By Timothy S. Donahue

Top Takeaways:

• Panelists described a global illicit market that thrives on high excise differentials, regulatory confusion and weak coordination, eroding consumer safety and tax bases
• Smarter data sharing and targeted enforcement were urged, including better use of trade “mirror” data and anomaly detection calibrated with on-the-ground context
• Success metrics should prioritize legal market access for adult consumers, predictable authorization pathways and smoking-rate declines, not headline seizure counts

At the 2025 Global Tobacco and Nicotine Forum (GTNF) in Brussels, an international panel discussed one of the most challenging issues in harm reduction: Illicit Trade. The session on the controversial subject was moderated by Rohan Pike, Director of Rohan Pike Consulting. Pike started by managing expectations.

Illicit trade impacts tax policy, organized crime, consumer safety, border controls, and technology, and the hour-long panel wouldn’t be able to cover every detail. Still, he promised a clear overview of causes, the rapid growth of newer nicotine categories, and what realistic countermeasures might be.

Australia set the tone. Referencing overnight news alerts, Pike noted “another two fire bombings in Melbourne this morning,” adding that the phrase “world leading” is too often applied in the U.S. to punitive excise taxes rather than public health outcomes.

Theo Foukkare, CEO of the Australian Association of Convenience Stores, provided the data and shared the real-world experience. While Europe discusses a minimum price of around €4.30 per pack in proposals, the equivalent in Australia is about €18, highlighting the significant difference in incentives.

He said illicit shares across categories are extreme. Vaping products are seen as “in the high 90 percent, virtually 100,” pouches are “100,” shisha is “100.” He questioned why the government won’t change its approach. “They’re just stuck in this ideological bubble,” he said, relying on a small circle of government-funded academics who are convinced enforcement alone can defeat a market created by its own policies.

The spillover into everyday life is no longer theoretical. Foukkare described an independent grocer who reported a handwritten extortion note to the police and said, “the next day, (they found that) a car went through their shop front overnight.” He predicted that the legal market could disappear in “two years” if the decline in lawful sales continues to double.

“If we think we’re seeing crime now, just wait,” he said. The solution, in his view, is a regulated retail system with proportionate excise taxes and uniform national rules that steer adult demand away from illegal sellers. “Make lawful faster than illicit,” he added later in the session, echoing a theme that would recur across different jurisdictions.

Pike shifted the discussion from Australia to the broader system of global flows and risk indicators. He asked Dr. Alexander Kupatadze, an Associate Professor at the School of Politics and Economics, King’s College London, whether the World Customs Organization, an intergovernmental organization headquartered in Brussels, and other transport agencies fully understand the organized crime aspect and if they are heading in the right direction.

Kupatadze said that there is an increasing awareness and a push toward data-driven approaches, but warned against overreliance on black-box detection. Customs agencies rely on anomaly detection that continues to struggle with calibration. If it’s too narrow, it floods inspectors with false positives; if it’s too broad, genuine signals get lost in noise.

“Research can really narrow down the haystack to find that needle,” he said, but only if algorithms are combined with human analysis that interprets networks and context.

He demonstrated the limits of automation with examples from the country of Georgia. In one week, authorities tackled a counterfeit cigarette operation linked to a former heavyweight boxing champion, a large-scale counterfeit production connected to figures near the defense department, and a downtown assassination connected to illegal shipments. “Complex organized crime cannot be reduced to an algorithm,” he said.

The overlaps between counterfeit alcohol and tobacco, links to sanctions evasion, and the presence of mafia-style groups along with politically connected networks resist simple analysis. Real progress relies on integrating datasets and breaking down silos in ministries, customs, private-sector intelligence agencies, and academia. Pike, a former customs official, agreed that with only one or two percent of containers physically inspected, precision targeting is crucial.

The panel then discussed how to analyze the market using mirror data, comparing export declarations filed in origin countries with import declarations at the destination. Nick Hodsman, Head of Anti-Illicit Trade Policy at British American Tobacco (BAT), stated that the discrepancies can be striking. In a U.S. case study on e-liquids, China was “declaring five times as much” outbound volume as the U.S. recorded inbound.

Free trade zones exacerbate the problem because shipments can be relabeled en route. A container of devices might be labeled as “foods” or “noodles,” then appear as “leather belts” on import paperwork.

Lillian Ortega, owner and chief regulatory strategist at WOW! Solutions and a former U.S. FDA enforcement official, added that the U.S. depends on the U.S. Customs and Border Protection (CBP) agency’s automated commercial system to flag U.S. Food and Drug Administration-related entries. If a shipment is misdeclared, the FDA never sees it in surveillance feeds, and the seizure statistics “are flawed” because they only show properly declared goods.

That blind spot is perfect for organized networks that can handle losses. “Lose three out of four shipments and it’s okay,” she said, when margins are inflated by tax and authorization gaps.

Hodsman distinguished between tobacco and new next-generation nicotine categories. In combustible cigarettes, much of the global issue stems from domestic production in countries that cannot or will not enforce regulations, as well as significant exports originating from known hubs like Jebel Ali, a major port city located within the Emirate of Dubai, United Arab Emirates, and Paraguay, as well as Cambodia.

The profit margins are significant. A non-duty-paid pack, which costs “about 30 cents” to produce, can be sold at a fraction of legal prices and still generate criminal profits “we as an industry would dream of.”

In newer categories, drivers are more often related to regulation and compliance. Testing whether a device complies with nicotine content limits or tank volumes is not easy for front-line officers. In many markets, the authorization system has not yet provided a clear set of compliant options for adults. When a product category is completely banned, “it’s 100 percent illegal by definition,” he said, pointing to Australia and Brazil as surprisingly large vaping markets under prohibition.

