The booming industry of black-market cigarettes

The same pack of Marlboro that a Lithuanian smokes for 2.50 euros costs an Irishman more than triple that amount (8.50 euros). The difference is in the taxes, which do not smell and are not bad for one's health - at least not yet. Tobacco companies believe that these high taxes encourage smuggling, but this argument is disputed by the experts. Whatever the case, it is indisputable that thousands of Spaniards have jumped on the tobacco contraband train over the past year, a reflection of the effects of the crisis.

Yes, it's true - there is a contraband revival. Just like in the 1990s, retail trade and activity on Spain's two problematic borders, Andorra and Gibraltar, are on the rise once again. It might even be romantic if it weren't for the fact that the state lost 1.2 billion euros in taxes in 2011 (and that's before the lost amount of value-added tax from tobacco is factored in), the first time this has occurred in 25 years. That's a lot of money in these times of far-reaching budget cuts.

On March 2, a minor incident took place at La Línea de la Concepción, a Spanish town on the Gibraltar border, which went unnoticed by most except the odd local newspaper. That day, dozens of decidedly unfriendly Spaniards gathered to protest in front of the border guards there, demanding that they carry out their duties with just a little less zeal - and that they stop hassling people who come through the border with a carton of cigarettes. In short, they were asking the border guards to turn a blind eye to smuggling.

Though the protestors managed to get a meeting with a higher-up in the administration, little is known of what came of it, beyond the fact that they were told that orders had come down from above instructing guards to be stricter as of March 1.

Now, people are allowed only one carton of cigarettes per month. In reality, this is simply in compliance with the new rules in the contraband law, which was introduced by parliament in the middle of last year.

But it seems that over the past year, going to Gibraltar to buy cigarettes has become a means of earning a living for many residents in the area. Making a three-euro profit per carton, the work - which is also not restricted by schedules, agreements, bosses or labor reforms - is enough to convert someone who is out of work into a mileurista (the term used for anyone earning 1,000 euros a month). That's not bad for an area with an unemployment rate currently running at 40 percent, and with zero possibilities for growth on the horizon.

Trade and activity on the Andorra and Gibraltar borders are on the rise 

The origin of the business is clear: a carton of cigarettes in Gibraltar costs 25 euros. In Spain, it costs 42 euros - a 17-euro difference. Moreover, smuggling has never been frowned upon in those parts; in fact, it has been a longstanding tradition in Campo de Gibraltar, the Cádiz county bordering the British territory.

But the smuggling that's going on now is not just a colorful anecdote nor is it a mere reflection of local habits. Indeed, there are few places in the world where smuggling is so blatantly obvious. In 2009, there were 11,415,967 crossings at the Gibraltar border. This figure went up by a million in 2010, and jumped by nearly another million in 2011, to 13,337,844 crossings. These extra two million represent, in the majority of cases, people who are going to Gibraltar to buy tobacco. Vehicle crossings have increased by half a million.

So how many people are actually involved in these extra crossings? And how much employment is the black market providing in Andalusia? For many months all you needed to do to figure that out was to sit at the border and count the number of motorcycle crossings. Simple mathematics: 60 motorcycles per minute; that is, 60 coming in and a similar number coming out, part of a tireless parade. This is big-time smuggling, no matter how you look at it.

That said, the revival of contraband is not really an issue of borders - it is more about a change in circumstances.

"At the end of 2010, we witnessed a paradoxical situation," a Treasury spokesperson says. "There was a change in the type of contraband. There were fewer large-scale seizures of fake tobacco products, which were never meant for Spanish consumption, and a resurgence in traditional cigarettes - maybe because the crisis has created a wider market for them, because of changes to the rules, to demand and to many other areas."

The official figures are actually misleading. Until 2011, they point to an insignificant contraband problem - illegal tobacco was not generally consumed in Spain. Contraband that entered the country, sometimes in very large quantities, was destined for other markets. This is evident from the number of cigarettes seized in police operations at ports where well-established groups were bringing in containers holding large quantities of cigarettes (18 million packs in 2007, 15 million in 2009, and just over eight million in 2011).

Going to Gibraltar to buy cigarettes has become a means of earning a living

One of these operations, named Algarrobo, led to the arrest of Manuel Gulías, a big-time Galician smuggler, with personal assets valued at more than 12 million euros and at least 60 properties in his name.

