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Authorized Smuggling

Yesmoke's “Gray Market Shop” is going ahead full speed.

Yesmoke’s “Gray Market Shop” is going ahead full speed.

By May 22nd 2006, 971,750 cartons had been sold, purchased by “off shore” companies and shipped off to unknown destinations.

If the parallel market for cigarettes (“Gray Market”), is the primary source of supply for smuggling, the Gray Market Shop of the Yesmoke.ch has very probably become the online shop of smugglers.

Today all you need to do is connect to Internet, choose from an assortment of all the most popular brands, make your purchase (minimum = 1 container) and request shipment of the cigarettes to any destination in the world… all absolutely confidential. And it’s all done legally and openly. Prodigies of science and technology!

Introduction

It all began on that fateful November 16th 2004 at New York’s JFK Airport, with a memorable raid, worthy of the most thrilling Hollywood productions: over 200 agents attacked, before the astounded pilots, a DHL Boeing 767 that was carrying 150,000 cartons of cigarettes of the online store of Yesmoke.ch.

DHL Cargo

The “smugglers” airplane

The cigarettes had been purchased by American customers; the packs all had customs declarations and they were directed to the American Customs Inspection. But the Customs Dept. (we believe in order to not open a new legitimate and economical sales channel, that skipped over a long series of intermediaries and was not under the control of Philip Morris) for 5 years had always let these packages pass as “Duty Free” cigarettes.

In fact, the “Tobacco Napster,” as Yesmoke was called by the press, was selling, already back in January 2000, over 6 million cartons of cigarettes per year, of all tobacco brands and all producers.

“A blitz like this had never been seen before, the largest seizure of contraband cigarettes in the history of the United States,” the newspapers reported.

And soon after, at dawn on Friday December 17th 2004 (Friday the 17th is the unluckiest day of the year for Italians), Italian law enforcement forces raided the Italian offices of Yesmoke and the homes of its collaborators. Philip Morris, in this way thought it had completed the job started at J. F. Kennedy, probably hoping to see the Yesmoke owners arrested.

The “good guys” of the Guardia di Finanza (Italian Financial Police Force), at the time still a bit confused on the concept of cops and robbers, probably hoped to find great hordes of cartons of “Duty-free” cigarettes in these places and probably intended to apply the law rigorously, much to the joy of Philip Morris and its Italian supporters … but things didn’t go that way.

In fact, if one is found with more than 25 cartons of cigarettes without tax stamps (to be exact: 10 kg of tobacco, Law 291 bis, DPR 23/1/73, no. 43), even if they were bought at airport duty-free shops by a number of people or in several journeys, with the rigorous application of the law, the person can be arrested. Basically, it would be a case of “special” treatment.

But unfortunately, for Yesmoke’s foes, except for 2 grams of poor-quality Marijuana and a couple of packs of Marlboros purchased at the local tobacco shop, there was no sign of any “Duty-free” cigarettes.

In the days that followed, some compliant newspapers went wild publishing ridiculous articles on the event, made up mostly of falsehoods and coarse typically Italian intimidations that insinuated disturbing scenarios of Mafia association; these reports were no doubt inspired also by the superficial, groundless articles published shortly before in American newspapers.

Coming back to the American scene, unfortunately, starting from that fateful blitz on November 16th, 2004 at the New York Airport, all cigarettes coming from the “Tobacco Napster,” whatever the brand and maker, were systematically confiscated as soon as they arrived on American soil in the name of the “fight against smuggling.” And this in spite of the fact that the goods were always accompanied by all the necessary customs documents.

So Yesmoke, finding it impossible to sell cigarettes retail online in the States, where it had most of its customers, found itself stuck with its warehouses full of millions of cartons of cigarettes.

“Smuggling Lessons”

It’s clear to anyone that the parallel market, though completely legal, can be a source of supply for contraband. Moreover, manufacturers and authorities all agree that smuggling must be stopped, first of all, by not placing any more cigarettes on this market, but also, we would add, by removing those that are already there.

There is an interesting article, published on February 1st 2005 in the online magazine Baselinemag.com. The article is favorably mentioned in the OLAF site, and it was published on the Yesmoke.ch site in the same month. It involves Philip Morris and the purpose of its July 2004 Agreement with the European Commission, in which the Tobacco Giant undertook to pay 1.25 billion dollars to compensate, and close the issue of the damage done with cigarette smuggling.

According to this authoritative publication, the sum that Philip Morris has to pay, in instalments of 125 million dollars each year, interest-free, is inadequate and ridiculous. It is an agreement that needs to be more closely examined with appropriate investigations, we would add.

Romano Prodi

Romano Prodi

“I welcome the conclusion of the negotiations of this important agreement. This agreement is to the advantage of the EU to protect its financial interests,” said Commission President Romano Prodi.

In this article, the starting point is the 82,000 cartons blocked at the New Yorker Airport. Here is what Baselinemag says: “If you ask Philip Morris, these cartons are being shipped by an unauthorized distributor, and the company has taken Otamedia (Yesmoke) to court to stop its illicit (according to Philip Morris) supply chain in its tracks.”

