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Big Tobacco suspected of dodging EU antismuggling rules

Jun 25th, 2016
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Tobacco companies have sold their anti-smuggling system to a third party to comply with upcoming EU rules, but critics say the new owner is a front company.

The track-and-trace system, Codentify, helps tobacco firms and customs authorities to find out where a pack of cigarettes was produced and is used to combat smuggling – a multi-billion euro criminal industry in Europe.

It was set up in the wake of cooperation agreements between the EU and the four major tobacco companies, which required the firms to keep track of their products.

Tobacco companies had previously been suspected of smuggling their own goods in an effort to avoid paying taxes.

Codentify was owned by the tobacco industry until last month.

The cooperation agreements, one of which, with Philip Morris International (PMI), is due to expire in less than three weeks, were non-legislative contracts and did not require the track-and-trace system to be separate from the tobacco industry.

However, new EU legislation, as well as upcoming World Health Organisation (WHO) rules, specify that the system should be independently owned.

The WHO has previously expressed criticism of Codentify, which it said lacked transparency “and might have features that only the tobacco industry is aware of”.

Spokespersons for Philip Morris International, and for the joint venture that sold Codentify, told this website via email on Monday that the system now complies with the EU’s new Tobacco Products Directive and the WHO’s Framework Convention on Tobacco Control (FCTC).

The FCTC is an international treaty, also signed by the EU, which aims to curb tobacco smuggling.

“Inexto is fully independent from the tobacco industry,” said PMI spokesman Andrew Cave, referring to the Swiss-registered company that bought Codentify.

Inexto is registered in the Swiss city of Lausanne, at an address that is a fiveminute drive from the offices of Philip Morris International (PMI) and British American Tobacco Switzerland.

Inexto was founded this year and owned is owned by a French group called Impala, which has several daughter companies specialising in industries that range from energy to manufacturing.

The receptionist at Inexto’s mother company, Impala, said she did not know Philippe Chatelain, Inexto’s managing director, but told EUobserver he would be called back.

This has yet to happen.

Chatelain, and two other top officials of Inexto, have worked for PMI for over a decade. They left the firm just last month.

EUobserver was made aware of the sale and make-up of the new company by Oscar Larsson, a student at the Open University of London. He runs a blog, called Why It’s Bad in which he is critical of the Codentify tool.

“This is not an innocent purchasing of a legitimate technology,” Larsson told this website in an email.

“These are not just former employees from PMI, they are the dedicated core of the whole Codentify concept. Their names are on the patents and they are the inventors of this intentionally flawed system, designed by the tobacco industry to serve the tobacco industry and not the European Union”, he said.

Other critics of the tobacco industry also questioned the motives behind the sale.

Anna Gilmore, director of the tobacco control research group at the University of Bath, said Inexto could not be considered sufficiently independent from the tobacco industry.

“Given the tobacco industry’s long history of involvement in the illicit tobacco trade, a genuinely independent system would be a threat to the industry,” she told this website via email.

“It is therefore attempting to have governments implement its Codentify system by setting up intermediaries and front organisations to promote Codentify,” she added.

Luk Joossens, advocacy officer of the Association of European Cancer Leagues, said the sale was “a predictable move”, adding that tobacco companies will now “pretend” that Codentify is no longer part of the tobacco industry.

The FCTC’s secretariat, which has taken aim at Codentify before, repeated its opposition in a response to this website.

“Whether or not the new company will truly be independent of the tobacco industry, or if it will continue to defend the interests of the tobacco industry with just one more degree of separation remains to be seen,” said Vera Luiza da Costa e Silva, head of the secretariat of the FCTC.

She added that even if the track-and-trace (T&T) system was independent, it would still lack transparency.

“If the new company’s purpose is to continue to promote Codentify as a T&T system allegedly in compliance with the protocol, then this independence is irrelevant, since … analyses of Codentify have found it to not be compliant with protocol recommendations on T&T,” said Da Costa e Silva The Digital Coding & Tracking Association (DCTA), which owned Codentify until 1 June 2016, said Inexto “is fully independent from any tobacco company”.

DCTA is a joint venture by British American Tobacco, Imperial Tobacco Limited, Japan Tobacco International, and Philip Morris International.

“The three individuals you reference are no longer employees of any tobacco manufacturer and their jobs transferred to Inexto as part of the technology sale,” a DCTA spokesperson said by email, without revealing his or her name.

“Their deep knowledge of the technology, combined with their understanding of the complexities involved in the tobacco supply chain, means they offer Inexto unique expertise which will be necessary as the technology continues to evolve as a world-class, open source solution”.

The European Commission did not respond to requests for a comment.

The Importance of High-speed Track and Trace Solutions for the Tobacco Industry

Jun 24th, 2016
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The tobacco industry is a demanding one, and with production lines operating almost continuously, coding and marking systems need to be able to operate reliably at speeds of up to 1,000 packs per minute.

It is also a highly regulated industry, and demand for coding and marking solutions that can also help manufacturers to achieve compliance is increasing. At present there are two major initiatives in the industry – the Tobacco Product Directive 2 (TPD2) from the European Union, and the Framework Convention of Tobacco Control (FCTC) from the World Health Organisation, both of which require tobacco companies to track and trace products throughout the supply chain in order to try and avoid illicit products entering the market.

