EU states back anti-smuggling action by tobacco company

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BRUSSELS (MarketWatch) — European Union states, with the exception of the U.K., have signed up to a project to fight against corporate cigarette smuggling, forged cigarettes and tax evasion, the European Commission said Tuesday.
The agreement, launched two years ago by the Commission and tobacco maker Philip Morris Intl., aims to plug a revenue hole worth hundreds of millions of euros in annual tax incomes, Brussels says. The Commission holds up the project as a model for cooperation with other cigarette companies.
"Since the project started there has been less smuggling of Philip Morris cigarettes (such as Marlboro and Marlboro Light)," said Valerie Rampi, E.U. anti-fraud and audit spokeswoman for anti-fraud.
But she conceded the falling illegal sales of branded cigarettes has given rise to a booming trade in counterfeit brands. The project is now focusing on coding up cigarette packets to allow authorities to trace the path of a cigarette from the factory to the newsstand.
The cooperation of national governments and Philip Morris International "sets an example of what industry and law enforcement can do when they work together," said Audit and Anti-Fraud Commissioner Siim Kallas.
The U.K., the only European Union state not to participate in the project, says the Anti-Contraband and Anti-Counterfeit Agreement of 2004 doesn't go far enough because it limits seizures to cigarettes smuggled in from outside the E.U. It also doesn't tackle handrolling tobacco. In the U.K., where cigarettes sell at a high tax premium, much tobacco is smuggled in from fellow E.U. countries where taxes are lower, said a U.K. diplomat in Brussels. The U.K. is also leading the drive for measures under development at the World Health Organization to make tracking and tracing of cigarettes easier.
"The U.K. currently has a number of deals with U.K. tobacco manufacturers and laws to tackle tobacco smuggling that goes further than the E.U. agreement," said the diplomat.
The launch of the European project with Philip Morris two years ago ended years of legal battles. The tobacco giant agreed to pay EUR1.25 billion over 12 years to finance the initiative, though both sides said at the time the money wasn't a penalty or fine, but a voluntary payment to forget past conflict and cooperate. At the time, 10 countries signed up to the plan, and another 14 countries have since followed suit.
"This agreement turns the page," said Philip Morris International CEO Andre Calantzopoulous in June 2004. "It's a move from a litigious approach to a collaborative approach."
Brussels had previously accused Philip Morris and some of its rivals of conspiring to smuggle cigarettes by supplying excess amounts of cigarettes to countries with low taxes. These packages then would be smuggled into high-tax countries and resold on the black market. Philip Morris always denied the charges.
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