News Release
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Michaele Schreyer
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Romano Prodi
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No. 110/04
July 09, 2004
EUROPEAN COMMISSION AND PHILIP MORRIS INTERNATIONAL SIGN
12-YEAR AGREEMENT TO COMBAT CONTRABAND AND COUNTERFEIT CIGARETTES
The European Commission, together with 10 Member States of the European Union[1] and Philip Morris International (PMI), today announced a
multi-year Agreement
[appendixes A
B C
D
DExhibits E
F G
H I
J K]
that includes an efficient system to fight against future cigarette smuggling
and counterfeiting and which ends all litigation between the parties in this area.
Through the Agreement, Philip Morris International will work with the European
Commission, its anti-fraud
office OLAF [European Anti-Fraud Office] and law enforcement authorities to
help in the fight against contraband, including the rapidly growing problem of
counterfeit cigarettes. The agreement includes substantial payments by Philip
Morris International, which could total approximately $1.25 billion over 12 years.
“I welcome the conclusion of the negotiations of this important agreement. This
agreement is to the advantage of the EU to protect its financial interests,”
said Commission President Romano
Prodi. “This Agreement represents a major step forward in the battle against
contraband and counterfeit cigarettes,” said Commissioner Michaele
Schreyer, responsible for budget
and the fight against fraud. “We believe that it will enhance the ability of
the European Commission and the Member States to combat the illegal trade in cigarettes,
which results in the loss of substantial tax and customs revenues each year. Contraband
and counterfeit products cheat everyone: governments, consumers and legitimate
businesses,” she added.
Fight against counterfeit
The Commission and the EU Member States
point to several reasons why they view expanded anti-counterfeit and anti-contraband
efforts as requiring significant priority. Among other reasons, the European Community
and the Member States are losing hundreds of millions of Euros in unpaid taxes
from counterfeit cigarettes. In addition, counterfeit and other forms of contraband
create a parallel illegal supply chain that invades and compromises legitimate
distribution channels and competes unfairly with genuine products distributed
through legitimate channels.
Over the last few years, the incidence of contraband Philip Morris cigarettes
has been greatly reduced, but during the same time period, counterfeit cigarettes
have become a growing threat to the European Community and the Member States.
The Commission has therefore announced that it will build on existing efforts
to combat the illegal trade in cigarettes by:
- Vigorously investigating cigarette counterfeiting in close
cooperation with the Member States and law enforcement officials in critical locations
worldwide;
- Targeting and interrupting the production of counterfeit
cigarettes with the goal of preventing counterfeit cigarettes from being introduced
into the European Community; and
- Recording and pursuing seizures of counterfeit cigarettes
in the European Community to identify the source of the product and other relevant
information.
Fight against contraband and money
laundering: Know your customers and tracking and tracing
The Agreement builds on the efforts of all parties and introduces new and innovative
procedures to combat the diversion of Philip Morris International’s products into
contraband channels in Europe and around the world. Today’s agreement reflects
the reality that success in defeating the contraband and counterfeit
cigarette trade can be aided greatly through a joint agreement whereby major manufacturers
like Philip Morris International and European law enforcement combine their resources
and enhance their coordination in combating contraband and counterfeiting.
In addition to Philip Morris International’s already existing fiscal compliance
policy, the Agreement contains strong provisions, approved by all parties, which
provide them with a mechanism for the long-term prevention of any large-scale
smuggling of genuine Philip Morris cigarettes in the European market. The Agreement
requires Philip Morris International to build on its existing 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
in its battle against the illegal trade in cigarettes. Under the Agreement, Philip
Morris International agrees to continue limiting its sales to volumes commensurate
with legitimate market demand. The Agreement also incorporates and builds into
a comprehensive contractual framework Philip Morris International’s existing anti-money
laundering policies.
Historically, a key concern for the European Community has been the introduction
of contraband cigarettes into the European Community. For that reason, the European
Community has taken aggressive action to address cigarette smuggling. European
law-enforcement efforts have resulted over the past several years in the reduction
of the amount of cigarettes that enter the EU as contraband. The European Commission
has determined that constructive agreements, such as this Agreement with Philip
Morris International, are a useful tool in addressing these issues.
