IT IS a global crime epidemic which is costing governments billions in lost tax revenue.

The black market in counterfeit cigarettes grew by 300 per cent last year.

Now a report commissioned by tobacco firms including BAT, still one of Southampton’s largest employers, has found that 16 per cent of cigarettes consumed in this country are either contraband or counterfeit (C&C).

As an earlier Royal United Services Institute (RUSI) report On Tap stated, organised criminals see the illegal tobacco trade as “low-risk, high-reward crime”.

The overall volume of illegal cigarettes consumed in the UK during 2015 increased by more than six per cent to 6.7 billion cigarettes – the second highest increase in the EU according to the report compiled by accountancy firm KPMG.

If these black market cigarettes had been consumed legally it would have raised an additional tax revenue of 2.8 billion Euros (£2.2 billion) in the UK. Across the EU the loss of tax revenue amounted to 1.3 billion Euros.

Counterfeits, 78 per cent of which had duty free labelling, are likely to contain many times the levels of tar and carbon monoxide found in genuine cigarettes, and in some cases can contain insects and human faeces, warns the report.

Daily Echo:

The firm’s Anti Illicit Trade Laboratory (AIT Lab) is based in Southampton, UK. It provides a global authentication analysis service for BAT branded products and its experts give evidence in court proceedings and help enforcement agencies by providing forensic reports on counterfeit products.

The vast majority (88 per cent) of illegal cigarettes now come from non-EU countries with the KPMG identifying that the main source of Illicit Whites – 5.3 billion cigarettes – was Belarus, followed by Ukraine, Algeria and Russia.

Britain is an attractive market for C&Cs as apart from Norway its smokers pay more for cigarettes than anyone else in Europe – four times higher than some nations Most Eastern Europeans pay around £2.75 for a pack of 20 according to research by the Tobacco Manufacturers’ Association found and in Ukraine they pay just 63p.

Not all the black market tobacco sold in Britain is made abroad.

Two years ago the Echo reported on a gang which was imprisoned following the discovery of an illegal tobacco factory in St John’s Street, Southampton.

Around three tonnes of hand-rolling tobacco as seized from the property, enough to fill standard 50g tobacco pouches worth an estimated £612,000 in unpaid excise duty and VAT at the time. The tobacco, which was made in unhygienic surroundings, was moistened with lime cordial and vinegar.

There are also small-time trades who dodging duty.

This summer a campaign aimed at raising passenger awareness of illicit tobacco was launched by the Tobacco Manufacturers’ Association (TMA) at Heathrow, Cardiff, Edinburgh, Aberdeen and Glasgow airports and the port of Dover.

The campaign is aimed at “educating” passengers who may not be fully aware that bringing tobacco products into the UK and selling them on is a criminal offence.

Giles Roca, director general of the TMA, said: “As people head abroad for their summer holidays, we are taking this opportunity to remind them with this new campaign that it is illegal to bring back tobacco from overseas and then sell it on in the UK.

“Reselling tobacco bought overseas is not a victimless crime. This practice affects many hard-working independent shopkeepers who are deprived of legitimate tobacco sales and related footfall."

HM Revenue and Customs (HMRC) reports that more than 90 per cent of large scale cigarette seizures are made up of illicit whites and genuine non-UK brands.

Daily Echo:

Illicit whites are cigarettes manufactured for the sole purpose of being smuggled into and sold illegally in another market.

They usually do not pay tax in the country where they are made. In most cases Illicit whites are produced in countries outside the European Union, smuggled into the UK and sold at a street price of £2.50 to £3 per packet.

The volume of C&Cs made in the EU in recent years has fallen due to a stricter controls in the supply chain and tougher law enforcement. Seizures of illegal cigarettes with the support of the EU Anti-Fraud Office (OLAF) doubled in 2015. In excess of 0.6 billion cigarettes were seized, compared with 0.3 billion in 2014.

A BAT spokesman said: “This flourishing illegal trade puts consumers at risk by flooding the market with unregulated and often sub-standard products, “It also threatens legitimate businesses such as BAT, both financially and reputationally, impacting our suppliers and business partners, the honest retailers trying to earn a living, and the communities where it is an enabler for further criminal activity.

Charlie Simpson, lead partner of the study at KPMG, commented: “Illicit tobacco continues to represent a sizeable proportion of overall cigarette consumption. It’s clear that the ever-evolving illegal tobacco market continues to affect countries throughout the EU. This year our research found that counterfeit and Illicit White brand flows made up a larger proportion of illicit consumption compared to previous years, which seems to demonstrate the flexibility of illicit cigarette flows.”

BAT, which operates in more than more than 200 markets around the world, said: “We have robust internal governance procedures and are implementing industry-wide supply chain security systems to prevent our own products from becoming part of this criminal trade.”

The industry also believes after the implementation of a new EU Tobacco Products Directive (TPD) will boost demand for cheaper illegal tobacco by banning pack sizes smaller than 20 cigarettes and 30g of hand-rolling tobacco.