Soaring illicit trade in Europe and the Asia-Pacific calls for global tech and government cooperation

Enormous quantities of illicit goods were recently seized in a sweeping, cross-continental customs operation that dealt an emphatic blow to the rising illicit trade in Europe and Asia-Pacific.

Led by the European Anti-Fraud Office (OLAF), Operation NOXIA brought together officials from over twenty EU member-states, the UK, Australia, China, the Philippines and a group of other participant countries of the intergovernmental Asia-Europe Meeting (ASEM) forum in an ambitious intelligence sharing and analysis effort. Officials successfully targeted and raided deep-sea containers, seizing over 67 million illicit cigarettes, 10 tonnes of tobacco and more than 1,200 tonnes of waste destined for Europe and Asia.

While ASEM has long recognised the threat that the counterfeiting and smuggling of hazardous goods poses to its citizens and economies, countries in Asia and Europe alike will need to ramp up action to tackle this transnational plague, crucially through expanded investigative collaboration, reliable tracing technologies and robust policy reforms.

An explosive challenge in Asia

As Operation NOXIA has underscored, the Asia-Pacific is increasingly emerging as a global epicentre of the illicit tobacco trade, whose impact on public health, government coffers and organised crime make it a particularly pernicious threat.

In late October, Australia’s record-setting seizures and rising number of firebombing attacks with links to underground tobacco syndicates have brought its illicit tobacco boom to the forefront, with Victoria state alone reporting nearly 30 businesses torched for refusing to sell organised crime groups’ products in recent months. Law enforcement authorities have discovered over 800 shops either owned or acting on behalf of these gangs, with one detective warning that “a large portion of the tobacco industry has been infiltrated” by actors importing illicit cigarettes from China and southeast Asia.

Meanwhile, researchers and civil society groups in the Philippines are voicing fears over the country’s own escalating illicit tobacco trade. Speaking in Makati, security expert Professor Rohan Gunaratna recently cautioned that cigarette smuggling is rapidly emerging as a major revenue source for armed groups in Mindanao transitioning from terrorism to organised crime. This revelation has prompted local advocacy campaign leader Antonio Israel to call for urgent action to combat an illicit trade that “deprives the government of much-needed revenue” while harming “local industries” and public health.

Europe’s evolving menace

There’s an equally worrying situation in Europe, with OLAF reporting the seizure of over half a billion illicit cigarettes last year, representing a potential loss of over €150 million in excise tax revenue. While the overall rise in European illicit cigarette consumption from 33.4 to 35.8 billion between 2019 to 2022 is not enormous, it’s troubling given that the EU implemented a supposedly comprehensive track and trace system during this period. What’s more, this seemingly modest figure conceals alarming spikes in certain countries.

Roughly doubling over the past three years according to industry estimates, France’s illicit tobacco consumption now represents nearly half of the EU-wide problem. Belgium has also posted concerning rises amid a recent surge of illicit whites from Bulgaria, suggesting that the tobacco industry could be repeating its long-running tactic of intentionally oversupplying less-controlled markets with full knowledge of the smuggling risk—a fundamental problem that the World Health Organisation aims to control with its ITP Protocol requirements on monitoring tobacco industry factory production.

Meanwhile, the war in Ukraine has partially disrupted Eastern smuggling routes, sparking a rise in European illicit production, with counterfeit cigarettes accounting for roughly 60% of OLAF’s confiscated cigarettes and authorities shutting down 75 factories last year. Yet, as the ITP Protocol stipulates, European authorities should explore the sources of counterfeit manufacturing materials, particularly considering the Organized Crime and Corruption Reporting Project’s (OCCRP) revelation that Philip Morris International has used clandestine cigarette factories in Pakistan “to churn out black-market cigarettes.”

Landmark EU track and trace system missing mark; no model for abroad according to international institutions

Crucially, the EU track and trace system’s narrow focus on vulnerabilities within “legal” factory-to-retailer supply chains is failing to capture this underworld of counterfeit manufacturing and distribution, with OLAF completely lacking data on the bloc’s emerging black market.

Moreover, Brussels’ decision to have Dentsu Tracking—whose parent company, Japanese advertising giant Dentsu Group, has been in the headlines recently for corruption allegations—manage core parts of the European track and trace system has generated controversy focused on the firm’s longstanding tobacco industry links, in direct violation of the ITP Protocol. MEPs have further raised conflict of interest concerns over Dentsu’s 2020 hiring of Jan Hoffman—a former DG SANTE employee who had worked on tobacco traceability issues while at the Commission, notably including Dentsu’s appointment as the EU provider.

Dentsu Tracking maintains that Hoffman had no part in awarding the EU contract to the company, while its CEO, Philippe Castella, has insisted that Hoffman’s hiring was carried out with full transparency. Despite the concerns over Dentsu’s selection in the EU, the company is holding its EU experience out as a stepping-stone for its expansion into other markets, with Castella particularly underlining the company’s ambitions for expansion into Africa.

Beyond Castella’s recent ban from working in or entering Morocco for failing to comply with the country’s strict adoption laws, Dentsu’s foray into Africa would appear ill-fated given the Global Alliance for Tobacco Control’s warnings that a track and trace system similar to the EU’s should not be rolled out in other markets, which should privilege fully industry-independent solutions.

Closing illicit trade loopholes

Implementing more robust and independent track and trace mechanisms will be a crucial pillar in a broader package of government interventions to tackle illicit trade around the globe.

As the Transnational Alliance to Combat Illicit Trade (TRACIT) argues, national governments should significantly bolster interagency cooperation and trust, particularly between police, tax and customs control and finance officials, to close loopholes and intelligence gaps easily exploited by organised crime groups. Fundamental policy reforms to root out the corruption of public authorities – another fixture of the criminal playbook– paired with the establishment of a dedicated national agency to coordinate collaborative action will be equally vital.

Moreover, given that seizures and excise tax recovery in Europe and Asia remain a drop in the illicit trade sea, European and Asian governments should expand anti-smuggling cooperation – including through the creation of highly-targeted, TRACIT-recommended joint investigations teams – building on the rousing success of the recent NOXIA operation.

This combination of interventions would bolster governments’ capacities to rein in runaway illicit trade, opening up crucial revenue streams to help tackle poverty and public health challenges while fuelling long-term sustainable development.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes