High prices have been proven to curtail the smoking of cigarettes. There have been numerous studies of the decrease in the number of smokers within a country when taxes have been implemented or increased. By governments taxing cigarettes they have two beneficial effects:
- It makes this dangerous and unhealthy activity less affordable, hence causing smokers to decrease consumption or quit altogether.
- It has a positive flow on affect for the citizens of said country because the tax revenue from cigarettes can be used to improve the healthcare system, pay for education or be invested in other important infrastructure and social programs.
Who and how are cigarettes smuggled into Europe?
A previous expose has shown that the route that the tobacco companies usually use with their partners who are called smugglers is via Russia, Ukraine or the Middle East. Each of these locations is either a very low tax zone for cigarettes or a tax free haven. This means that cigarettes produced in these countries are much cheaper and if they are successfully smuggled to other countries with higher cigarette costs, they can be sold at a lower price, which increases consumption and robs the host country of tax revenues. The people who perform these smuggling activities are criminal gangs or terrorist organizations who profit from the sales while the Big Tobacco companies profit from the increased sales of their products in areas where there would be less demand if their product was more expensive.
How do the Big Tobacco companies deceive the smoker into thinking the cigarette is legally obtained?
There is another devious way the Big Tobacco companies manage to produce illicit white cigarettes and get their smugglers to supply them to Western Europe. Every cigarette packet produced in any of the big four tobacco companies' factories is given a 'unique' code from a coding system called Codentify. The Codentify tracking and tracing system was created by the big four tobacco companies as a farce to give the impression that they were self regulating. What indeed happens is that Codentify codes can be easily transferred to other factories. The process:
- A factory in Western Europe does a small run (i.e. produces less packets of cigarettes) than was planned for, hence there is an excess of Codentify codes from said factory.
- The codes are secretly transferred from the registered factory to the unregistered factory run by one of the Big Tobacco companies in Ukraine where taxes are substantially lower per cigarette packet hence each packet is able to be sold for cheaper.
- Cigarette packets are manufactured in the Ukraine factory with the Codentify codes from the Western European factory.
- The cigarette packets are then given to criminal gangs that smuggle the cigarettes across the border to Germany and beyond.
- When an official or consumer in Western Europe scans the Codentify code to check if the cigarettes are illicit, they get results saying it was produced in a factory in Western Europe and all taxes were paid on them seemingly suggesting everything is legal. In actual fact the cigarettes are illicit but due to no central database being able to be checked (a major international flaw of the Codentify system created by Big Tobacco companies), there is no tracking showing the codes and cigarette packets origin really being in the Ukraine. This means a loss of tax revenue for EU member states, while criminal gangs that smuggle the cigarettes and the Big Tobacco companies profit from this illegal trade.
An example of smuggling and cover up
The 'Organized Crime and Corruption Reporting Project' set up by the European Union (EU) in December 2007 discovered rampant smuggling of JTI brands to EU member states. JTI acknowledged that the "illicit traffic in cigarettes is a growing problem" and JTI had "committed to a continuous process of dialogue and cooperation with the European Commission and Member States to evaluate and address the trade in Illegal Product". JTI made an agreement with the EU stating that it would proactively investigate all claims of smuggling. The agreement was publicized by the company, that claimed the it has adopted a zero-tolerance policy on illicit shipments. To start this process, JTI and its parent company Japan Tobacco employed an ex-CIA operative named David Reynolds to head its internal investigations of its own involvement in smuggling. In 2009 and 2010, as JTI investigators uncovered what they called a substantial evidence of illegal trade performed willfully by JTI, the company's executives tried continually to block Reynolds' investigation and tracked his activity by hacking his and his team's computers. In April 2010, Reynolds wrote an email to Ryuichi Shimomura, Senior Vice President and Chief Legal Officer for the parent company Japan Tobacco, in which he informed him that there were distributers smuggling its product, and that JTI executives knew about the problem and did nothing. He argued that even information on investigations was being leaked to smugglers.
"Shipments to unauthorized buyers have reached a massive scale exposing the company to fines potentially of around €30 million. We have repeatedly reported our findings to JTI management… but have yet to elicit any concerted effort to halt these diversions. In recent months members of my team have been directed not to investigate several instances of smuggling related to specific JTI distributers… and the possible involvement of JTI employees with known smugglers", Reynolds wrote on Friday, April 10, 2010. On Monday, April 13, Reynolds was fired.
The unfortunate truth is that this is but one example of how one of the big four tobacco companies is actively involved in crating and supplying smugglers with illicit white cigarettes, who go on to smuggle them to EU member states. Without the ability to track the production of these illicit cigarettes, the European Commission is powerless to prosecute the Big Tobacco companies and stop this contraband from entering their borders.