Brussels, 9 July 2004
The European Commission, together with 10 Member States of the European
Union1 and Philip Morris International (PMI), today announced a multi-year
agreement that includes an efficient system to fight against future cigarette
smuggling and counterfeiting and which ends all litigation between the
parties in this area. Through the Agreement, Philip Morris International will
work with the European Commission, its anti-fraud office OLAF, and law
enforcement authorities to help in the fight against contraband, including the
rapidly growing problem of counterfeit cigarettes. The agreement includes
substantial payments by Philip Morris International, which could total
approximately USD 1.25 billion over twelve years. “I welcome the conclusion
of the negotiations of this important agreement. This agreement is to the
advantage of the EU to protect its financial interests,” said Commission
President Romano Prodi. “This Agreement represents a major step forward
in the battle against contraband and counterfeit cigarettes,” said
Commissioner Michaele Schreyer, responsible for budget and the fight
against fraud “We believe that it will enhance the ability of the European
Commission and the Member States to combat the illegal trade in cigarettes,
which results in the loss of substantial tax and customs revenues each year.
Contraband and counterfeit products cheat everyone: governments,
consumers and legitimate businesses”, she added.
Fight against counterfeit
The Commission and the EU Member States point to several reasons why they view
expanded anti-counterfeit and anti-contraband efforts as requiring significant priority.
Among other reasons, the European Community and the Member States are losing
hundreds of millions of Euros in unpaid taxes from counterfeit cigarettes. In addition,
counterfeit and other forms of contraband create a parallel illegal supply chain that
invades and compromises legitimate distribution channels and competes unfairly
with genuine products distributed through legitimate channels.
Over the last few years, the incidence of contraband Philip Morris cigarettes has
been greatly reduced, but during the same time period, counterfeit cigarettes have
become a growing threat to the European Community and the Member States. The
Commission has therefore announced that it will build on existing efforts to combat
the illegal trade in cigarettes by:
– Vigorously investigating cigarette counterfeiting in close cooperation with the
Member States and law enforcement officials in critical locations worldwide;
1 Belgium, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal,
– Targeting and interrupting the production of counterfeit cigarettes with the goal
of preventing counterfeit cigarettes from being introduced into the European
– Recording and pursuing seizures of counterfeit cigarettes in the European
Community to identify the source of the product and other relevant information.
Fight against contraband and money laundering: Know your
customers and tracking and tracing
The Agreement builds on the efforts of all parties and introduces new and innovative
procedures to combat the diversion of Philip Morris International’s products into
contraband channels in Europe and around the world. Today’s agreement reflects
the reality that success in defeating the contraband and counterfeit cigarette trade
can be aided greatly through a joint agreement whereby major manufacturers like
Philip Morris International and European law enforcement combine their resources
and enhance their coordination in combating contraband and counterfeiting.
In addition to Philip Morris International’s already existing fiscal compliance policy,
the Agreement contains strong provisions, approved by all parties, which provide
them with a mechanism for the long-term prevention of any large-scale smuggling of
genuine Philip Morris cigarettes in the European market. The Agreement requires
Philip Morris International to build on its existing review process for selecting and
monitoring customers, to enhance its capabilities to track and trace certain
packaging, and to provide expanded support to European law enforcement in its
battle against the illegal trade in cigarettes. Under the Agreement, Philip Morris
International agrees to continue limiting its sales to volumes commensurate with
legitimate market demand. The Agreement also incorporates and builds into a
comprehensive contractual framework Philip Morris International’s existing antimoney
Historically, a key concern for the European Community has been the introduction of
contraband cigarettes into the European Community. For that reason, the European
Community has taken aggressive action to address cigarette smuggling. European
law-enforcement efforts have resulted over the past several years in the reduction of
the amount of cigarettes that enter the EU as contraband. The European
Commission has determined that constructive agreements, such as this Agreement
with Philip Morris International, are a useful tool in addressing these issues.
The initiative includes far-reaching product tracking procedures that will facilitate law
enforcement efforts to determine the point at which any genuine product is diverted
from the authorised sales channel. Consistent with the Agreement, Philip Morris
International will mark certain packaging with information indicating the intended
market of retail sale, mark “master cases” of cigarettes with machine-scannable
barcode labels, and implement other procedures useful for the tracking and tracing
of its products.
These obligations embody the first major joint tracking and tracing initiative and are
consistent with the anti-contraband provisions of the WHO Framework Convention
on Tobacco Control.
Payments under the Agreement
The European Community and ten Member States will receive substantial payments
over a number of years. The amount of Philip Morris International’s payments under
the Agreement will vary based on a number of factors, and could total approximately
USD 1.25 billion.
The Agreement also includes an initiative whereby PMI has agreed to make
payments in the event of future seizures in the European Community of its genuine
products above defined quantities. These payments will be made without regard to
fault or wrongdoing by Philip Morris International. If other Member States sign the
Agreement, including the new Member States, they will also be entitled to receive
Ending past disputes
While all these provisions are forward-looking, the Agreement also contains the
parties’ resolution of all past disputes relating to contraband cigarettes. In particular,
the Agreement also brings to an end all litigation between the European Community
and the ten Member States and Philip Morris International relating to contraband
cigarettes. The Agreement also resolves Philip Morris International’s case against
the European Commission pending on appeal before the European Court of Justice.
The Commission is always prepared to have discussions with manufacturers who
are willing to commit the necessary resources to improve ways to combat illegal
trade in their products and associated criminal activity, such as money laundering.
Producers also have a responsibility to fight illegal trade in their products. This
Agreement should therefore serve as a model for other cigarette companies.
In the negotiations with Philip Morris International, the Commission represented the
European Community and the ten Member States. The Legal Service and OLAF
conducted the negotiations for the Commission.
Elisabeth Werner: 02/295 95 06