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Cigarette Smuggling

CONSIDER A WORKING GROUP IN PREPARATION FOR MOP1

Illicit trade in tobacco products is an alarming issue which undermines implementation of the FCTC.

Progress on tackling it could be made at COP7, but only if Parties collaborate.

To enter into force, the ITP needs 40 ratifications. At the moment, there are 24 Parties. During the debate on Tuesday, Parties explained their concerns about the Protocol’s implementation, mostly related to technical aspects and related costs.

Parties should be reassured that they will not have an impossible task after ratification. With regards to Parties that have already ratified (or are about to ratify), the concerns are that they are setting up and implementing measures of the ITP without talking to one another.

A forum for exchange of best practices where Parties can discuss problems and solutions should be set up.

The Meeting of the Parties (MOP1), which has to take place around the regular COP session and therefore not before the end 2018, will unfortunately come too late to address immediate concerns.

To facilitate discussions among Parties, a working group on preparations for the entry into force of the ITP could be set up.

Yesterday, the Convention Secretariat tabled three options to prepare for MOP1. Because of its costs, the option to set up an inter-governmental working group was not supported.

In light of those constraints, the option to establish a pre-MOP working group open only to Parties to the Protocol may be preferable.

The decision on that type of group to set up should be driven by the objectives of that group, particularly that of exchanging experience in implementing the Protocol and ensuring that any tracking and tracing regimes must be compliant with the Protocol requirements of independence from the tobacco industry set out in its article 8.12.

Florence Berteletti
Director Smokefree Partnership
Wael Safwat Abdul Meguid
Egypt

CODENTIFY: THE TOBACCO INDUSTRY’S TROJAN HORSE?

The illicit trade in tobacco products is a threat both to government finances and to public health. It robs governments of much needed revenues, and it undermines efforts to reduce tobacco consumption, particularly through the imposition of high levels of tobacco taxation.

Although by definition the global illicit trade in tobacco products is hard to measure with accuracy, it is known to be very substantial. A 2009 study estimated that 11.6 percent of the global cigarette market was illicit. This is equivalent to 657 billion cigarettes a year, and means a loss of tax revenues of about US$40.5 billion.

Overwhelming evidence from the tobacco industry’s own documents shows massive involvement in global cigarette smuggling operations. In 2000, for example, they were accused by the European Union of “an ongoing global scheme to smuggle cigarettes, launder the proceeds of narcotics trafficking, obstruct government oversight of the tobacco industry, fix prices, bribe foreign public officials, and conduct illegal trade with terrorist groups and state sponsors of terrorism.”

While the tobacco companies made some effort to get their house in order after these damning revelations, World Customs Organisation data indicate that, in 2012, still 69% of global cigarette seizures were tobacco company cigarettes. Over the last few years whistleblowers, investigative journalists and even government reports suggest that industry involvement in the illicit tobacco trade has continued and, at best, tobacco companies are failing to control their supply chain in the knowledge their products will end up on the illicit market.

Despite this, the tobacco industry has been aiming to position itself as central to solving the smuggling problem and in this way fundamentally undermine the Illicit Trade Protocol. Its key aim has been to ensure that Codentify, the industry’s track and tracing system, is taken up by governments to meet their obligations under Article 8 of the Protocol to Eliminate Illicit Trade in Tobacco Products.

The system was developed and patented and the trademark registered by Philip Morris International (PMI) in 2006. To promote the system as an “industry standard”, the four major tobacco multinationals, PMI, British American Tobacco (BAT), Japan Tobacco International (JTI) and Imperial Tobacco Group (ITG) in 2011 created a Digital Coding and Tracking Association (DCTA), based in Zurich Switzerland.

The Codentify system uses relatively unsecured commercially available equipment on sites where operators may have a vested interest in misusing it. When enforcement agencies use Codentify codes in their investigations, the enquiries could be transparent to the industry, allowing it to manipulate replies and hide key data.

The system does not appear to prevent valid codes from being used twice. Therefore, counterfeiters and other illicit manufacturers could simply copy codes (sometimes called “code cloning”). Since Codentify codes are visible, it could be easy to collect a large number of such codes. If the same code is scanned twice on different packs it appears to be impossible to tell which is illicit.

