Busting the Myths Tobacco Control and Illicit Trade

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Busting the MythsTobacco Control and Illicit
Trade

• November 29th, 2011
• International Legal Consortium
• Campaign for Tobacco-Free Kids

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Introduction

• Patricia Lambert
• Director
• International Legal Consortium
• Campaign for Tobacco-Free Kids

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Questions and Answers
Type your questions here throughout the webinar
and we will answer them at the end.
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• John W. Colledge III
• Consultant on Anti-Illicit Trade
• Supervisory Criminal Investigator
• (Retired)
• Department of Homeland Security
• and
• the U.S. Customs Service

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Moderator
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• Aaron Schwid
• Legal Advisor
• International Legal Consortium
• Campaign for Tobacco-Free Kids

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http//www.youtube.com/user/WelcomeToBAT
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KEY FACTORS FACILITATING CIGARETTE CONTRABAND 1.
High taxation 2. Inadequate law enforcement 3.
Trade regulatory controls
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Fact or Fiction?

• Studies show that public health measures increase
  illicit tobacco trade.

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Unreliable Sources and Misinformation

• Think tank reports
• Mackinac Center for Public Policy.
• Frasier Institute.
• International Tax and Investment Center (ITIC).
• Industry Sites, e.g. Plainpack.com
• News media
• Misused Terms or Slang

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Reliable Sources
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Elements of Reliable Sources

• Not funded by industry
• Industry involvement in illicit trade considered
• Well sourced
• Published dates and timeframe of data
• Proper Use of Key Terms

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Key Terms

• Illicit trade.
• Tax evasion.
• Contraband.
• Smuggling.
• Illegal Manufacturing.
• Counterfeit.

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Contraband

• Tax Evasion
• Non-tax paid products.
• Its about the money
• Crime of greed, not passion
• Smuggled merchandise.
• Illegal Manufacture
• Stolen

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Smuggling and Diversion

• A form of tax evasion.
• Smuggling - across intl border
• Diversion - within national boundaries
• Concealment
• Avoiding Customs Controls
• Intermingling
• Fraud
• False Documents
• False Statements

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Illegally Manufactured

• Counterfeit
• Non-licensed production
• Over-production
• Authentic trademarks
• Likely identical products
• Undeclared

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Counterfeit

• A form of tax evasion. Never legal.
• Fraudulently manufacturing, altering, or
  distributing a product that is of lesser value
  than the genuine product.
• Trademark protection Trade-Related Aspects of
  Intellectual Property (TRIPS)
• Trends.
• History
• Volume.
• Authenticity determinations.

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Slang Terms to Avoid

• Bootlegging.
• Large Scale/Small Scale Smuggling.
• Ant Smuggling.
• Cheap Whites.

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Fact or Fiction?

• Illicit Trade started in the 1990s and increased
  after the FCTC came into force.

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Brief History of Illicit Tobacco Trade

• Began immediately after the discovery of tobacco
  to avoid tobacco monopolies and taxes.
• Cigarettes became a cash substitute.
• Constantly evolving schemes.
• Tobacco products used to launder crimes proceeds.

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Transnational Organized Crime

• UNTOC United Nations Convention Against
  Transnational Organized Crime.
• Organized criminal group shall mean a
• structured group of three or more persons,
• existing for a period of time and acting in
  concert
• with the aim of committing one or more serious
  crimes or offences established in accordance with
  this Convention,
• in order to obtain, directly or indirectly, a
  financial or other material benefit

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Illicit Trade is Organized Crime

• Raises seriousness of tobacco crimes
• Additional police powers for the government, e.g.
  special investigative techniques
• Seizure and forfeiture of criminal proceeds
• Other increased criminal sanctions

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Fact or Fiction?

• High taxes are the root cause of illicit tobacco
  trade.

