Tobacco Smuggling and Terrorism.

Written by Andrew Romeo Sunday, 08 November 2009 00:00

Andrew Romeo - From Inside the Tobacco Industry In discussions on-line about the impending PACT act becoming law, it has become obvious that American snusers feel they are getting a raw deal.

In a sense, American consumers of Swedish snus have been basking in a "duty-free" zone for the past few years, many weening themselves from cigarettes in the process. Your lungs, God and the Greater Good think this is wonderful. The US Government does not. Tobacco is taxed. Period.

Swedish snus consumers in the USA will eventually be forced to pay taxes on their snus purchases. They will most likely see in the next few years an increase in availability in US 'bricks & mortar' shops, and a drastically reduced portfolio. No more Gotlands Julesnus or Offroad Limited Edition 'Spam with Egg, Bacon, Sausage and Spam' Flavor, for sure. But that's another article.

Many have poo-pooed an underlying reason for the passage of this legislation: smuggling as a source of funds for terrorist groups. Many have laughed that this is as ludicrous as the 'for the children' banter which has led to a lot of pain for legitimate adult tobacco consumers now unable to procure their favorite flavored smokes.

Goverment Over-Taxation leads to Tobacco Smuggling In the US, tobacco is smuggled from state to state by consumers, mostly. New York City, with smokes now costing over $10 a pack, has been a recent focus of the press, with several high-profile arrests of organized smugglers bringing master cases in for 'illicit' sale. The last 'haul' was 77m sticks, caught before the rig even left Virginia.

In Europe, the problem is magnified a thousandfold. Imagine the UK, where a pack of Marlboro or Benson & Hedges costs $12 retail, and Poland, where the same products cost $2, and Ukraine, where they cost $1.25. Imagine illicit cigarette factories all over China, with some also in Russia and Poland, producing fake Marlboros and B&H in underground factories, and actually undercutting the Polish and Ukrainian product. ALL the product is headed west.

When I opened Gallaher Poland, I had the unenviable task of having to constantly identify smuggled shipments of Gallaher, or 'apparent' Gallaher product which were routinely seized by Polish customs. We had Middle-Eastern 'Sovereign' cases smuggled via Dubai in cases marked "Computers." We had lorries loaded with Russian cigarettes seized at the border and shown on the Polish equivalent of "COPS" which led us to send a high-level delegation to the eastern borders to verify the EU's investment in new detection technologies. Our lawyer constantly flew to the port of Gdansk to verify the authenticity of the seized products. More often than not, they were Chinese fakes on the way to the UK. Poland is a flat country of East-West roads between the ex-Soviet bloc and the West. Having an office there exposed an underbelly of the business which no company wants to see.

CONTROL

Tobacco companies deplore smuggling. Like any consumer goods companies, they must respect and protect their country-specific businesses and distributors. Strict contracts are in place with national Smuggling Cigarettes distributors to prevent international shipments, but they happen anyway. It's simple human nature. When Poland entered the EU in 2004, many Poles moved to the UK and Ireland to find work. Many also found that they could stock up on cheap Polish-produced multinational cigarette brands and shuttle them across on buses and planes. For many, it became a primary source of income.

But they weren't the problem. 2004 was the first year I saw 'the list.' It was the list of distributors with whom we are forbidden to work. Like all "Big Tobacco" companies, Gallaher hired ex-intelligence agents to run its Security Department. "The List," we were told, was one of companies known to be connected to organized crime and terrorism. They were scattered throughout the Middle-East and places like Cyprus, which is the geographical 'jumping-off' point from the EU to the Middle-East.

The meetings were serious. Gallaher Management told us that 'cigarette smuggling finances terrorism.' Names like "Hezbollah" were thrown around, and a greater, more depressing world of tobacco was opened up to my colleagues and me.

Whether it's Ukrainian Marlboros being shipped to Indiana or cases of fake Chinese B&H in Manchester, UK, the illicit tax-free sale of cigarettes is handled by criminals. It is indisputable.

In the US, substitute 'Mafia' for 'Terrorism.' But it's the same.