Codentify also seems vulnerable to “code recycling”, to print valid codes on illicit products, for example by using codes originally printed on tobacco products that have been rejected and destroyed (which isn’t unusual during the production process).

There may also be a weakness around “code migration”; where codes printed in one country can be reprinted in another, creating apparently legal products that enforcement agencies could not effectively trace. Codes produced using inkjet printers may be easily erased or altered, and would therefore not be “securely affixed”, as required by the Protocol and Directive.

Some information required under the Protocol and Directive will not be known at the time of production, when Codentify codes would be printed. This includes shipment routes from manufacturing to first retailer, the identity of all purchasers from manufacturing to first retail outlet, and the invoices, order numbers and payments of all purchasers from manufacturing to first retailers. It is not clear how this information will be associated with Codentify codes.

The fact that the tobacco industry is controlling and promoting this system raises a serious concern notably because of the industry’s record of involement in illicit trade of
tobacco products.

Global anti-tobacco conference to see 50% decline in deliveries

Zimbabwe’s money spinning tobacco sector, one of the main sources of liquidity in the country, could suffer a huge blow with seasonal deliveries seen declining by 50% if the ongoing global anti-tobacco conference in India endorses the mandatory reduction of nicotine levels in cigarettes, it has emerged.

https://www.theindependent.co.zw/2016/11/11/global-anti-tobacco-conference-see-50-decline-deliveries/

By Fidelity Mhlanga

The conference, from November 8-12, seeks to reduce nicotine down to a maximum of 0,4 miligrammes, which is 10% of current levels.

Delegates are intent on reviewing the implementation of the World Health Organisation Framework Convention on Tobacco Control (WHO FCTC) and the Protocol to Eliminate Illicit Trade in Tobacco Products. The meeting comes amid a global lobby against smoking in public places due to rising cases of cancer.

Statistics from Treasury show tobacco exports were only second to gold, valued at US$481 million and constituting 23% of all exports from January to October 2015. Gold exports were valued at US$503 million, indicating the importance of the golden leaf to Zimbabwe’s economic survival.

As at September 2 this year, tobacco weighing 201 million kilogrammes and valued at US$592,5 million was sold, at the average price of US$2,94 per kg.

Office of the President and Cabinet deputy chief secretary Christian Katsande, executive secretary of the National Economic Consultative Forum Norman Chakanetsa and officials from the ministries of Health and Industry and Commerce are currently attending the global conference in India.

Tobacco Industry Marketing Board Chief executive officer Andrew Matibiri said the endorsement of the reduction of nicotine in tobacco would affect tobacco deliveries that have been on an upward trend in recent years.

“Anything that amounts to the reduction of nicotine in tobacco means we will not be able to produce tobacco in the same level,” he said.

Matibiri said tobacco producers could, however, lobby for the use of genetic modification to neutralise nicotine levels in tobacco despite global resistance to the method.

Conference of the Parties (COP7) to WHO FCTC are lobbying for total exclusion, or market access exclusion or differential treatment (punitive taxes, duties, etc) of tobacco and its products on the world trade platform.

Experts say should the regulation sail through, demand for tobacco will decline drastically, by up to 50%, as low-value tobacco will be required by cigarette manufacturers.

Zimbabwe Tobacco Association chief executive Rodney Ambrose said if the regulation is endorsed this will result in tobacco being untradeable on world markets and would make tobacco growing valueless and affect Zimbabwe which exports over 95% of its tobacco.

“We will see tobacco production in Zimbabwe drop by at least 50% along with US dollar earnings, growers’ livelihoods and dependents along with all downstream industries that support two million people will all be at risk,” he said.

“This will negatively impact on yields and growers’ returns, resulting in poor viability of tobacco farmers, forcing millions of Zimbabwe farmers out of tobacco production.”

Only government officials are allowed to attend the global convention. The WHO FCTC refuses to entertain any dialogue with the tobacco industry.

“I am sure you appreciate from the above the devastating impact such regulations could have on our industry if the WHO FCTC is not stopped from making unreasonable, non-consultative proposals. The WHO FCTC should concentrate on health issues, not trade, as there are arms of the UN that regulate trade, ie WTO, who have shown no objection to the trading of tobacco,” Ambrose said.

PMI IMPACT: CONTROLLING RESEARCH. CONTROLLING POLICY?