“But regulators in Europe are now saying that doesn’t matter: it’s the responsibility of the manufacturer to control his supply chain from start to finish, regardless of who puts its products in the hands of consumers. In fact, the European Union ordered the producer to implement information systems that track and trace its cigarettes all the way from the manufacturing line to the retail shelf.”

In Baselinemag’s Feb 1st article, according to Jack Holleran, PM USA’s vice president of compliance and brand integrity “PMI now has a team of experts from its packaging, research and development, information-technology and brand integrity departments meeting monthly to evaluate new technologies that could tighten up supply chains.” But up to today, after two years, this team doesn’t seem to have come up with anything at all.

Beyond the noble words, the fact is that these mysterious new technologies probably have costs and the Tobacco Giants are not used to spending dollars so easily. Always according to Baselinemag: “While Philip Morris figures out how to respond, it may be cheaper and easier for the company to just pay the settlement.”

And it is on this point that Baselinemag shows it has very clear ideas: “…Government regulators in Europe have had enough – and could raise the hurt if Philip Morris doesn’t comply. The settlement is almost pocket change for Philip Morris, payable by its parent, Altria, which generated $9.2 billion of net income in 2003, on revenue of $60.7 billion.”

And we add, that today Philip Morris finds itself with a business, the Marlboro brand, with an estimated worth of 22 billion dollars on a worldwide scale. Marlboro’s retail market share is bigger than the next ten cigarette brands combined.

So, seeing that the goods continued, and today still continue to circulate in great quantities on the incriminated market, Yesmoke, after the JFK law officer blitz, acquired cigarettes, and stocked up its warehouse with the idea of offering the goods back to the manufacturers themselves, especially to Philip Morris.

The manufacturer of Marlboro cigarettes would surely be very happy to have the chance to remove its product from the parallel market without having to use any costly “new technologies”; it would keep its promise to the European Community regarding its fight against smuggling and would spend, altogether, just a little change.

To this end, in the summer of 2005, Yesmoke contacted Philip Morris, BAT, JTI, Altadis, Gallaher and Imperial Tobacco, and also the OLAF.

OLAF

On June 30th, Yesmoke wrote to Franz Hermann Bruener, director of the OLAF, and to Jan Walton, in charge of the Investigations & Operations Department, Customs Cigarette and Vat Section, asking what Yesmoke should do with over three million cartons of cigarettes purchased on the parallel market. Their answer was: “OLAF cannot compel a manufacturer or a company to purchase product from the market.”

Franz Hermann Bruener

Franz Hermann Bruener

In a subsequent courteous telephone conversation, Walton confirmed that “selling those goods was Yesmoke’s right,” and he added that he fully agreed that Yesmoke had neither the authority nor the means to distinguish between “good” and “bad” customers.

Walton also asked Yesmoke to inform the OLAF, if possible, on the destination of the containers of cigarettes sold, so that investigations could be held, we suppose.

And Yesmoke expressed its willingness to provide all the information possible, “so long as this is not incompatible with the right to privacy of the buyers.”

…Funny, isn’t it?

Philip Morris

Andre Reiman is Philip Morris’s “great specialist” in the battle against smuggling; according to the company’s official rhetoric, he is working without rest. Contacted by Yesmoke in the spring of 2005, he offered himself as intermediary to purchase the entire Yesmoke warehouse, even the goods of the other manufacturers: BAT, JTI, Imperial, Gallaher and Altadis. They too, had all been contacted by Yesmoke.

Andy Reiman

Andy Reiman

But months passed, and talks went on, without any sign of an agreement. Until November 7th 2005, when, pressured by Yesmoke that threatened: “if you don’t take back your stuff immediately, we will sell it all on the parallel market where we bought it,” the champion smuggling warrior, Andy Reiman wrote back: “If it is convenient for you to sell, then I suggest you do so … If and when we are in a position to do something, I will let you know.”

But when, on April 18th of this year, Yesmoke wrote to Andy, stating that, following his suggestion, the Philip Morris products had been sold and had ended up no one knows where, certainly in Cuba, and probably also in Iraq, in the Balkans, in China, and perhaps even in the European Union, the anti-smuggling campaigner seemed to get nervous and wrote: “We do not condone any of your sales you reference.”

Maybe Andy didn’t know yet that a sizable part of the Marlboro products in Yesmoke’s possession had been sold to a multitude of small online stores in various countries, which, after November 16th 2004, the day of the “assault” at the JFK Airport, had taken over a great many of Yesmoke’s US customers. These stores were selling openly to Americans and even advertising; and these were the very same cigarettes that Philip Morris thought it had blocked!

So, just like what had happened before for 5 years with Yesmoke’s online store, cigarettes continued to be delivered “Duty-Free to the front doorsteps of the same American smokers” along with the morning paper and the bottles of milk.

In fact, the fury of the American authorities was all directed against Yesmoke, along with the authorities’ clear violations not only of international postal regulations but also of American Federal Law, that gives citizens the right to import from abroad, with regular customs declaration, all the cigarettes they want. All the other online stores were completely ignored.

