STAMFORD, CT -- A new study detailing the scale of the illicit cigarette trade in the European Union (EU) shows that consumption of black-market cigarettes rose more than 7% year-on-year in 2025, reaching levels not seen in over a decade, with counterfeit cigarettes playing an increasingly significant role across member states. Philip Morris International (PMI) (NYSE: PM) reiterates its call for a coordinated response to illicit trade in Europe, built on evidence-based regulation and strengthened cooperation.

According to the 20th edition of the study “Illicit cigarette and heated tobacco consumption, and oral nicotine share in Europe”, which was conducted by KPMG LLP on behalf of Philip Morris Products S.A., illicit cigarettes in the EU accounted for more than one in ten cigarettes for the first time since 2014. In 2025, illicit volumes reached 41.8 billion in the EU—representing 10.3% of total consumption—resulting in an estimated €16.7 billion in lost tax revenues.

Across the 38 European countries included in the study, illicit consumption reached 55.3 billion cigarettes, corresponding to an estimated €22.4 billion in state budget revenue losses.

A structural shift: from contraband flows to “closer-to-market” counterfeits

The illicit market is undergoing a fundamental transformation: “Made in EU” counterfeit cigarettes are increasingly displacing traditional East-to-West contraband flows. Supply chains are becoming faster and harder to trace, and operations are moving closer to end consumers - especially in Western European countries such as France, Belgium, and the Netherlands, which are becoming central hubs for illicit tobacco and nicotine products.

Counterfeits have become the largest source of illicit cigarettes in the EU, reaching 18.3 billion and accounting for 44% of total illicit consumption in 2025. Counterfeit volumes increased more than 20% year-on-year, highlighting organized crime’s ability to rapidly adapt production and distribution models to reduce detection risks.

“The data is clear: counterfeits have become the primary engine of the illicit cigarette market in the EU, supported by criminal supply chains designed to bring fake products to consumers in high-value markets, undermining the European economy and fueling broader illicit activity,” said Christos Harpantidis, Group Chief Corporate Affairs Officer, Philip Morris International. “It also underscores persistent structural vulnerabilities across regulation, enforcement, and judicial follow-through that create space for illicit trade to grow - at a time when many EU member states are under broader security and economic pressure, from inflation and competitiveness challenges to rising budget demands on security and defense due to geopolitical fragmentation. Closing these gaps in Europe requires coordinated action: stronger law enforcement, public-private cooperation and a focus on regulation that is balanced, evidence-based, and enforceable in practice,” Harpantidis added.

Estimates show that Europe’s tobacco and nicotine value chain supports over 2.1 million jobs and generates €224 billion in value - comparable to the EU’s 17th largest economy. With nearly €24 billion in annual exports, it is a significant industrial ecosystem, yet increasingly affected by illicit trade amid economic uncertainty and need for competitiveness in Europe. Addressing this requires pragmatic, evidence-based regulation and stronger cooperation, while supporting investment and innovation in Europe.

“Illicit trade is becoming more sophisticated, localized, and increasingly industrialized. It not only erodes legitimate business activity but also fuels criminal networks that operate with speed, scale, and impunity, discouraging investment, innovation and governments’ ability to deliver on public health and fiscal objectives,” said Yann Guérin, Group Chief Legal Officer, Philip Morris International.

Western Europe at the forefront of this trend

Illicit consumption is increasingly concentrated in major Western European countries—most notably France, Belgium, and the Netherlands—amplifying fiscal pressures and enforcement challenges as illicit penetration rises.

· France remains Europe’s largest illicit market, at a 41.4% illicit share (20.5 billion cigarettes). Counterfeits alone accounted for almost 9.7 billion cigarettes (around 19% of total consumption). France saw the largest increase in illicit cigarette consumption across Europe in 2025.
· Belgium recorded an illicit share of nearly 25% (more than 2 billion cigarettes).
· The Netherlands rose above 22% illicit share (2.1 billion cigarettes), returning to levels last observed around 2006.

More broadly, six EU member states now record illicit shares above 20%, underscoring the scale and concentration of the issue. Outside the EU, the United Kingdom remains the second-largest illicit cigarette country in the study, with volumes now surpassing 7 billion, including 3.5 billion counterfeit cigarettes.

What works: evidence-based policy, not extremes

Not all markets move in the same direction. Some countries have achieved sustained declines through a balanced policy mix combining predictable fiscal approaches, proportionate regulation, and consistent enforcement.

· Greece (14.1% illicit share; 1.9 billion cigarettes) recorded one of the largest year on year declines - 3.4 percentage points. This marks a significant shift from previous years, when illicit levels consistently remained above 20%, highlighting a notable improvement in recent performance.
· Ukraine (15.9% illicit share; 5.1 billion cigarettes) saw illicit volumes decline by nearly 1 billion cigarettes year on year. This reduction is particularly notable given the highly challenging operating and security environment, pointing to sustained enforcement efforts and market resilience.

“The lesson we derive from the situation in Europe is that not one single lever solves the problem of illicit trade; it is that a well-coordinated set of measures does,” said Massimo Andolina, President, Europe Region, Philip Morris International. “Countries that coordinate a proportionate, evidence-based approach to regulatory and tax frameworks with a disciplined effort of enforcement demonstrate that illicit trade of nicotine products can be reduced to the benefit of consumers, public finances, and the fight against crime. On the contrary, countries that promote excessive tax increases, or, even worse, product bans, such as France and the Netherlands, see illicit trends worsening, public tax collection suffers, consumers gain access to uncontrolled products, and crime thrives. It is not the evidence that is now missing, but rather the desire to act rationally and decisively,” he added.

“Sustained public-private collaboration, combining effective law enforcement with robust data, expertise, information sharing, and operational capabilities, is essential to help identify, investigate, and dismantle counterfeit networks and enable authorities to stay ahead of illicit operators, moving beyond reactive measures toward a more proactive, intelligence-led approach,” added Guérin.

Heated tobacco and oral nicotine products

For the second consecutive year, the report also covered illicit consumption of heated tobacco products in selected European markets. It found contraband represented 1.2% of total heated tobacco consumption—significantly lower than in cigarettes—with Germany, Austria, and the Netherlands among the most impacted countries. No counterfeit heated tobacco flows were identified. However, the presence of contraband underscores that, while the scale remains limited, no product category is immune to illicit trade.

While electronic heating devices are not within the scope of the study, available PMI internal analyses and third party research similarly indicate no meaningful presence of contraband or counterfeit activity in this category to date.

For the first time, the study also assessed oral nicotine products in selected countries. It found that in markets where nicotine pouches are banned or highly restricted, survey data indicate significant availability—often involving counterfeit, non-compliant or non-domestic products—suggesting widespread consumer access despite legal restrictions. The highest shares of products not eligible for sale—with the potential to reach a substantial number of consumers—were observed in the Netherlands, Germany, and Belgium.

“Philip Morris International believes policymakers in Europe should apply evidence-based, risk-proportionate regulatory approaches across all nicotine product categories - designing rules that protect consumers, support law enforcement, and avoid unintended consequences that shift demand toward the black market,” Christos Harpantidis added. “This is particularly important as evidence from other nicotine categories, including pouches and e cigarettes, indicates the emergence of widespread illicit activity in some parts of Europe - reinforcing the need for regulatory approaches that are both effective and grounded in real-world conditions.”

As Philip Morris International advances towards a smoke-free future, it continues to strengthen supply chain controls and cooperate with law enforcement and other stakeholders to combat counterfeiting and smuggling of tobacco and nicotine products.