Earlier this year Philip Morris International (PMI) launched PMI IMPACT – a funding initiative for projects “dedicated to fighting illegal trade and related crimes, such as corruption, organized [sic] crime and money laundering”. In its first funding call in 2016, PMI IMPACT invited proposals focusing specifically on the illicit tobacco trade in the European Union (EU). Public organisations, law enforcement, private entities and nongovernmental organisations (NGOs) were all encouraged to submit.

The initiative puts forward three focus areas; research, education and awareness, and action. Each proposal is required to address at least one area.

PMI pledged US$100 million for three funding rounds and publicised that more than 200 expressions of interest had been submitted to the first funding call from 170 organisations, including government agencies, universities, research institutes and private entities.

Funding applications are judged by an expert panel, consisting of seven individuals with very close links to various United Nations (UN) agencies. These include Mahmoud Cherif Bassiouni, who has previously held 22 UN positions, Catherine Volz, who served in the UN Office on Drugs and Crime (UNODC) for over 18 years, and Suzanne Hayden, former senior advisor to the UNODC.

PMI IMPACT is not the first research funding initiative from the tobacco company. In 2000, it launched the PMI External Research Program (PMERP), which administered grants to scientists for research on multiple topics, including nontobacco causes of cardiovascular diseases and genetic susceptibility to cancers. Such initiatives are tied to the tobacco industry’s long history of producing misleading research, begining with its attempts in the early 1950s to discredit the then newly-proven causal link between smoking and lung cancer. PMI IMPACT can be seen as another attempt at controlling the discourse around science, the research itself and its
outcomes.

The illicit tobacco trade is one of several policy areas where the tobacco industry is attempting to not only gain access to the policy process, but also to take part in this process as a valued expert and stakeholder.

However, given the industry’s historic complicity in the illicit trade, its questionable preexisting research on the topic and its repeated use of illicit trade as a counter argument to the further regulation of its products, its motives in launching PMI IMPACT are arguably spurious.

In 2004, PMI paid the EU $1.25 billion to settle claims over the company’s involvement in tobacco smuggling, and committed to produce an annual ‘Project Star’ report about illicit tobacco in the EU. These reports were created by the global accountancy firm KPMG and have been widely criticised by academics. PMI has also commissioned multiple KPMG reports on illicit tobacco in Australia. Cancer Council Victoria has produced critiques of several of these reports leading to the Australian Government stated in 2013 that “the tobacco industry`s estimates of the size of the illicit market are not considered to be accurate”. Multiple tobacco companies have commissioned similar reports by Deloitte – another global accountancy firm.

Internal documents include examples of PMI internal documents include examples of the company attempting to influence the drafting of the Framework Convention on Tobacco Control (FCTC). In 2000, for example, PMI argued to the US Departments of Commerce and Health and Human Services that government involvement with the tobacco industry would be a more effective way of combating illicit trade than the measures put forward in the FCTC. The consultancy group Mongoven, Biscoe & Duchin Inc advised PMI that future FCTC protocols would have a bigger impact on the tobacco industry than the FCTC itself and so should become the company’s main focus. PMI IMPACT might be seen as a key part of continued efforts to undermine policy, particularly the Protocol to Eliminate Illicit Trade in Tobacco Products, known as the Illicit Trade Protocol (ITP).

Calls for new research on a particular topic carry with them the underlying suggestion that pre-existing research is flawed or lacking. The arrival of PMI IMPACT may be an attempt by the industry to further control data on illicit trade and use this to influence policy. With only 17 Parties needed before the ITP enters into force, it is essential that PMI IMPACT, and the research that results from it, are viewed with intense scrutiny by researchers and Governments alike.

Allen Gallagher & Karen Evans-Reeves,
Tobacco Control Research Group,
University of Bath

UPS Tobacco Lawsuit Wraps Up (UPS)

http://www.investopedia.com/news/ups-tobacco-lawsuit-wraps-ups/

Arguments ended last week in a lawsuit between United Parcel Service Inc. (UPS) and New York state and city authorities, reports Reuters. The lawsuit alleges that UPS turned a blind-eye toward illegal cigarette shipments, which were being sent into New York City from low-tax areas in upstate New York.