So, placing cigarettes on the parallel market, Yesmoke had very probably fueled the smuggling of the products, prevalently those of Philip Morris, most likely in China, but the online retail sale of these same cigarettes had also been supplied simply by selling wholesale to those who wanted to buy.

In the end, Yesmoke had avoided throwing away millions of dollars in fees to American lawyers to carry on interminable lawsuits with the American Customs Office, in an insane picture, like in the film “Intolerable Cruelty,” with George Clooney and Katherine Zeta-Jones, where the final protagonists were only the divorces, the lawyers and the lawyers’ fees.

And, what’s more, Yesmoke set up a new and interesting store, the only one of its kind: the “Gray Market Shop,” or the “Online Store for Smugglers,” that introduces itself like this: “Anyone can offer for sale and make purchases.”

Congratulations, Andy, Fine work!

Altadis, BAT, JTI, Imperial, Gallaher

Altadis, different from Philip Morris, made its offer: 20 dollars per case (containing 50 cartons), that adds up to about 4 cents a pack. Interesting! Moreover, Yesmoke would also have to handle the scrapping of all their “trash,” and Altadis would have added a little change for the destruction costs.

Frank Escouvois, “Project manager,” laid down strict instructions: “…The cost of the operation must be approved by Altadis before the implementation, and any cost charged to Altadis must be justified by copies of invoices, and must be made by a customs officer, who will deliver an official statement.”

He ended his letter with a wisecrack: “We are looking forward to receiving your cost evaluation.”

Herès Yesmoke’s answer: “Dear Mister Escouvois, the Altadis products on sale in the Gray Market Shop of our Yesmoke.ch site have been sold to an “Off-shore” company and we have no idea of their destination, but we expect that the smokers will deal with their destruction, free of charge.”

The funny thing is that this brilliant employee had written: “We are interested in preventing these cigarettes from being smuggled into the EU.”

From BAT, JTI and Imperial Tobacco (respectively 62,350, 209,450 and 45,000 cartons sold up to May 22nd), Yesmoke has so far had no word and is still waiting for an answer. Imperial Tobacco, on the other hand, pointed out that the design of their cigarette packs had been changed; the packs were different from the ones in Yesmoke’s Gray Market Shop; their company could buy back only the product with the new design.

But it appears that “smugglers” are not particularly interested in the new design; up to now 16,600 cartons of Davidoff & West (old style) have been smoked somewhere on the planet.

A World of Parasites?

Here are the words of the “Appeal of the European Community against Multinational Tobacco Companies,” year 2000 – Camera.it:

“Illegal cigarette sales have become one of the primary vehicles used by drug smugglers to recycle their illicit profits. Philip Morris has become a principal party involved in this activity. Money mediators routinely purchase large quantities of Philip Morris cigarettes with the proceeds they collect from drug dealing. Philip Morris representatives know or should know where these funds come from, but they continue to receive the funds and to sell cigarettes to these people. The smuggling activities of the Philip Morris people have allowed drug lords to recycle their criminal profits.”

According to the World health Organization: “Big Tobacco brand products have been propelled into every corner of the world, thanks to the complex distribution system of a multibillion-dollar trade in smuggled cigarettes. Smuggling has enabled tobacco companies to compete with local brands and to establish internationally recognizable brands.”

In Italy in 1973, for example, the cigarette that dominated the national market was “MS,” sold at 1,100 Lire and manufactured by the Ente Tabacchi italiano, a State company.

But starting from the second half of the 1970s, a new brand arrived on the market: “Marlboro,” and its diabolical ‘ammonia technology’. Packs were sold on the black market on street corners all over Italy at the interesting price of 500 lire. In a few years, “MS”s almost disappeared; they were pushed aside by the cowboy of Marlboro Country, today the unchallenged leader in Italy and around the whole world.

American authorities have always moved to protect the interests of American corporations, to the point of establishing the “Revenue Rule,” which prohibits American justice from taking action against American companies accused of smuggling in foreign countries.

Their Italian, European and worldwide colleagues, on the other hand, in spite of the fine words contained in the “Appeal of the European Community,” have always, in effect placed themselves at the service of foreign companies, especially Philip Morris, which is responsible for a colossal and treacherous smuggling market right in their own countries. Why?

And in Yesmoke’s case, the Italian press and authorities, besides their usual incapacity to understand the terms of the problem, showed a disconcerting superficiality, they revealed their usual level of pathological subservience to Philip Morris… “A country of “coglioni” (morons).

The “Gray Market Shop” of the Yesmoke.ch site, that introduces itself with the slogan: “Anyone can offer for sale and make a purchase,” is a small case, but emblematic of the impotency of the civil world trying to face up to real organized crime that prevails all around the world.

Today, everything seems to rotate around the interests of tobacco multinationals; they have the power to violate laws with impunity anywhere in the world, without worrying at all about their bank accounts in any bank and in any part of the world. Will it always be this way?

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