While US Swedish snus users are right to feel screwed by this legislation, there is indeed a greater good to be served by PACT. It will not stop consumers from crossing borders or visiting Indian reservations for tobacco products. But it could be effective in reducing the illicit trans-continental movement of legitimate and illegitimate tobacco products whose sale benefit criminal organizations.

Keep it in mind.

ANDREW ROMEO
Live from New York on SnusCENTRAL.org

Add this page to your favorite Social Bookmarking websites

| More...

Tags:

< Prev		Next >

8 Comments

Feed

Larry Waters makes this comment

Tuesday, 10 November 2009

I can't dispute your facts, but the cause, at least in the USA, has to do with the zero sum mentality of our elected officials; local, State, and Federal.

By constantly raising tobacco taxes until cigarettes are $10 a pack or more doesn't mean smokers will quit or shell out more money.

To the contrary...in today's economic melt-down with an official 10.2% October unemployment rate which increases to 17.4% when you factor in under-employed and part-time workers who can't find full time jobs, a huge cigarette Black Market is inevitable.

And the Government, instead of combating the cigarette issue as a whole by reducing taxes and streamlining processes for Reduced Harm and Reduced Risk products; especially Swedish Snus, do the exact opposite.

Swedish Snus is not designed to be a "complementary" addition to cigarette smoking like American snus is. Swedish snus is at minimum a 98% safer alternative for smokers who can replace cigarettes with Swedish Snus. It's effectiveness in smoking cessation programs is also hugely more successful then nicotine gum or patches. Gum and patches have an 80% to 93% FAILURE rate among smokers wanting to quit tobacco altogether.

Big American Tobacco, Big Pharmaceutical, and the great sucking sound which is State and Federal tobacco taxes are the root cause of cigarette smuggling being so profitable.

Another case of screw the citizens in favor of follow the money.

Another great article and perspective, Andy!

Larry
Chad Jones makes this comment

Tuesday, 10 November 2009

As always, great article Andrew. Your insight and personal experience in the tobacco industry provides some very thoughtful articles.

PACT Act CAN do SOME good, but is it flawed? Yes. In it's current edition it should not be passed. Much like those who have stood out against Health Care reform and said "We CANNOT, in good conscience, pass this in it's current form." I would say the same, but with PACT. As you have shown, there is a black market for cigarettes. And I'm sure alot of money goes to the wrong places. PACT can do some good in stopping this.

But as Larry said, Swedish Snus is safer than smokes, and effective in aiding to quit smoking. We have established this before, it's a well known fact among snus users. The American government may or may not be aware of this, but even if they were, I do not believe they would change PACT. Sure, allowing snus in it's current form OR taxed would be a great provision to the law, but, to quote Larry again, "Another case of screw the citizens in favor of follow the money." Couldn't be more true.

I continue to hope that one day the government will become aware of harm reduced tobacco and the positive effect it has, as you've said before Andrew, "LOOK AT SWEDEN!". Is it too much to hope for? Possibly. But I still remain hopeful that someday it may change.

Chad
Andrew Romeo makes this comment

Tuesday, 10 November 2009

The taxation authorities in the US and its localities would be wise to "look at Sweden," and recognize that sky-high taxes do not always create the desired pie-in-the-sky result of increased revenues and reduced smoking incidences. Throw in the "smokers are assholes" message prevalent here in New York City and elsewhere, and it creates an atmosphere ripe for smuggling.

In 1997, Sweden levied a massive tax on cigarettes, and sales plummeted almost 25%. Smoking did not, thanks to cheap Polish and Baltic cigarettes, which became an immediate black market based in the south of the country. The tax created the illicit trade. Instead of insulting the consumers by arresting them, the government lowered the excise in 1999, and some (not all) of the business returned. Many switched to snus, but the illicit trade channels still exist to this day. And they include Internet sites similar those used by snusers.

Scandinavia is well-known for border-hopping. Swedes buy booze in Denmark, and Norwegians buy tobacco in Sweden. Finns buy tobacco in Russia and Estonia. Brits buy cigarettes anywhere except in UK shops as their taxes are the most oppressive, and the UK is like a giant Hoover, sucking cheap cigarettes in from the Continent and China.