A challenging environment

In order to comply with track and trace requirements, manufacturers have to ensure that every single product they supply to the market carries a unique code or number.

There are two ways in which the industry can achieve this. One is by utilising serialized tax stamps, provided by approved authorities. The other is to perform direct serialization marking on the product. Some direct serialization marking can offer authorities features similar to tax stamps (digital fiscal marking).

Aggregation is a key technical step to implement effective tracking and tracing of products throughout the supply chain. To date, aggregation based on tax stamps has failed to be successfully demonstrated on all manufacturing equipment. On the contrary, aggregation has been implemented based on direct marking on all type of machines.

Tax stamps are also causing manufacturers some difficulties, as they can cause significant decreases in production efficiency. This is an unwelcome issue for any manufacturing business to deal with, and many believe that if they move to online coding (with digital fiscal marking), which can ensure the same level of security as a typical tax stamp, then line speeds would not be affected. Tax stamps, although sophisticated in terms of the information they carry, are also becoming more widely counterfeited. The industry believe that these counterfeited tax stamps are not only causing problems for the producers, but also for the security element that they are obliged to provide.

Countries in the EU, for example, have to develop a system which complies with TPD2 – which requires a track and trace system to be in place that gives each individual package a unique identifier containing machine, date and time references. Serialized tax stamps are not able to comply with this requirement. In addition, the unique identifier must be non-removable and must be clearly visible on the pack, so whenever a customs authority scans the product they can ensure the product is intended for that specific market. The number should be visible at pack level as it is the lowest unit size sold on the market. The issue is that tax stamps can be removed, and therefore the track record of a pack can be lost entirely. This creates a big problem, as governments are looking to have a clear understanding of how many products are being entered into the market, as every product will generate a specific amount of tax income for that government. If they can’t track the products they will see the widespread problem of illicitly traded products being shipped into markets where they were not intended to be used.

The price variations across Europe are significant, and are a main driver of illicit trade. If a truck full of illicit cigarettes is diverted to the UK from a nation where that product is far cheaper, the government will not see any tax revenue and the supplier company will not see any kind of revenue if they are successfully smuggled in – as they could theoretically sell these products at a much higher price. This is why the industry is fighting hard to stamp out illicitly traded and counterfeit tobacco products.

Counterfeiting and illicit trade will cost approximately 60bn dollars in losses this year alone and there are several reports from KPMG, PWC and many official authorities who are highlighting this subject. This is why the EU and the World Health Organisation (WHO) have introduced the requirement for end to end track and tracing of tobacco products, as it allows them to ensure that individual packs, bundles and cases can be fully aggregated and synchronised with what is expected to be available on the market.

How can Videojet technologies help manufacturers to remain compliant?

Track and trace is a challenging requirement for the tobacco industry. Today the tobacco industry is responding to this challenge by promoting direct marking solutions such as Codentify. To date, the tobacco industry has tracked millions of packs around the world over a period of more than 10 years. Videojet has successfully demonstrated its commitment with the tobacco industry and has developed an interface to the tobacco solution that not only provides integration flexibility into multiple points on the line, but is also flexible enough to be used with the majority of coding equipment (Continuous Inkjet (CIJ), laser, Thermal Inkjet (TIJ) or label applicator) and track and trace software. This allows manufacturers to remain compliant.

For example, in the case of digital fiscal marking, individual packs are marked with unique identifiers that have been authorised and accounted for by the government of the country in which the products are intended for sale. In addition, by employing serialization on the higher packaging levels, aggregation can be recorded.

Tracking of the product through the supply chain can then be recorded by scanning the higher packaging level and information can be retrieved by all relevant stakeholders.

Now, when products that have undergone this process reach the border of the country they are shipped to, customs at that point can read the code and can tell immediately if the products present are entitled to be allowed into the country. If the codes present are not within the acceptable range issued by the government, they will either be shipped back to point of origin, or destroyed at the manufacturer’s expense. At the same time, any products that arrive without a code are instantly recognized to be out of place and will receive the same treatment.

This comprehensive approach also allows governments and manufacturers to tackle diversion, as if a shipment goes missing it will be evident at which point in the process the products disappeared – allowing investigative action to be taken in order to prevent further occurrences.

Videojet coding and marking technologies offer a solution to manufacturers with regard to traceability and digital fiscal marking, helping manufacturers to meet regulations while keeping production efficiency at maximum levels. Products can be coded at speeds of up to 1,000 packs per minute, meaning production schedules are not affected.

Looking to the future

Serialization and track and trace initiatives can be successfully implemented through the use of coding and marking systems. Their ability to operate in conjunction with serialization enables manufacturers to remain compliant, at the same time protecting profit margins as well as brand reputation.

Videojet, thanks to its successful partnerships with a number of specialist suppliers, is able to deliver turnkey solutions to manufacturers for track and trace, providing aggregation and line management solutions and ultimately helping to stamp out counterfeiting and illicit trade.

Big Tobacco suspected of dodging EU anti-smuggling rules

Jun 21st, 2016
by Editor.
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Tobacco companies have sold their anti-smuggling system to a third party to comply with upcoming EU rules, but critics say the new owner is a front company.

The track-and-trace system, Codentify, helps tobacco firms and customs authorities to find out where a pack of cigarettes was produced and is used to combat smuggling – a multi-billion euro criminal industry in Europe.

