Three tobacco companies down – Imperial Tobacco should follow, says ASH

Thursday 15 July 2010

BAT – the world’s second largest 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 and by Japan Tobacco International (JTI) in December 2007. The 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 BAT’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$200 million to the EU as part of the deal. The proceeds of this and any subsequent payments will be distributed between the 27 Member States of the European Union, including the UK.

BAT’s agreement with the EU’s anti-fraud office Olaf reflects many of the measures contained in a tobacco illicit trade protocol that is being hammered out by governments as part of the international Framework Convention on Tobacco Control (FCTC). [2]

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.

Now that the top three international tobacco companies have signed the anti-smuggling agreement, the fourth largest and British-based company Imperial Tobacco plc is the only one not to have reached an agreement with the EU over the illicit trade of its products. ASH called on the company to do so as soon as possible.

Like BAT [3], in recent years Imperial has 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. “ [4]
Deborah Arnott, Director of the health campaigning charity ASH, said:

“Now that BAT has finally been dragged to the negotiating table to help solve the international smuggling problem it’s high time that Imperial Tobacco followed suit. The tobacco industry is finally being made to pay for its past scandalous behaviour. Given Imperial tobacco’s appalling past record in allowing its products to be smuggled into the UK, there can be no excuse for this company in particular to be let off the hook.”


Notes and links:
[1] Details of the BAT agreement:
[2] Illicit trade protocol FCTC  For further info seee:
[3] British American Tobacco plc and tobacco smuggling: Evidence to the Health Select Committee of the House of Commons, London, 16 February 2000
[4] 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 manufacture 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, make 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