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June 1st, 2015:

Tobacco companies ordered to pay $15B in damages

Quebec Superior Court rules against 3 tobacco companies in historic class-action lawsuit

Three tobacco companies have been ordered to pay $15 billion in damages after losing a historic court case.

Judge Brian Riordan on Monday ruled in favour of two groups representing Quebec smokers, ordering Imperial Tobacco, Rothmans Benson & Hedges and JTI-MacDonald to pay for punitive and moral damages.

“It’s a big day for victims of tobacco, who have been waiting for about 17 years for this decision. It was a long process — but arrived at the destination and it’s a big victory,” said Mario Bujold, executive director of the Quebec Council on Tobacco and Health.

The legal proceedings began in March 2012, 13 years after two class-action lawsuits were initiated by groups comprising about one million people. The lawsuits, which sought $27 billion in damages, were heard together in what was touted as the biggest civil case in Canadian history.

One suit, known as the Blais File, involves individuals who became seriously ill from smoking. The other, the Létourneau File, was launched by a group whose members say they are unable to quit smoking.

The groups alleged the companies:

Failed to properly warn their customers about the dangers of smoking.
Underestimated evidence relating to the harmful effects of tobacco.
Engaged in unscrupulous marketing.
Destroyed documents.
Payment distribution

The plaintiffs with cancer who began smoking before January 1976 will get $100,000 each. Those who first lit up after that date are entitled to $90,000.

Those with emphysema will receive $30,000 in moral damages if they began smoking before Jan. 1, 1976, and $24,000 if they started smoking after that date.

For the almost one million Quebec smokers who were unable to quit, the breakdown comes out to about $130 per person.

“I am so relieved with what has happened,” Lise Blais, whose husband Jean-Yves Blais initiated one of the lawsuits, told a crowd at a news conference.

“Did you stop to think what a cigarette is? It destroys you — your health is totally destroyed,” she said, holding up two photos of her late husband, who died in the summer of 2012 from lung cancer at the age of 68.

“He would be very happy. He is a winner. He likes to win — the same as I do,” Blais said. “Seventeen years is long, but I had my hope that we were going to win — and we did,” Blais said.

Bruce Johnston, a lawyer for the plaintiffs, said tobacco companies “lied for 50 years.”

“They lied to everyone … but they didn’t just lie. They colluded to lie,” he said.

Tobacco companies will appeal

JTI-Macdonald Corp. issued a statement minutes after the 4 p.m. ET ruling came down, saying it will appeal the judgment.

“The company strongly believes that the evidence presented at trial does not justify the court’s conclusions,” the statement said.

“Since the 1950s, Canadians have had a very high awareness of the health risks of smoking. That awareness has been reinforced by the health warnings printed on every legal cigarette package for more than 40 years.”

Imperial Tobacco Canada said it was extremely disappointed and will also challenge the ruling.

“Today’s judgment ignores the reality that both adult consumers and governments have known about the risks associated with smoking for decades, and seeks to relieve adult consumers of any responsibility for their actions,” said Tamara Gitto, vice-president of Imperial Tobacco Canada.

“We believe there are strong grounds for appeal and we will continue to defend our rights as a legal company.”

Gitto said a Gallup poll in 1963 confirmed that 96 per cent of Canadians were aware that smoking may cause lung cancer.

“Even though the judge expressly found that the public knew of the material risks associated with smoking for decades, he nonetheless holds Imperial Tobacco Canada and the two other tobacco manufacturers responsible.”

Rothmans Benson & Hedges also announced it will appeal the Quebec Superior Court’s decision.

In spite of an appeal, the judgment says that $1 billion must be paid out.

“The Court orders the provisional execution of the judgment notwithstanding appeal with respect to the initial deposit of one billion dollars of moral damages, plus all punitive damages awarded,” said the 276-page ruling.

World No Tobacco Day: Marching to Big Tobacco’s tune?

Has World No Tobacco Day 2015 – this Sunday – been manipulated by Big Tobacco’s lobbying agenda? Where the tobacco lobby is concerned, it would be naive to think there’s smoke without fire.

One of the dirtier secrets of the international tax world – and yes, the bar is quite high – is the role of tobacco companies in seeking to manipulate policies that might reduce the number of people smoking dying because they consume tobacco.

The main angle taken by the lobby has been to direct attention towards ‘illicit’ tobacco, where customs duties and tax may not have been paid.

Now I care a lot about tax, but even I can see that whether tobacco was taxed before being consumed is barely even a second-order issue, when compared to the question of whether people are dying because of their consumption – which they are, and will continue to do, in their millions.

