Complaint highlights Philip Morris' role in illicit trade

Summary

Constant actions to maintain control of the supply system Remotely controlled information reports at the service of the cigarette manufacturer Adoption of the Protocol: a threat to the cigarette manufacturer   To read the complaint of Raoul Setrouk and MSINTELLIGENCE Msi Market Survey Intelligence Sarl vs Philip Morris International Inc. (in English)  

Raoul Setrouk, former consultant of Philip Morris International (PMI) filed a complaint on November 2, 2020[1] in New York court against the company. He accuses the Swiss tobacco giant of unfair competition, misappropriation and unjust enrichment. The tobacco company is said to have appropriated a controversial methodology invented by Mr. Setrouk, used to measure the global flow of contraband cigarettes.[2]. The case highlights the role of the cigarette manufacturer in manipulating data on illicit trade and in the very organisation of smuggling.

Constant actions to maintain control of the supply system

Most of the tobacco industry's data on illicit products comes from manufacturers' empty pack surveys. This is a system of collecting discarded cigarette packs on the streets to determine their origin and authenticity. The process mainly involves measuring the presence and market share of untaxed tobacco products in a defined area. According to Mr. Setrouk's complaint, shortly after the development by his company MSIntelligence, then working for PMI, the company allegedly appropriated the collection and processing of the data in order to "arrange" the results to its own advantage.

The tobacco industry's interest is to exaggerate[3]-[4] illicit tobacco levels[5] and more specifically the importance of the counterfeiting problem for two main reasons. First, the tobacco industry uses the argument of illicit trade to counter many anti-smoking measures, including tax increases and plain packaging. Second, the agreement on cigarette smuggling concluded between PMI and the European Commission[6] in 2004[7], similar to agreements with other transnational tobacco companies, requires PMI to make payments (called "supplemental payments") in the event of significant seizures of its own contraband products. These sanctions do not apply in the case of seizures of counterfeit products.

Remotely controlled news reports at the service of Philip Morris

Since 2005, KPMG[8], a firm commissioned by Philip Morris, produces reports on the extent of the illicit trade in tobacco products[9] in the European Union (EU) and Australia. A significant communication campaign is deployed when these are published. They are widely relayed in the media and cited against public policies to combat smoking. They are also presented as objections to the introduction of plain packaging.

KPMG[10] is thus financed by the cigarette manufacturer to write a report presented as "independent". The methodology used by the KPMG firm was the subject of an evaluation by scientists who pointed out its opacity and major weaknesses.[11].

In 2014, researchers from the University of Bath concluded that the KPMG reports were misleading.[12], “serving the interests of PMI over those of the EU and its Member States.” They showed how the report overestimated the prevalence of cigarette smuggling and relied too heavily on their own “empty packet collection” surveys that were not independently verified. In reality, the KPMG report serves to fuel the idea of a major illicit trade with ever-increasing figures. Furthermore, by putting forward ever-increasing figures for counterfeit products, this presentation seeks to obscure the industry’s role in parallel markets.[13]. The investigation of parallel markets imposed by the European authorities, although entrusted to the manufacturers, was ultimately instrumentalized by them. PMI thus transformed the "Empty Pack Survey" tool into a means of serving the company's own objectives, and used it as a political instrument.[14].

According to the complaint filed by Mr. Setrouk, in 2019, there is mention of trafficking in Marlboro brand cigarettes. This is the manufacturer's iconic brand and this trafficking was allegedly organized by the cigarette manufacturer from Algeria to the French market. It would have represented a significant percentage of this market and an associated loss of tax revenue. These elements do not appear in any of the KPMG reports. These facts strongly suggest that PMI intentionally and actively flooded the Algerian market with low-priced cigarettes, knowing that a regular flow of these cigarettes would be resold in France.

Adoption of the Protocol: a threat to the cigarette manufacturer

In response to the problem of illicit trade undermining tobacco control efforts, the Protocol to combat illicit trade in tobacco products. It is the first legally binding instrument adopted under the WHO Framework Convention on Tobacco Control, FCTC. It was adopted at the 5th Conference of the Parties (COP5) in November 2012 and entered into force on 25 September 2018.[15]-[16]. The Illicit Trade Protocol focuses specifically on securing the supply chain of tobacco products and includes a global tracking and tracing system to reduce tobacco smuggling. The principle of a tracking and tracing system is to trace the tobacco product from the manufacturing stage to the retail sale and to follow it throughout its distribution chain. If at any point it leaves the legal market, it becomes possible to identify at what point. Given the historical involvement of the tobacco industry in tobacco smuggling[17]-[18]-[19], it is required that the tracking and tracing system is not entrusted or delegated to the tobacco industry, directly or indirectly.

