Imperial Tobacco toes the line

Monday 27 September 2010

Imperial Tobacco – the world’s 4th largest international tobacco company – has today signed a legally-binding anti-smuggling Agreement with the European Union. [1] This follows similar legally binding agreements taken firstly by Philip Morris International (PMI) in 2004, by Japan Tobacco International (JTI) in December 2007 and by British American Tobacco (BAT) in July 2010. The 20 year Agreement means that the company is required to implement rigorous global controls to prevent the illicit trade in its products and that if any of Imperial Tobacco’s products are found to be smuggled within the EU, the company will face a hefty seizure payment. The company will also be required to pay US$300 million to the EU as part of the deal. The proceeds of this and any subsequent payments will be distributed between the participating Member States of the European Union, which includes the UK.

Despite a decline in recent years, tobacco smuggling remains a significant problem in the UK and the Government is losing around £2bn a year in lost revenue. Although there has been a rise in counterfeit product in recent years, most of the trade in illicit tobacco still consists of product that is manufactured in the UK, exported, and then re-imported illegally, often in containers hidden by other goods.

Imperial has in the past been severely criticised for its links with tobacco smuggling. For example, an inquiry into tobacco smuggling by the Commons Public Accounts Committee in 2002 found that contraband cigarettes cost the Exchequer £2.8bn in lost duty and value added tax in 2000-01 and that some £8bn of Imperial’s cigarettes were smuggled back into the UK without tax and duty being paid, costing the taxpayer £1.4bn a year.
Edward Leigh, MP, PAC chairman, accused the company of failing in its public duty to help reduce these “enormous losses”. He said it appeared reluctant to help Customs and Excise curb the trade. “They persisted in exporting large volumes to places like Andorra and Kaliningrad when they must have known that the cigarettes could not possibly be for those domestic markets.”

While questioning the Imperial Tobacco CEO, and members of his senior management team a member of the committee said: “One comes to the conclusion that you are either crooks or you are stupid, and you do not look very stupid.” [2]

Deborah Arnott, Director of the health campaigning charity ASH, said:

“Imperial tobacco has an appalling past record in allowing its products to be smuggled into the UK, and should have been called to account for its activities long before now. At last it is being made to pay for its past scandalous behaviour.”

Although the top four international tobacco companies have signed the anti-smuggling agreement, there remains a European wide problem with the illicit trade in other companies’ products, such as Raquel in Cyprus [3], the Baltic Tobacco Company [4 ] in Kaliningrad and Karelia in Greece[5]. ASH calls on the EU to require all manufacturers to comply with the same standards as the major international tobacco companies.


Notes and links:
[1] Details of the Imperial agreement:
[2] Further extract from the Public Accounts Committee Third Report (Dec 2002) on tobacco smuggling and Imperial Tobacco’s failure to tackle this problem.

Imperial Tobacco manufactures a number of leading brands including Regal and Superkings. Customs believe that as many as 65% of the Regal and Superkings cigarettes exported by the Company were smuggled back into this country, compared with a rate for all cigarettes of only 16%. The Chief Executive of the company acknowledged that there had been a marked increase from 1997 in the number of their cigarettes being smuggled back into the UK, and that very large quantities of his company’s cigarettes had been seized by Customs in 2000-2001. On the basis of data provided by Customs the two Imperial brands, Regal and Superkings, made up about one half of the entire smuggled market.


Analysis of UK Cigarette Consumption and Smuggling in 2000-1
Estimated consumption of UK duty paid cigarettes (number of sticks) –  56 billion
Estimated number of cigarettes smuggled (number of sticks) –  17 billion
Number of cigarettes seized in 2000-1 –  2.77 billion
Percentage of seizures which are Imperial brands –  50%
Number of Imperial cigarettes being smuggled into the country if seizures are proportionate to smuggled cigarettes –  8.5 billion
Source: House of Commons Committee of Public Accounts, Tobacco Smuggling, Third Report of Session 2002-3
[3] UKBA press release. More than 10 million cigarettes seized at Felixstowe. 15 September 2010.
[4] Inside Baltic Tobacco’s smuggling empire. April 8th, 2009.
[5] Antonopoulos, G. A. (2006) ‘Cigarette smuggling: a case study of a smuggling network in Greece’, European Journal of Crime, Criminal Law and Criminal Justice, 14 (3), pp.239-255.