Tobacco products command high values. They are easily transportable, making them an easy target for smugglers. Evidence suggests that smuggling is integral to the operation of the international cigarette market and driven by the ferocious competition between the tobacco multinationals for new markets.
"Umbrella operations" refer to an alleged tobacco company practice of using the presence of a small amount of legal imports into a country to justify an advertising campaign that is really aimed at promoting sales of more numerous black-market cigarettes.
Suspicions about industry involvement in cigarette smuggling have grown since 1997, when researchers demonstrated, by comparing annual global exports with global imports, that about one-third of all cigarettes entering international commerce each year could not be accounted for. But proof remained elusive until 1999, when millions of pages of corporate documents, unearthed during numerous health-related lawsuits, became publicly available as part of the tobacco industry's November 1998 settlement with the U.S. states.
International smuggling of cigarettes is estimated to cost foreign governments $16 billion each year in lost revenues. The United Kingdom government loses between £1 billion and £1.5 billion each year of tax revenues from cigarettes due to the increase in smuggling of cigarettes from other countries in Europe. Cigarettes in the United Kingdom cost on average £1.50 more than packets on the continent, reflecting stated government policy to discourage smoking by heavily taxing smokers.
It is reported that two organised crime groups alone in Italy take in $500 million each year by smuggling Marlboro cigarettes from Switzerland into Italy. Much of Europe's tobacco trade takes place in Switzerland, where the law basically does not view selling cigarettes to people who smuggle them into another country as a crime.
Truckloads of cigarettes made in Montreal, Canada are shipped to warehouses in New York state in the United States, or elsewhere. Because they are purportedly bound for U.S. or overseas markets, they are not subject to Canada's high tobacco taxes. A modest U.S. federal tax may be paid if the declared destination is the United States. The cigarettes are transferred to the U.S. side of Akwesasne Mohawk territory, which boasts dozens of cigarette shops paying no state taxes. Smugglers take them to the Canadian side in boats on the St. Lawrence, or in cars, vans and pickups plying lightly patrolled border roads. The cigarettes go by various routes to Canadian city streets, where blackmarket operators can take profits and still undercut prices of fully taxed cigarettes. Many smuggled cigarettes end up in Montreal, where they were made.
In 1998, member states of the European Union seized nearly 5 billion smuggled cigarettes, which represented a loss of 118 million euro for the EU budget.
In 2000 it was reported that a multinational tobacco company had relied on a broad smuggling network in the Asian region (Afghanistan, Bangladesh, Burma, Cambodia, China, India, Laos, Malaysiaé, Pakistan, Thailand, Vietnam) in order to improve its market share in the period 1988-96. The company supplied distributors whom it knew would smuggle its cigarettes and circumvent taxes, thus maintaining market share.
In 1999 the WHO estimated that about 300 billion cigarettes, approximately a third of all exports -- enter countries as contrabrand each year.
2. Cigarette smuggling is not a victimless crime: the latest projections suggest that one billion people will be killed by tobacco in the 21st Century, the vast majority in developing countries. As the tobacco multinationals turn their marketing firepower on developing countries, tobacco taxation is an vital counter-measure, but this is undermined by large scale smuggling.