BRUSSELS (AP) -- The European Commission and British American Tobacco Plc. announced Thursday they will cooperate to curb the trade of illegal cigarettes, which costs EU governments euro10 billion in lost revenues annually.
BAT, the world's second largest tobacco company, will work with the EU to combat the trade in counterfeit and contraband cigarettes and contribute euro134 million ($200 million) to that over the next 20 years.
EU Taxation Commissioner Algirdas Semeta said it was important in economically tough times that "we take every measure we can to stop this costly illegal activity."
In a statement, Jack Bowles, head of Western Europe for BAT said his company was "sending out a very strong message to the criminals (that) we will make a serious impact on the levels of illicit trade in tobacco."
EU officials said BAT will share its intelligence about the illegal tobacco trade, tighten controls over its own supplies, monitor its clients better and boost tracking and tracing of tobacco packaging.
Contraband cigarettes are genuine, but come from low-tax countries and are illegally resold elsewhere at higher prices. Counterfeit cigarettes are imitations of the real product.
Under the deal with the EU, BAT will embed scannable data in some packaging so its cigarettes can be tracked to the sales points and will make payments to the EU in case of large tobacco seizures in the future.
BAT officials said they were cooperating with the EU because their company is losing money -- euro120 million (euro93.3 million) last year alone -- to criminals engaging in tobacco fraud.
China, Russia and Ukraine are the biggest sources of counterfeit cigarettes but law enforcement agencies are reporting a rise in illegal factories inside the EU.
Counterfeit cigarettes from China often come in containers holding 10 million cigarettes but are also smuggled by trucks, trains and private cars.
Genuine cigarettes are smuggled from a variety of nations outside the EU, notably Russia, Ukraine, Moldova, and Belarus, according to EU data.
In 2008 -- the last year for which complete data is available -- EU governments reported that they had seized a total of 5.2 billion illegal cigarettes.