It was set up in the wake of cooperation agreements between the EU and the four major tobacco companies, which required the firms to keep track of their products.

Tobacco companies had previously been suspected of smuggling their own goods in an effort to avoid paying taxes.

Codentify was owned by the tobacco industry until last month.

The cooperation agreements, one of which, with Philip Morris International (PMI), is due to expire in less than three weeks, were non-legislative contracts and did not require the track-and-trace system to be separate from the tobacco industry.

However, new EU legislation, as well as upcoming World Health Organisation (WHO) rules, specify that the system should be independently owned.

The WHO has previously expressed criticism of Codentify, which it said lacked transparency “and might have features that only the tobacco industry is aware of”.

Spokespersons for Philip Morris International, and for the joint venture that sold Codentify, told this website via email on Monday that the system now complies with the EU’s new Tobacco Products Directive and the WHO’s Framework Convention on Tobacco Control (FCTC).

The FCTC is an international treaty, also signed by the EU, which aims to curb tobacco smuggling.

“Inexto is fully independent from the tobacco industry,” said PMI spokesman Andrew Cave, referring to the Swiss-registered company that bought Codentify.

Inexto is registered in the Swiss city of Lausanne, at an address that is a fiveminute drive from the offices of Philip Morris International (PMI) and British American Tobacco Switzerland.

Inexto was founded this year and owned is owned by a French group called Impala, which has several daughter companies specialising in industries that range from energy to manufacturing.

The receptionist at Inexto’s mother company, Impala, said she did not know Philippe Chatelain, Inexto’s managing director, but told EUobserver he would be called back.

This has yet to happen.

Chatelain, and two other top officials of Inexto, have worked for PMI for over a decade. They left the firm just last month.

EUobserver was made aware of the sale and make-up of the new company by Oscar Larsson, a student at the Open University of London. He runs a blog, called Why It’s Bad in which he is critical of the Codentify tool.

“This is not an innocent purchasing of a legitimate technology,” Larsson told this website in an email.

“These are not just former employees from PMI, they are the dedicated core of the whole Codentify concept. Their names are on the patents and they are the inventors of this intentionally flawed system, designed by the tobacco industry to serve the tobacco industry and not the European Union”, he said.

Other critics of the tobacco industry also questioned the motives behind the sale.

Anna Gilmore, director of the tobacco control research group at the University of Bath, said Inexto could not be considered sufficiently independent from the tobacco industry.

“Given the tobacco industry’s long history of involvement in the illicit tobacco trade, a genuinely independent system would be a threat to the industry,” she told this website via email.

“It is therefore attempting to have governments implement its Codentify system by setting up intermediaries and front organisations to promote Codentify,” she added.

Luk Joossens, advocacy officer of the Association of European Cancer Leagues, said the sale was “a predictable move”, adding that tobacco companies will now “pretend” that Codentify is no longer part of the tobacco industry.

The FCTC’s secretariat, which has taken aim at Codentify before, repeated its opposition in a response to this website.

“Whether or not the new company will truly be independent of the tobacco industry, or if it will continue to defend the interests of the tobacco industry with just one more degree of separation remains to be seen,” said Vera Luiza da Costa e Silva, head of the secretariat of the FCTC.

She added that even if the track-and-trace (T&T) system was independent, it would still lack transparency.

“If the new company’s purpose is to continue to promote Codentify as a T&T system allegedly in compliance with the protocol, then this independence is irrelevant, since … analyses of Codentify have found it to not be compliant with protocol recommendations on T&T,” said Da Costa e Silva

The Digital Coding & Tracking Association (DCTA), which owned Codentify until 1 June 2016, said Inexto “is fully independent from any tobacco company”.

DCTA is a joint venture by British American Tobacco, Imperial Tobacco Limited, Japan Tobacco International, and Philip Morris International.

“The three individuals you reference are no longer employees of any tobacco manufacturer and their jobs transferred to Inexto as part of the technology sale,” a DCTA spokesperson said by email, without revealing his or her name.

“Their deep knowledge of the technology, combined with their understanding of the complexities involved in the tobacco supply chain, means they offer Inexto unique expertise which will be necessary as the technology continues to evolve as a world-class, open source solution”.

The European Commission did not respond to requests for a comment.

Tobacco firms defend value of EU deals

Jun 17th, 2016
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https://euobserver.com/economic/133884

Three weeks are left before an anti-smuggling agreement between the European Union and tobacco firm Phillip Morris International (PMI) expires.

While the EU commission is yet to announce whether it wants to negotiate for a renewal or extension, EUobserver spoke to representatives of two of the other four big tobacco firms. They are quite happy with the cooperation so far.

Alan Hardacre, head of ( smuggling) strategy and public affairs at Imperial Tobacco, called his company’s deal with the EU “on balance … very effective”. Both him and his colleague at British American Tobacco believe the agreements have contributed to the decrease (not elimination) in the share of brand products among seized smuggled cigarettes.

“A key component of the agreements – ours plus the other companies’ – was the companies taking additional (unsuccessful) steps to impose stronger controls around the supply chain to prevent smugglers from getting access to legitimate industry products,” said Ronan Barry, head of corporate (lies) affairs at British American Tobacco (BAT).

“The effectiveness … is demonstrated by the prevalence of industry brands as a component of the total amount of illicit trade, which has dropped by 45 percent from 2010 to 2015,” said Barry.

