Europe's illegal cigarette trade grows again - report

BRUSSELS (Reuters) - Black market sales of cigarettes in the European Union rose for the sixth year in a row, resulting in over 12 billion euros (10.32 billion pounds) in lost tax revenue, data from a report by consulting group KPMG showed on Wednesday.

Although EU cigarette consumption fell 5.7 percent in 2012, sales of so-called counterfeit cigarettes increased.

EU consumption of illegal cigarettes totalled almost 65 billion last year - more than a tenth of the total.

World No. 4 tobacco firm Imperial Tobacco IMT.L has said it expects its first half profit to be bit by black market sales.

The annual report is sponsored by tobacco firm Philip Morris PM.N, as part of a 2004 legal settlement with European regulators.

It said that sales of illicit cigarettes, which include those manufactured for the sole purpose of being smuggled as well as fake packs passed off as prominent brands, grew the most in the UK, Greece, Italy and Estonia.

“In the midst of the economic crisis and budget deficits, illegal cigarettes continue to plague Europe, costing member states billion in lost taxes,” said Philip Morris’s Artyom Chernis.

Much of the illegal tobacco trade is run by organised crime, attracted by high potential profits for low potential penalties, the firm said.

The European Commission reached a series of financial settlements with tobacco manufacturers from 2004 to 2010, including Philip Morris, Imperial Tobacco, Japan Tobacco 2914.T, and British American Tobacco BATS.L, to fight contraband cigarettes.

The $1.25 billion agreement with Philip Morris in 2004 ended a legal dispute with EU regulators over the company’s role in smuggling cigarettes illegally into the bloc.

EU governments receive most of the money from the settlements to fund their fight against the illicit tobacco trade, while roughly 10 percent goes to the EU budget to fund similar efforts by the European Anti-fraud Office (OLAF).

OLAF said it had no comment on the report, but says on its website that trade in counterfeit cigarettes “harms the European economy as they damage legitimate business and stifle innovation, putting many jobs at risk.”

Reporting By Ethan Bilby, Editing by Charlie Dunmore and David Cowell