Currently, New York City charges high taxes on tobacco products to discourage smoking. However, businesses on Native-American reservations are not required to collect tobacco taxes. Enterprising businessmen have been shipping untaxed cigarettes down to New York City for at least a dozen years. (See also: How Will E-Cigarettes Affect Big Tobacco?)

In 2005, UPS and New York State signed an agreement where UPS promised to monitor its shipments more carefully to avoid shipping untaxed cigarettes. In 2010, new federal regulations were created to bind all delivery carriers from shipping illegal cigarettes.

The lawsuit against UPS claims that the delivery company purposefully violated the 2005 agreement and 2010 regulations. According to prosecutors, UPS knowingly shipped almost 700,000 cartons of untaxed cigarettes into New York City between 2010 and 2014. The state is asking for an $872 million fine, along with a court-appointed compliance monitor to enforce the 2010 regulations. (See also: The Real Cost Of Smoking.)

UPS denies the allegations. The company says it followed the 2005 agreement and 2010 regulations.

The judge presiding over the case, U.S. District Judge Katherine Forrest, said last week that she will rule by Dec. 25.

Tobacco-control groups turn to billboard messages

http://www.premiumtimesng.com/health/health-news/214492-tobacco-control-groups-turn-billboard-messages.html

Anti-tobacco groups in Nigeria Thursday unveiled a billboard in Abuja to press home demands for the adoption of Regulations for Implementation of the National Tobacco Control Act 2015 by the Nigerian government.

The unveiling came as the Federal Ministry of Health begins deliberations on regulations for the effective implementation of the Act which will be transmitted to the National Assembly for approval.

“Why are we putting up this billboard? And why this location? For us, the unveiling of this billboard is not the mere ceremony of a big and colourful advertisement,” said Akinbode Oluwafemi, Deputy Executive Director, Environmental Rights Action/Friends of the Earth Nigeria.

“It is not competition over a product. This is an innovation in getting our advocacy messages on public health to our esteemed lawmakers who have the onerous task of approving the tobacco control regulations for effective implementation of the NTC Act. The message we have on the board is also intended to resonate with our kids who are intelligent and will ask their parents what the issues are. They will ask questions and we will have to answer them.

“For the wider public, the billboard is like a television set that you cannot switch off. It is always there, they will always see it. Unlike television or magazine adverts, you cannot flip the channel or turn the page. So, for our lawmakers who traverse this route daily, they cannot miss it and the message will stick. Most importantly we want it to galvanise them to action.”

Nigeria’s Tobacco Control Bill was signed into law by former President Goodluck Jonathan in May 2015.

But its implementation has continued to throw up a challenge for the government.

Anti-tobacco advocate groups say between the period the bill was signed into law and July this year when the Health Minister, Isaac Adewole, inuagurated the National Tobacco Control Committee, the tobacco industry had fought relentlessly to sabotage implementation.

Mr. Oluwafemi said a lot of “shocking developments” spearheaded by tobacco companies had demanded an expedited action on tobacco control regulations in the country.

“We have recorded among others, Philip Morris International Nigeria Limited (PMINTL) illicit cigarette imports from Senegal; an unwarranted aspersion on the integrity of NATOCC members by the Initiative for Public Policy Analysis (IPPA) – a group that was in the fore of British America Tobacco Nigeria (BATN) campaign for a sufficiently weakened tobacco law in Nigeria; and now the unrelenting marketing gimmicks targeted at our kids,” Mr. Oluwafemi said..

“The attempt to get our kids hooked through kiosks and other Point of Sale (POS) near schools is now a big issue not only in Nigeria but across Africa. In Cameroun, Togo, Uganda to list a few countries, these things are happening. Our concern, however, is that Nigeria still remains the biggest market for the tobacco industry on the African continent because of its teeming population of vibrant youths.

“In virtually all the states of the federation, street corners and around schools have been targeted by the tobacco death merchants to market new flavours of cigarettes. Is it not very disturbing to know that there are orange, vanilla and Amarula flavours of cigarettes now being openly displayed and sold to capture the attention of our kids and addict them to smoking?”

Mr. Oluwafemi said the billboard message would go hand in hand with their push for the Health Ministry to expedite action on the Nigeria Tobacco Control regulations for the full implementation of the Act.

“We have said it time and again, delay is dangerous. The time to Act is now.”