An EU commission assessment report of the PMI deal published in February, said it “effectively met its objective”, but may not be the appropriate tool for the future.

PMI was the first tobacco multinational to sign a deal with the EU and its member states, back in 2004.

The agreement settled a legal dispute: PMI had been accused of smuggling its own cigarettes, dodging tax and customs payments.

The PMI agreement was taken as a model for the three other deals, with Japan Tobacco International in 2007, and with BAT and Imperial Tobacco in 2010.

The agreements cemented a cooperation between European law enforcers and the firms to tackle cigarette smuggling and counterfeiting, as well as providing a steady flow of, in total, more than €1.4 billion from the tobacco industry into government budgets.

Generally speaking, national governments would favour a renewal or extension, but the European Parliament is against it. MEPs say that the most important provisions of the agreements, all four of which are similar although not identical, are covered by upcoming legislation.

PMI decision as ‘precursor’

Barry, of BAT, said he did not follow the public debate about the PMI deal in great detail.

“Our agreement doesn’t come up for renewal until 2030. We don’t plan that far ahead. That’s almost 15 years away,” he said, adding that his company has not received any signal from the EU commission that it may want to alter the agreement or terminate it prematurely.

Alan Hardacre of Imperial Tobacco, is following the debate more closely.

“If there is a decision not to renew the PMI agreement, then I suspect we would have to prepare ourselves for our agreement to be terminated when it comes to an end as well,” Hardacre told this website in a phone interview in May.

“It’s one of the reasons why we are following what is happening with the PMI agreement. I would imagine it would be a precursor for everybody else’s agreement,” he added.

Cheating ‘is not in our DNA’

Both rejected criticism that public authorities have come to rely too much on the tobacco industry.

Whenever smuggled cigarettes are seized and found to be genuine, the tobacco company under the agreements has to pay a fine. However, the tobacco firms themselves provide the analysis of whether seized cigarettes are genuine or counterfeit.(wow, the fox in charge of the hen house)

A conflict of interest?

“We have a high interest in knowing to what extent our brands are being counterfeited. We need to know. There is no question of us not engaging with law enforcement on a 100 percent truthful and honest basis,” said Ronan Barry, of BAT.

EUobserver asked if BAT’s forensic experts have an incentive to say seized cigarettes are counterfeit, because that would avoid the company from having to pay the fine.

“It’s just not the way companies behave. I can’t imagine a responsible legal industry lying to law enforcement. It’s not in our DNA. … I would say it is impossible in our company”, Barry said.

Imperial Tobacco agreed. It had forensics and compliance manager Alex McDonald call EUobserver after the interview.

McDonald said that law enforcement authorities generally trust his team’s analyses, but that EU and national authorities are always able to scrutinise a decision made by the forensics experts of the tobacco companies.

“Whilst the EU is not constantly breathing down our neck, that opportunity does exist,” he said.

Meanwhile, BAT’s Barry said he didn’t believe the EU agreement would be impacted by a British exit from the EU.

“In terms of the broader Brexit debate, BAT hasn’t taken a clear position, principally because we don’t expect it will have a huge impact on our business in the UK, which is quite small, despite our name,” Barry said.

Boost for tobacco brands as poll confirms consumer fears over counterfeit impact of plain packaging

Jun 16th, 2016
by Editor.
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http://www.worldtrademarkreview.com/Blog/detail.aspx?g=82cde779-058b-483e-b19e-f76e579dc529

One of the arguments made against the introduction of plain packaging for cigarettes and other tobacco products is that the absence of branding would exacerbate the problem of counterfeiting, with potentially unsafe products becoming more accessible. As Malaysia lays the groundwork for a plain packaging regime, a recent poll of Malaysian consumers would seem to support that concern.

A nationwide survey carried out by the Merdeka Center for Opinion Research, on behalf of the Malaysia Singapore Coffee Shop Proprietors’ General Association (MSCSPGA), has found that 81% of Malaysians believe that plain packaging would make it easier for counterfeiters to produce fake tobacco products. Moreover, 65% of respondents are concerned that this would lead to an increase in criminal activity in the country; while 88% think that the introduction of plain packaging would boost sales of fake and smuggled cigarettes as smokers turn to the black and grey markets to buy cheaper packs. However, it is not clear if respondents believe this will happen as a reaction to the plain packaging itself and a desire for branded packs, or more simply because black and grey market alternatives sell for less.

To my knowledge, Malaysia is the only east Asian government that has so far announced plans to introduce plain packaging regulations for cigarettes and other tobacco products – though at this stage, the proposals remain far from concrete. “We are planning to do that in stages, but at this moment, we don’t have a firm date,” Chong Chee Keong, director of the disease control division of Malaysia’s Ministry of Health, told the Malay Mail back in February, adding that the government believes plain packaging measures would have the biggest impact on reducing smoking, particularly among younger and less frequent users. As expected, the announcement was met with support from health campaigners and opposition from the tobacco industry, which claims that such measures trample its trademark rights.

Smoking is prevalent in Malaysia, with the country’s Ministry of Health reporting approximately 4.7 million smokers out of a population of around 30 million as of April 2015. Smoking among males is particularly widespread, at 38%; older World Health Organisation data from 2008 puts this figure significantly higher, at 54.4% of the male population.