But the thematic focus of the World Health Organisation’s World No Tobacco Day 2015 is not directly on stopping tobacco consumption, as the name might suggest.

Instead it turns out to be… ‘Stop the illicit trade in tobacco products‘.

This is a long post, looking at the human impact of tobacco consumption, the role of the tobacco lobby, and the substantive basis for arguments to address ‘illicit’ tobacco trade.

The conclusion is two-fold:

· First, while the WHO has sought to resist Big Tobacco, it seems that the focus of World No Tobacco Day is nonetheless a reflection of the lobby’s concerted efforts to shift policy attention away from measures that cut consumption (and death).
· Second, the tobacco lobby benefits from the effective support – inadvertent or otherwise – of some major players (corporate and individual) in international tax, who should be taking a long, hard look at their role.

Human impact of tobacco

Tobacco kills. And overwhelmingly, it kills poorer rather than richer people; and as time goes by, it kills people in poorer rather than richer countries.

My former Center for Global Development colleague Bill Savedoff has been doing great work highlighting the human and development cost of tobacco – see e.g. his latest blog and a great podcast, from which this section draws.

In a rich country like the United States, leading researcher Prabhat Jha and colleagues find that:

“the rate of death from any cause among current smokers was about three times that among those who had never smoked… The probability of surviving from 25 to 79 years of age was about twice as great in those who had never smoked as in current smokers (70% vs. 38% among women and 61% vs. 26% among men). Life expectancy was shortened by more than 10 years among the current smokers, as compared with those who had never smoked.”

Overall, the study suggests that smoking may be responsible for a quarter of deaths of those aged 25-69.

But it is in lower-income countries where most smokers and other tobacco consumers are, and will be – and the same for tobacco-related deaths (data from Tobacco Atlas, figure from CGD). Over 4 million a year, more than TB, malaria and HIV/AIDS combined.

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And the costs are likely only to rise, since the number of daily smokers continues to grow, from 721 million in 1980 to 967 million in 2012 (despite a drop in smoking prevalence).

So call it a billion daily smokers. That’s a big market, for something expensive and addictive, where most people who start are unlikely to cease. (Well, not until they themselves do.)

The role of the tobacco lobby…

The most visible activity of the tobacco lobby is that carried out by the International Tax and Investment Center. The Financial Times covered the ITIC in October, under the headline ‘Tobacco lobby aims to derail WHO on tax increases‘:

“A tobacco-industry funded lobby group will attempt to derail a World Health Organisation summit aimed at agreeing increased taxes on smoking, according to leaked documents seen by the Financial Times.

The International Tax and Investment Center, which is sponsored by all four major tobacco groups, will meet on the eve of the WHO’s global summit on tobacco policy in Moscow later this month in a bid to head off unwanted duty increases.”

The article goes on to identify the four tobacco groups: “British American Tobacco, Philip Morris International, Japan Tobacco and Imperial Tobacco are sponsors of the ITIC and have representatives on its board of directors, along with other large multinationals.”

The WHO sees the ITIC’s actions as so extreme that it has called for governments not even to engage with them:

“Itic have used their international conferences, such as in Moscow in 2014 and in New Delhi earlier this month, to lobby government officials against tobacco taxation. This is despite tobacco taxation being the most effective and efficient measure to reduce demand for tobacco products. Parties to the WHO framework convention on tobacco control are obliged to protect their public health policies from interference by the tobacco industry and its allies. In this light, WHO urges all countries to follow a non-engagement policy with Itic.”

This is damning. With such a position taken by a major UN body, the ITIC cannot be seen as legitimate in its claim to provide objective analysis to governments around the world.

…and the international tax arena

But within the tax sphere, many leading actors work with the ITIC.

As the Observer highlighted, the former permanent secretary of HM Revenue and Customs (head of the UK tax authority) became a director of ITIC just a year after stepping down. His justification, given to the paper, was that he is not an executive director and is unpaid; and that around 50 other “leading figures in taxation” are involved in the same way.

The ITIC’s ‘Senior Advisors‘ list is certainly an impressive one from the tax perspective, including a number of respected researchers and tax officials, with Jeffrey Owens – former head of the OECD’s tax arm, the Centre for Tax Policy and Administration – singled out as a ‘Distinguished Fellow’.

I haven’t spoken with any of these people about ITIC, and can only imagine (and hope) that they simply haven’t registered that the ITIC is a tobacco lobby group. The ITIC certainly doesn’t present itself as such.

