Illicit tobacco trade thriving in the EU with illegal manufacturing facilities in nearly every member state.
Auditors warn that fragmented enforcement puts billions of euros in tax revenue at risk.
The EU does not know how much tax revenue it loses to illegal tobacco trade because current efforts to stop it are not working, according to the European Court of Auditors (ECA). The ECA is urging the European Commission to take action.
Criminal organizations are now using artificial intelligence (AI) to locate sites in Europe for illegal cigarette factories where they are less likely to be detected, according to a report released this week. Previously, these groups operated mainly in Eastern Europe, where it was easier to remain hidden. With AI, they can now find locations closer to their markets within the EU.
According to the ECA’s report, the illegal tobacco trade is booming in the EU. One in ten cigarettes is either illegally manufactured or smuggled, resulting in an estimated annual loss of €13 billion in tax revenue.
The report indicates that the trade has “changed significantly” in recent years, as smuggling, while still a “problem”, has been pushed out by the growth of illegal production, which has increased dramatically within the EU.
“Criminals involved in the illegal tobacco trade succeed not because Europe lacks laws, but because there are persistent gaps in coordination, information sharing, and enforcement. Organised crime has a strategy-we need one too,” said Petri Sarvamaa of the European Court of Auditors.
Illegal production facilities have now been discovered in almost every EU member state. The Commission needs to take a greater role in coordinating a strategic response of these actors, he added – including Europol, Eurojust and the European Public Prosecutor’s Office (EPPO) and the European Anti-Fraud Office (OLAF).
“EU cannot afford to let its fight against the scourge of illicit #tobacco go up in smoke. If we are serious about safeguarding citizens’ health, wallets and security, @EU_Commission and member states must up their game to fight criminal activity.”
—@petrisarvamaa, ECA Member pic.twitter.com/RTSb3XTCde— European Court of Auditors (@EUauditors) September 9, 2026
The ECA’s report was released as EU countries debate increasing tobacco taxes. The tobacco industry argues that higher taxes drive black market sales, but Brussels and the World Health Organisation (WHO) say there is no connection.
The ECA gave the example of a large illegal cigarette factory in Belgium that police shut down last year. The factory operated 24 hours a day with 50 workers running four production lines, each able to produce one million cigarettes an hour.
Last year, counterfeit cigarettes found in illegal factories accounted for more than two-thirds of all cigarettes seized by Belgian customs, according to the Financial Times.
Counterfeit cigarettes are sold in Anderlecht (Brussels) for €2.50 a pack. A factory producing up to 1mn cigarettes a day can fill one shipping container in 10 to 14 days, and at that price the sale of the contents is enough to repay the estimated €1.4mn it costs to create a factory, reckons Philip Morris, the world’s largest listed tobacco company. Further sales generate very high profits.
In a raid on Spain’s largest illegal cigarette factory, police seized three million packs of cigarettes worth €15 million, five tonnes of raw tobacco worth €5 million, and arrested 20 people. The factory’s products were distributed in six EU MS.
“The scale is truly extraordinary. Last month, French authorities broke up a cross-border operation that had supplied Lille since only December, but had already made 120 deliveries, each of 7,500 packages,” Sarvamaa said.
The ECA report notes illegal cigarette factories usually operate for only two to four months. They use advanced equipment and hire skilled technicians to set up and maintain their machines.
Organised crime groups spread production across several locations, often near borders. They adapt to each market by making popular brands and sometimes even creating new tobacco products.
The impact goes beyond lost tax revenue. According to Sarvamaa, the illegal tobacco trade makes cigarettes cheaper and easier to get, especially for young people, undermining public health policies. It also supports organised crime and finances other illegal activities.
Even though tobacco use is falling across the EU, the amount of illegal tobacco products is rising, making up about 8.8 percent of all cigarettes consumed in 2023. Still, data on the size, structure, and economic impact of the illegal trade is “incomplete and unreliable.”
The report says the EU and its member states have tried to fight illegal tobacco trade, but their efforts are weakened because laws are not consistent across Europe. Different countries have different rules, creating gaps in enforcement.
Criminals often move their activities to countries with lighter penalties because laws and punishments vary across Europe. A lack of coordination between EU countries makes enforcement harder.
