The European Court of Auditors has published two findings that sit awkwardly together. The European Union has no reliable picture of the size or structure of its illicit tobacco market, and the criminal networks running that market are using artificial intelligence to work out where to move next, according to the auditor who led the report.
Special report 23/2026, issued under the title “Combating the illicit trade in tobacco in the EU: fragmented efforts and persistent gaps,” estimates that the illegal cigarette trade costs EU and national budgets roughly €13 billion a year. About one in ten cigarettes made in the bloc is smuggled or produced illegally, the report says.
Petri Sarvamaa, the reporting member of the European Court of Auditors for the study, said in an interview that artificial intelligence has significantly benefited criminal organisations. “They can very easily find out where to move next,” he said, describing groups that monitor enforcement activity across member states and analyse where loopholes exist.
Strip the acronym out and what Sarvamaa describes is an information advantage. Tobacco smuggling has always depended on knowing which border is loosely staffed, which member state has the softest excise regime, and which enforcement agency is concentrating elsewhere this month. What has changed is how inexpensive it now is to assemble that picture from public sources and keep it current.
The auditors’ other finding makes the situation uncomfortable. “We do not have an EU-wide picture of the true size, structure, and economic impact of this illegal market,” Sarvamaa said. One side of this contest has invested in data infrastructure. It is not the regulator.
An information contest
The report does not detail how criminal groups use artificial intelligence, which is a gap that technology experts will notice. Sarvamaa’s claim came in an interview rather than in the formal audit, and the document does not name specific tools, case examples or seized systems. That does not make the observation wrong. Enforcement officials across Europe have been describing the same shift for more than a year. But an assertion that criminal groups have operationalised AI is the kind of claim that can harden into received wisdom without ever acquiring evidence, and auditors are supposed to insist on the difference.
Large criminal networks are known to use data analytics for logistics, route planning and risk assessment. Illicit tobacco operations often resemble legitimate supply chains: they require procurement of raw materials, manufacturing capability, transportation and distribution networks. The ability to combine public customs data, news reports, social media and legal changes into a single operational picture allows smugglers to shift their activities quickly when enforcement pressure rises in a particular port or region.
The scale of the problem is not theoretical. Belgian investigators found a factory running machines capable of producing about one million cigarettes an hour. The largest plant dismantled in Spain yielded three million counterfeit packets. Alongside cigarettes, the report counts nearly 21,000 tonnes of illicit non-cigarette tobacco, including rolling tobacco and other products.
The EU’s anti-fraud office, known as OLAF, prevented €178 million in lost tax revenue last year. Set against the €13 billion annual estimate, that figure shows the ratio the auditors are complaining about. Enforcement actions, however important, are intercepting only a small fraction of the total trade.
Fragmented governance
The auditors’ diagnosis is institutional rather than technological. Coordination is fragmented across member states and EU bodies, enforcement is uneven, information exchange is inconsistent, and there is no harmonised EU law covering the illicit trade in tobacco. Those are the conditions that make cross-border arbitrage worth analysing in the first place. An organisation that can see all 27 jurisdictions at once has an obvious advantage over 27 authorities that cannot see each other.
The European Union has long struggled with tobacco tax harmonisation. Excise duties on cigarettes and tobacco products vary considerably from one member state to another, creating price differences that smugglers exploit. Countries with high taxes and strict enforcement see illegal inflows from jurisdictions with lower taxes or weaker controls. The absence of a common legal framework for tackling the illicit trade compounds the problem. Europol and OLAF have mandates to support national authorities, but they depend on voluntary cooperation and timely intelligence from member states.
The legal market itself has changed in recent years. Vapes and heated tobacco now account for about 13 percent of the illicit market by value, according to the audit. That category barely existed when the current enforcement architecture was designed. Its supply chains run through the same e-commerce and logistics networks as legitimate consumer electronics, making them harder to track with tools developed for containerised cargo and border crossings.
Counterfeit products have also become more sophisticated. Compact manufacturing units can be hidden in industrial estates and moved across borders with relative ease. Belgian investigators’ discovery of a high-capacity factory illustrates the industrial scale that smuggling networks can achieve when they have access to raw materials and packaging. Tobacco packaging that imitates legitimate brands is often printed in separate locations from the cigarettes themselves, adding another layer of detection difficulty.
Historical context
Tobacco smuggling is not new. The European Union has dealt with illicit cigarette trade for decades, with notable networks operating across the Mediterranean, the Balkans and the Baltic region. In the 1990s and early 2000s, so-called white brand cigarettes became a major problem, as manufacturers in one country produced cigarettes intended for another market without paying duties. The EU and national governments have pursued court cases against major tobacco companies, signed cooperation agreements and invested in scanning equipment for ports and borders.
What has changed is the analytical capacity available to criminal entrepreneurs. The same tools used by logistics companies to optimise delivery routes can be turned to illegal ends. Data on customs staffing, court cases and police activity appear in public records, parliamentary questions and news reporting. An automated system can monitor these sources continuously and alert organised crime groups to changes in vulnerability. This is not futuristic technology. It relies on standard software for data collection, natural language processing and mapping.
The report’s estimate of €13 billion in lost public revenue is significant, but the auditors treat it with caution. The number derives from external studies rather than direct measurement. That is precisely the measurement problem the report identifies. An institution that cannot size the market cannot size its losses either. The honest version of the report is a request to be allowed to find out.
Impact on public services
“That is €13 billion that never reaches our schools, hospitals, or other public services,” Sarvamaa said. Governments across Europe are facing fiscal pressure, and the loss of tax revenue from tobacco is one of the few spending gaps that policy can address directly. However, any estimate of losses must be placed in context. Illicit tobacco also undermines public health policies. Cheap illegal cigarettes make it easier for price-sensitive smokers to continue smoking, reducing the effectiveness of tobacco excise as a deterrent.
The illegal trade also has links to other forms of organised crime. Law enforcement agencies in several EU countries have noted that cigarette smuggling is often integrated with drug trafficking, money laundering and even terrorism financing. The same routes, vehicles and logistical structures can be shared across multiple criminal activities. Disrupting tobacco shipments, therefore, can have broader effects on organised crime networks.
What will change
The European Commission has recently announced efforts to strengthen the legal framework and improve cooperation among member states. The auditors recommend a coordinated EU action plan, more consistent enforcement at border posts and a better system for collecting data on seizures and trafficking patterns. They also call for clearer rules on the common external frontier and on the fight against counterfeit products.
The European Parliament has taken an interest in the issue, but legislation moves slowly. Member states remain reluctant to give up control over tax collection and policing. As long as that deadlock persists, the information gap between the authorities and the traffickers is likely to widen. The criminal groups have shown that they can adapt quickly to enforcement pressure and changes in consumer preferences. Investigators are constantly chasing a target that is moving not only geographically, but also technologically.
The report does not claim that artificial intelligence alone created the current crisis, nor does it suggest that technology can solve it. It argues that the EU needs to understand the market it is trying to suppress. Without reliable data on how many cigarettes are being smuggled, who is doing the smuggling, and how products move into and around the bloc, enforcement actions remain reactive. The observers outside the system may have a better map of the territory than the people responsible for governing it.
The publication of the report is a reminder that the illicit tobacco trade is an economic and institutional challenge as much as a public health or crime problem. Addressing it will require member states to cooperate with a level of trust that has so far been absent. The case for better information is clear, but the political will is still unfurnished.
Source: TNW | Eu News