Andrew Rowell and Anna Gilmore
Bath University, UK
On 17 September 2012, the European Parliament’s Committee on Budgetary Control held a public hearing on tobacco smuggling under the auspices of its Hercule III programme. Hercule III’s primary operational objective is to improve ‘the prevention and investigation of fraud, smuggling and counterfeiting, especially of cigarettes, by enhancing transnational and multi-disciplinary cooperation’.
Despite the European Commission being a party to the Framework Convention on Tobacco Control (FCTC) and thus obligated to abide by the treaty’s Article 5.3 which aims to protect policies ‘from commercial and other vested interests of the tobacco industry’, the first speaker on the main panel on preventing smuggling was Steve Payne, Director of Anti-Illicit Government Relations at Japan Tobacco International (JTI).
Payne’s talk was on “the state of play, possible solutions and emerging threats” from the view of the “affected tobacco industry”. The industry has long tried to paint itself as a victim of tobacco smuggling – hence the word ‘affected tobacco industry’ in the title. This is despite the overwhelming evidence of its likely complicity in tobacco smuggling.
Due to JTI’s own alleged involvement in smuggling, the company agreed to pay $400 million in 2007 and signed an agreement with the Commission to combat smuggling and counterfeiting. Despite this, in November 2011, the Organised Crime and Corruption Reporting Project (OCCRP), a network of investigative journalists in Eastern Europe, unveiled the results of a major investigation into JTI’s apparent continued complicity in cigarette smuggling. The investigation, which was based on dozens of leaked documents, alleged that Russia and Middle East were the “hub of smuggling by JTI distributors”.
JTI’s own investigators said that JTI “did almost nothing” when faced with reports of “apparent rampant smuggling” and specifically that their distributors smuggled tobacco through Russia, Moldova, the Balkans, Afghanistan and the Middle East. In one of the documents the head of the JTI’s compliance team wrote “JTI management has not lived up to the ‘zero-tolerance policy’ of smuggling” and, “in those cases that touch on smuggling into or via the European Union, has specifically and repeatedly violated (its obligations under the European Commission agreement of 2007)”.
Steve Payne, the person who spoke at the EU seminar, is copied in on some of the leaked documents published by the OCCRP. This includes one document where JTI’s director of corporate security, Nigel Espin, when presented with potentially incriminating documents suggesting that JTI employees were smuggling, warned that “JTI has no desire to obtain, retain or otherwise become privy to information proprietary to any investigative agency.”
Moreover, OLAF, the European Commission Anti-Fraud Unit, is currently investigating JTI over these allegations, but will not disclose what it has found. In addition, OLAF is also investigating JTI for possible sanctions busting and whether the tobacco giant broke rules by selling cigarettes to a firm linked to cousins of Syrian President Bashar al-Assad.
Given JTI’s history and these on-going fraud investigations, you might ask why JTI was invited to the European Parliament to give its point of view, including on ‘solutions’ to smuggling. Inevitably, given the industry’s ongoing efforts to reduce tobacco taxation levels, his presentation glossed over alleged industry involvement and instead identified high tax as the primary reason for smuggling.
Such claims contradict recent evidence from a pan-European survey which showed that price was not significantly related to levels of illicit tobacco use. Yet, although this survey was funded by the European Commission and provides some of the only independent data on illicit tobacco in Europe, its authors were not invited to give evidence.
If JTI’s alleged complicity in illegal activity was not enough to deter regulators, some might argue that the event violated Article 5.3 of the Framework Convention on Tobacco Control. Moreover, in a blog post, the OCCRP noted that: “it’s a bit ironic that JTI took the EU’s hearing as an opportunity to slam the illegal tobacco trade. Then again, maybe they’re just miffed about the boom in competition.”