Illicit cigarettes enter or are sold in a market in violation of fiscal laws, custom laws, and other regulations, e.g., without payment of import duties, excise tax, or VAT, and in noncompliance with regulatory measures. Illicit cigarettes can be genuine products manufactured by, or under the authority of, a trademark owner and sold without payment of applicable taxes, or else counterfeit cigarettes, meaning fakes that have been manufactured without the permission of the trademark owner.
Regulatory measures and related governmental actions to prevent the illicit manufacture and trade of tobacco products are being considered by a number of jurisdictions. Article 15 of the FCTC requires parties to the treaty to take steps to eliminate all forms of illicit trade, including counterfeiting, and states that national, regional, and global agreements on this issue are “essential components of tobacco control.”
The Conference of the Parties established an Intergovernmental Negotiating Body (INB) to negotiate a protocol on the illicit trade in tobacco products pursuant to Article 15 of the FCTC . The INB’s Chairperson has drafted a text for the protocol, which includes the following main topics:
- licensing schemes for participants in the tobacco business;
- “know your customer” requirements, including measures to eliminate money laundering and the development of an international system for the tracking and tracing of tobacco products and tobacco manufacturing equipment;
- the implementation of laws governing recordkeeping, security and preventive measures, and Internet sales of tobacco products;
- enforcement mechanisms, including the criminalization of participation in illicit trade in various forms, and measures to strengthen the abilities of law enforcement agencies to fight illicit trade;
- obligations for tobacco manufacturers to control their supply chain with penalties for those that fail to do so; and
- programs to increase cooperation and technical assistance with respect to investigation and prosecutions and the sharing of information.
We agree that manufacturers should implement state of the art monitoring systems of their sales and distribution practices, and we agree that where appropriately confirmed, manufacturers should stop supplying vendors who are shown to be knowingly engaged in illicit trade. However, we disagree with the draft protocol’s provision that would impose payments on tobacco product manufacturers in an amount of lost taxes and duties from seized contraband tobacco products regardless of any fault on the manufacturers’ part.
The illicit trade in cigarettes harms governments, consumers, and manufacturers. According to World Health Organization (WHO) estimates, the illegal, unregulated black market in cigarettes amounts to 600 billion cigarettes a year or 11% of global consumption. A report conducted by KPMG LLP (KPMG) found that in the EU alone 65.5 billion illegal cigarettes were consumed in 2012. This equates to annual losses to national and EU revenues of approximately 12.5 billion Euros according to KPMG.
We are undertaking a broad series of measures to fight illegal cigarettes, to ensure our brands are protected and consumers get the genuine product they expect. We support strict regulations and enforcement measures to prevent all forms of illicit trade in tobacco products, including tracking, tracing, labeling, recordkeeping requirements, and where appropriate, implementation of strict licensing systems. We are also working with a number of governments around the world on specific agreements and memoranda of understanding to address the illegal trade in cigarettes.