Sun, Jul 11, 2004 - Page 11 News List

Philip Morris to pay EU US$1.25 bilion to fight smuggling

THE GUARDIAN , LONDON

Tobacco giant Philip Morris, manufacturer of Marlboro, is to pay US$1.25 billion to the EU and its member states to help stop the counterfeiting or smuggling of cigarettes.

Michaele Schreyer, the German budget commissioner, on Friday hailed a landmark deal that ends a long-standing legal wrangle between Brussels and the US company.

"We hope it will serve as a model for other manufacturers who are willing to work with us to combat illegal trade in their products," Schreyer told reporters as the laboriously negotiated agreement came into force.

The money will go to the EU budget and 10 countries which joined the commission's lawsuit. That accused the company of complicity in smuggling Marlboro and other brands into the EU, where cigarettes are often heavily taxed, by intentionally oversupplying other countries with lower tobacco duties.

The excess was then allegedly smuggled into EU states and sold on the black market, depriving national treasuries -- and the EU itself -- of tax and customs revenue.

"The European community and member states are losing hundreds of millions, if not billions of euros per year from smuggling and counterfeit cigarettes," Schreyer said.

The commission's role is to prevent fraud against the EU budget, which includes both VAT and customs payments.

The money will be paid out over 12 years "to combat illegal trade in counterfeit and genuine cigarettes." Half of the total will be paid in the first three years up to 2007.

The EU money will go to the Olaf anti-fraud unit in Brussels while Belgium, Finland, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Portugal and Spain are expected to spend their share on national customs offices.

Philip Morris International made no admission of liability or wrongdoing, but its president, Andre Calantzopoulos, said the row was over.

"We both decided to move from a litigious approach to a collaborative approach and this agreement turns the page," he said in a statement issued in Lausanne.

Three lawsuits filed in American courts were dismissed on technical grounds, but a US appeals court gave the EU the go ahead in January to file a new one based on money-laundering laws. PMI, meanwhile, countersued in a European court.

All litigation is now resolved. Both sides say that the millions of dollars in lost revenue end up lining the pockets of organized crime or terrorist groups.

Philip Morris has estimated that 1 percent to 2 percent of the 232 billion cigarettes sold under its brand names across the EU each year are counterfeit. EU officials agree that fake cigarettes are now the biggest problem, but the row began in the 1990s over the genuine article.

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