Just days into the European Commission’s new mandate, Moldovan President Maia Sandu met with her EU counterparts in Brussels for high-level talks at a decisive moment in her country’s  geopolitical journey. Held on 10 and 11 December, Sandu’s discussions with EU executive chief Ursula von der Leyen and enlargement commissioner Marta Cos notably concluded with the Commission’s approval of a €50 million funding package to support Moldova’s governance reforms, public financing needs and macroeconomic stability.

Both sides view this Macro-Financial Assistance (MFA) for Moldova programme as a key facilitator of the country’s European integration – an ambition which received an important, if hard-fought, boost in October with the successful EU membership referendum despite Russia’s interference. Yet, in paving the way for Moldova’s EU accession and offering a bold Kremlin alternative, the Commission must address its own governance lapses in an area of particular relevance to Moldova – the rising illicit tobacco trade.

Fragile progress towards EU dream 

Over the past year, Moldova has achieved major milestones in its EU journey, with the Commission officially opening accession negotiations last June and von der Leyen suggesting that the EU executive would be “opening a pivotal cluster of accession negotiations in 2025.”

Sandu’s spirited fight for Moldova’s European future, boosted by the government’s recent progress in bolstering the rule of law, tackling corruption and reining in the informal economy, have been cited as vital in progressing the country’s EU integration. While its recent EU referendum has seemingly confirmed this momentum, Sciences Po researcher Florent Parmentier has rightly observed that the uncomfortably-thin 50.38% majority “weakens the pro-European image of the population and the leadership of Maia Sandu.”

Although Sandu defeated her Kremlin-aligned presidential opponent in November, evidence has emerged of Moscow’s widespread interference in the EU referendum. Beyond Russia’s typically-aggressive misinformation campaigns, a Kremlin-funded vote-buying scheme is believed to have tainted up to a quarter of the ballots. Moldova’s vulnerability to Russian manipulation reflects its population’s deep discontent over soaring inflation, rising energy prices and persistently-high poverty, meaning the EU’s rebuttal must enhance Chisinau’s capacities to support its citizens.

Illicit tobacco at heart of Moldova’s challenges

As a major drain on public finances, health and socioeconomic well-being, Moldova’s rising illicit tobacco trade represents a key area for cooperation. This is doubly true considering that the country’s breakaway Transnistrian region – essentially a Russian military protectorate along the Moldova-Ukraine border – has long impeded progress in curbing cigarette smuggling, as well as the fact that Russia’s war in Ukraine has driven demand for illicit tobacco from Moldova to EU countries.  

This emerging dynamic in Europe’s illicit trade was notably highlighted at EUBAM’s annual Task Force Tobacco meeting in Chisinau on 31 October. EUBAM has consistently described Transnistria as a “hotspot for cigarette smuggling,” with its porous borders, lack of Moldovan authority oversight and overprovision fueling the region’s illicit market.

In 2020, nearly half of the 3.3 billion cigarettes imported to Moldova went to Transnistria, which represents less than one-fifth of the population – a staggering imbalance which cost Moldova nearly €60 million in unpaid import taxes. Moreover, these figures suggest the tobacco industry’s well-documented practice of oversupplying small, under-regulated markets to facilitate smuggling to larger countries – exactly as EUBAM has found in Transnistria. 

Avoiding anti-smuggling pitfalls  

In this climate, EUBAM has rightly called for enhanced collaboration and technological solutions to tackle Moldova’s illicit tobacco trade, which rose nearly 4% last year, causing a doubling of tax losses to €23 million while maintaining its status as one of the EU’s largest sources of “illicit whites” – particularly for eastern member-states. Yet, recent proposals in this space leave much to be desired. 

Speaking at the Chisinau-hosted TAXCON’24 conference in September, Swiss-based international trade consultant, Viktor Zemlicka, notably advocated for Moldova to gradually adopt the EU’s track and trace system – this despite the considerable controversy this solution has generated over its tobacco industry links and the European Commission’s lack of transparency in the contract’s tender process.

A former Philip Morris International (PMI) employee, Zemlicka’s praise of EU track and trace and assertion that Moldova, “as a country aspiring to EU integration,” must learn from and start implementing the system, should perhaps not come as a surprise considering that its core operators have inherited the PMI-developed Codentify technology. In 2004, PMI agreed to pay €1.25 billion to the EU and member-states to settle contraband charges – a deal which Brussels refused to renew in 2016 over its ineffectiveness, making any PMI-related endorsement of the EU system far from reassuring. 

Dubious presence of industry-linked firms 

Given Codentify’s rejection by public health authorities and researchers for failing to meet the WHO Framework Convention for Tobacco Control’s (FCTC) industry independence requirements, Big Tobacco continues to push its implementation through private companies that obscure the technology’s industry connections. 

Swiss firm Inexto, for instance, provides key components for the EU’s system despite deriving 70% of its revenue from tobacco companies – considerably above the WHO FCTC-imposed limit. What’s more, several Inexto executives, including former CEO Philippe Chatelain, helped develop Codentify while employed at PMI, before falsely promoting Codentify as an independent, compliant technology and pushing its implementation in countries such as Lithuania, notably in collaboration with French IT company Atos, which has equally been given a key role in the EU’s flawed track and trace system.

Along with Inexto and Atos, Swiss firm Dentsu Tracking remains a key provider in the EU track and trace, despite its own deep ties to Codentify via its acquisition of Codentify co-developer, Blue Infinity. Concerningly, Dentsu was selected in shadowy conditions, with its initial five-year contract from 2018 extended late last year without an open tender process – a fact that has generated significant conflict-of-interest scrutiny since its hiring of former Commission official Jan Hoffman shortly after initially winning the lucrative contract.

MEPs and NGOs lighting path forward 

Earlier this year, a group of MEPs, leading researchers and anti-tobacco NGOs published a White Paper exposing this Big Tobacco weaponisation of firms like Dentsu and Inexto to undermine the EU’s tobacco control efforts. Crucially, the report calls for the EU to implement a WHO FCTC-compliant track and trace as part of the upcoming Tobacco Products Directive revision – an urgent need underscored by the surge in Europe’s illicit trade.

Until it does so, the EU will be in no position to lecture Moldova on track and trace, with Zemlicka’s recent claims about the EU and UK systems’ effectiveness blatantly disregarding the data. Indeed, since the system’s launch in 2019, France’s parallel trade has grown annually due to industry oversupply in neighbouring countries like Andorra, while Belgium’s concurrent smuggling spike has primarily stemmed from manufacturer-driven overproduction in Bulgaria. Unlike the WHO FCTC’s ITP Protocol, EU track and trace fails to address these major sources of illicit tobacco.

As Moldova moves forward with its plans to develop a track and trace system, following last year’s parliamentary approval to join the ITP Protocol, it must remain vigilant and avoid replicating the EU’s flawed approach. In parallel, the Commission must remedy its major transparency flaws if it wishes to retain legitimacy in integrating its eastern neighbours. Looking ahead, this undertaking will be critical for Moldova’s fiscal health and European accession. By working together and tackling their respective challenges, Chisinau and Brussels can build a foundation of accountability and economic stability crucial for a shared European future.