Home » Billions are lost to gangs as fake cigarettes flood Australia. Is the war on smoking at a tipping point?

Billions are lost to gangs as fake cigarettes flood Australia. Is the war on smoking at a tipping point?

The sale takes place in plain sight.

At a convenience store on a Tuesday afternoon, the cashier asks: “Do you want the cheaper ones?”

“Sure,” I say, thinking to myself: who wouldn’t?

The cashier turns around, opens the black cupboard door with “Smoking Kills” scrawled across it and pulls out a packet of cigarettes.

He punches $25 into the EFTPOS machine and hands over the packet.

They are unquestionably illegal.

The tax alone on a packet of 20 cigarettes these days is $26.

But what’s most surprising is, they look legitimate.

They’re boxed in plain packaging, complete with a graphic image and the obligatory health warning — just like the ones you’d buy from a supermarket for two or three times the price.

A packet of illegal, counterfeit Manchester cigarettes, one of the most prolific brands of illicit tobacco found in Australia.()

If there was any doubt, it’s the brand that gives it away: “Manchester Classic Gold” — possibly the most prolific illegal, and counterfeit, cigarette brand on the market, imported in vast quantities from the Middle East.

About a kilometre away, another convenience store is openly selling under-the-counter cigarettes (these ones from Japan, in their original packaging).

These transactions aren’t taking place via encrypted messaging apps and the goods aren’t being exchanged in brown paper bags in alleyways.

They’re happening in hundreds of shops in towns and cities across the country and the evidence can be seen on any street.

On a chilly Canberra evening, two young guys smoking in a laneway complained to the ABC about the tobacco tax.

Silhouette of a man smoking a cigarette against white background.
About 8.8 per cent of Australian adults smoke regularly, according to the latest statistics.()

One of them pulls a packet of cigarettes out from his pocket — Marlboros in their original, trademark red packaging.

“Why would I buy the more expensive ones?” he questions.

This is a black market that has spiralled ‘out of control’, robbing taxpayers and legitimate retailers of billions of dollars.

And recently, it’s taken a dark and dangerous turn.

In Victoria, organised crime has long been synonymous with the tobacco trade.

But last year, the underworld turf war exploded into public view.

Stores from Melbourne to Ballarat, selling illegal tobacco and vapes, have been torched by rival gangs vying for control of what’s become a very lucrative black market. 

Fire fighters stand out the front of a tobacco store following a fire with a car through the store front.
A suspicious fire at a tobacco store in Seville.()
a completely blackened tobacco shop
Fire also claimed a store in Ballarat.()

Tobacconists in Seville and Ballarat were targeted by arson attacks early this year.

In some cases, store owners are coerced into selling the illegal wares, warned by crime syndicates to “earn or burn”.

Taskforce Lunar — set up by Victoria Police late last year — has so far arrested 62 people, including minors, as part of their investigations into nearly 60 arson attacks in the space of 12 months.

Victoria is undoubtedly at the epicentre of the tobacco wars but this is a nation-wide problem. 

Rohan Pike is a former Australian Federal Police (AFP) and Australian Border Force (ABF) officer who helped establish the original tobacco strike team, when the black market was, as he describes it, a “modest problem”.

He says criminal syndicates and outlaw motorcycle gangs have had their claws in tobacco since the days when the crop was legally harvested in Victoria.

Back then, loose tobacco, or chop chop, would fall off the back of a truck and into the hands of smokers, tax-free.

To this day, police are still detecting — and destroying — illegal tobacco, often concealed among other crops like this one, worth $20 million, near Parkes in New South Wales.

Police in tobacco crop
a bulldozer is used to destroy a tobacco crop growing on a rural property
small tobacco plants growing in rows on a farm with a blue sky

The Illicit Tobacco Taskforce destroyed more than 264 tonnes of illicit tobacco since it was established in 2018.

But organised crime networks have become more sophisticated and as demand for cheap cigarettes has grown, they’ve adapted their operation from farming to importation.

“The number one driver of the problem is the enormous price of tobacco,” Pike says bluntly.

“We’re easily the most expensive country for tobacco in the world and it was natural that crime was going to follow.”

