The European Court of Auditors warns that the European Union is failing to effectively combat an illicit tobacco trade that costs public budgets an estimated €13 billion annually. While fragmented national enforcement and a lack of harmonised laws leave regulators in the dark, criminal networks are reportedly using artificial intelligence to map out enforcement loopholes and target vulnerable borders. Auditors are calling on the European Commission to improve coordination and bring transparency to secretive bilateral agreements between member states and the tobacco industry.
EU illicit tobacco market scale
- ▪Vapes and heated tobacco products now account for approximately 13% of the European Union's illicit tobacco market by value.
- ▪Roughly one in 10 cigarettes made in the European Union is smuggled or produced illegally, and the illicit market also includes nearly 21,000 tonnes of non-cigarette tobacco.
- ▪The European Court of Auditors published Special Report 23/2026 on September 9, 2026, concluding that the European Union lacks a reliable, EU-wide picture of the size, structure, and economic impact of its illicit tobacco market.
AI use by smuggling networks
- ▪Petri Sarvamaa, the European Court of Auditors member leading the audit, stated that criminal networks are using artificial intelligence to track enforcement activity and identify regulatory loopholes across European Union member states.
- ▪The European Court of Auditors Special Report 23/2026 does not name specific artificial intelligence tools, cases, or seized systems to support the assertion that criminal groups have operationalised artificial intelligence.
EU enforcement fragmentation
- ▪There is currently no harmonised European Union law covering the illicit tobacco trade, which contributes to uneven enforcement across the 27 member states.
- ▪The European Court of Auditors described European Union member states' efforts to combat illicit tobacco as fragmented, citing poor coordination, inconsistent intelligence sharing, and uneven enforcement.
- ▪The European Union's anti-fraud office prevented €178 million in lost tax revenue in 2025, which represents a small fraction of the estimated annual losses.
Annual revenue loss estimates
- ▪The European Court of Auditors estimates that the European Union and its member states lose approximately €13 billion in budget revenue annually to the illicit tobacco trade.
- ▪The European Union hopes to collect €11.2 billion annually from a revised Tobacco Excise Directive to help fund its next long-term budget covering 2028–2034.
- ▪The European Court of Auditors advised caution regarding the €13 billion annual loss estimate because it derives from external studies rather than direct, systematic measurement.
Tobacco industry bilateral agreements
- ▪Petri Sarvamaa stated that European Court of Auditors auditors had limited access to bilateral contracts between member states and the tobacco industry, preventing an analysis of the industry's contribution.
- ▪The European Court of Auditors stressed the need for transparency regarding bilateral agreements that several European Union member states have signed with the tobacco industry to combat illicit trade.
Debatable claims
- ▪Higher EU tobacco taxes will expand the illicit tobacco market
- ▪EU member states should disclose their anti-smuggling agreements with tobacco companies
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