Released on 8 September, the European Court of Auditors’ (ECA) new report lands as a blunt warning that Europe’s fight against illicit tobacco is still failing to match the scale of the market it seeks to contain. Costing the EU and its member-states an estimated €13 billion in lost annual tax revenue, this illicit trade is also undermining public health and financing organised crime, while the ECA also points to illicit production moving deeper inside Europe.
The report’s key takeaway is that the EU’s existing rules are not translating into coherent action – a contradiction laid bare by the bloc’s reliance on a traceability system built under the 2014 Tobacco Products Directive (TPD), despite its non-compliance with the stricter independence requirements of the World Health Organization (WHO) FCTC Protocol that Brussels ratified in 2016. Crucially, the ECA points to a system still operating without reliable estimates of the market’s scale or economic toll, with uneven cooperation between member-states and blurred priorities.
Concerningly, the problem runs deeper, reaching into the very architecture of Europe’s enforcement regime. That weakness is clear in the ECA report’s blind spots: while it mentions WHO-prohibited tobacco industry tracking systems, it notably overlooks the EU’s own traceability regime and its lack of proven impact. Indeed, the EU’s tobacco traceability system remains excessively exposed to industry influence and incapable of delivering effective independent enforcement. For a market of this scale, that is not a technical flaw but a fundamental vulnerability. Moving forward, independent tobacco traceability must become a top priority of the ongoing TPD revision if Europe is to begin curbing its soaring illicit trade.
Diagnosing Europe’s illicit tobacco plague
The ECA report lands in the middle of a fraught EU negotiations over higher tobacco taxes and wider reform through the Tobacco Excise Taxation Directive (TED) and TPD revisions, making its warning on the bloc’s illicit tobacco especially timely. Illicit tobacco has indeed moved to the heart of this policy debate.
The tobacco industry, backed by aligned and economically-dependent member-states such as Italy, Greece and Romania, continues to claim that higher taxes fuel black markets, while Brussels and the WHO, supported by tobacco control leaders including France, Spain, Germany and Ireland, rightly maintain that the two are not inherently linked and that tobacco tax hikes remain the most effective tool for reducing tobacco use.
However, while the ECA report offers an astute diagnosis of Europe’s multiple enforcement flaws and its poor understanding of the problem, some of its conclusions warrant closer scrutiny. Firstly, the ECA report not only fails to highlight Big Tobacco’s complicity in fueling the continent’s illicit trade, but its leadership also appears to suggest that the industry should play a role in the collective effort to curb it – contrary to the industry independence requirements in the WHO FCTC and its Protocol to Eliminate Illicit Trade in Tobacco Products. Furthermore, in analysing the expansion of Europe’s illicit market despite falling overall tobacco consumption, the report places heavy emphasis on the rise of illicit cigarette factories within the EU.
It is therefore striking that the Court gives so little weight to national customs evidence pointing to parallel trade driven mainly by cross-border purchasing and smuggling from lower-tax countries – including those where tobacco manufacturers operate factories – rather than counterfeiting. In France, where the parallel market is estimated at 16 to 18 billion cigarettes, findings from customs authorities and MILDECA indicate that purchases from lower-tax neighbours make up the vast majority, with quantitative analysis in Ireland reaching a similar conclusion.
By failing to acknowledge this data, the ECA risks overstating counterfeiting’s share of the illicit trade, which is precisely the narrative pushed by the tobacco industry to mask its own role in the problem – namely, fueling the soaring parallel trade.
Solutions must not overlook Big Tobacco’s complicity
This is where the industry’s preferred evidence becomes politically useful. Philip Morris International (PMI) has already amplified this year’s industry-funded KPMG report, which frames counterfeiting as the leading source of illicit cigarettes in the EU and puts domestically produced fakes at 44% of illicit consumption in 2025. Such framing neatly diverts attention from manufacturers’ own distribution practices and from the tax gaps that make parallel trade so profitable.
The countries most often invoked to support that narrative, however, point in a different direction. France, Belgium and the Netherlands are not simply facing an abstract surge in illicit supply; they are exposed to the effects of low-tax Luxembourg, where cigarette volumes far exceed domestic needs. With annual inflows of around 5 billion cigarettes and local consumption estimated at only 600 million, the lion’s share of this tobacco inevitably ends up being bought and consumed elsewhere.
That oversupply is central to understanding how the trade works. By concentrating cheap cigarettes in low-tax jurisdictions, Big Tobacco creates the conditions for products to move into countries with higher duties and for criminal networks to profit from this parallel market, before using those same cross-border flows to argue that taxation drives illicit trade.
To be clear, counterfeit tobacco is a real problem that should be tackled, yet the ECA’s report fails to analyse the problem comprehensively. Beyond the fact that the counterfeit market is significantly smaller than industry-funded research suggests, the ECA leaves unexplored how counterfeit producers obtain the equipment and inputs needed to manufacture cigarettes, despite evidence that illicit operations have relied on production infrastructure linked to PMI – a concern the WHO Protocol addresses by providing for the traceability of materials and components.
More broadly, making counterfeiting the dominant explanation risks accepting a convenient industry diagnosis for a problem the industry itself helps sustain. The same conflict runs through the EU’s traceability system, with research into its design showing how industry pressure during the consultation phase helped steer the EU towards a “mixed” governance model implemented in 2019 that remained reliant on tobacco-linked providers, including Inexto and Dentsu Tracking – recently rebranded as Aricoma – both connected to PMI’s controversial Codentify technology.
This lack of independence is impossible to square with the WHO Protocol. Moreover, it also helps explain why a system meant to follow the trade has proved so weak in practice, leaving authorities without the grip needed to contain an illicit market that continues to expand.
EU’s chance for a new approach
That failure is exactly what the ongoing TPD overhaul must now confront. Through the TPD revision – whose first draft is expected in December – the Commission has the opportunity to ensure illicit tobacco is no longer treated as a secondary enforcement issue, but as a major threat to Europe’s public health, tax generation and single market. By implementing a technologically robust and independent traceability system, the EU would give its member-states access to verified and sovereign data, which would help identify retail resale networks and support stronger penalties against criminal operators.
The timing matters: Ireland’s EU Council Presidency gives Brussels a political window to move this debate forward, while parallel discussions on tobacco taxation have already put the fiscal side of the problem back on the table. Traceability will be vital to making that new approach work, provided Europe builds a system covering both cigarettes and new nicotine products such as vapes, independent of the tobacco industry by design and capable of giving authorities a reliable picture of the illicit trade. Only with that visibility can regulators identify oversupply, close information gaps between member-states and move from fragmented enforcement to meaningful control.
Looking ahead, the ECA report should be treated as a turning point, not another audit to be filed away. A €13bn leakage, expanding illicit supply and an enforcement system still too close to the industry are not technical glitches; they are political choices Europe can still correct.
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