Since "smokers are all assholes" in the UK as well, it's left to the tobacco companies to police themselves or face penalties. So, if a case of Davidoff made in Kiev is caught in the boot of a London taxi, it must be the producer who is to blame. How dare they launch an expensive product in a poor country? They knew it would be smuggled! They must be assholes, too! Who cares if Davidoff costs $15 a pack at Tesco?

That rant aside, logic will not prevail in the struggle to have special attention paid to snus. The best we can hope for is that Swedish Match continue its trials as a lead-in to applying for 'reduced harm' status for its snus products in the US, and in receiving it, lobbies to reduce the tax burden per can.

DO NOT write your congressman, requesting that PACT excludes snus. That is the same as saying "I import tobacco products and do not pay taxes. Here is my name and address." It is a tobacco product. You can say "it helped me to quit smoking," but many have said that about Skoal and Copenhagen as well, and snus is lumped into the 1.1 billion cans of taxed non-combustible tobacco sold annually in the US. PACT needs to be logistically sound and enforceable so that adult consumers can legally buy the products they want without having to make road trips to do so. The price of the product will be significantly higher, and, as with dip, the Southeast will have the lowest prices.

It's important that consumers stay in touch with manufacturers, web shops and their local tobacco outlets to make their wishes known. When Larry yells, they hear him in Gothenburg, which is a good start. I expect Swedish Match will be doing more than the others to maintain and grow its consumer base in the US, and may be the lone corporate voice in Washington lobbying for the cause.
psychohazard makes this comment

Tuesday, 10 November 2009

I don't dispute the facts of the article, but PACT is far too flawed to pass. None of those methods of smuggling mentioned in the article involve sending it through the mail. I've got no problem with paying the taxes on my snus if I can get the kinds that I want, and as long as it's cheaper than cigarettes, but I fail to see how making me pay $38.58 to get a roll of snus shipped to me via UPS, rather than $9.53 via normal mail is going to stop a "terrorist" from loading up a truck and hauling a few hundred cases of faux-camels from Virginia to New York. On top of that, the USPS is already something like $3.5billion in the hole. Isn't this a bad time for them to lose several millions of dollars in revenue? I'm also fairly sure that PACT as it stands would also make black market tobacco a lot more profitable in the US. I could go on, but I'm sure you get the idea.
bigmick makes this comment

Tuesday, 10 November 2009

If the US and other governments were less greedy with their tobacco taxes the smuggling would not be such a money maker. If the US government really wanted us to quit smoking they wouldn't be planning budgets 2,3,10 years out based on tobacco taxes. They know that smokers will pay to continue their addiction and the government can depend on that income. 90% of the reason for PACT is to collect more taxes, 5% to prop up big tobacco and 5% for health reasons. We Americans haveto continue to buy tobacco to support the childrens health act (SCHIP).
kjoerup makes this comment

Thursday, 12 November 2009

The PACT Act is not about "terrorism" (scare quote are appropriate here). Even the cited examples have nothing to do with tobacco sent through the mail. So, if passed, how does banning tobacco mailings "prevent terrorism"? This is quite ludicrous.

And while we're at it, why are cigars excepted from this act? I suppose these imaginary terrorists will only traffic in smuggled cigarettes, snus and nasal snuff –– but never in cigars, correct?

(True answer: the cigar industry actually has some influence in Congress to fight the PACT Act; snus and nasal snuff manufacturers do not possess the wealth or influence to do that. This is why cigars are excepted.)

No, PACT is about Altria/Philip Morris USA (who CO-WROTE THE BILL!) "protecting" their markets by eliminating competition. Believe me, Altria couldn't care less about small vendors selling Swedish snus or English nasal snuff. They don't even think about that. What they are truly worried about are the Native American tobacco vendors and, even more so, the increasing amount of Native American tobacco brands that have appeared on the US market. This is what Altria wishes to eliminate, and, sadly, they have enough Senators in their back pocket to accomplish this.

THAT is what the PACT Act is all about. In reality it has as much to do with "preventing terrorism" as lies about "weapons of mass destruction" had to do with the invasion of Iraq.