Leaked Big Tobacco document suggests it used convenience-store, anti-contraband groups as lobbyists

http://news.nationalpost.com/news/canada/leaked-big-tobacco-document-suggests-it-used-convenience-store-anti-contraband-groups-as-lobbyists?__lsa=950e-127a

Across Ontario and Quebec, city and town councils passed a wave of similar resolutions, urging provincial governments to crack down on the scourge of contraband tobacco.

It was no coincidence: the municipalities had all been lobbied by convenience-store and anti-contraband associations.

The same, seemingly independent groups have also called for a freeze on legal tobacco taxes, opposed bans on menthol cigarettes and, today, are fighting the federal government’s plan to require plain packaging for smoking products.

But a leaked Imperial Tobacco document suggests that 2012 lobbying campaign was no grassroots movement, and that the retail and contraband organizations have for years been used as surrogates by the cigarette giant to promote its own interests.

The internal PowerPoint presentation describes deploying the convenience-store groups and the National Coalition Against Contraband Tobacco — both at least partly funded by the tobacco industry — to promote fears about contraband, push for action against it and keep taxes down on legal ones.

The document focuses at length on what it calls Project M&M: “Mobilizing municipalities to pressure for Big Government action.”

It then refers to cases where the convenience-store associations or anti-contraband group garnered media coverage and convinced dozens of local councils to pass those resolutions.

One slide in the August 2012 presentation suggests Imperial’s tactics worked, noting there had been no increases in tobacco taxes since 2008.

“Our campaigns have delivered some success.”

The document — a presentation made to parent company British American Tobacco — was leaked to a public-health researcher by a company “whistleblower,” said Melodie Tilson of the Non-Smokers’ Rights Association.

“This presentation makes it really clear,” she said. “They are orchestrating various organizations and using them basically as their puppets to ensure governments don’t enact effective tobacco-control measures.”

Groups like the convenience stores mislead the public and elected officials when they fail to make clear their close ties to Big Tobacco — whose products are one of the biggest sources of chronic disease and death in Canada, said Tilson.

She and other anti-smoking advocates agree that contraband cigarettes — whose cheap prices may be encouraging more smoking — are an important issue.

But they note the groups have not only called for enforcement action against the illicit trade, but opposed tax increases, bans on flavoured cigarettes and even the move to hide tobacco “power walls” in stores.

In fact, there is other evidence of their close links to the industry, including at least three former tobacco-company executives who are now leaders in the Ontario, Quebec and national convenience-store associations.

It’s a bit peculiar that some are hanging their hats on this particular PowerPoint presentation, in that it addresses contraband … which I think all of us should be concerned about
The CEO of the Ontario group, David Bryans, for instance, worked at what is now JTI-MacDonald until 2002, at one time as director of domestic sales. He has led either the Ontario or Canadian convenience-store trade groups since 2003.

But the current president of the Canadian Convenience Stores Association, Satinder Chera, denied his group acts at the behest of the tobacco industry.

Cigarette companies are among 60 national firms who are part of the association, representing the stores’ major suppliers from soft-drink makers to oil companies, he said.

The association lobbies on a “slew” of issues, and makes no apologies for opposing contraband, said Chera.

“It’s a bit peculiar that some are hanging their hats on this particular PowerPoint presentation, in that it addresses contraband … which I think all of us should be concerned about.”

Still — like colleagues from his and the other groups at various legislative committee hearings — he refused to disclose what proportion of the association’s funding comes from the tobacco industry.

Jeffrey Guiler, an Imperial Tobacco spokesman, said in a statement that the company works with a variety of groups on a “multitude of issues,” including contraband.

“This criminal activity harms honest small-business owners. They care about their business and we work with their umbrella groups to advocate for their best interests.”

The National Coalition did not respond directly to the suggestion it is part of Imperial’s lobbying campaigns, but noted in a statement that its 18 member organizations have convinced governments to act against “this growing (contraband) threat.”

The Imperial Tobacco presentation lists the company, the convenience-store groups and contraband coalition side by side as conducting various campaigns for years to oppose illegal cigarettes and to “freeze taxes.”

Then it asks “how to keep the pressure on” and answers by describing the 2012 Project M&M campaign involving the same players, but leaning on Quebec politicians during an election year and on municipalities in two provinces.