The initiative includes far-reaching product tracking procedures that will facilitate
law enforcement efforts to determine the point at which any genuine product is
diverted from the authorized sales channel. Consistent with the Agreement, Philip
Morris International will mark certain packaging with information indicating the
intended market of retail sale, mark “master cases” of cigarettes with machine-scanable
barcode labels and implement other procedures useful for the tracking and tracing
of its products.
These obligations embody the first major joint tracking and tracing initiative
and are consistent with the anti-contraband provisions of the WHO Framework Convention
on Tobacco Control.
Payments under the Agreement
The European Community and 10 Member States will receive substantial payments
over a number of years. The amount of Philip Morris International’s payments under
the Agreement will vary based on a number of factors and could total approximately
$1.25 billion.
The Agreement also includes an initiative whereby PMI has agreed to make payments
in the event of future seizures in the European Community of its genuine products
above defined quantities. These payments will be made without regard to fault
or wrongdoing by Philip Morris International. If other Member States sign the
Agreement, including the new Member States, they will also be entitled to receive
these payments.
Ending past disputes
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 10 Member States and Philip Morris International relating to
contraband cigarettes. The Agreement also resolves Philip Morris International’s
case against the European Commission pending on appeal before the European Court of Justice.
The Commission is always prepared to have discussions with manufacturers who are
willing to commit the necessary resources to improve ways to combat illegal trade
in their products and associated criminal activity, such as money laundering.
Producers also have a responsibility to fight illegal trade in their products.
This Agreement should therefore serve as a model for other cigarette companies.
Background
In the negotiations with Philip Morris International, the Commission represented
the European Community and the 10 Member States. The Legal
Service and OLAF conducted the negotiations for the Commission.
http://europa.eu.int/comm/anti_fraud/budget/index_en.html
1 Belgium, Finland,
France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, and Spain.
SUMMARY OF THE AGREEMENT
The European Commission, together with 10 Member States of the European Union
and Philip Morris International (PMI) today announced they have reached a multi-year
Agreement valid throughout the whole of the European Community for the fight against
the shared problem of cigarette contraband and counterfeiting activity.
The Agreement looks forward to a cooperative approach in the important area of
reducing contraband and counterfeit cigarettes, while at the same time bringing
to an end all past disputes between the parties relating to this issue. The Agreement
builds on the efforts of all of the parties and includes:
Sales and distribution practices
A comprehensive agreement concerning sales and distribution practices that includes
PMI’s existing policies and promotes the objective that Philip Morris’s cigarettes
be sold, distributed, stored and shipped in accordance with all legal requirements.
(Article 2).
Anti-contraband and anti-counterfeit initiatives and procedures
Measures that enhance the parties' efforts to combat the introduction, sale and
distribution of contraband and counterfeit cigarettes within or through the territory
of the Member States. PMI commits to provide substantial payments that, under
the terms of the Agreement, may serve as a source of additional support for anti-contraband
and anti-counterfeit initiatives and procedures. Over the course of the 12-year
Agreement, such payments could total approximately $1.25 billion and will be paid
in 13 installments. (Article 3).
Anti-contraband and anti-counterfeiting cooperation in the area of seizures
Initiatives that include payments by PMI in the event of future seizures in the
EU of its products in amounts above defined quantities and that recognize the
importance of European Community and Member State enforcement activities. (Article
4).
Tracking and tracing protocols
PMI agrees to adopt and maintain procedures for the tracking and tracing of its
products that supplement procedures PMI already has in place. These measures include
the marking, labeling and scanning of certain packaging and the maintenance of
a central database for information useful for tracking products sold by PMI. (Article
5).
Resolving prior disputes
The Agreement contains a mutual general release of claims relative to this subject
area and thus brings to an end all prior disputes between the parties relating
to the issues addressed by the Agreement. (Article 9).
Enforcement
The Agreement includes provisions for dispute resolution and enforcement.
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Press Contacts:
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Anthony Gooch
202-862-9523
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Maeve O'Beirne
202-862-9549
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