Similarly, it’s unclear why non-tobacco multinationals like Goldman Sachs or ExxonMobil would want to associate themselves with this lobby, not to mention the professional services firms which include big 4 accounting firms, and lawyers such as Pinsent Masons.

The ITIC explains it this way: “Sponsors recognize the tremendous value added by ITIC in the countries in which they operate, through the promotion of an environment that welcomes business.”

But commercial organisations of this size can surely promote such an environment without the taint of tobacco lobbying.

There could hardly be a clearer message for the sponsors and fellows to find an alternative to the ITIC, than for a major UN organisation like the WHO actively warning governments not even to engage with it.

The ‘illicit’ tobacco argument

So far you might say I’ve played the man, rather than the ball. What about the substantive basis for the arguments made by the ITIC?

The main claim made is that taxing tobacco creates incentives for illegal tobacco trade. This in turn reduces the revenue benefits of the tax, and also encourages criminal activity:

“This growing and dangerous problem is not just a tax issue – beyond substantial government revenue losses, the impact of illegal trade constrains economic development and raises barriers and costs for international trade,” said Daniel Witt, President of the International Tax and Investment Center (ITIC). “It also poses significant health risks, and presents numerous challenges for law enforcement, from violations of intellectual property rights to money laundering and organized crime activity.”

I’m all for development, and the curtailing of illicit financial flows. But does this position stand up to scrutiny?

Arguments along these lines have been used in seeking to influence tax policy – that is, against higher tobacco taxes – from Ukraine to the Philippines, with critics arguing that the estimates provided tend to systematically overstate the case.

A recent study published in the British Medical Journal’s Tobacco Control, for example, looks at estimates produced for Hong Kong, and finds that “The industry-funded estimate was inflated by 133–337% of the probable true value.”

And as Bill Savedoff highlights in this CGD podcast, the broader evidence simply does not support the claim that higher tobacco taxes lead to illicit tobacco trade. Significant tax rises over the last 10-15 years have not been associated with any increase in the proportion of tobacco that is illicit (about 9%-11%). Other factors like enforcement and effective tax administration seem much more important.

In addition, as Bill puts it:

“What’s particularly ironic about this argument from the tobacco companies is that they are the ones that have been responsible for most smuggling…

Essentially, to get the magnitude of smuggling that you would need, to have an impact on the tobacco tax, or consumption, you have to have the complicity, if not the actual responsibility, of the tobacco companies themselves.

The EU, UK, other countries had huge settlements with tobacco companies about their responsibility for smuggling in the 90s, and now they’re turning around and saying ‘Smuggling is the reason you shouldn’t tax our industry’? I don’t think they have much credibility on that score.”

Bill also shreds the claim that tobacco taxation is regressive. In fact the majority of tobacco tax revenues will come from richer, not poorer people. And the behavioural responses mean that poorer people benefit disproportionately in health terms. So this is that rare thing, a sales tax which is progressive – and powerfully so.

Finally Bill, and also Michal Stoklosa of the American Cancer Society in this great Tobacco Atlas piece, argue that tobacco taxation has been shown to be the most effective tool to reduce tobacco consumption.

Stoklosa puts the overall point: “most importantly, it is clear that the measures that aim at reducing demand for cigarettes more generally are crucial in reducing the illicit trade problem.”

“So even if we buy the importance of the illicit trade here, we should keep doing what we’re doing, including higher taxes.”


There is no doubt that illicit trade in tobacco exists; and nobody argues it’s a good thing. But it’s clearly not the big issue about tobacco consumption – that would be, er, tobacco consumption.

Illicitness, in this case, is not associated with any greater health damage. And overall tax revenues losses do not seem to result from well-administered rises in tobacco taxation that cuts consumption, because illicit trade has tended not to increase. (As an aside: unlike some taxes, revenue is not the prime reason for ‘sin’ taxes – in this case the aim is, explicitly, to reduce the tax base and eventually the revenues, by curtailing damaging behaviour.)

Should the WHO then use their biggest awareness-raising moment of the year to focus on illicit trade? From the outside, it seems clear that ‘No Tobacco’ would have found a stronger expression in a theme that sought to reduce all tobacco consumption.

I don’t mean to suggest anything illicit in the WHO’s adoption of this theme. Clearly they have taken a very direct stance against the well-funded lobbying of the ITIC.

But if we ask whether this theme would have been chosen, absent ITIC lobbying over recent years, it seems likely the answer is no. I hope the WTO can stick to the mission of the day – that is, of No Tobacco.

For now, chalk one up for the ITIC.