If you are going to report on this, please get the obvious facts straight. As it stands, you are naïvely and illogically parroting Altria propaganda.
Larry Waters makes this comment

Sunday, 15 November 2009

Hi kjoerup,

You're almost right on the facts. Altria/PMUSA lobbyists of course had input into the bill. It was the Kennedy/Waxman Legislation giving FDA control over tobacco that PMUSA actually wrote major portions of.

When Rep. Weiner introduced PACT in the last Congress, he cited the terrorist threat as a reason for such a draconian bill. He ALSO mentioned that NY had lost over a billion dollars in tobacco tax revenue due to Native American tobacco vendors AND mail-order/Internet purchasing of tobacco.

As with most bills, this is follow the money. PMUSA and all American Big Tobacco companies have an established over-the-counter distribution network within the US which also happens to collect taxes for the States and Feds. You neglected to mention that the Convenience Store Lobby also supports PACT.

Indian Reservations and Internet Stores; especially foreign ones, take money away from their distribution network and money hungry punitive taxing State governments.

You give to much credence to the phony national security justifications and missed a very critical part of the bill. The Pact Act is "A bill to prevent tobacco smuggling, to ensure the collection of all tobacco taxes, and for other purposes."

The first reason for PACT is to collect taxes on Internet tobacco purchases since tobacco is low-hanging fruit.

That's step one to collecting State and other taxes on ALL Internet sales. NY already requires Amazon.com to collect and pay NY sales tax on any sales delivered to NY; regardless of where they originate from.

Amazon appealed to the NY Supreme Court....and lost.

Tobacco smuggling is a reality; especially as the price of cigarettes is over $10 a pack in many areas because of insane tobacco taxes. PACT will create an even bigger black market for all tobacco products. PACT will create a huge problem where only a small one existed....Business as usual for Washington.

Then suddenly BATF will cry that smugglers of grey goods electronics and DVDs are terrorists too. "....and for other purposes."

Europe is a completely different story and Andrew's case is a strong one based on fact.

As for the cigars being exempt? Washington not only enjoys cigars in general but Cuban cigars in particular.

The day before President Kennedy imposed the Cuban embargo, he dispatched Press Secretary Pierre Salinger to buy 1,000 Cuban-made Petit Upmanns, according to an account Salinger wrote in 2002.

Washington today is no different. Can't have those 'gifts' of cigars inspected or stopped by PACT. Wouldn't be fair to all the Washington Lobbyists.
Andrew Romeo makes this comment

Sunday, 15 November 2009

kjoerup:

All major cigar companies are owned by "Big Tobacco" companies.

In the US, General Cigar is owned by Swedish Match (as is the Cohiba name, Partagas, Punch and White Owl)

Habanos is a 50/50 joint venture between Imperial Tobacco PLC and the Cuban government. Similarly branded cigars in the USA (Montecristo, RyJ, etc.) are owned by Altadis USA, a division of Imperial.

Philip Morris bought Middleton Cigars (Black and Mild) for US $3B last year.

The point is, Big Tobacco is very much in control of the cigar business in the US.

As for PACT, Philip Morris, in the late 1990s, tracked down and prosecuted several Internet-based companies who were shipping Russian and Ukrainian cigarettes to the US and elsewhere on sites very similar to the ones we use for snus.

In those countries, Big Tobacco has handily stabilized distribution and sales targets have become more realistic in the last decade. Many of these cigarettes would have been purchased for cash, or on credit by fly-by-night distributors, and smuggled out to a staging area in Europe for further shipment abroad. Cash for cash for cash.

Like any consumer goods company, Philip Morris is responsible for policing its distribution. A retailer in New York, where Marlboro is $10 per pack has every right to ask Philip Morris to prevent his/her customers from allowing organized shipments into his/her shop's legal territory.

For Philip Morris, if they sell 300b cigarettes, and massive shipments are sent north from North Carolina, they sell the same 300 billion. But the retailers feel the pinch. if I was a tobacconist I would be chomping at the bit for this to get through. Big Tobacco is simply doing what it can to fulfil its territorial obligations. It's now up to the consumer to do what he/she can to fight it.