Memorandum submitted by the European Anti-Fraud
Office (OLAF)
ANTI-CONTRABAND AND ANTI-COUNTERFEIT AGREEMENT
BETWEEN THE EUROPEAN COMMUNITY AND 10 MEMBER STATES AND PHILIP
MORRIS
On 9 July 2004, the European Community ("EC")
and 10 Member States (Belgium, Finland, France, Germany, Greece,
Italy, Luxembourg, the Netherlands, Portugal and Spain) and Philip
Morris International, Inc. ("PMI") signed an Anti-Contraband
and Anti-Counterfeit Agreement (the "Agreement").
The aim of the Agreement is to combat the large
scale and often organised illegal trade in contraband and counterfeit
cigarettes which causes the EC and Member States to lose hundreds
of millions, if not billions, of Euros per year. The Agreement
is a new and promising approach to address this illegal trade
in tobacco products. It reinforces the strict action that the
EC and the Member States have always taken against smuggling by
establishing an efficient system to fight against future cigarette
smuggling and counterfeiting
The Agreement is a landmark which is unique
in scope and innovative in method. This may be seen in the three
following examples:
First, PMI has agreed a comprehensive
set of rules that it must follow as to how it sells and receives
payment for cigarettes in order to significantly reduce the capability
of third parties to smuggle cigarettes into the EC. These rules:
— include strict criteria concerning
"know your customer";
— regulate the ways in which PMI can
receive payment for cigarettes to eliminate money laundering;
— require PMI to sell cigarettes only
in volumes that are commensurate with the legitimate demand in
a given market for their cigarettes;
— require record keeping and the providing
of records to law-enforcement personnel; and
— compel compliance with many of these
rules by PMI customers and the customers of those customers.
Second, the parties have agreed tracking
and tracing procedures, to assist law-enforcement efforts to combat
future smuggling and counterfeit. They include extensive obligations
for PMI in regard to:
— Marking of designated master cases.
— Marking of cigarette cartons and
packs.
— The establishment of a master case
database and scanning information into that database.
— Provision of immediate access at
all times for designated EC and Member State officials to information
in the master case database concerning seized master cases of
cigarettes.
— Protocols for the tracking of cigarettes,
and other necessary requirements to allow the EC and/or the Member
States to track and trace contraband cigarettes.
The Agreement also requires PMI to conduct additional
research and to apply new scanning and coding technologies as
they become feasible.
Third, in the event of any significant
seizure (of five or more master cases, ie, 50,000 cigarettes or
500 packs) of authentic PM cigarettes, PMI must make a "Supplemental
Payment" to the EC and the Member State which seized the
cigarettes equal to the total amount of lost duties and taxes
which would have been due on those cigarettes if they had been
legally distributed for retail sale in the Member State of seizure.
Moreover, in the event of such seizures, PMI will supply law enforcement
authorities with the origin and destination of genuine PM cigarettes.
The Agreement also establishes a "Baseline
Amount" based upon the average number of authentic PM Cigarettes
seized throughout the EC in the years 2001 and 2002. In the event
that there are seizures of authentic PM Cigarettes in excess of
the Baseline Amount in any given year, PMI will make an additional
payment as to each cigarette seizure (of at least 5 master cases)
in an amount equal to four times the duties and taxes that would
have been assessed on those cigarettes. In other words, PM will
pay a total amount equal to five times (500%) of the customs duties
and taxes owed on those cigarettes. This guarantee by PMI of monetary
payments in the event of seizures of any genuine PM products demonstrates
its commitment to prevent the smuggling of PM cigarettes into
the EC.
These European level commitments greatly exceed
those of any individual Memorandum of Understanding between a
cigarette manufacturer and a Member State. The Agreement also
goes beyond the terms of the Framework Convention on Tobacco Control
("FCTC") of the World Health Organisation ("WHO")
regarding combating the smuggling of cigarettes.
The Agreement has two further unique features
which distinguish it from other individual agreements. First,
it is legally binding and subject to a specific enforcement mechanism.
Second, it provides for substantial payments by PMI, up to a total
of some $1.25 billion over the next 12 years, which could be used
to combat smuggling and counterfeit.
While all these provisions are forward-looking,
the Agreement also contains the parties' resolution of all past
disputes relating to contraband cigarettes. In particular, the
Agreement also brings to an end all litigation between the European
Community and the ten Member States and Philip Morris International
relating to contraband cigarettes.
Over the last six months, the parties have demonstrated
that the Agreement will provide an effective basis for strong
co-ordinated action between the European Commission through OLAF
[European Anti-Fraud Office], national law enforcement authorities
and PMI in the battle against contraband and counterfeit cigarettes.
The EC sincerely hopes that the Agreement will
serve as a model for other manufacturers who are willing to work
with the EC and its Member States to combat the illegal trade
in their products.
Finally, it should be noted that the Agreement
provides that any Member State has the unconditional right to
become a party.
31 January 2005
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