Jul. 9 2004
Washington, DC — The European Union (EU) announced today that, in order to avoid a lawsuit over cigarette smuggling, Philip Morris International has agreed to implement a series of necessary anti-smuggling measures and pay up to $1.25 billion over the course of 12 years. For years, the tobacco companies have denied either that they had a role in cigarette smuggling or that they could do anything to prevent it. Philip Morris’ agreement with the EU casts serious doubt on both claims. It is doubtful that any corporation would resolve a potential lawsuit for over $1 billion unless they felt the case against them was strong. While this agreement establishes some strong measures to combat smuggling, it should serve as a starting point for similar efforts in the United States and elsewhere. The agreement should not be a substitute for new anti-smuggling laws and treaties, such as the pending Framework Convention on Tobacco Control, that are badly needed.
Cigarettes are the world’s most widely smuggled legal consumer product (although the problem is smaller within the United States). According to legal documents filed in a lawsuit by the EU in U.S. courts, one in three of the world’s exported cigarettes – about 400 billion cigarettes each year – turns up as illegal contraband. Despite the tobacco companies repeated denials of involvement in cigarette smuggling, news reports and lawsuits indicate that the companies have facilitated smuggling to penetrate closed markets, increase the sale of their brands by making them available at reduced prices, and undermine government efforts to increase cigarette taxes and import duties in order to reduce tobacco use. For years, tobacco company executives have fought cigarette tax increases and other tobacco control measures by arguing that they would lead to increased cigarette smuggling. This agreement shows not only that the companies have the ability to control smuggling, but that they could have been doing it all along.
The EU agreement requires Philip Morris to implement several measures to combat cigarette smuggling that the tobacco companies have said that they couldn't do. These include improved tracking, tracing, labeling and record-keeping requirements to help law enforcement determine the source and track the path of contraband cigarettes; better monitoring of its sales and distribution practices and vendors to ensure they are in compliance with legal requirements; and establishment of additional monetary penalties Philip Morris must pay if its cigarettes continue to be smuggled in large quantities.
We applaud the European Union’s efforts to combat cigarette smuggling and hold the tobacco companies accountable for their involvement in it. This stands in stark contrast to the United States. The U.S. must move immediately to address the problem of cigarette smuggling, which undermines efforts to reduce smoking, especially among children, and costs governments much-needed revenue through the evasion of cigarette taxes and duties. The Bureau of Alcohol, Tobacco, Firearms and Explosives has taken steps recently to investigate and crack down on cigarette smuggling, but weak laws have hampered these efforts. The PACT Act (S. 1177), which has passed the Senate, would significantly improve the situation if passed into law. Importantly, the PACT Act would remove a significant obstacle to federal law enforcement action by reducing the number of smuggled cigarettes necessary to make interstate smuggling a federal crime from 60,000 to 10,000. In addition, U.S. Representatives Lloyd Doggett (D-TX) and Todd Platts (R-PA) and Senator Ron Wyden (D-OR) are preparing to introduce more comprehensive legislation to further strengthen U.S. laws against cigarette smuggling. Among other things, this legislation would increase civil and criminal penalties against cigarette smuggling; establish labeling, tracking and record-keeping requirements for cigarette shipments; and tighten regulations governing block sales of cigarettes. This bill and the PACT Act both make good sense as a matter of law enforcement, public health policy and international leadership by the United States. They would also protect badly needed state revenue. Congress should quickly take steps to enact each into law.
The measures to combat smuggling included in the EU/Philip Morris agreement should also be just a starting point for countries when working to pass a smuggling side-agreement to the international tobacco treaty, the Framework Convention on Tobacco Control.