EU demands crackdown on Gibraltar tobacco smuggling

In its report, which will not be made public, Olaf said that there had been "a significant increase in the size of the Gibraltar market for cigarettes over the past four years" and that there were “indications of the involvement of organised crime".

Olaf called on Spain and Gibraltar, which is classified as a British overseas territory, to "initiate judicial proceedings".

“As Olaf can carry out only administrative investigations, it is for those authorities to decide what further actions may be necessary," it said in a statement on Monday (11 August).

The investigation was requested by Madrid following a long-running dispute with Britain about border controls in Gibraltar.

The Spanish government stepped up its border operations last year, introducing random spot-checks, claiming that the extra surveillance was needed to combat rising levels of tobacco smuggling.

Cigarettes are around 40 percent cheaper on the British "Rock" than in Spain.

More than 139 million smuggled cigarettes from Gibraltar were seized by Spanish authorities in 2012.

But the UK government argued that the extra checks, at a border which sees 10,000 cars cross per day, were a politically motivated attempt to disrupt normal life.

For its part, the European Commission waded into the row last autumn, calling on Spain to reduce random border checks and to "develop the exchange of information with the United Kingdom on tobacco smuggling."

Meanwhile, London was told to increase "non systematic and risk-analysis based checks on travellers and their belongings" in a bid to crack down on smuggling.

The two countries have, for centuries, disputed the sovereignty of the territory on Spain's southern coast.