Man wearing blue shirt standing in front of a convenience store with a Red Bull logo behind him.
Rohan Pike is a former AFP and ABF officer who set up the original illicit tobacco strike team.()

Tipping point in war on smoking

Taking a look at the pack of Manchester Classic Gold from that Canberra convenience store, Pike concludes they’re most likely from the United Arab Emirates and the counterfeit packaging is designed to deceive the ABF and police.

Three packets of illicit tobacco in their original packaging.
Packets of illicit tobacco circulating in Australia, most likely imported from the United Arab Emirates and Japan.()

Tobacco is a dangerous product: it’s one of the leading causes of preventable illness and death in Australia.

Around two in three people who smoke throughout their lifetime will die from their habit, according to a study published in BMC Medicine magazine.

Australia has “a lot to celebrate” when it comes to tobacco control, with an enviably low smoking rate of about 12 per cent of the adult population.

Silhouette of a man smoking a cigarette against a dark blue sky.
About 8.8 per cent of Australian adults smoke regularly, according to the latest statistics.()

It’s a testament to landmark plain packaging laws, advertising bans, restrictions on who can smoke and where, and a concerted, decades-long public health campaign.

But the cornerstone of tobacco control efforts has been tax.

Silhouette of a man smoking a cigarette against a dark blue sky.
About 8.8 per cent of Australian adults smoke regularly, according to the latest statistics.()

At nearly $1.30 per cigarette, the excise alone on a packet of 25 cigarettes is $32, before you add GST. That’s what smokers are avoiding when they buy under-the-counter products.

In the past decade, the excise has risen by 210 per cent, pushing the price of a packet of Winfield 25s from about $23 in 2014 to $47 today.

More popular brands, including Benson and Hedges, retail for around $65 for a pack of 25s.

Pike, who now works as an illicit trade advisor for Retail Trade Brand Advisory, believes the moment cigarettes hit the $50 mark was the tipping point. 

“Smokers began to view the price as extreme and even law-abiding people turned to the illicit market,” Pike says.

Tax Office analysis estimates the size of the illicit market was at least $2.3 billion in 2021/22, around 13 per cent of the tobacco market. 

Pike believes it’s grown to at least 25 per cent, an estimate backed by tobacco giant Philip Morris which told a parliamentary inquiry that one in four tobacco products consumed in Australia is illegal.

Wide shot of a man wearing a black jacket and blue checked shirt walking through an open air mall.
Ex-detective Rohan Pike believes the price of cigarettes drives everyday people to buy fakes.()

That is the demand organised criminals are exploiting.

As criminologists James Martin and David Bright from Deakin University explain, regulations can be used effectively to limit access to harmful products and reduce harm — that’s the “sweet spot”.

But as the history of prohibition has taught us, when restrictions become “onerous”, they can create black markets.

“The violence unfolding on our streets suggests our current tobacco and vaping policies are failing to strike this balance,” they wrote in The Conversation. 

Tax boon from tobacco 

The tobacco excise has undoubtedly helped reduce smoking rates but it’s also grown to become a huge cash cow for successive federal governments.

Historically, the tax was increased twice yearly in line with inflation, but in 2010 – along with its plain-packaging reforms — the government started taking a more aggressive approach.

In that year, the tax was increased by 25 per cent, followed by annual hikes of 12.5 per cent between 2013 and 2020.

These hikes were in addition to the twice-yearly increases, which are now pegged to average earnings rather than inflation.

The Albanese government will increase the excise by a further five per cent each year for the next three years (on top of the twice-yearly increases) as part of its plan to drive smoking rates down to five per cent by 2030.

This will be accompanied by a ban on menthol cigarettes and fresh health warnings on both packets and cigarettes themselves. 

Health Minister Mark Butler reckons smoking rates have “flatlined” and a fresh crackdown is required.  

“I am not going to raise the white flag on smoking at 12 per cent of adults,” Butler declared when announcing the excise hike.

Nicotine consumption has remained “largely steady” in recent years, according to the latest National Wastewater Monitoring Report.

However, the report – which cannot distinguish between cigarettes, nicotine patches and vapes – also warned of a “short-term” increasing trend in nicotine consumption that’s been emerging since 2022.

Smoking rates are highest in regional areas, among First Nations Australians, low-income earners and people with a mental illness, meaning it’s these groups bearing the brunt of the tax. 

Revenue from the excise peaked in 2019 when the government raked in $16.3 billion.

