Criminal networks are deploying artificial intelligence to scout rural villages and isolated sites across the European Union for illicit cigarette factories, the European Court of Auditors (ECA) said on Tuesday. The shift marks a departure from the traditional concentration of illegal production in Eastern Europe and brings manufacturing closer to the continent's main consumer markets, shortening supply chains and lowering the risk of detection.
Petri Sarvamaa, the ECA member who led the audit, told a press briefing that gangs once relied on the relative opacity of Eastern European territories to hide their operations. "Now, with AI, it's easier to find places to operate that are closer to their markets, he said, in rural locations and villages." Esther Torrente Heras, a senior auditor on the same report, added that the technology "reduces the risk in the supply chain for the criminals."
Scale of the illicit market
The audit quantifies a trade that has grown steadily despite successive EU directives on tobacco taxation and tracking. In 2023, almost one in ten cigarettes consumed in Europe was either illegally produced within the bloc or smuggled in from outside. The ECA estimates the resulting loss of tax and customs revenue at a minimum of €13 billion a year, a figure the auditors describe as conservative given the gaps in intelligence.
The revenue figure covers excise duties, VAT and customs duties that would have been collected had the cigarettes moved through legal channels. It does not account for the broader economic effects, such as the distortion of competition for legitimate manufacturers and retailers, or the public health costs associated with unregulated products that bypass ingredient controls and health warnings.
Intelligence gaps and fragmented response
A central finding of the report is that the EU's enforcement architecture remains fragmented. OLAF, Europol, Eurojust and the European Public Prosecutor's Office (EPPO) each hold pieces of the puzzle, but there is no systematic mechanism for sharing intelligence on new factory locations, trafficking routes or the financial structures behind the networks. Sarvamaa described the lack of coordination as the single biggest obstacle to an effective response, warning that "most alarmingly" the true size, structure and economic impact of the illicit trade is unknown.
The Commission, in its formal reply to the audit, broadly accepted the ECA's recommendations but pushed back on the suggestion that it should define operational strategies for the individual agencies. A Commission spokesperson noted that OLAF, Europol, Eurojust and EPPO are responsible for setting their own strategic priorities under their founding regulations. The Commission also argued that no single methodology can produce a robust estimate of the illicit market's scale, making a unified assessment impractical.
Tax harmonisation stalled
The report lands at a politically sensitive moment. Negotiations on revising the EU's tobacco excise directive, intended to raise minimum tax rates and extend them to novel products such as heated tobacco and nicotine pouches, have stalled. Sweden, which holds a general election on 14 September, has blocked agreement on a levy for nicotine pouches, a product category that is particularly popular in the Swedish market. The directive's aim is to narrow price differentials between member states, which auditors and public health experts say create arbitrage opportunities for smugglers.
The Swedish government has argued that nicotine pouches are a less harmful alternative to cigarettes and that taxing them at the same rate would undermine harm reduction. Other member states counter that a unified framework is essential to prevent the single market from becoming a conduit for illicit trade. The deadlock means the current directive, last updated in 2011, remains in force for the foreseeable future.
Why rural locations matter
The auditors' emphasis on AI-driven site selection highlights a tactical evolution. Rural municipalities often lack the specialised police units and customs presence found in larger cities. Industrial parks on the outskirts of small towns, abandoned farms and repurposed warehouses offer the space and discretion needed for high-volume cigarette production. Proximity to major road networks and logistics hubs allows finished product to reach urban distribution points within hours.
Investigators in Italy and Spain have already uncovered factories in provinces that were previously considered low risk. In one case, a facility capable of producing ten million cigarettes a month was discovered in a converted agricultural building less than 30 kilometres from a major motorway interchange. The operation had been running for eighteen months before a routine environmental inspection triggered a customs raid.
Commission's next steps
The Commission has committed to improving data exchange between OLAF, Europol, Eurojust and EPPO through existing platforms such as the European Serious and Organised Crime Centre. It also plans to propose a legislative amendment that would require member states to report seizures and factory dismantlements to a central database within 48 hours. However, the Commission stopped short of endorsing a mandatory joint investigative team for illicit tobacco, citing subsidiarity concerns.
Sarvamaa warned that voluntary cooperation has proven insufficient. "The union cannot afford to lose this fight," he said, citing the triple threat to public health, the integrity of the single market and the containment of organised crime. He declined to prescribe specific legislative changes to the tobacco products or excise directives, stating that those decisions rest with the European Parliament and the Council.
The auditors' report is available on the European Court of Auditors website.
People mentioned
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Petri Sarvamaa
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Esther Torrente Heras
Organisations
European Court of Auditors · European Commission · European Anti-Fraud Office (OLAF) · Europol · Eurojust · European Public Prosecutor's Office (EPPO)