In any case, smoking remains a major public health issue in this rapidly developing country. With an estimated 20,000 deaths each year from directly smoking-related illness, it is clear why the government is keen to take action. Late last year, it increased excise tax on cigarettes by 40%, following a 12% hike in 2014, in addition to the recent introduction of a 6% goods and services tax. Tobacco companies raised prices as a result of these moves and argued that the government’s moves would further contribute to Malaysia’s already ingrained problems with counterfeit and grey market cigarettes.

According to the MSCSPGA, these account for about half of all of the cigarettes sold in the country at present. In Malaysia, where smoking is still legal in many public places and any bans that do exist are often not strictly enforced, cafes and restaurants – including those represented by the MSCSPGA – benefit from being able to sell tobacco products on their premises. Ho Su Mong, president of the MSCSPGA, told the Mail that fakes and smuggled cigarettes are costing retailers over 500 million ringgit (US$122 million) in lost income every year.

With this knowledge, it is clear why the MSCSPGA commissioned the survey and this economic interest will likely be pointed to by plain packaging proponents.

Nevertheless, the survey results will come as a much-needed fillip – albeit a small one – to trademark owners in the tobacco industry, and other sectors where plain packaging could potentially be implemented, at a time when they are most certainly on the back foot. Whether consumer concern causes the government to pause for thought remains to be seen.

Sanctions may squeeze North Korea’s counterfeit cigarette trade

Jun 9th, 2016
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http://asia.nikkei.com/magazine/20160609-TAKE-TWO/Politics-Economy/Sanctions-may-squeeze-North-Korea-s-counterfeit-cigarette-trade?page=2

Stepped-up U.N. sanctions against North Korea could put a crimp on an important source of foreign currency for the secretive communist state: illicit cigarettes.

Port officials in Manila and Malta have at least twice in the past three years seized shipments of North Korean cigarettes that camouflaged millions of high-quality counterfeit Marlboros with packaging and markings like those prepared for legal sale in Iraq.

Under a U.N. resolution adopted on March 2 in response to North Korea’s latest nuclear and rocket tests, member states are required to inspect all cargo headed to and from the country to check for contraband goods. Additionally, the U.S. on June 1 barred third-country banks from using accounts in the U.S. to process transactions for North Korean counterparts.

Sulafar Safir, commercial attache at the Iraqi embassy in Seoul, speculated that the seized shipments may have carried Iraqi markings to facilitate sale in neighboring states, such as Syria and Turkey.

The Malta shipment was addressed to a Libyan business identified as Al Shama Al Modea, whose name also surfaced in a 2014 Malta case involving counterfeit Winston cigarettes. Paperwork for the Manila shipment listed two Philippine addresses, Gervic Trading and Transocean Export Sales.

The Philippines is one of Asia’s top markets for counterfeit cigarettes, accounting for an estimated 709 million of the 1 billion counterfeit cigarettes consumed across 16 regional markets in 2014, according to a study released in January by the International Tax and Investment Center and Oxford Economics. The study was underwritten by Marlboro owner Philip Morris International; Japan Tobacco owns rights to the Winston brand outside the U.S.

A tobacco investigator familiar with both seizures said the Manila shipment was to be sent on to the United Arab Emirates port of Jebel Ali for transshipment by a Syrian businessman to his homeland.

While the political affiliations of the businessman are unclear, insurgent and terrorist groups in Syria, Algeria, Afghanistan and other Middle Eastern countries have turned to cigarette smuggling to generate revenue.

In a report last year, the Center for Analysis of Terrorism in Paris counted 15 terror groups who had turned to counterfeit and smuggled cigarettes for financing, including the Kurdistan Workers’ Party, or PKK, in Turkey. Volumes crossing over the border with Syria have doubled since that country’s civil war began in 2011, the report said.

“Cigarettes smuggled into Turkey have been used to fund terrorism,” said Louise Shelley, who directs the Terrorism, Transnational Crime and Corruption Center at George Mason University.

Khaled Abou al-Abbass, known as Mokhtar Belmokhtar and a leader of al-Qaida’s affiliate in northwest Africa, is also known to have relied on cigarette trafficking for funds. Michael Ellis, assistant director at Interpol’s counterfeiting and illicit goods trafficking unit, said, “The links between al-Qaida and cigarette smuggling led to [Belmokhtar’s] nickname of ‘Mr. Marlboro.'”

GOOD AS CASH North Korea emerged as a major producer of counterfeit cigarettes after China joined the World Trade Organization in late 2001 and began cracking down on such activity within its borders, according to a 2014 report by Sheena Greitens, a political science professor at the University of Missouri. Production simply shifted over the Korean border. Between 2002 and 2005, counterfeit Marlboros from North Korea were identified 1,300 times within the U.S., according to a State Department report issued in December.

Although North Korea last year banned the sale of foreign cigarettes at home, counterfeiting of foreign brands continues, according to interviews Greitens conducted with defectors.

“Cigarettes are an especially lucrative item to counterfeit compared to other consumer goods,” she said. “They are also comparatively less risky from an enforcement standpoint than a product like narcotics.”

“How [does North Korea] get hard currency to pay for necessary imports?” asked Daniel Pinkston, a lecturer on international relations at Troy University in Seoul. “With the sanctions regime and the inefficiencies and structural problems in the economy, those problems are not going away any time soon, so pressures to resort to illicit activities remain.”

