Cigarettes from the underground: Criminals move factories to the EU

One Sunday morning at the Anderlecht market in Brussels, young men approached customers and quietly offered: “Marlboro? Kent? Camel?”, hiding several packs of cigarettes under their shirts.

Within minutes, FT journalists were offered home delivery. “€2,50 per pack if you take 100,” said a young man in his early twenties. “I’ll give you my WhatsApp, I can deliver whenever you want.”

A former Belgian police officer who spent decades investigating the illegal tobacco trade watched it all unfold. The men selling the cigarettes, almost certainly locally produced counterfeits, were just small players, he said, while the “real business” was taking place not far away.

Europe has been battling illegal cigarette smuggling from cheaper-producing countries like Russia and Belarus for decades. However, organised crime groups are now increasingly producing counterfeit cigarettes within the European Union itself, which investigators describe as “made in the EU” counterfeits.

Europol, the EU's joint police agency, says tighter controls along the bloc's eastern border, introduced after Russia's invasion of Ukraine, have accelerated the trend. At the same time, rising tobacco taxes in high-price markets such as France, Belgium and the UK have made local production more profitable for criminal groups.

“Thanks to tighter border controls, we are seeing an increase in production within the European Union, which was not so common before,” Giuseppe Lopez, head of the European Financial and Economic Crime Centre at Europol, told the FT.

"The criminal organizations behind these structures are trying to be closer to the markets where they want to sell counterfeit cigarettes," he added.

According to Europol, the number of illegal factories discovered across the continent has increased by almost 80 percent since 2018, from 47 to 83 last year. Belgian customs dismantled just one illegal cigarette factory in 2016, while they have discovered 11 so far this year alone.

Successive increases in tobacco taxes, introduced across much of Europe over the past decade as governments sought to reduce smoking and improve public health, have further widened the price gap between legal and counterfeit cigarettes.

Counterfeit cigarette sales in Europe rose 13 percent last year from the previous year and now account for almost half of the illegal cigarette market, according to estimates by KPMG, indicating a shift from traditional smuggling to counterfeit production. The consultancy estimates that the EU lost 16,7 billion euros in tax revenue last year due to illegal sales.

In France, which launched a program of major tax increases in 2018 and where a pack of legal cigarettes now costs around 13 euros, almost one in five cigarettes consumed last year were counterfeit, KPMG estimates showed. According to Anna Gilmore, a professor of public health at the University of Bath, there is no evidence that counterfeit cigarettes are more dangerous than legal, branded products. “Cigarettes are deadly, period,” she said.

Tobacco grown within the EU, with Spain and Italy among the largest producers, is also often found in the supply chains of illegal cigarette factories.

One of Belgium's counterfeit cigarette factories was hidden in an inconspicuous warehouse in the Walloon town of Fleurus, about a 45-minute drive from Brussels.

When FT reporters entered the site one July afternoon, an hour after the police raid, officers were loading cartons of counterfeit Marlboros into vans waiting outside. The warehouse was filled with conveyor belts, packaging machines and equipment for processing tobacco, often purchased through Chinese online platforms such as Alibaba. Cigarettes were still strewn across the concrete floor, where workers had dropped them when officers stormed the facility.

Belgian customs said nine men from Albania and Belarus lived in the warehouse. They worked shifts, slept in bunk beds crammed into makeshift plywood dormitories and cooked in a small kitchen next to the production line.

“It’s not the worst place I’ve ever been, but it’s not the nicest either,” said one of the workers who helped dismantle the factory. “They had a kitchen and fresh vegetables because they cooked there. They had one toilet, right next to the shower.”

The scene was well-known to investigators. Belgian customs officers had discovered similar factories on an abandoned chicken farm, in a former pet hotel and in unsightly industrial buildings across the country.

During other raids, officers have found entire families, sometimes including children, working together. According to Belgian customs, some of them are vulnerable migrants recruited by criminal networks, while others knowingly accept illegal jobs because they pay better than other options available to them.

Sophie, a mother of two girls who recently moved to Fleris, said she could not have imagined that organized criminals were operating in a warehouse just a few meters from her new home. “It’s bizarre... I would never have expected something like this here,” she said, pointing to the playground across the street from the warehouse.

Last year, counterfeit cigarettes found in illegal factories accounted for more than two-thirds of all cigarettes seized by Belgian customs.

Counterfeit cigarettes in Anderlecht are sold for 2,50 euros per pack. A factory that produces up to a million cigarettes a day can fill a freight container in 10 to 14 days, and at that price, selling its contents is enough to cover the estimated 1,4 million euros needed to start the factory, estimates Philip Morris, the world's largest publicly traded tobacco company. Each subsequent sale brings in a very high profit.

"This is a low-risk, high-reward job," said the former Belgian police officer.

The surge in the production of counterfeit “made in the EU” cigarettes comes as Brussels prepares this year for the biggest overhaul of European tobacco rules in more than a decade.

Raw tobacco can be legally imported into the EU and is subject to significantly weaker oversight than finished tobacco products, which allows criminal groups to divert shipments to illegal factories.

The European Commission last year proposed including raw tobacco in the EU's electronic system for the movement and control of excise goods, which would allow authorities to track shipments across the bloc. Tobacco grown within the EU, with Spain and Italy among the biggest producers, is also often found in the supply chains of illegal cigarette factories, customs officials say.

The proposal, which is still being negotiated by member states, would also include higher minimum tobacco tax rates across the European Union.

The tobacco industry has long warned that increasing excise taxes will encourage illegal trade, a claim rejected by the World Health Organization and other public health experts.

“The solution is not lower taxes, but strong law enforcement and independent product tracking systems,” said Martin Mackie of the London School of Hygiene and Tropical Medicine.

But enforcement is becoming increasingly complex as the illicit trade changes. Investigators say there is no single “tobacco mafia.” Instead, multinational criminal networks employ workers, technicians, and distributors from across Europe. Some of them also engage in drug trafficking and other forms of organized crime.

Instead of concentrating production in one large factory, these groups generally divide operations across multiple locations, with tobacco stored, cigarettes manufactured, and then packaged in different places to minimize the impact of police raids.

Belgium has become one of the hotspots for the counterfeit cigarette trade thanks to its dense network of highways and proximity to some of Europe's busiest ports, but the problem is present across the continent.

In June, Spanish authorities seized 38,4 tons of tobacco leaf, along with firearms, cigarette-making machines and 170.000 euros in cash. Officials in Lithuania say that counterfeit cigarette consumption has also risen sharply there, from about one percent in 2021 to about seven percent last year.

In one incident in Belgium last year, police intervened after a criminal group broke into an illegal cigarette factory run by a rival gang and took workers hostage.

“The competition between these groups is growing,” said a Belgian customs officer. “People know they can make huge money from it.”

Translation: NB