EnglishCigarettes for sale
The parallel market is as active as ever.
Yesmoke, today, is putting on sale on the parallel market all of its warehouse, consisting mainly of cigarettes produced by Philip Morris, BAT, B&W and R.J. Reynolds. There are fifty 40 ft. containers, two and a half million cartons, all purchased on the same market between November 2004 and February 2005.
The parallel market is legal. It was not born as a service for smugglers. Here the goods made for one country are sold in other countries with the regular payment of the customs duties. So what happens if someone tries to reroute some goods from the parallel market towards smuggling?
Today things are changing for Big Tobacco, after the sentence that condemned Philip Morris to pay 1,200 million dollar to the European Community for smuggling, and after the relative agreement signed on July 9th 2004, Big Tobacco has become the controller responsible for the correct distribution of its own products. So it can no longer pretend to combat the parallel market; it must stop completely supplying cigarettes to this market.
Basically, Big Tobacco should come and pick up its cigarettes purchased by Yesmoke on the parallel market up to 8 months after the date of the agreement, cigarettes which can still be bought today, and it should give up the relative earnings and give back the money collected. And that's not all: as it has not respected the agreement Big Tobacco now should pay more, one would suppose.
Big Tobacco has never been responsible for the correct distribution of its products: “The problem here is that my job is to sell to the agents, appointed agents of BAT cigarettes; in turn the agents sell to to what we call the runners. Now if the runners try to smuggle into China, it's the runners' problem. It's not BAT's problem”. – Jerry Lui Kin-hong, BAT's former export director in Hong Kong
But following the sentence and the agreement of July 9th 2004, a response like the one Jerry Lui gave cannot be accepted by the European Community: based on what has been underwritten, Big Tobacco today is responsible for the distribution of its own products, everything has to be under its control. And the parallel market should disappear if Big Tobacco ensures that the agents no longer provide cigarettes to it.
The Agreement with the European Union
The Agreement states that – Philip Morris International be provided active and effective support for its efforts to deter any act or practice that favors or facilitates the use of its cigarettes in smuggling or as a vehicle to launder illegal proceeds.
But if Yesmoke has been able to buy similar quantities on the parallel market after the date of the agreement, it is evident that Big Tobacco, on one hand hides sophisticated transmitters in its cartons so it can follow the routes of its cigarettes, and on the other, has not interrupted its supply to this market.
By not responding to Yesmoke's request to come and pick up its cigarettes, and reimburse the money, Philip Morris is clearly violating what it agreed to, with the European Community in the Agreement referred to above.
What's more, seeing the continuity with which the goods have been and are still available on the parallel market, Philip Morris should have begun to clean up the goods which, as a subject that obviously is not at all repentant, it put onto the market in great quantities before it signed the July 9th agreement, right in those months when the company was laying the foundations for its future anti-smuggling cooperation and was discussing, with the European Community, how to close the parallel market.
Big Tobacco has not limited itself to bankrolling the parallel market, earning substantial profits that improved its turnover, but above all “… it has organized and run smuggling activities, dealing directly with its Smuggler Clients”. – Official EU documents
“We act, completely within the law, on the basis that our brands will be available alongside those of our competitors in the smuggled as well as the legitimate market”. – Kenneth Clarke, deputy chairman of BAT
“It is an easy sale. It's only a slap on the wrist if you get caught”. – Former B&W regional sales manager Michael Bernstein
The “fines”
Yesmoke was sentenced by a United States court to the payment of 174 million dollars to Philip Morris, which was to be paid not in instalments, but in cash in one lump sum. This followed Big Tobacco's initial request for 540 million dollars, always in cash. The on-line cigarette store is considered guilty of shipping to its customers in the United States Marlboros made in Switzerland, destined to European smokers, and Marlboros made in the Philippines, produced for the other hemisphere. But it is not smuggling!
“We are pleased with the court's decision”, said Virginia Murphy, senior vice president of compliance and brand integrity at Philip Morris USA. “We believe it sends a clear message that the law imposes significant penalties on those who infringe our intellectual property rights through unlawful Internet cigarette sales”.
On the other hand, the “fine” that Philip Morris is paying to the European Community appears more consistent and adequate than it actually is. One billion 200 million dollar paid over ten years interest-free corresponds to about 600 million paid now in cash. And the company's turnover is 22 BILLION dollars a year, for Marlboro cigarettes alone. 120 million year correspond to 0.005% of 22 billion. A good business.
Today Philip Morris is having to account for its operations in the European Community, and it is subject to European Justice. “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.
But where is “the advantage of the EU”, and what are “its financial interests”? Let's hope that someone checks the accounts and succeeds in the difficult task of making Big Tobacco pay what it really owes. It is unthinkable that in Europe, there is no one able to defend the citizens in appropriate ways in cases like these.
Useful links
- Specialist in Transmitters
- Anti-Contraband and Anti-Counterfeit Agreement and General Release
- Appendix A: Policy Statement on Compliance with Fiscal, Trade and Anti-Money Laundering Laws
- Appendix B: Anti-Contraband and Anti-Counterfeit Agreement and General Release
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