EnglishYou pay for your mistakes
Smuggling, Yesterday, Today and Tomorrow.
Evidence of Big Tobacco
Until a few months ago R.J. Reynolds was “A criminal association under the law and in fact” (EU Official Documents), while Philip Morris was “The principal party in the recycling of money coming from drug traffic”. – EU Official Documents
Today, following the agreement with the European Union (Anti-Contraband and Anti-Counterfeit Agreement), signed on the 9th of July 2004, Big Tobacco has changed and has started collaborating with the police. It has promised to its new "Partners" that it will try to prevent any more cigarettes from ending up on the parallel market, which is considered one of the possible supply sources of smugglers.
In exchange, Big Tobacco seems to have asked its police "colleagues" a favor: free it from on-line commerce, from those "dangerous criminals" who sell by mail order, with legitimate customs declarations and import requests.
But the OLAF, the EU's anti-fraud organism has neglected to make sure that Big Tobacco has really begun to control its distributors and block the supplies to the parallel market with which the cigarette makers indirectly bankroll smuggling activities.
The fraud
"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. (The World Health Organization).
Big Tobacco has fraud in its DNA. For decades big cigarette makers have made profits also from the parallel market, knowing very well that part of the cigarettes put onto this market by its representatives traveled along paths that were mysterious to many, but very clear to them.
The roads of smuggling were used by Philip Morris to penetrate the markets, especially those in third world countries, where its premium brands were sold "duty-free" and were therefore able to compete with local brands.
Ecuador and Colombia, for example, know something about this: their governments have filed suit against Philip Morris alleging that the tobacco company defrauded the governments of billions of dollars in revenues through a complex smuggling and money-laundering scheme.
The parallel market
Besides direct smuggling, there is also the parallel market, which, though it is completely legal, can easily become a supply source for smugglers. Cigarette makers have pretended to fight it, but in fact, they earn substantial profits from it.
Here is a general picture of how the parallel market operates: tobacco's official distributors, present in all countries around the world, purchase from the manufacturer a quantity of cigarettes greater than the requirements and the demand of their countries' markets.
The surplus cigarettes the representatives then sell on the free market in this way creating the parallel market; they earn more for themselves and the manufacturer earns more selling greater quantities.
So, cigarettes officially destined to one country are sold in other countries; the makers are fully aware of this, as has been widely demonstrated.
The proof
As alleged in the analyses of ComScore having the value of proof, Yesmoke sold 126 containers a year of Phillip Morris-made cigarettes. This amounts to almost a container of 40 cubic feet (50,000 cartons of 200 cigarettes) every three days.
These figures would appear to justify Big Tobacco's claim for compensation damages worth 550 million dollars from Yesmoke - world leader of on-line commerce, for Unfair Competition and Copyright Infringement.
But if we look closely at the dates, some of these figures don't add up. On July 9th 2004, Philip Morris promised to the European Community that it would control its distribution so that its goods wouldn't end up on the parallel market.
But from July to the end of November, when a DHL plane, with 150,000 cartons of cigarettes, accompanied by regular customs declarations, shipped by Yesmoke shop in the USA, was blocked at JFK Airport of New York, Yesmoke continued to sell cigarettes manufactured by Philip Morris at an average of one container every three days, for a total of about 64 containers, 3.2 million cartons, as stated by ComScore.
To these we must add the 25 containers of Marlboros that Yesmoke still has and that were not shipped after the forced suspension of the sales; some of these had already been purchased and some were those that Yesmoke continued to purchase in an excess of optimism and that week after week arrived at the bonded warehouses where they piled up.
These figures show us that cigarettes continued to arrive on the parallel market at the same rate as before, even after the signing of the agreement between Philip Morris and the European Community.
A similar quantity, in fact, could not have been purchased before the agreement was signed for a number of reasons:
- Goods are bought as they are needed; there is no sense in tying up a similar capital. In fact, at the moment of the agreement, there were only 8 containers of cigarettes produced by Philip Morris in Yesmoke's logistics chain: "only" 400,000 cartons.
- These goods take up space: where could we keep such a quantity of cigarettes? We mustn't forget that Philip Morris cigarettes make up only part of the Yesmoke stocks.
- Untaxed goods can only be kept in official bonded warehouses, where the incoming goods and outgoing goods are closely inspected and carefully documented - and there is certainly no way to hide them.
Therefore Yesmoke could not have bought the containers before that fateful July 9th 2004, except for that portion of goods that made up its stock on that date. Today the parallel market is going on with its activities and Philip Morris products continue to be available.
Give up your earnings
If Philip Morris takes its responsibilities seriously, the company should take its goods off the market paying current market prices for them, as the company itself is responsible for allowing the cigarettes to finish up there. This is true for the ones put on the market before the agreement with the European Community as well as for the product put on the market by some of its distributors after the agreement.
If it doesn't remove its cigarettes from the market, Philip Morris will benefit from the profits deriving from the sale of those goods. Give up its earnings… and nothing more. This is the umpteenth favor done to Big Tobacco.
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