rising black market must be urgently addressed, but not through a system shaped by the very companies it is meant to oversee, and not at the expense of effective public-health measures.

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