For context, this is more than the Commonwealth spends on the Child Care Subsidy or the JobSeeker unemployment benefit each year.

But it’s been on a steep decline ever since and budget papers reveal the tax take has consistently fallen short of Treasury’s forecasts.

This financial year, the tax was originally forecast to raise $15.3 billion.

In the budget, that’s been slashed to $10.5 billion, which represents the lowest tax take since 2016.

Cigarette packet and lighter
The tobacco excise keeps climbing but revenue from cigarettes has been declining over the years.()

Over the next five years, forecast revenue has been slashed by $12.5 billion — a “significant downward revision” — according to the budget papers, reflecting “weaker than expected tobacco imports … and consumption”. 

If smoking rates have “flat-lined”, as the health minister suggested, then these figures appear to back Pike’s warning that Australians are not necessarily quitting smoking in big numbers — they’re turning to illegal cigarettes and vapes.

Black market trade on fire

From the Australian Border Force headquarters in Canberra, Assistant Commissioner Erin Dale heads up the Illicit Tobacco Taskforce (ITTF), which includes officials from the ABF,  Tax Office, Australian Criminal Intelligence Commission and the AFP.

The numbers, Dale says, tell the story.

Woman wearing Australian Border Force uniform looking at the camera with a serious expression
ABF Assistant Commissioner Erin Dale is the head of the federal government’s Illicit Tobacco Task Force.()

When the taskforce was established in 2018, more than 400 million cigarette sticks were detected and seized at the border. 

Last year, it was 1.7 billion.

That’s a “400 per cent increase” in five years, says Dale.

“There’s no secret there’s been a huge increase in demand.” 

Crime syndicates are flooding the border, importing illegal cigarettes in large and small quantities through international mail, air and sea cargo, and “mis-declaring” or “mis-identifying” containers in an attempt to evade authorities.

For them, it’s considered a “low risk, high reward” crime because the penalties are far lower for importing illicit tobacco than they are for drugs like cocaine. 

A box full of packets of illegal cigarettes.
Illegal cigarettes seized during an ABF-led raid. ()
A box full of packets of illegal Double Happiness cigarettes.
Illegal cigarettes seized during an ABF-led raid. ()

The taskforce is constantly adapting and adjusting its approach, using intelligence to identify the supply chains, working with international counterparts to disrupt the trade in source countries and detecting anomalies in air and sea cargo to work out which containers to search.

It’s a complex problem that Dale says cannot be solved by the taskforce alone. 

“Organised crime is looking to make profits from the demand that exists,” Dale says. 

Woman wearing blue Australian Border Force uniform looking at the camera with a serious expression
ABF Assistant Commissioner Erin Dale is the head of the federal government’s Illicit Tobacco Task Force.()

“By purchasing illicit tobacco, you’re funding organised crime, and enabling organised crime to undertake other sinister activities.”

After the interview, the cigarettes acquired by the ABC were handed over to be destroyed safely.

Stamping out black market ‘like unscrambling an egg’

Because it’s a federal tax, responsibility for cracking down on the black market has traditionally fallen to the federal government. 

It recently committed an extra $188 million dollars over four years to bolster the taskforce’s efforts and to create a vaping and illegal cigarette commissioner — a position that’s still yet to be filled.

But it’s clear huge volumes of illegal cigarettes are still making it through the border, shifting the problem to the states where there’s an “ad-hoc” approach to policing it.

Depending on the jurisdiction, a patchwork of local government, health department officials and police are responsible for enforcing the penalties for buying and selling illegal cigarettes.

Three officers wearing bullet-proof vests with Australian Border Force written on them.
ABF officers raid a store in Sydney as part of Operation CALOR, set up to disrupt the black market for tobacco.()

In New South Wales and Victoria — the two most populous states — it’s nearly impossible to monitor shops for compliance because there’s no licensing regime for tobacco.

Retailers need to pay an annual licensing fee and pass a “fit and proper” test to sell lotto tickets and alcohol, but almost any shop can sell cigarettes. 

After dragging its feet for years, Victoria has promised to introduce a licensing regime by Christmas, no doubt spurred by the state’s underground turf war.

It’s a long overdue reform, according to Fred Harrison the CEO of Ritchies stores, a chain of independent retailers in Victoria.

