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European Commission and Philip Morris International sign 12-year Agreement to combat contraband and counterfeit cigarettes

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,

and Spain.


– Targeting and interrupting the production of counterfeit cigarettes with the goal

of preventing counterfeit cigarettes from being introduced into the European

Community; and

– 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

laundering policies.

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

these payments.

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

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