CIGARETTE companies enjoy benefits from the illicit trade in smuggled cigarettes which is costing European governments billions of pounds in lost tax revenue, a report for the European Parliament has said.
According to the report, the companies have a responsibility "to act more decisively, in co operation with law enforcement agencies, to clean up the cigarette market".
Cigarettes were identified by the parliamentary committee of inquiry which wrote the report as the major contraband smuggled by criminal gangs across Europe.
The report, debated by MEPs yesterday, shows how gangs take advantage of the single European market to buy lorry loads of cigarettes at duty free prices and sell them on the black market at huge profit while avoiding national taxes.
"Cigarette companies appear aware of the scale of the fraud an executive from Rothmans told the committee he thought about 5 per cent of Europe's smuggled cigarettes were manufactured by his company.
The 1,000 page report, the result of the second such inquiry by the parliament, was welcomed by the European Commissioners responsible for pursuing fraudsters.
The parliamentary committee said it was "unable to reach a conclusive verdict" on whether cigarette companies gained from smuggling.
However it said "a strong argument can be made that they do derive some benefit from it".
One witness told the inquiry that the companies benefit in several ways. First, they make their normal profit by selling the cigarettes legally to distributors. When the cigarettes pass through the fraudsters' companies and find their way onto the streets, their sale helps to stimulate market demand. The availability of cheaper cigarettes reinforces the manufacturers' argument to governments that taxes on legal cigarettes should not be raised.
"Smuggled cigarettes constitute market share as much as legitimate cigarettes," the report noted. "Cheaper cigarettes on the black market may help expand market share at the expense of rivals especially insofar as they encourage the young to take up smoking."
However, the report also says cigarette companies have an interest in maintaining their good name and not being associated with illegal activity.
The manufacturers told the inquiry that they deplore the smuggling and take all the steps they can to ensure their products are sold only to legitimate purchasers.
The report concluded that if manufacturers made greater efforts to frustrate the fraudsters, this would "help to set to rest the residuals doubts ... concerning the precise role of cigarette producers in the market they serve".