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Tax Increases and Illicit Trade

• Fact Tax disparities between jurisdictions
  provide an opportunity for smuggling. High taxes
  provide an opportunity for other forms of illicit
  trade.
• BUT effective enforcement mechanisms work
• Effective government-controlled tracking
  (pro-active detection)
• Effective government-controlled tracing
  (investigation and post-seizure analysis)
• Properly staffed, trained, and resourced
  enforcement personnel
• Adequate criminal sanctions

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Example California

• High income, large population
• Enforcement protections accompanied a tax
  increase
• Enhanced revenue protection
• Secure digital tax stamp
• Additional staffing
• Enhanced law enforcement powers
• Additional criminal sanctions

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Example Brazil

• Rapidly developing economy, large population,
  large borders
• Enforcement protections solidified before a major
  tax increase
• Enhanced revenue protection
• Secure digital tax stamp
• Additional staffing
• Enhanced law enforcement powers
• Additional criminal sanctions

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Example Arkansas

• Small economy, small population
• Interstate diversion bordering states with lower
  taxes
• Enforcement protections accompanied a tax
  increase
• Basic tracing system, but no effective tracking
  system
• Enhanced revenue protection
• Unique asset forfeiture fund
• Additional staffing
• Enhanced law enforcement powers
• Additional criminal sanctions

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Fact or Fiction?

• Plain packaging will increase illicit tobacco
  trade.

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Plain-Packaging and Illicit Trade

• FACT Plain packaging has never been introduced
  on the market so there is no evidence that it
  will increase illicit trade.
• Effective enforcement mechanisms work
• Tracking - Digital tax system.
• Tracing - Criminal investigative techniques.
• Counterfeit.
• Trademarks.
• Graphic warnings.
• Other technologies to protect trademarks

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Fact or Fiction?
Industry cannot meet quickly changing regulations
so hole will be filled by organized crime.
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Regulatory Changes and Illicit Trade

• Fact Such claims encourage hoarding which is
  likely to result in increased earnings for
  industry and government.
• Fact Competition in marketplace encourages legal
  businesses to satisfy supply before organized
  crime does.
• Fact In countries with graphic health warnings,
  organized crime did not take over market.
• Governments should include a rapid, but
  practical, implementation period for all
  regulatory measures.

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Fact or Fiction?

• Legal tobacco products are safer than illegal
  ones.

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Illegal Products and Safety

• Fact Safety allegations have not been supported
  by reliable evidence simply unsupported
  statements.
• Illegal manufacturers purchase tobacco,
  ingredients, key inputs and equipment from major
  companies.
• Few countries regulate ingredients in tobacco
  products, in part because whether certain
  chemical combinations in tobacco are dangerous is
  unknown.
• High-quality tobacco products are designed to
  deliver nicotine, a known poison. When used as
  intended, legal tobacco products kill.

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Fact or Fiction?

• Tobacco companies lose money because of illicit
  trade.

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Industry Involvement in Illicit Trade

• FACT Counterfeit manufacturing may damage the
  tobacco industry however, existing trademark
  laws provide sufficient protection for the
  tobacco industry.
• Government should prioritize public health and
  revenue (tax) protection.
• FACT Historic and ongoing evidence of industry
  involvement in illicit trade, especially
  smuggling and overproduction.

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Industry Involvement in Smuggling

• Philip Morris International and Japan Tobacco
  International entered into a legal agreement with
  the European Community and 10 member states to
  settle litigation against them that would have
  further exposed their involvement in cigarette
  smuggling. (2004)
• British American Tobacco and Philip Morris
  International settled its smuggling-related
  litigation with Canada. (2008)
• Japan Tobacco International plead guilty to
  violations of tax laws and R.J. Reynolds pled
  guilty to criminal charges related to cigarette
  smuggling in Canada. (2010)

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CEO of Reynolds American and Fortune 500 most
powerful women
4. The possibilities of GT exploitation were
considered to be good (Ghana Cameroon). . .
7. I accept that in retrospect we may have been
over optimistic about its potential in Togo,
Benin, Niger, but the main reason for its launch
in these markets was not to exploit domestic
markets but for GT opportunities.
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Recent Allegations against JTI

• Executives of Japan Tobacco International stood
  by as its distributors engaged in widespread
  cigarette smuggling in a dozen countries.
• When the companys anti-smuggling unit cracked
  down on smuggling routes and raised questions
  about suspect distributors, JTI retaliated by
  hacking into the teams computers, firing its
  leaders, and phasing out nearly a dozen
  contractors who knew about the smuggling.
• Big Trouble at Big Tobacco, Organized Crime and
  Corruption Reporting Project, available at
  http//www.reportingproject.net/troubles_with_big_
  tobacco/

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Fact or Fiction?

• Tobacco companiesmust be involved in designing
  policies around illicit trade.