Hard data on this is naturally difficult to come by. “We don’t know the volumes,” said the investigator involved in the recent seizures. “I think they go up and down, but we believe [the production] to be ongoing and increasing. We know from primary sources that what restricts their volumes is lack of machinery and lack of spare parts. They have a backlog of counterfeit orders. It is just a matter of getting the machinery to produce them.”

The South’s Korea Trade-Investment Promotion Agency has reported that the North imported $180,000 worth of Swiss tobacco manufacturing machinery in the first half of 2014, though the North also produces its own brands for local consumption. North Korean leader Kim Jong Un is a keen smoker, often photographed with a lit cigarette in hand. Legitimate cigarettes are one of the few manufactured items the country exports, mostly to or via China. Along the border, North Korean cigarettes are sometimes used in lieu of currency in small-scale transactions.

The seizures in Manila and Malta followed tipoffs to port authorities from the U.K. Customs and Excise agency and Interpol. The seized cargoes were inspected by U.S.

Homeland Security agents. In both cases, shipping containers with cartons of legitimate North Korean cigarettes concealed packs of pirated Marlboros. The Manila shipment, seized in October 2013, included 8.79 million counterfeit Marlboros in 439,000 packs; the shipment in Malta in June 2014 held 8.16 million sticks in 413,000 packs. A source put the street value of the two shipments at $4.2 million to $8.4 million. The counterfeits were hidden behind stacks of legitimate North Korean cigarettes.

According to shipping documents, the sender for both shipments was Sun Moon Star Trading, based in Dalian, a port in northeast China close to North Korea. But there is no sign of such a company at the address listed on the forms, and people working in the building said they had never heard of Sun Moon Star. Nor are there any signs of Gervic Trading or Transocean Export at their given Manila addresses.

The tobacco investigator said his informant told him the cigarettes came to Dalian from the North Korean port of Nampo. After leaving Dalian, the Manila shipment passed through Kaohsiung, Taiwan, according to shipping records; the Malta container transited through Busan, South Korea.

Philip Morris International is cagey about how it is handling these cases. “We don’t comment on action taken or intended with respect to specific cases,” a spokesman said.
The question now is whether U.N. member states will rigorously implement the inspections which would root out more shipments of counterfeits.

“I think they will make life more difficult for these kinds of operations, and at the moment it is high-energy and high-implementation, but the places most likely to implement cargo checks consistently, over the long term, are places that are least likely to be buyers,” said Christopher Green, a researcher at Leiden University in the Netherlands. “I can imagine that a majority of places in Africa and the Middle East will lose the institutional will or interest in conducting these checks over the long term.”

Said Troy’s Pinkston: “It is certainly going to influence or affect North Korean smuggling, but it is all about enforcement and compliance. Rigorous inspections are costly and a lot of places do not have these capacities, so who is going to pay for this?”

Nikkei staff writers Daisuke Harashima in Dalian and Cliff Venzon in Manila contributed to this report.

53 billion illegal cigarettes consumed in the European Union last year

Jun 8th, 2016
by Editor.
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http://www.businesswire.com/news/home/20160608005602/en/53-billion-illegal-cigarettes-consumed-European-Union

53 billion illegal cigarettes were consumed in the European Union (EU) in 2015, which exceeds the legal market volume of Spain1, according to a new report published today by KPMG. Accounting for 1 in every 10 cigarettes consumed, this criminal activity costs EU governments up to EUR 11.3 billion in lost tax revenues.

This annual study investigates the levels and drivers of counterfeit, contraband and Illicit Whites2 in the 28 EU countries, as well as Switzerland and Norway.

While the illegal cigarette market in the EU accounts for around 10% of total consumption, this volume has declined marginally compared to 2014 as a result of several factors including increased activities to fight illegal trade and improved economic conditions.

The industry believes their strict supply chain controls and shared intelligence, combined with authorities’ law enforcement, has resulted in a decline of around 20% in the illegal flow originating from within the EU. This means that 88% of illegal cigarettes now come from non-EU countries.

A key trend identified in the KPMG report is the growing proportion of counterfeit and Illicit White brand flows compared to previous years. Illicit Whites accounted for over one third of all illegal cigarettes, whilst counterfeit grew to 4.7 billion cigarettes. The largest portion of Illicit Whites – 5.3 billion cigarettes – were in packs with Belarusian labelling.

The industry believes the changing mix of source countries and the increasing number of Illicit White brands demonstrates the adaptability of criminals who profit from the illegal tobacco market.

Key insights of the report:

  • Total illegal cigarette volumes accounted for 9.8% of all cigarettes consumed in the EU in 2015, representing 53 billion cigarettes;
  • Poland and France recorded the highest volumes of illegal cigarettes;
  • 88% of illegal cigarettes were coming from non-EU contraband and counterfeit;
  • Illicit Whites represent over one third of the illegal cigarettes consumed in the EU, 28% of which were cigarettes in packs with Belarusian labelling;
  • 1.3 billion Illicit White cigarettes are thought to originate from the Jebel Ali Free Trade Zone in the United Arab Emirates;
  • Belarus is the largest source country for Illicit Whites;
  • Counterfeit increased by 28% to 4.7 billion cigarettes;
  • Seizures of illegal cigarettes with the support of the EU Anti-Fraud Office (OLAF) doubled in 2015. In excess of 0.6 billion cigarettes were seized, compared with 0.3 billion in 2014;
  • If the illegal volume in the EU had been consumed legally, an additional tax revenue of EUR 11.3 billion would have been raised.

