Exposé – Tobacco industry linked to cigarette smuggling

16 June 2018:

new research by the Tobacco Control Research Group at the University of Bath found tobacco companies are facilitating tobacco smuggling while simultaneously attempting to manipulate a global system designed to prevent illicit trade.

This research which draws on leaked documents and investigates tobacco industry front groups, highlights the continuing complicity of tobacco companies in smuggling and the elaborate schemes of the industry to control a global track-and-trace system and undermine the Illicit Trade Protocol (ITP) developed under the auspices of the WHO Framework Convention on Tobacco Control (FCTC).

The ITP was designed to protect public health by tackling tobacco smuggling, which the tobacco industry blames on tax increases. The ITP was adopted in 2012 by 181 Parties to the FCTC after multiple inquiries, court cases, and fines aimed at making transnational tobacco companies (TTCs) accountable for their involvement in tobacco smuggling.

To prevent tobacco industry smuggling, the ITP requires an effective track-and-trace system in which tobacco packs are marked so they can be tracked through their distribution route and, if found on the illicit market, traced back to where they originated. This new study shows through leaked industry documents how the four major TTCs operationalized a joint plan to use front groups and third parties to promote to governments an industry-created track-and-trace system called ‘Codentify’ as if it was independent of the industry. Research authors recommend that governments should not trust any track-and-trace system linked to ‘Codentify’.

In the ASEAN region, between 2012 to 2015, the same period the research refers to, Philip Morris International (PMI) funded US- and UK-based think tanks, International Tax and Investment Center (ITIC) and Oxford Economics Ltd., to conduct illicit trade studies that have since been discredited (see here and here) for using flawed methodology and unreliable data and resulting in biased conclusions and inflated smuggling figures. These studies were used to systematically oppose tobacco tax increases in ASEAN countries and recommended that governments work with tobacco companies to tackle smuggling.

In 2013 the Philippines Bureau of Internal Revenue unveiled plans to bid out a cigarette security stamp tax project and adopt an independent track and trace system. Tobacco companies were barred from the bidding process. PMI had earlier offered its ‘Codentify’ technology to monitor the supply and sale of locally produced cigarettes to curb smuggling. The Philippines government has strict rules of non-collaboration with the tobacco industry.

In January 2017 the Philippines moved into unitary tax system for tobacco which resulted in higher cigarette prices. This year, another round of tax increase is expected. Japan Tobacco International (JTI), now the second largest tobacco company in the Philippines, has claimed raising tobacco taxes “will be disastrous for the legitimate tobacco industry” and has offered to help the government address cigarette smuggling.

In another part of the world, the new research has exposed how ex-employees insist JTI remained actively involved in illicit trade describing ‘rampant smuggling’ throughout the Middle East, Russia, Moldova and the Balkans.

In Malaysia, the TTCs who control 97% of the cigarette market claim illicit cigarettes has increased to 56%. Entities funded by the industry or its allies cite this bloated data in the media to support the industry position. Meanwhile the industry has used the smuggling problem to oppose tax increase and has proposed to revoke the ban on kiddie packs claiming unaffordability of cigarettes fuels smuggling.

In addition to using the smuggling issue to fight tax increases, tobacco companies also use trade groups, such as US-ASEAN Business Council (US-ABC), as a platform to gain access to top-level government officials and influence policy on illicit tobacco trade. Last May, PMI was in the US-ABC delegation for a meeting in Malaysia with Director-Generals of Customs of ASEAN governments, while in March this year, PMI participated in US-ABC meetings in Vietnam, Indonesia, and the Philippines.

According to Dr. Ulysses Dorotheo, FCTC Program Director of the Southeast Asia Tobacco Control Alliance (SEATCA), “Governments in the ASEAN region must reject partnerships and non-binding agreements with the tobacco industry to solve illicit trade. Instead, governments should secure the supply chain in accordance with measures contained in the ITP and collaborate with each other, rather than be misled and lied to by the tobacco industry that is complicit in illicit tobacco trade.”

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