The very existence of this protocol and its application constitutes a threat to the interests of cigarette manufacturers.

They have also immediately tried to undermine the very provisions of the protocol. According to a 2018 study by Tobacco Control Research Group From the University of Bath, the researchers described the tobacco industry's attempts to interfere in the very implementation of the Protocol.[20]. To achieve this, the tobacco company has agreed with other tobacco multinationals to use front groups that promote the tobacco company's system. These third parties claim to be independent of the tobacco company, but in reality they are not. However, entrusting the fight against illicit trade to the tobacco industry poses a serious problem. It leads to a lack of control over data by public authorities and to possible manipulation of this data in the sole interest of the tobacco companies.

©Generation Without Tobacco

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[1] Aisha Kohoe Down, Complaint: Philip Morris Smuggled Smokes, Distorted Data, OCCRP, November 17, 2020, accessed November 25, 2020 [2] Philip Morris Group Accused of Promoting Cigarette Counterfeiting, Gotham City, November 11, accessed November 25, 2020 [3] Philip Morris International. Philip Morris International: New study finds EU black market for cigarettes reaches record high; Member State tax loss an estimated €12.5 billion. April 17, 2013, accessed October 25, 2020 [4] Philip Morris International. KPMG Sun Report: One in Ten Cigarettes Consumed in the EU in 2012 Were Illegal; Dramatic Rise in Consumption of 'Illicit Whites' [5] Joossens L, Raw M Cigarette smuggling in Europe: who really benefits? Tobacco Control 1998;7:66-71. [6] European Commission and Philip Morris International sign 12-year agreement to combat cigarette smuggling and counterfeiting, European Commission, July 2004 [7] Joossens L, Gilmore AB, Stoklosa M, et al . Assessment of the European Union's illicit trade agreements with the four major Transnational Tobacco Companies. Tob Control 2016;25:254–60. doi:10.1136/tobaccocontrol-2014-052218 [8] KPMG, Tobacco Tactics – University of Bath, last updated 26 October 2020, accessed 25 November 2020 [9] CNCT, KPMG report on illicit tobacco trade: fanciful data at the service of Philip Morris, July 4, 2017, accessed November 25, 2020 [10] Ibid [11] Gilmore AB, Rowell A, Gallus S, Lugo A, Joossens L, Sims M. Towards a greater understanding of the illicit tobacco trade in Europe: a review of the PMI funded 'Project Star' report. Tob Control. 2014 May;23(e1):e51-61. doi: 10.1136/tobaccocontrol-2013-051240. Epub 2013 Dec 11. PMID: 24335339; PMCID: PMC4078702. [12] Gilmore AB, Rowell A, Gallus S, et al Towards a greater understanding of the illicit tobacco trade in Europe: a review of the PMI funded 'Project Star' report Tobacco Control 2014;23:e51-e61. [13] CNCT, KPMG study, first hoax from Philip Morris and others, June 6, 2016, accessed November 25, 2020 [14] Press release, Study finds 'serious flaws' in EU report on illicit tobacco, University of Bath, January 22, 2014, accessed November 25, 2020 [15] World Health Organization, Protocol to Eliminate Illicit Trade in Tobacco Products [16] CNCT, Entry into force of the protocol to combat illicit trade in tobacco products, September 25, 2018, accessed November 25, 2020 [17] Gilmore AB, Gallagher AWA, Rowell A. Tobacco industry's elaborate attempts to control a global track and trace system and fundamentally undermine the Illicit Trade Protocol. Tobacco Control. 2019 Mar;28(2):127-140. DOI: 10.1136/tobaccocontrol-2017-054191. [18] Collin J, Legresley E, MacKenzie R, et al. Complicity in contraband: British American Tobacco and cigarette smuggling in Asia. Tob Control 2004;13:ii104–11. doi:10.1136/tc.2004.009357 [19] Joossens L,Raw M. From cigarette smuggling to illicit tobacco trade. Tob Control 2012;21:230–4. doi:10.1136/tobaccocontrol-2011-050205 [20] Ibid