Illicit trade in tobacco and vapor products has become a critical challenge facing policymakers, regulators, revenue authorities, and law enforcement. Once seen as a secondary issue compared to narcotics or counterfeit pharmaceuticals, illicit tobacco is now a clear and present threat for many countries across the globe.
The pattern of how these illicit markets form is consistent across regions. Sharp excise tax differentials, restrictive regulations, and weak enforcement capacity combine to create fertile ground for illicit markets. From New York to Sydney, from Paris to Pretoria, governments are struggling to contain these illicit markets that are becoming increasingly entrenched.
New York continues to be the cautionary tale for policy makers. The state faces the highest rate of illicit cigarette consumption in the United States. More than 80% of all cigarettes consumed in the state are illicit.
The illicit market in New York is a highly combustible mix of smuggled cigarettes, illicit whites produced on Native American reservations, counterfeit cigarettes and illegally imported grey market products.
This is the direct result of New York’s aggressive excise tax policy. With now the highest tobacco excise taxes in the country, further exacerbated by excessive local taxes in jurisdictions like New York City, New York State has inadvertently created one of the most profitable smuggling corridors in North America. Cigarettes sourced from lowtax states such as Virginia, Pennsylvania, North Carolina and South Carolina are trafficked into New York in bulk and sold at high margins.
The Mackinac Center for Public Policy has tracked this trend for more than a decade. Its research is clear. Each tax increase produces a measurable rise in smuggling and illicit sales.
The fiscal impact is severe. Billions in annual revenue are lost, weakening the very public health programs the taxes were designed to fund. At the same time, profits flow to organized criminal groups, which use these illicit profits to finance other crimes including money laundering, drug trafficking, human trafficking and firearms smuggling. This in turn results in rising crime rates in the State of New York, impacting the quality of life of all New Yorkers.
The illicit trade in New York is not confined to combustible products alone. The rapid rise of illicit vapor products has added a new front in the battle against illicit tobacco products now facing law enforcement and regulators.
Once these illicit markets develop, they are increasingly difficult to combat. In September, Governor Kathy Hochul announced the largest criminal vape enforcement action in state history. State police seized large volumes of illicit vapes, cash, and contraband.
The dynamic is the same as with illicit cigarettes. Restrictions on flavored and disposable vapes have removed legal products from legal channels, but demand has not disappeared. Unregulated and illicit sellers, mostly from China, were eager to fill the void and have stepped in, offering cheaper, untested, and untaxed alternatives. These illicit vapor products come with packaging and flavors designs to attract youth. Some of these products even have video games on them. I have discussed this emerging threat in previous publications in detail.
The result is a dual crisis. Cigarette smuggling has reached record levels, while illicit vapes expand rapidly. These trends on illicit vapor products are not contained to just New York but are a national crisis in the United States. The US Department of Health and Human Services (HHS) estimates that 85% of all vapor products are illicit, resulting in an estimated illicit market worth over $9 billion.
Enforcement efforts under the previous administration had been virtually nonexistent, now requiring the US government to take drastic enforcement actions to contain the issue.
In September 2025, US federal agencies carried out the largest ever enforcement action against illicit e-cigarettes. The HHS, US Food and Drug Administration, and US Customs and Border Protection seized 4.7 million unauthorized e-cigarette products valued at $86.5 million at the Port of Chicago. Simultaneous raids in six other states across dozens of wholesale retail outlets complemented the coordinated effort and are likely just the beginning.
While these enforcement actions are impressive, welcome and overdue, they are dwarfed by the sheer size of the overall illicit market. It will now take a sustained, committed and whole-of-government approach to combat this issue.
The United States is unfortunately now a case study that illustrates what happens when policy eliminates legal options without building adequate and proportional enforcement capacity simultaneously.
Continuing our global review of illicit trade, we go ‘down under’. Australia was once considered a global leader in tobacco control, implementing virtually every measure recommended under the WHO mPower framework. Yet its success is being undermined by an ever-growing and burgeoning illicit market that is now dominating the market.
Today, roughly 40% of all tobacco consumed in Australia is illicit. With cigarette prices among the highest in the world and scheduled to rise again, consumers increasingly turn to unregulated suppliers and illicit products. The Australian market faces a combination of domestically produced illicit whites (known as Chop Chop), counterfeit cigarettes, smuggled cigarettes and illegally imported vapor products. The illicit tobacco trade in Australia is estimated to deprive the Australian government and tax authorities of $10 billion annually in lost tax revenue.
Recent enforcement data confirms the scale of the problem. In Queensland, authorities executed the largest seizure in Australian history, valued at $70 million.
The haul included illicit cigarettes, vapes, and raw tobacco linked to transnational criminal organizations.
The illicit vapor market also continues to accelerate. Over-regulation and outright bans have pushed consumers underground. The Australian Federal Police recently froze more than $1 million in bank accounts tied to illicit vape sales.
Australia demonstrates how difficult it is to reverse an entrenched illicit market.
Enforcement is essential, but it cannot offset the economic incentives created by punitive excise policy and strict regulation.
Back on the European continent, the UK tobacco market remains deeply affected by illicit trade. As discussed by Ian Lancaster in the June 2025 issue of TSTN, KPMG’s 2024 study estimated that 5.9 billion illicit cigarettes were consumed in the UK, more than a quarter of total consumption, which costs the Treasury over £3 billion in lost revenue annually.