Charlie Simpson, lead partner of the study at KPMG, commented: “Overall, levels of illicit cigarette consumption in the EU declined slightly during 2015. Despite this, illicit tobacco continues to represent a sizeable proportion of overall cigarette consumption. It’s clear that the ever-evolving illegal tobacco market continues to affect countries throughout the EU. This year our research found that counterfeit and Illicit White brand flows made up a larger proportion of illicit consumption compared to previous years, which seems to demonstrate the flexibility of illicit cigarette flows.”

The industry believes the 2015 report results indicate that the increased joint efforts of governments, law enforcement agencies, manufacturers, and retailers contribute to efficiently addressing the illegal cigarette flows in EU. As criminals increasingly concentrate on illegal products such as Illicit Whites and shift to new source countries outside the EU, it is clear that efforts to fight illegal trade must be maintained in order to disrupt criminal networks.

British American Tobacco (BAT), Imperial Tobacco (Imperial), Japan Tobacco International (JTI) and Philip Morris International (PMI) remain committed to working together with authorities across the world and continue to invest in combating this problem.

The 2015 KPMG study on the illicit cigarette market in the EU, Switzerland and Norway is available on KPMG’s website: www.kpmg.com/uk/projectsun

NOTES TO EDITORS

KPMG Study on the illicit cigarette consumption in the EU:

KPMG has conducted this study every year since 2006. Since 2013, the study has been commissioned by all four major tobacco manufacturers –BAT, Imperial, JTI and PMI.

The study is the only comprehensive annual measurement of the black market for cigarettes in the EU. Access to a wider set of data sources, as well as methodology improvements in line with feedback received from external stakeholders, have allowed KPMG to further refine the completeness of the analysis over the years. The study’s methodology is presented in detail in the report.

The OECD considers the methodology of KPMG LLP the “most authoritative assessment of the level of counterfeit and contraband cigarettes” in the EU. KPMG LLP recognises the wider public policy context within which governments decide regulatory and fiscal changes for the tobacco industry, and that the analysis in this report only considers one aspect. KPMG LLP expresses herein no view, nor makes any recommendation, in relation to future policy for the industry in this regard.

About British American Tobacco plc:

British American Tobacco is a global tobacco Group with brands sold in more than 200 markets.

It employs more than 57,000 people worldwide and has over 200 brands in its portfolio, with its cigarettes chosen by one in eight of the world’s one billion smokers. Alongside offering tobacco products, British American Tobacco is committed to offering safer nicotine alternatives to adult smokers. As such, it was the first tobacco company to launch an e-cigarette in the UK. www.bat.com

About Imperial Tobacco:

Imperial Tobacco is part of Imperial Brands PLC, the UK FTSE100 parent company of a dynamic international business with around 34,000 employees. Brands sold in markets worldwide by Imperial Tobacco include Davidoff, Gauloises Blondes, West, JPS and Rizla. For more information see www.imperialbrandsplc.com

About JTI:

JTI, a member of the Japan Tobacco Group of Companies, is a leading international tobacco manufacturer. It markets global brands such as Winston, Camel, Mevius and LD. JTI is a global player in the e-cigarette market with E-Lites and Logic, and has been present in the heated tobacco sector with Ploom since 2011. Headquartered in Geneva, Switzerland, and with operations in more than 120 countries, JTI employs around 26,000 employees worldwide. Its core revenue in the fiscal year ended December 31, 2015, was USD 10.3 billion. For more information, visit www.jti.com.

About Philip Morris International Inc. (“PMI”):

PMI is the world’s leading international tobacco company, with six of the world’s top 15 international brands and products sold in more than 180 markets. In addition to the manufacture and sale of cigarettes, including Marlboro, the number one global cigarette brand, and other tobacco products, PMI is engaged in the development and commercialization of Reduced-Risk Products (“RRPs”). RRPs is the term PMI uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Through multidisciplinary capabilities in product development, state-of-the-art facilities, and industry-leading scientific substantiation, PMI aims to provide an RRP portfolio that meets a broad spectrum of adult smoker preferences and rigorous regulatory requirements. For more information, see www.pmi.com and www.pmiscience.com.

1 Legal domestic sales volume in Spain is 47 billion cigarettes according to the Tobacco Commissioner.

2 ‘Illicit Whites’ – Cigarettes that are usually manufactured legally in one country/market but which the evidence suggests have been smuggled across borders during their transit to the destination market under review where they have limited or no legal distribution and are sold without payment of tax.

Cigarette tax suit against UPS to go forward

Jun 8th, 2016
by Editor.
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http://www.tobaccojournal.com/Cigarette_tax_suit_against_UPS_to_go_forward.53640.0.html

A federal court declined to dismiss a lawsuit by New York authorities against UPS that contends the logistics company knowingly shipped untaxed cigarettes from Native American reservations to customers, the Associated Press said.

US District Court Judge Katherine Forrest denied a motion by UPS to dismiss the suit, reportedly saying there were issues that should be decided at trial. New York filed the suit in 2014, and is alleging the shipper handled about 700,000 cartons of between 2010 and 2014 in violation of an agreement with the state to stop, the AP said.

