Organised smuggling typically begins when a bulk order for cigarettes is placed with a manufacturer. After leaving the factory or bonded warehouse with documents showing they are bound for a legitimate market, they then go through a series of paper transactions that are difficult to follow. Ultimately, the paper trail leads investigators to non-existent or shell companies, with the cigarettes having “disappeared” into the black market.

Sometimes the scheme involves forged transit documents and tax stamps. In other cases, corrupt customs agents or other officials are involved. All of the major multi-national tobacco companies are implicated in smuggling activities and have been the subject of several legal cases to determine the extent of their involvement. In the 1990s around 80% of smuggled tobacco entering the UK consisted of UK-manufactured cigarettes or hand-rolling tobacco that had been diverted onto the black market and smuggled back into the UK, usually via large containers purporting to contain other consumer goods.

It is frequently claimed by the tobacco industry that high taxes cause smuggling. However, the difference in duty levels between neighbouring states is only a minor driver of smuggling. The economic driver of most smuggling is the difference between the duty paid and duty not paid price, since taxes account for a high proportion of the retail price of tobacco products in all countries. Cutting tobacco tax cannot solve the problem of smuggling. Even if all countries levelled exactly the same level of taxes and had identical prices, smuggling would still continue at a large scale. In Europe until recently the highest levels of smuggling were found in countries with some of the lowest taxes (Spain and Italy). This pattern is reflected around the world. Large-scale smuggling involves criminal organisations with a sophisticated system of distributing tobacco at a local level. Criminals are aided by the lack of control of the international movement of tax-free cigarettes.