Through such “front groups,” the tobacco company essentially co-opted politicians and other “innocents,” charged Cynthia Callard of Physicians for a Smoke-Free Canada.

“If I was a councillor in any of those municipalities that had passed a resolution in good faith,” she said, “I would feel used.”

Biggest seizure of illicit tobacco in 14 years for Hong Kong, as HK$24 million worth of cargo uncovered

The haul was stashed among pillows in a container allegedly destined for Australia

illicit

Hong Kong customs officers seized cargo from Vietnam containing HK$24 million worth of illicit tobacco leaves on Monday, marking the biggest haul of its kind in 14 years.

Officers intercepted a container from Haiphong at the Kwai Chung Customhouse Cargo Examination Compound. Import documents claimed the 40-foot container was carrying pillowcases.

“When officers opened the container for inspection, they found about 5,300kg of suspected illicit tobacco that had not yet been rolled into cigarettes, loaded with 146 cartons of pillows and pillowcases,” Romy Cheuk Yu-sing, the divisional commander of the Ports and Maritime Command overseeing containerised cargo, said. She added the haul had a duty potential of about HK$12 million.

It was unclear if Vietnam was the source port, but authorities believed the syndicate used Hong Kong as a transit point and the illicit tobacco was likely destined for Australia.

“Hand-rolled cigarettes are popular in Australia, and the tobacco tax there is double that of Hong Kong’s,” Parry Wu Yan-kit, deputy head of the Revenue and General Investigation Bureau, said.

“Smugglers can avoid about HK$24 million of tax if the products are successfully trafficked into the country,” he added.

Wu said the syndicate adopted a complicated water route so as to avoid surveillance from law enforcement agencies along the way.

No arrests have been made, and local authorities will contact their counterparts in Australia and Vietnam for further investigation.

The case follows two previous busts of tobacco trafficking – one in 2014 and another in 2015. Both hauls totalled 1,113kg in tobacco leaves.

Three similar cases were also uncovered in 2013, involving 7,553kg of illicit tobacco products.

On September 21, customs officers seized illicit cigarettes with a market value of about HK$54 million and duty potential of about HK$38 million in two containers arriving from Haiphong.

Some 20 million Karelia brand cigarettes from Greece were found hidden in two 40-foot shipping containers, believed to be destined for Europe. It was one of the biggest seizures of illegal cigarettes in the city since 2007.

Under the Import and Export Ordinance, the maximum penalty for smuggling is a fine of HK$2 million and imprisonment of seven years.

http://www.scmp.com/news/hong-kong/law-crime/article/2038684/hong-kong-customs-officers-make-second-major-seizure

Tax will spur illicit sales: institute

WHITE-LABEL TOBACCO:Sales of illegal cigarettes are growing among the middle and upper classes due to stagnating income and anxiety over proposed tax hikes

http://www.taipeitimes.com/News/taiwan/archives/2016/10/06/2003656620

A proposed increase to a tobacco product tax has led to criticism that it would exacerbate an already growing trade in illegal cigarettes.

A joint policy meeting of executive and legislative branch officials on Monday resulted in the drafting of a proposal to raise the cigarette tax by NT$20 (US$0.64) per pack.

The new measure, which is to be finalized by the legislature, is forecast to increase tax revenue by NT$15.8 billion per year, the Executive Yuan said, adding that the government plans to use the money to fund a long-term care program for seniors and the physically challenged.

A pack of cigarettes is currently taxed NT$11.8, plus a NT$20 surcharge.

The Tobacco Institute of the Republic of China on Tuesday expressed concern that increasing the tax would stimulate the trade of illegal tobacco products, adding that the government’s plan ignores the issue and market practices.

It added that the proposed tax deviates from the institute’s advice to the government on a long-term tax plan, which it said should involve reasonable, slowly introduced and predictable tax increases, adding that this is the only way to prevent the spread of illegal tobacco sales, as well as a subsequent loss in tax revenue.

The institute cited research data from the past seven years that showed a high number of illegal tobacco sales that “cause an annual loss to the Treasury of more than NT$1 billion.”

So-called “white label” cigarettes make up the bulk of illegal sales, the institute said, adding that consumption of these cigarettes is on the rise among middle and upper-class consumers.