Gulías was a traditional smuggler. He had not diversified his business to follow in the footsteps of old-time smugglers in Galicia and in the south of Spain, who moved on to the drug-trafficking business, such as the Charlin and Oubiña clans and Sito Miñanco. Gulías remained loyal to tobacco, but of a different kind: fake tobacco, not the luxury American brands. Fake tobacco normally comes from China, and has a similar "American flavor" and packaging, but nobody has any idea what it is made of because it is not subject to any kind of quality control. In addition to this pirated tobacco, another type known as "cheap whites," a no-name brand increasingly favored by the immigrant market in Spain (Yesmoke is the most popular) also circulated in significant quantities.

Lately, however, China has lost its monopoly on fake tobacco. According to a spokesperson for Phillip Morris, "80 percent of the forged products of our brand come from China, but other counterfeiters have begun to open illegal plants in the EU. Since 2005, more than 50 of these fake tobacco plants have been closed down in countries such as Germany, Lithuania, England, Poland, Czech Republic, Slovakia and Greece."

There are no firm figures on the exact volume of contraband tobacco in the world today, but a study last year by experts Luk Joossens and Martin Raw includes the following information from 1996: "The gap between global tobacco exports and imports was 42 percent, which is the percentage presumed to be contraband."

Independent experts believe tobacco companies tend to exaggerate the problem in order to boost their requests for lower taxes. However, experience has shown that contraband is greater in countries with lower prices or taxes, and according to the World Bank, in countries with higher rates of corruption or tolerance for smuggling.

Black markets are also more common in countries with lower rates of taxation. A 1998 study found that the nations with greater volumes of contraband (Spain, Austria and Italy) have much lower taxes than those countries with low levels of contraband (France, Great Britain, Ireland, Sweden and Norway). However, the problem facing Spain right now (or rather, the Spanish Treasury) is not so much fake tobacco as it is illegal tobacco - that which is manufactured in legal plants but on which no taxes are paid and which comes in over the border. This tobacco is now being smoked in Spain.

Until 2011, illegal tobacco was not generally consumed in Spain

"In a recent study," says a spokesperson for Phillip Morris International, "the percentage of tobacco products in Spain on which no taxes are paid increased from 4.2 percent to 9.5 percent in the fourth quarter of 2011 over the same period the previous year." The report states that in the regions of Galicia and Andalusia, the increase has been more than 100 percent, from 13.8 percent in the last quarter of 2010 to 29.2 percent for the same period in 2011. All these figures put the spotlight on Andalusia.

There is probably no other region in Spain where such a high quantity of contraband tobacco is being smoked nor which has contraband networks with collaborators numbering in the hundreds. When the new Law for the Repression of Contraband came into effect in June of 2011, things went haywire on the Gibraltar border. The number of cigarette packets seized doubled, though these figures were not the most noteworthy. More striking are those concerning the number of vehicles involved: 2,059 (as opposed to 989 in 2010), the majority of which are motorcycles.

Even though tobacco smuggling is a long tradition in Campo de Gibraltar, it has never reached these proportions before, and this is most likely due to the devastating effects of the economic crisis in that part of Spain. Hanging around the border, it is still easy for any casual observer to spot the people waiting for a change in border guard (which normally happens every 20 to 25 minutes) before they enter or exit; to notice those waiting to make the pick-up sitting at nearby street cafes with notebooks where they keep the accounts; to observe the cars waiting to load or unload nearby; and to realize how there is a lot of busyness that has nothing to do with tourist visits to the Rock. One other thing is clear at Gibraltar's border: there are Spaniards and there are Romanians, and they occupy two separate worlds.

Operating at a slightly higher level are groups that have rented residences or garages near the border where they receive "those who bring tobacco and those who come to buy it," says a member of the Border Security Service. The existence of groups with more than 100 "employees" is known, in addition to networks with tentacles stretching throughout Andalusia.

Complaints from tobacconists are constant: sales in Cádiz have dropped by 34 percent (and 50 percent in actual cigarette packets). "In La Línea, there are only three tobacconists left of the nine that used to be there and those are going to close temporarily," says José Bermúdez, vice president of the Association of Tobacconists.

Will the border checks be enough to eliminate this problem? Not according to the experience of investigators, who say that when it comes to contraband, where there is a will, there is a way. People will just find other means of skirting around the border. Indeed, there is already talk of motorboats hanging around Gibraltar.

The tobacco counterfeiters have begun to open illegal plants in the EU

"It represents a living for certain segments of the population during times of crisis," says Juan José Uceda, a spokesperson for the La Línea Platform for the Unemployed. "Families are coming here from other parts of Andalusia. Eliminating it would mean further worsening our plight."

Ultimately, then, the reappearance of contraband in Spain has a different explanation than simply increases in taxes: today, some types of contraband tobacco are creating employment.