Across Europe, Hodsman observes a clear link between the tax collection rate in new categories and the stability and fairness of the regulatory framework. Hungary’s strict rules, for example, encourage consumers to use cross-border channels, resulting in only an estimated 10 percent of the due excise tax being collected. In contrast, countries with more effective excise policies and enforceable rules, such as Portugal, can maintain low levels of illicit activity.

The United Kingdom demonstrates that even with reasonably good regulations on paper, weak local enforcement can undermine the effectiveness of the regulations. The conclusion isn’t about deregulation; instead, it’s about creating better-designed rules that are enforceable in the real world and paired with incentives that motivate authorities to remove non-compliant products.

Ortega explained to the audience the U.S. system that has enabled a large gray market to develop. FDA oversees the manufacturing, distribution, and marketing of tobacco products through the Center for Tobacco Products. The Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) enforces the Prevent All Cigarette Trafficking (PACT) Act and related criminal laws.

CBP manages border control. States add licensing, taxation, and registry requirements. The 2016 deeming rule expanded the FDA’s control to vapor and other products, but many were already available on shelves.

The substantial equivalence (SE) pathway was created for pre-2007 comparators, leaving many newer products on a premarket route in an already active market. The FDA allowed for discretionary enforcement if companies submitted applications, resulting in a large gray area. Out of “26 million” applications, the country now has “39 vapor products authorized from four companies” and “20 nicotine pouches from one company,” she said.

Slow decision-making and limited authorizations widened the gap that illicit suppliers eagerly filled. States then responded with their own methods, forming a patchwork that manufacturers find hard to navigate.

For years, she added, U.S. authorities did not consistently describe the problem. Only recently has the federal government started using words like ‘unauthorized’ and ‘illegal’ in a unified manner. A multi-agency task force with the U.S. Department of Justice (DOJ), ATF, and U.S. Marshals took “four years since the compliance deadline” to come together. “It’s hard to put the genie back in the bottle when they’re already out,” she said.

Ortega’s success test is simple. Make the legal route faster than the illegal one. This means a transparent and predictable review process that provides timely approvals, along with targeted law enforcement to discourage the worst offenders, all supported by accurate trade data and tracking systems. When adults have legal options that they can actually purchase, the gray and black markets shrink. If not, they expand.

The conversation shifted back to Australia to examine whether seizures are a meaningful measure of success. Pike was doubtful. Enforcement agencies highlight seized shipments to demonstrate effectiveness, but considering the profit motive, “I have significant doubts” about true disruption.

Foukkare agreed. “Out of 30 containers they would import, they can lose 29 of them and still be ahead.” The more relevant metric is whether illegal storefronts are shut down and whether legal sales resume.

Without that, “it’s all just smoke and mirrors,” he said. Early statistics from New South Wales show the extent of the issue. Authorities reported “20,000” outlets selling tobacco in September. A new licensing system started on Oct. 1, and “5,000” licenses were issued. “So, there are 15,000 tobacco sellers out there that just don’t care about the system that’s been introduced,” Foukkare said.

Technology offered some cautious promise. Smart seals and container monitoring are helpful, but the panelists stressed the importance of fundamentals. Record what leaves and what arrives, automatically match mirror data, and alert officers when declarations do not match.

Develop systems that track transshipments through free trade zones, ensuring that relabeling cannot conceal the cargo. Then calibrate anomaly detection with human expertise and country-specific context to distinguish errors from risks.

Policy design was the final theme. Pike argued that health-policy teams too often create prohibition-style rules that assume perfect enforcement without consulting police and customs leaders first. Foukkare said the backlash is now evident in Australia, where police commissioners and ministers are “taking on the Health Department” over resource trade-offs such as pulling staff from domestic-violence units to pursue nicotine.

The panelists urged early involvement of law enforcement in policy drafting, establishing clear success metrics, and honest admissions when measures fail.

During questions, a physician from Australia warned that illicit pouches are likely to expand in size and harm the public narrative around safer alternatives. Hodsman mentioned that counterfeiting is already appearing in pouches, with some fake products containing “10 times” the labeled nicotine and others containing none.

In a market with limited education or authorized options, consumers cannot easily distinguish between compliant products. This makes proportionate, workable regulation more urgent, not less.

New Zealand was cited as a counterexample. By adopting a regulated vaping model, the country has cut smoking rates in half over five years, with youth vaping now decreasing and little to no illegal market for vapes. “When you put your head in the sand and you ignore the science,” Foukkare said, “you end up with really bad consequences.”

Beth Oliva, Partner at Fox Rothschild, asked what success would look like in a year. The answers converged. Ortega wants a predictable U.S. authorization schedule and a coordinated drumbeat of targeted enforcement, with legal products reaching shelves quickly enough to meet adult demand.

Foukkare advocates for a uniform set of national rules in Australia and a regulated retail model that reduces illicit demand by providing 1.6 million adults with access to legal products, accompanied by appropriate excise. Pike stated his focus is on current smoking rates, not seizure counts.

“If we reduce the number of people who are smoking illicit products by reducing the number of people who are smoking,” the illicit channel diminishes at its source.

The session concluded with brief messages to share. Hodsman mentioned that illicit trade is blocking a smokeless future, so addressing it is essential for public health objectives. Ortega urged regulators to use existing frameworks, lawfully introduce reduced-risk products to the market, and coordinate enforcement wisely.

Kupatadze called for collaboration among the private sector, academia, and policymakers to improve detection and enforcement. Foukkare warned that Australia is now a case study in how illicit trade can undermine both tobacco control and harm reduction.

However, Kupatadze presented the reality as a valuable global lesson. Australia has become a clear example of what not to do. The broader goal is to ensure other countries learn from the country’s mistakes and improve.