The figure is insufficient!

Marlboro's retail market share is more than 22 billion dollars per year.

EuroEuropean countries squabbled last week over how to split the 1.25 billion dollars that Philip Morris, the maker of Marlboro cigarettes, offered them to settle a dispute over smuggling.

Philip Morris agreed, on July 9th 2004, to pay this amount in order to have a smuggling case against the US company dropped. Today Marlboro cigarettes, after penetrating the market with years of smuggling, are extremely popular in Italy. The same thing has happened in Spain with Winston cigarettes. Big Tobacco makers have a bright future ahead of them.

The 1,250 million Euro that Philip Morris is supposed to pay to the European Union, in instalments over a 12-year period and interest-free, would correspond to 600 million paid immediately in cash. This sum, that might seem congruous is actually equal to a little more than 3% of Marlboro's business in a single year; the business would continue into the future without any fine to pay.

But today the European community could put an end to all this. Yesmoke, with a letter sent to Jos'Manuel Barroso, president of the European Commission, suggests that the organization should check its accounts better with Philip Morris.

German Finance Minister Hans Eichel told the other ministers he was happy with a suggestion that the money be split up according to the cigarette maker's market share in each country, including the general contraband levels too, the delegate said. But others objected.

The Commission wants 9.7 percent of the booty. “9.7 percent is a bit too much”, said Eichel.

The countries that should benefit from the settlement are Belgium, Finland, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Portugal and Spain. Italy is asking for the biggest share, while Germany is seeking up to a quarter of the money.

“Forget past conflicts”

July 9, 2004: Both the EU and Philip Morris say: “The money is not a penalty or fine, but a voluntary payment to forget past conflicts and to cooperate”.

Franz Hermann Bruener

Mr Franz-Hermann Bruner, Director of the European Anti-Fraud Office (OLAF)

But the popularity and the widespread consumption of P.M. products that the company enjoys today and that will benefit them in the future has been built up on smuggling; this has been clearly documented by the European Community itself:

Before that date R.J. Reynolds was “A criminal association under the law and in fact”, while Philip Morris was “The principal party in the recycling of money coming from drug traffic”.

The European Community declared also that: “Philip Morris and R. J. Reynolds have had a determining role in the direction, management and control of contraband operations within the European Community through directives issued at top company levels”.

“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 accept the income and to sell cigarettes to these people. The smuggling activities of the Philip Morris people have allowed drug lords to recycle their criminal profits”. – Official EU Documents

“Sometime in 1991, RJ Reynolds distributors notified the company that they had received complaints from smugglers, because — the cardboard boxes the cigarettes were packed in were too 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 those cigarettes that were to pass through contraband channels”. – Official EU Documents

“RJ Reynolds 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 even threatened the smugglers that if they did not keep suitable registers of their smuggling activities, RJR would turn to other smuggling clients”. – Official EU Documents

In the light of similar criminal behaviour, it is incomprehensible that people can say: “The money is not a penalty or fine, but a voluntary payment to forget past conflicts and to cooperate and help fight contraband”.

Originally Marlboro cigarettes were not so popular in Italy, but after years of “duty-free” prices (smuggled cigarettes seemed to be almost exclusively Marlboros), the brand became the uncontrasted number one. In fact, today, smuggling is no longer useful for this maker.

The agreement between Philip Morris and the European Community presents ridiculous and offensive numbers for every European citizen. Whoever drew up this agreement in the interest of the European people was either acting in bad faith or was unable to do additions and subtractions.

The attitude

“This Agreement can only work if it is fully respected, not only in the letter but also in the spirit. We expect this to be the case” — EU Budget Commissioner Michaele Schryer said. The smuggling debate between PM and the European Community was not concluded on a single day, on that "Historic" July 9th 2004, when the agreement was signed. We can imagine that the discussions started quite a long time before, maybe years. But up to July 9th, Philip Morris made absolutely no effort to interrupt or reduce its supply of cigarettes to the parallel market — and to Yesmoke.

Michaele Schryer

Responsible for budget and the fight against fraud: Michaele Schryer

Last summer, in the middle of the “smuggling debate”, there was an abundance of Philip Morris products, mostly coming from Philip Morris plant in the Philippines, that had never been seen before on the parallel market. Yesmoke purchased 32.5 million packs of cigarettes manufactured by Philip Morris on the parallel market after July 9th 2004, the date of the signing of the agreement.

The parallel market is legal. It was not born as a service for smugglers, even if in the past smugglers seem to have used it. On this market the goods made for one country are sold in other countries, with the regular payment of all customs duties. So what happens if someone tries to reroute some goods from the parallel market towards smuggling?

174 Million Dollars, Example of a “Congruous Sum”

The quantities of cigarettes produced by Philip Morris and purchased by Yesmoke on the parallel market and sent to its customers in the United States after the signing of the agreements of July 9th 2004, have been documented and used as evidence by Philip Morris itself.

Judge Gerard E. Lynch

Judge Gerard E. Lynch

Thanks to this evidence, Yesmoke, that had a retail market share of $ 100 million a year, was recently condemned by a New York court to the payment of $ 174 million to Philip Morris for “Unfair competition” and “copyright infringment”.

In the US government's racketeering case against the tobacco industry, the US government was seeking $280 BILLION in penalties, in violation of the federal Racketeer Influenced and Corrupt Organizations Act, or RICO.

The Agreement between Philip Morris and the European Community was stipulated between two parties in conflict, one of clever people and the other of stupid ones… or is it a pact between collaborators to “fix” things privately?

They had tried in the USA

The EU commission had attacked Philip Morris, RJ Reynolds and Japan Tobacco in a New York court, accusing them of having organised cigarette smuggling in Europe thereby depriving the EU and national budgets of hundreds of millions of euros in uncollected taxes.

But in the land of lawsuits and lawyers paradise, nothing doing! The court rejected that suit in February 2002, ruling that foreign governments could not ask a US court to enforce their fiscal laws and collect taxes on their behalf.

“This is about large-scale smuggling and we are determined to continue combating this fraud with all the means at our disposal”, EU Budget Commissioner Michaele Schryer said.

In other words, the United States does not consider itself responsible for the smuggling of US companies in other parts of the world.

Big Tobacco's success

“…Smuggling has enabled tobacco companies to compete with local brands and to establish internationally recognizable brands”. – The World Health Organization

For Big Tobacco, Europe is a tender little pig to be roasted. Big Tobacco, thanks to smuggling, has occupied the entire market, taking the place of those competitors that the smugglers did not have, or had not been able to take with such organizational efficiency. And this advantageous situation for the brands of Big Tobacco will probably continue into the future with no limits!

Today, after the signing of the agreement with the European Community, 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!

With its agreement with the European Community Big Tobacco has made its best deal yet: it has guaranteed itself a serene and prosperous future.

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  • April 19th, 2005

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