by AB Gilmore, A Rowell, University of Bath
The major tobacco companies are acting as corporate chameleons, spending millions on make-overs, trying to convince the world they have changed. But shattering this expensive illusion is the latest evidence (published this week in Tobacco Control) uncovering one of their greatest scams: not only are tobacco companies still involved in tobacco smuggling, but they are positioning themselves to control the very system governments around the world have designed to stop them from doing so. Their elaborate and underhand effort, implemented over years, involves front groups, third parties, fake news and payments to the international regulatory authorities meant to hold them to account.
Understanding the background to this latest industry scam is essential. First, tobacco smuggling benefits the tobacco companies. They make their profit when they sell to the distributor and so their profit per pack is the same whether their cigarettes then end up in the smuggled market or not. But, because smuggled tobacco is largely untaxed, it is way cheaper to buy than legal tobacco. The cheaper it is, the more they sell and the more profit they make. Cheap smuggled tobacco is also particularly attractive to those short of cash – children and the least well off – key tobacco industry targets.
Second, and in line with the above, in the late 1990s the major tobacco companies were caught orchestrating the smuggling of their cigarettes in vast quantities. A third of global cigarette exports were going missing and the industry’s own documents showed that smuggling was a core part of their business strategy – they were supplying some markets almost entirely with smuggled cigarettes. From 1998 to 2008, the industry faced an embarrassing series of inquiries, court cases, fines and legal agreements, all intended to stop this illegal behaviour. By 2012, governments around the world had adopted the Illicit Trade Protocol which requires, among other things, the implementation of a global ‘Track and Trace’ system. Packs of cigarettes and rolling tobacco are to be marked with a unique ID so they can be tracked from manufacture to point of sale and, if they end up on the illicit market, traced back to see where things went awry. This system is designed to stop the tobacco companies from smuggling and the Protocol specifically says that responsibility for it cannot be delegated to the tobacco industry.
Fearful of these developments, the tobacco companies claimed they had changed – no longer were they the perpetrators of tobacco smuggling, but they were now the victims of an apparently vast increase in counterfeited tobacco. No longer did governments need to hold them to account for smuggling, but should instead work in partnership with them to counter the real perpetrators.
But using publicly available data on smuggling, leaked industry documents, trademark and patent filings, we have identified a major tobacco industry conspiracy.
Our latest evidence indicates the tobacco companies are still involved in tobacco smuggling. Despite their claims that “illicit trade is a growing threat to legitimate business. The threat comes from different sources, the most important of which are counterfeit”, various data (including the industry’s own) show that the majority of smuggled cigarettes – approximately 60 to 70% – are the tobacco company’s own products. By contrast counterfeited cigarettes make up a small fraction (approximately 5-8%) of the illegal cigarette market. At very best this indicates a wholescale failure by Big Tobacco to secure its supply chain. Yet evidence from government investigations, whistleblowers and leaked tobacco industry documents all points the same direction – suggesting tobacco companies are still involved and, in BAT’s case, still using distributors known to have previously been involved in smuggling; the latter in direct contravention of a legal agreement reached with the European Union.
Simultaneously they developed their own track and trace system, Codentify, and are trying to hoodwink governments around the world to implement it as the global track and trace system of choice under the Illicit Trade Protocol. This could of course leave them able to continue smuggling with impunity. Aware of their own lack of credibility, leaked documents show that the four major transnational tobacco companies hatched a joint plan to use front groups and third parties to promote Codentify to governments and convince them it would be run independently of industry and under full government control. These documents specifically identify one “credible third party technology company” as FractureCode. Later leaked documents show how these plans were operationalised. For example, the documents suggest that FractureCode operated as a “front” for BAT in the tender for a track and trace system in Kenya, with BAT appearing to direct FractureCode’s conduct, organising consultants and drafting letters on its behalf. BAT whistleblower Paul Hopkins’ alleged in his Employment Tribunal that FractureCode was “in the pay” of BAT.
To help them get away with this monumental scam the tobacco companies engaged in a whole gamut of activities to confuse and cajole the very organisations that should have been holding them to account, as well as the press. They funded large numbers of ‘surveys’ and reports exaggerating the scale of the counterfeiting problem in particular. They used these to secure extensive and misleading press coverage promoting the message that the tobacco companies were now the victim of tobacco smuggling. They funded ex-policemen and front groups to be their “credible voice”. They poured money into INTERPOL and the International Anti-Corruption Academy. Through their discredited third party, the Digital Coding and Tracking Association, they funded the World Customs Organization conference on illicit and paid KPMG and GS1 to produce a report promoting Codentify. They spied on the Illicit Trade Protocol negotiations, getting hold of the text, despite being excluded from negotiations. They engaged in corporate espionage – BAT paid staff in small competitor companies to provide data suggesting that its competitor was smuggling. BAT would then share that data with tax authority staff to put them off the scent. Most recently Philip Morris International set up, with great fanfare, a $100M initiative to support research on illicit – PMI Impact. This has simply allowed it to continue funding the organisations producing its misleading and widely criticised data, while creating further confusion and influence, not least because it has managed to convince high level ex-UN staff to join PMI Impact’s Expert Council.
The scale of the effort and funding poured into this conspiracy are unparalleled. So too is the extent of regulatory capture. Many intergovernmental organisations and national tax and customs authorities around the world appear to have swallowed, without question, the tobacco industry’s misleading version of events.
It is vital that they wake up and realise what is at stake: if the tobacco industry’s tricks work, they will be left in charge of the very system meant to keep them in check, the system meant to stop them from smuggling their own products, the system meant to safeguard government revenues. Yet identifying which are the industry’s latest front groups, spokespeople, linked companies or coalitions is increasingly difficult given the lengths industry will go in order to disguise these interests. If there is a simple message it is this: no government should implement a track and trace system linked in any shape or form to the tobacco manufacturers. In short, no-one can trust the tobacco industry chameleons.