But then ask: Of the many individuals; the chairmen, co-chairmen and directors; and the professional services firms and non-tobacco multinationals that are working with the ITIC, how many would see this as a win?

Do they each mean to lend their names and reputation to an organisation that has consistently lobbied individual governments, especially in developing countries, and international organisations, against tax measures that are proven to reduce tobacco consumption, and all the health damage and needless death that results?

If not – and I very much hope not – then World No Tobacco Day 2015 seems like a fine time to step away from the ITIC.

The anti-smoking pressure group whose wackiest ideas always become law

Every few years, Action on Smoking and Health draws up a wish list of all the policies it would introduce if it was king for the day. It then spends the next few years lobbying ferociously and watches with a satisfied smirk as every single one of their brainwaves becomes the law of the land.

The manifesto of this tiny pressure group is, in effect, the manifesto of whichever party is in power. The only difference is that governments often ignore their own manifesto commitments (such as Labour’s 2005 pledge to exempt private members clubs from the smoking ban) whereas the ASH manifesto is always implemented to the letter.

ASH’s last legislative programme – 2008’s ‘Beyond Smoking Kills’ – became obsolete when the Conservatives acted on its wackiest idea, plain packaging, earlier in the year. Total victory set the stage for yet another brainstorming session, the fruits of which will be released in a report titled ‘Smoking Still Kills’ later this month. This document has already fallen into the hands of Guido Fawkes who provided a peek preview today.

If smokers were hoping that the vendetta against them would end with plain packaging, they need to think again. Amongst ASH’s new ruses are minimum pricing for tobacco, annual price rises of five per cent above inflation for cigarettes, a smoking ban in all cars and a ban on smoking outdoors.

In recent years, anti-smoking policies such as banning tobacco displays in shops have been put forward on the not-very-convincing pretext that they will discourage children from taking up the habit. Before that, the smoking ban in enclosed spaces was pushed on the basis that it would ‘protect’ employees.

Drunk with success, ASH has now ditched such rhetoric. The new policies are overtly aimed at hassling and impoverishing adults who choose to smoke.

When the smoking ban came in, anti-smoking campaigners swore on a stack of bibles that they would never consider banning smoking in the open air. They now want a consultation on it. When they lobbied for a ban on smoking in cars with children, they promised that it was not the start of a slippery slope that would lead to a ban in all cars. They are now pushing for exactly that. All this from a group that laughably claims that it is ‘not anti-smoker’.

They even want to get rid of the trifling exemption to the smoking ban that allows actors to smoke in theatrical productions. Seriously, what do they hope to gain from such teeth-grinding fanaticism? Oh, and if you want to watch a film or TV show that portrays someone smoking, ASH think you should be subjected to a hectoring anti-smoking commercial beforehand. Compulsory by law, naturally.

It would be easy to assume that this combination of petty and extreme demands are a way of ASH justifying their state funding at a time of budget cuts (ASH receives a generous grant from the Department of Health every year).

Mission creep is nothing new in pressure group politics, but for organisations like ASH incremental prohibition has always been the game. Mission creep is a feature, not a bug, of ‘tobacco control’. ASH could never have achieved what they have if they had been open about their agenda when they were formed in the 1970s. Even today, they will not admit to being prohibitionists. They just want smoking to be sort-of-prohibited.

The problem with treating smoking as if it is virtually illegal is that smokers start viewing it the same way. The sale of illegal cigarettes has risen by 33 per cent in the last two years, according to HMRC, and it is likely to rise further when branding is abolished next year. In its 2008 manifesto, ASH hoped that the illicit share of the cigarette market would be three per cent by 2015. In fact, it is 10 per cent and rising.

That’s four billion cigarettes entering the country every year without being taxed, in addition to 4,400 tonnes of rolling tobacco, and HMRC’s figures almost certainly underestimate the scale of the problem.

This could be excused as collateral damage if ASH’s legislative diarrhoea led to a dramatic decline in people smoking, but it doesn’t. In its 2008 report, they set an ‘ambitious but achievable’ target of reducing the smoking rate to 11 per cent by 2015. At the time, it was 21 per cent. It has dropped by a mere 1.5 percentage points, to 19.5 per cent, in the intervening seven years despite the government capitulating to all of its demands. There are plenty of countries that achieve bigger drops than this by doing nothing at all. ASH have now reset their target and are now hoping that smoking prevalence will be 13 per cent by 2020. I, for one, am prepared to bet that it will be considerably higher than that.

Ms Elisabetta Gardini: Illicit Trade of Tobacco Products

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