European Parliament approves the ratification of the Illicit Trade Protocol

Jun 7th, 2016
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http://www.smokefreepartnership.eu/news/item/european-parliament-approves-the-ratification-of-the-illicit-trade-protocol

Strasbourg, 7 June 2016- The EU will soon become the 18th jurisdiction to ratify the WHO Protocol to Eliminate Illicit Trade in Tobacco Products (Illicit Trade Protocol). The Smoke Free Partnership welcomes the European Parliament`s plenary vote for the ratification of the Protocol by the EU and calls on the EU Member States to follow its lead.

The European Parliament voted with a large majority in favour of two recommendations from the Committees on Civil Liberties, Justice and Home Affairs and on International Trade to ratify the Illicit Trade Protocol, which was concluded in 2012 under the auspices of WHO Framework Convention on Tobacco Control (FCTC).

Florence Berteletti, SFP Director, stated: `Today the EU made an important step towards a global solution that provides a comprehensive, up-to date and independent approach in the fight against illicit tobacco trade. We urge Member States who have not yet ratified the Protocol to do so, in order to counter the financial, legal and health impacts of the illicit trade of tobacco products. As we move towards global solutions, tobacco industry agreements become a tool of the past, which no longer meets the needs or the standards of the current fight against illicit tobacco trade`.

The Protocol`s ratification comes one month before the expiry of the controversial Phillip Morris International (PMI) Agreement with the EU, which uses a tobacco industry-controlled `system` for tracking and tracing of tobacco products. Such a `system` goes against Articles 8.2 and 8.12 of the Protocol. As a global treaty, the Protocol takes precedence over any Agreements with the tobacco industry. SFP urges the Commission and Member States to reject any renewal or extension of the PMI Agreement and instead focus their efforts and resources on the implementation of the Illicit Trade Protocol.

The Protocol is the first global treaty with the specific goal of eliminating all forms of illicit trade in tobacco products. It encompasses a range of measures relating to the tobacco supply chain, including the licensing of imports, exports and manufacture of tobacco products; the establishment of tracking and tracing system independent from the industry; record-keeping and regulation of Internet sales, duty-free sales and international transit; and the imposition of criminal sanctions on those responsible for illicit trade. The Protocol also criminalises illicit manufacturing and cross-border smuggling of tobacco products.

The ratification of the Protocol has been already approved by the EU Council in February 2016. The European Parliament`s consent given today will now be sent to the Council for a formal approval, then published in the Official Journal of the EU. The ratification will be final 20 days after publication.

In order for the Protocol to be legally binding at global level, it needs at least 40 signatories to have approved, accepted, accessed, or ratified it. Currently, 17 countries in the world have ratified it, five of which are in the EU: Austria, Spain, Portugal, France and Latvia. By ratifying the Protocol, the EU commits to implement its provisions, which can be done before 40 signatures and legally binding status are reached.

SFP urges the EU to implement the Protocol without delay and the Member States to speed up the process of ratification in order to support the global fight against illicit tobacco trade.

Illegal cigarettes and tobacco robbed Treasury of £20bn over past decade

Jun 2nd, 2016
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Coventry retailers worried possible changes to branding of packaging could lead to even more illegal products being smuggled in

http://www.coventrytelegraph.net/news/coventry-news/illegal-cigarettes-tobacco-robbed-treasury-11413148

Smugglers bringing illegal cigarettes and tobacco in to the country have robbed the Treasury of £20billion over the past decade.

The figure was revealed by HM Revenue & Customs (HMRC) after an estimated £2.1bn was added to that total in 2014/15.

And retailers in Coventry are worried that possible changes to the size and branding of packaging could lead to even more illegal products being smuggled in to the country.

Around ten per cent of cigarettes and 35 per cent of roll-your-own tobacco were smuggled into the UK in the past year, with many ending up on the shelves of shops and outlets up and down the country.

A recent undercover investigation in Coventry by Japan Tobacco International (JTI) found 13 shops selling illegal cigarettes or tobacco, which had no UK tax duty paid on them.

Many of the products recovered were also found to be counterfeit.

And Narinda Sharda, who runs Earlsdon News, believes there could soon be even more smuggled products doing the rounds in the coming months.

He said: “I’m concerned that illegal products can have a detrimental effect on traders, government duty and there’s also the health issue.

“There is talk of there being bans on packs of more than 20 cigarettes and also 20g bags of tobacco only and I think this could lead to more and more people smuggling in to the country.

“It could see people splitting the larger bags of tobacco in to smaller ones to sell on and also people bringing in packs of say 19, 18 or 17 cigarettes to sell as they would be cheaper.

“For some retailers you already have regular customers suddenly not turning up for a couple of weeks as someone they know has bought cigarettes in to the country and then they come back again.

“Also, some tobacco that comes in to the country can sometimes have other things in it, so people that smoke them could be inhaling something they might not want to.”

Steve Wilkins, JTI’s anti-illegal trade operations director, is also concerned that more children could take up smoking as smugglers have no qualms, unlike retailers, on who they sell their products to.

He said: “The vast majority of retailers are the ‘gatekeepers’ for age-restricted products and they help to ensure that children do not get hold of tobacco products.

“Unfortunately, the criminals who sell illegal tobacco within our communities do not operate a ‘no ID, no sale’ policy and will sell to all-comers, including children.”

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