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Industry Interference in Policy Making

• FACT Industry may have a legitimate interest in
  preventing illicit trade
• BUT any government interactions should follow all
  recommendations from FCTC Art. 5.3 Guidelines
  relating to necessity and transparency
• Consultation v. Partnership distinction
• Information flow on case-by-case basis
• OECD Guidelines Managing Conflicts of Interest
  in the Public Sector, available at
  http//www.oecd.org/dataoecd/54/31/48994419.pdf?co
  ntentId48994420
• United Nations Convention Against Corruption,
  available at http//www.unodc.org/unodc/en/treat
  ies/CAC/index.html

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Who does the industry talk to?

• International Agencies
• World Customs Organization
• Interpol
• Domestic Policy Makers
• Legislators
• Ministries (Finance, Industry, Trade, Interior,
  Justice)
• Enforcement Agencies
• Tax, Customs, Police, Antifraud, Anticorruption

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Why does the industry talk to these
organizations?

• Influence Legislation and Policy
• Influence Enforcement Priorities
• Protect the Profits

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What You Can and Must Do

1. Self-education Learn the subject matter. Verify
   sources. If you still have questions, reach out.
2. Monitor tobacco trade and taxation in your region
3. Identify and lobby appropriate policy makers and
   enforcement agencies
4. Acknowledge the role of organized crime in
   tobacco, but put tobacco in context with other
   commodities

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What You Can and Must Do

1. Prepare counterarguments on illicit trade
   arguments before proposing tax and other public
   health measures.
2. Remind policymakers, media, and public of
   industrys role in illicit tobacco trade and
   their profit motivation
3. Support additional funding and training of
   enforcement agencies
4. Insist on transparency for any interaction
   between tobacco industry and any policy makers or
   enforcement agencies

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Additional Resources

• More information available at
  http//tobaccofreecenter.org/resources/illicit_tra
  de_smuggling
• Campbell D. Further Evidence By Duncan Campbell
  in Respect of Smuggling in Africa by British
  American Tobacco Plc, Obstruction of Access to
  Evidence. UK House of Commons Health Select
  Committee, Inquiry into the Tobacco Industry and
  the Health Risks of Smoking. London. January 15,
  2000. Available at http//duncan.gn.apc.org/bat/H
  ealth_Committee_Evidence_2.htm. Accessed
  November 30, 2011.
• The Center for Public Integrity, Tobacco
  Underground, The Blooming Global Trade in
  Smuggled Cigarettes. available online at
  http//www.publicintegrity.org/investigations/toba
  cco/articles/. Accessed November 30, 2011.
• Collin J, LeGresley E, MacKenzie R, Lawrence S,
  Lee K. Complicity in Contraband British American
  Tobacco and Cigarette Smuggling in Asia. Tobacco
  Control 200413((Supp II))ii96-ii111.
• Lee K, Collin J. 'Key to the future' British
  American Tobacco and cigarette smuggling in
  China. PLoS Medicine 20063(7)228-37.
• LeGresley E, Lee K, Muggli ME, Patel P, Collin J,
  Hurt RD. British American Tobacco and the
  "insidious impact of illicit trade" in cigarettes
  across Africa. Tobacco Control 2008doi10.1136/tc
  .2008.025999.
• U.K. Action on Smoking and Health. Submission to
  the House of Commons Health Select Committee.
  February 16, 2000. Available at
  http//www.ash.org.uk/files/documents/ASH_567.pdf.
  Accessed November 30,2011.
• World Bank and World Health Organization. Tobacco
  Control in Developing Countries. (2000)Chapter
  16 Issues in the smuggling of tobacco products.
  Available at http//web.worldbank.org/WBSITE/EXTE
  RNAL/TOPICS/EXTHEALTHNUTRITIONANDPOPULATION/EXTETC
  /0,,contentMDK20226973menuPK478900pagePK14895
  6piPK216618theSitePK376601,00.html. Accessed
  November 30, 2011
• World Health Organization. The cigarette
  "transit" road to the Islamic Republic of Iran
  and Iraq. Illicit tobacco trade in the Middle
  East. Cairo WHO_EM/TFI/011/E/G/07.03/1000)
  http//www.emro.who.int/tfi/TFIiraniraq.pdf.
  Accessed November 30, 2011.

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Busting the MythsTobacco Control and Illicit
Trade

• Questions and Answers

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• Thank You.
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• Tracking and Tracing.
• For more information, go to
• www.tobaccocontrollaws.org