The European Union also remains a major hub for illicit tobacco. In 2024, nearly 39 billion illicit cigarettes were consumed, equal to more than 9% of total consumption. France leads the region in this troubling development, with almost 19 billion illicit cigarettes annually. In the Netherlands, the share has doubled to nearly 18%
Despite large seizures, overall consumption remains unchanged. The European AntiFraud Office reported global seizures totaling 130 million cigarettes in 2024, including 50 million intercepted at EU borders. Smuggling from Eastern Europe and in-country counterfeit production continue to undermine fiscal and public health policies.
Turning to Africa, South Africa shows how quickly illicit markets can overwhelm an entire regulatory regime. In 2017, illicit products accounted for about onethird of the market. By 2021, the figure had surged to 60%, one of the highest levels worldwide.
In 2022 alone, the government lost an estimated ZAR 18 billion ($1 billion) in excise and VAT revenue. Over two decades, cumulative losses are estimated to exceed ZAR 119 billion (almost $7 billion).
Illicit sales are now entrenched in widespread informal retail channels. For many consumers, unregulated products are the default option. This undermines fiscal stability, erodes public health, and provides organized crime with an evergrowing revenue stream that finances a plethora of ancillary criminal activity in South Africa and is the driving contributor to violent crime.
The parallels are unmistakable. Excessive taxation, restrictive regulation, lack of product alternatives and inadequate enforcement create the conditions in which illicit markets thrive.
Global studies suggest that eliminating illicit cigarette trade could generate tens, if not hundreds of billions in additional revenue annually, while also reducing smoking and tobacco usage, especially amongst youth.
Yet progress continues to remain uneven at best. Despite these unmistakable trends, governments persist to deploy policies that further fuel illicit markets.
Illicit tobacco is not just a fiscal or public health policy challenge. It is also a national and global security threat. The same networks trafficking illicit tobacco and vapor products are often engaged in narcotics, money laundering, gun trafficking, counterfeit pharmaceuticals, and even human trafficking.
Recent seizures in both New York and Australia confirm these overlaps. Multicommodity smuggling networks have the infrastructure to adapt quickly and exploit weaknesses in enforcement. To successfully tackle the entrenched global illicit tobacco networks and criminal enterprises a new approach is needed that incorporates a whole-of-government approach, increased enforcement funding, new technologies and the political will to revisit, or reverse some of the most damaging tobacco policies that have created these markets.
In our experience, to successfully combat this issue, governments, revenue authorities, law enforcement and public health policy experts will need to deploy an intentional, thoughtful, comprehensive and integrated approach based on four policy pillars:
1. Balanced excise policy – taxation should discourage consumption but not drive consumers into illicit channels. Rates must be calibrated to achieve public health goals without undermining compliance.
States and countries are well advised to revisit and reverse excessive tax policies to help recalibrate markets.
2. Legal and regulated alternatives – product prohibitions simply do not work and only fuel illicit markets. Experiences with prohibition throughout history have shown that they are ineffective at best and create staggering illicit markets at worst.
Providing regulated access to legitimate alternatives such as regulated, authorized vapor products with features and flavors that adult consumers want can reduce harm while preserving revenue.
Governments and health authorities need to consider the unintended consequences of regulations and ensure that viable alternatives are available before banning or limiting legal products.
3. Smarter enforcement through technology – coordinated enforcement efforts and taskforces driven by technology, better data, intelligence sharing and private-public partnerships have proven to create the most lasting enforcement effects.
Intelligent tax stamp programs with comprehensive regulatory schemes, including licensing, record keeping and meaningful penalties are the backbone of effective enforcement regimes. Large individual seizures matter, and they send an important message, but sustained, data-driven enforcement focused on dismantling criminal trafficking networks are more important than intercepting shipments alone.
Technology and tax stamp providers have an opportunity to develop and deploy innovative, integrated products and technologies to inform, empower and improve coordinated enforcement efforts.
4. Demand reduction – education, cessation support and a comprehensive tobacco or nicotine policy that provides less harmful regulated and authorized alternatives to adult consumers must complement enforcement. Without reducing demand and without deliberate efforts to transition adult tobacco consumers to less harmful alternatives, illicit markets will persist, regardless of penalties, enforcement or seizures.
From Manhattan to Sydney, from Paris to Pretoria, the illicit tobacco trade is expanding rapidly across the globe. Very few countries have successfully deployed comprehensive and intentional policies that properly account for and counter unintended consequences.
Sweden provides a contrasting example of how illicit markets can be contained when consumer demand is redirected rather than suppressed. While illicit cigarette consumption in Sweden has fluctuated between 5-10% over the past two decades, the overall size of the illicit market has remained comparatively modest.
The reason is structural. Tobacco control policy in Sweden has intentionally encouraged smokers to transition from combustible products to Snus, a smokeless oral tobacco that is widely used and culturally accepted. By offering a regulated, lower risk alternative, while consistently, but gradually, increasing taxes on combustible products, Sweden has reduced overall cigarette consumption and limited the incentive for illicit cigarette networks to expand, which also resulted in the lowest lung cancer and lung disease rates in the developed world.
The Swedish experience demonstrates that providing consumers with viable legal alternatives can be more effective in curbing illicit trade than relying solely on enforcement.
Illicit trade is not a marginal issue. It is a global crisis that requires coordinated, pragmatic, intentional and comprehensive action. The lesson is clear. When regulation ignores market realities, illicit suppliers will fill the void. Once entrenched, these markets are costly and difficult to dismantle.
Governments now face a choice. They can continue to pursue policies that inadvertently create or fuel illicit trade, or they can adopt approaches that balance fiscal, health, and enforcement objectives.
The stakes are high: public health, youth protection, government revenues, and national security are at risk if these trends remain unchecked.
Illicit tobacco will not disappear on its own. Only deliberate, coordinated action can reverse its trajectory. The time to act is now.