In particular, there is a steady increase in consumption of white-label cigarettes among consumers in remote parts of eastern Taiwan, as well as in Taipei, it said.

The institute said these consumers are turning to white-label cigarettes due to stagnating incomes, as well as anxiety over proposed tax increases on legal tobacco products.

“The psychological effect of anticipated tax increases is changing the consumer base for white-label cigarettes,” the institute said in a statement, adding that people in the NT$30,000 to NT$40,000 income bracket this year constituted 27 percent of illegal cigarette sales, up from 21 percent last year.

People with low monthly incomes of NT$10,000 or less continue to make up 30 percent of illegal cigarette sales, it said, adding that managers and other professionals made up only 7 percent of white-label consumers in 2013, but now account for 17 percent.

The institute said that while this number is still significantly lower than blue-collar workers’ 58 percent sales contribution, the rapid rise in illegal cigarette consumption among professionals is alarming.

What Philip Morris International Is Doing to Fight Smuggling

The tobacco company takes a big hit from illegal trade every year and is looking to do something about it.

http://www.fool.com/investing/2016/09/16/what-philip-morris-international-is-doing-to-fight.aspx

The tobacco industry around the world is huge, with millions of smokers consistently looking for ways to get the cigarettes they want. However, many governments tax cigarettes heavily, and whenever there’s a financial incentive to cut corners and circumvent taxation of a high-value product, smugglers will emerge to conduct illegal trade activity. Philip Morris International (NYSE:PM) has historically been a huge victim of illegal trade, estimating that if it could cut the illegal tobacco trade by just a single percentage point, it would equate to a $120 million boost to its operating income if it could capture its fair share of the resulting increase in sales volume. Although the company has always worked to try to eliminate smuggling, Philip Morris took a bigger step forward earlier this year, and its efforts have already started to produce some promising proposals.

Philip Morris and its antismuggling efforts

For a long time, Philip Morris has centered its efforts to fight illicit trade on controlling sales of products to its direct customers. By ensuring a clean supply chain to bring Philip Morris products from manufacturing facilities to the retail outlets that then sell them to smokers, the tobacco giant worked to keep its grip on its cigarettes while they were in its control.

However, expectations among government regulators were broader than that, and they expressed a desire to have Philip Morris exercise more oversight even when its products had left its direct control. Improvements in technology helped Philip Morris be more effective in tracking and preventing illegal trade. Pack authentication practices have rolled out in more than 90 countries, and Philip Morris has trained more than 11,000 law enforcement officials on smuggling issues. By the end of 2017, the company expects it will cover 80% of its total cigarette production with pack-tracking capabilities.

PMI Impact: The latest move from Philip Morris

But at its core, Philip Morris believes that it can’t do the job alone, and it will need help from all corners in order to put an end to the smuggling problem worldwide. The tobacco giant has memoranda of understanding with governments in more than 20 countries, but it wants to bring even more stakeholders into the mix.

That’s why earlier this year, Philip Morris launched its PMI Impact initiative. The move seeks to bring together various public, private, and nongovernmental organizations to come up with new projects that can fight illegal trade and the crime that often accompanies it. Philip Morris pledged $100 million toward PMI Impact, and it believes that the initiative will not only facilitate the development of good ideas and coordinate the implementation of those ideas but also produce a broader understanding of the factors that lead to corruption, organized crime, and money laundering associated with cigarette smuggling.

Earlier this week, PMI Impact received its initial round of project proposals. More than 200 projects from 170 different organizations came in, including many from government agencies, research institutes, universities, nongovernmental organizations, and private entities. More than 40 countries were represented, with the majority in Europe and North America. That makes sense, given the first round’s emphasis on fighting illegal trade and related crime in the European Union. PMI Impact expects to make final decisions by the middle of 2017.

Future rounds of funding will address different themes. In general, each project must address one or more of PMI Impact’s primary focus areas, which include research to increase the knowledge base surrounding illegal activity, education and awareness of consumers and the general public of the problem of illegal trade, and action toward solving the problems more permanently.

Philip Morris knows that no single effort will be enough to eliminate the problem of smuggling. Yet when it looks at the economic impact of illegal trade on its own business along with the broader impact on the communities it serves, Philip Morris believes that it’s in everyone’s best interest to limit smuggling as much as possible and reduce the related crime that often accompanies illegal trade activity.