Today the European Commission announced a multi-year agreement with Imperial Tobacco Limited (ITL) to work together in tackling the illicit trade in tobacco products. Under the legally binding agreement, ITL will work with the European Commission, its anti-fraud office OLAF, and Member States’ law enforcement authorities to help in the fight against contraband and counterfeit cigarettes. The Agreement includes substantial payments by ITL to the Commission and Member States, totalling USD 300 million (EUR 207 million1) over the next 20 years. It should make a significant contribution to the EU’s efforts to fight the illicit tobacco trade, which robs the EU and Member States of billions of euros every year.
Commission President José Manuel Barroso said: “I welcome this important agreement, which will help to protect the EU’s financial interests and strengthen our forces against contraband and counterfeit cigarettes.”
Commissioner for Taxation, Customs, Anti-fraud and Audit, Algirdas Šemeta said: “Contraband and counterfeit products cheat everyone: governments, consumers and legitimate businesses. Today’s agreement with Imperial Tobacco will send a powerful, deterrent signal to the criminals who smuggle cigarettes and vastly increases our chances of stamping out this illicit activity. ”
Fight against counterfeit and contraband
It is estimated that the EU and Member States lose up to 10 billion euro in unpaid taxes every year from counterfeit and smuggled tobacco products. In addition, counterfeit and other forms of contraband create a parallel illegal supply chain that undermines legitimate distribution channels and competes unfairly with genuine products distributed through legitimate channels. The illicit trade in cigarettes is often used to fund more sinister activities, such as terrorism and organised crime. For all these reasons, the Commission and the EU Member States have made the fight against counterfeit and contraband cigarettes a significant priority.
Over the last few years, despite the success of measures taken by the EU, Member States and the industry, the incidence of contraband and counterfeit cigarettes continues to diversify and grow. The Commission has therefore stepped up its efforts to combat the illegal trade in counterfeit cigarettes. These include working with Member State and third countries’ enforcement officials to investigate cigarette counterfeiting, targeting and interrupting the production of counterfeit cigarettes, and recording and pursuing seizures of counterfeit cigarettes in the EU to identify the source of the product and other relevant information.
An Agreement to improve the fight against contraband
Today’s agreement, which was initiated by ITL, reflects the fact that coordination and cooperation between EU law enforcement authorities and manufacturers like ITL can significantly contribute to the success in defeating the illicit trade in tobacco products.
The Agreement introduces strong provisions and procedures for cooperation and intelligence sharing, to allow law enforcement authorities to take more effective action against criminals in Europe and around the world. In addition, ITL will build on its existing supply chain controls, by strengthening its review process for selecting and monitoring customers, to enhance its capabilities to track and trace certain packaging, and to provide expanded support to European law enforcement bodies in the battle against the illegal trade in cigarettes.
Far-reaching product-tracking procedures are also included in the agreement, to enable enforcement bodies to determine the sources and destination of ITL brands and verify if they may be counterfeit. Consistent with the Agreement, ITL will mark certain packaging with information indicating the intended market of retail sale, mark “master cases”2 of cigarettes with machine-scannable barcode labels, and implement other procedures to improve the tracking and tracing of its products.
These obligations are consistent with the anti-contraband provisions of the WHO Framework Convention on Tobacco Control and will underpin the efforts of the EU to promote a strong Protocol to that Convention on Eliminating the Illicit Trade in Tobacco Products.
In addition to the above benefits, the European Union and participating Member States will receive substantial payments from ITL over a number of years. ITL has committed to pay a total of USD 300 million (EUR 207 million) over 20 years.
The Agreement also includes a guarantee by ITL to make payments in the event of future seizures of its genuine products in the EU, above specified quantities. These payments will be available to all participating Member States.
In the negotiations with ITL, the Commission represented the European Union and the Member States. The Legal Service and OLAF conducted the negotiations for the Commission. On 9 July 2004, the EU and ten Member States signed an anti-contraband and anti-counterfeit agreement with Philip Morris International (IP/04/882). On 14 December 2007, the EU and 26 Member States entered into an anti-contraband and anti-counterfeit agreement with Japan Tobacco International (IP/07/1927). On 15 July 2010, the EU and 24 Member States entered into a Cooperation Agreement with British American Tobacco (IP/10/951). As of today, all 27 Member States and the EU are parties to the cooperation agreements with PMI and JTI.
For more details, see: MEMO/10/448.
For the Agreement, see:
Based on the conversion rate of 12th January 2010, when the Commission and Imperial Tobacco initialled the Co-operation Agreement.
“Master case” means packaging for approximately 10,000 cigarettes.