Man with a serious expression sitting down, looking at the camera.
Ritchies Supermarkets CEO Fred Harrison says in the past two years, his business has lost $120 million in legitimate tobacco sales as the black market has exploded. ()

His business has lost $120 million in legitimate tobacco sales in the past two years, he says, as the black market has “deteriorated alarmingly”.

“Each year now for the last three years, the loss in legitimate sales has been greater and greater, to the point where illicit is now at its highest penetration,” he says.

“People have turned to illicit, mainly, because it’s so cheap.”

But the costs to his business are even greater when you consider the fact that 62 per cent of customers who go to an IGA specifically to buy tobacco will also purchase two or three other items like milk and bread.

Harrison believes it’s simply become “too easy” to buy illegal cigarettes and both the penalties imposed, and surveillance by authorities are “spasmodic and minimal.”

“It’s a little bit like trying to unscramble an egg,” Harrison says.

Becky Freeman, an associate professor of public health at the University of Sydney, acknowledges the only reason people buy black market cigarettes is because “cigarettes are expensive”.

Blonde woman wearing a black jumper, standing on a staircase, shot from above.
Becky Freeman, an associate professor of public health at the University of Sydney, says Australia has ‘a lot to celebrate’ when it comes to tobacco control.  ()

But the answer, she says, lies in enforcing existing laws and controlling the supply, to make illegal cigarettes harder to come by.

“We can’t just put our hands over our eyes and our fingers in your ears and pretend it doesn’t exist,” she says.

“But the solution is not to reduce the price. The solution is to manage the supply chain.”

Freeman points to Australian Institute of Health and Welfare data which shows daily smoking rates have fallen sharply from 24 per cent of adults in 1991, to 11 per cent in 2019 and about 8.3 per cent in 2023.

Those rates are even lower among teenagers suggesting “we’re really raising a smoke-free generation”.

But alarmingly, that same generation is now turning to vapes or e-cigarettes, which have exploded in popularity among younger Australians.

young man with brown hair wearing hooded jacket while using vape
Vaping remains trendy among young people in Australia.()

The federal government is quickly tightening the screws on that market.

Anyone using a vape needs to obtain a prescription and in March, it became illegal to import vapes into Australia unless they’re destined for a pharmacy, making it easier for Border Force to determine whether imports are legitimate.

The final piece of the government’s vaping reforms is being debated in parliament to “close a loophole” and ban the sale of non-nicotine vapes in retail stores (many of which do in fact contain nicotine).

Australia is the only country in the world with a prescription model, and some fear this highly restrictive approach will see vapes go the same way as cigarettes.

Flavourhype Distribution owner Greg Isaacs — who has a vested interest in maintaining access to e-cigarettes — told a parliamentary inquiry that most of his customers had told him they would “most likely resort to the black market or just go back to smoking”.

“Pharmacies are pricing these products to be more expensive than a pack of smokes,” he says.

But these controls, Freeman says, will make enforcement far easier for authorities because, unlike cigarettes, only pharmacists will be able to legally sell vapes once the legislation passes.

At odds over cost

Freeman says a licensing regime for tobacco retailers, in every state and territory, is the first step towards disrupting the illicit tobacco trade. Eventually, she’d like to see the number of licenses capped.

Pike wants to see harsher penalties for buying and selling illegal cigarettes and believes enforcing these rules is a job for police, not health and local government officials. 

But he and Freeman strongly disagree on the question of pricing.

Man wearing light purple shirt standing in front of a shop window with his reflection in the glass
Rohan Pike is a former AFP and ABF officer who set up the original illicit tobacco strike team.()

“The only real way to reverse that trend is to reduce the price of tobacco,” Pike says, arguing it would push existing smokers back to legal cigarettes.

“But that is something that most politicians and policymakers just simply can’t stomach.”

As a public health expert, Freeman certainly can’t stomach it. She says cutting the price of cigarettes would play into the hands of Big Tobacco.

“We know that price is a huge motivator for people to quit smoking,” Freeman says, adding Australia’s tax regime has set a “gold standard” globally.

University of Sydney associate professor Becky Freeman looking concerned
Becky Freeman thinks the high price of tobacco has been a deterrent for young people taking up the habit.()

In the meantime, smokers who know where to get cheap ciggies aren’t likely to stop — why would they pay double for something they already know is bad for them?