Big Tobacco & Cigarette Smuggling

Big Tobacco has penetrated the world market with smuggling, without any regard even for the poorest third world countries.

“Smuggling has enabled multinational tobacco companies to increase sales volume dramatically by evading local tariffs and competing head to head with domestic producers, thereby helping to establish internationally recognizable brands.”

World Health Organization

Smuggling in the European Union

Big Tobacco has been smuggling freely in Europe since the first years of this 21st century.

Today the popularity of its brands is profiting from the criminal activities committed in the past, for which it has never paid its due.

In 2000 the European Commission decided to move against the tobacco multinationals, but it all ended in 2004 with a bluff accord: Philip Morris agreed to pay a “Voluntary contribution,” which corresponded to about 1% of what the company actually owed.

Here are some extracts from the European Commission’s Act of Accusal against the cigarette makers:

“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.” – Documenti Ufficiali EU

“Philip Morris and R. J. Reynolds have had a determining role in the direction, management and control of the contraband operations within the European Community … through company directives issued at top company levels.” – Documenti Ufficiali EU

“Sometime in 1991, RJReynolds distributors notified the company that they had received complaints from smugglers, because – the cardboard boxes the cigarettes were packed in were to flimsy and the goods in them were often damaged. Smuggled cigarettes travel in many different ways, and sometimes undergo rough treatment that damages the products, so the packing needed to be strengthened. Responding to this problem, RJR increased the resistance of their cardboard boxes for the cigarettes that were to pass through contraband channels.”

“In order to efficiently carry on the contraband of cigarettes, certain labeling and printing procedures have to be followed at the factory where the cigarettes are produced. Certain labels, health notices and the language used on the packaging have an important effect on the value of the cigarettes at their final destination. The RJR people packed their products in specific ways to satisfy the needs of their smuggler clients.”

“To exercise and to hold on to control over the contraband business, the RJR people asked the smugglers to keep track of their loads, to inform them on where the goods were delivered, and to record the price the cigarettes were sold at. This enabled RJR to keep direct control over the entire contraband procedure. RJR people even threatened the smugglers that if they did not keep suitable registers of their smuggling activities, the RJR people would turn to other smuggling clients.”

The “Voluntary contribution” of Philip Morris in the European Union

In 1995, the then director of Monopoli di Stato, Ernesto Del Gizzo, sent to the government a report on the unpaid tax revenues of Philip Morris in Italy: 60,591 billion Lire (30 billion euro) over a period of twenty years. He also reported a net profit every year of the multinational corporation of about 1.100 billion (650 million euro) coming from cigarette smuggling and earnings from products passed through the illegal market.

Romano Prodi

Romano Prodi

On december 21, 2001, based on the sentence of the Italian Supreme Court, Philip Morris’s total tax evasion amounts to 120 thousand billion old lire, equal to some 60 billion euros, nella sola Italia. in 2000 the European Commission decided to take action against the tobacco multinationals. But on July 9th 2004 an important agreement was signed by the EU and Philip Morris, the leader of European smuggling. The tobacco giant agreed to pay 1.2 Billion dollars, in installments over a ten-year period and interest free, to bury the hatchet on all the past activities. Why so little?

The European Commission President at the time, Italian Romano Prodi, was evidently satisfied and declared: “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.”

Paying the European Community a “Fine” of 1,200 million dollars, in convenient installments of 10 million dollars a month, interest-free, for 10 years, Philip Morris has succeeded in crossing over to the opposite side of the barricades. And it appears to have started collaborating with the police… right in the battle against cigarette smuggling!

Italy, the “Game preserve” of Big Tobacco

For many years in Italy, the sellers of black-market cigarettes parked themselves near tobacco shops where they sold their “Duty-free” Marlboros, and in this country of coglioni (morons), no one was able to stop them. 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, “MSs” almost disappeared; they were pushed aside by the cowboy of Marlboro Country, today the unchallenged leader in Italy and around the whole world.

Today Big Tobacco is no longer interested in smuggling cigarettes in Italy, a market that by now it has entirely occupied. In fact, it is collaborating with law enforcement authorities so that no one else can repeat its own game.

Some accounting

Italy is said to be a backward society, where merchants are often left defenseless before organized crime, to which they must turn over part of their earnings. But who are these criminals?

120 thousand billion old lire, according to the sentence of the Supreme Court of Cassation of 21 December 2001, is the bill left unpaid by Big Tobacco, corresponding to 60 billion euro. It is as if all the 60 million Italians, men, women old people and children, had paid a “Pizzo”—protection money—of 1,000 euro each to Big Tobacco. But tobacconists have paid even more, and for many years.

According to the Italian Tobacconist Federation (Federazione Italiana dei Tabaccai), the damage to Italian resellers, due to organized contraband run by the top officials of Big Tobacco amounted to 400 billion old lire a year, until the early 2000s when the quantities of smuggled Philip Morris cigarettes began to drop. This estimate finds confirmation in the data of the Guardia di Finanza (Italian Financial Police) and of the State Monopoly Administration of the time.

These data were also in line with the position of the European Union, when it affirmed that Philip Morris had “A determining role in the direction, management and control of smuggling operations in the European Community, through corporate directives coming from the top levels of the company.”

Let’s do some counting: 400 billion divided by 50 thousand cigarette resellers makes 8 million of the old lire of 1998; this corresponds, in purchasing power, to much more than the equivalent 4 thousand Euro. It means that every Italian tobacco seller paid, in fact, a kickback of 8 million lire per year to the Cigarette Manufacturing Cartel, with the accessory absence of Italian institutions!

The Italian experience of 1991: Marlboros are taken off the market!

In far off 1991, something incredible happened: the Minister of the time, Rino Formica (PSI – Italian Socialist Party) and Vincenzo Scotti (DC – Democratic Christian Party) removed Marlboros the most widely smuggled brands in Italy. The measure was revoked only after a few months.

In 1991, the Minister Rino Formica decided to prohibit the sale of Marlboro cigarettes in Italy

In 1991, the Minister Rino Formica decided to prohibit the sale of Marlboro cigarettes in Italy

“Philip Morris must stop believing that this is a country of fools…” said the minister. That was great! Who would ever be able to say something like that today? This decree suspended from the official market all the foreign cigarettes, of which a certain quantity had been seized on the “Parallel” market. It was a decree made to measure for Marlboros, they said.

“Smuggling has very precise origins: it does not occur without the active consent of the multinational manufacturers,” said Minister Formica. “It’s time that Philip Morris understands that this game is over. Otherwise it will no longer sell its cigarettes in Italy.” The decree was short-lived, just like the careers of the two courageous ministers.

Smuggling in developing countries and the “Revenue Rule”

Big Tobacco cannot reduce the sale of cigarettes: with smoking rates peaking or declining in the mature markets of the west, the transnational cigarette companies have tried to expand their international operations also in Latin America, Asia and Africa.

The big cigarette makers have succeeded, competing against local brands with their “Duty-free” prices, in affirming themselves in the Third World markets. It seems that Big Tobacco smuggled almost everywhere.

At the beginning of 2001 some Third World countries took legal action in the United States to try to get back billions of dollars in tax revenue they had lost on cigarettes smuggled in by Big Tobacco, a group made up mostly of American companies.

A federal judge ruled that, based on the “Revenue Rule,” a longstanding common law doctrine, a Court in America will not take legal action in contraband issues involving the activities of American companies in other countries.

William Ohlemeyer, Philip Morris vice president and associate general counsel said: “We are pleased that the court dismissed these lawsuits in accordance with longstanding principles followed in this country and throughout the world.”

The Revenue Rule, obviously, is legally applicable to all: in May 2000, in a suit against RJ Reynolds for contraband in Canada, U.S. Judge Thomas McAvoy issued a 55-page ruling stating that U.S. courts have no jurisdiction in such matters. “The revenue rule—he wrote in his ruling—may be outdated in this era of closely linked economies and tax treaties, but it remains a founding principle of American law.”

When in 2000, the European Community  tried to  bring  Philip Morris before an American judge on a charge of contraband carried on in Europe; the American  allies responded with a flat refusal.

Today, after decades of smuggling by prevalently American companies, the authorities are finally trying to define what should be the proper “Modern limits” on the application of the “Revenue Rule.” When the Court will finally look at whether criminal law should apply to extraterritorial cases?

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