The Globalization of Smuggling
With an annual turnover of some $400 billion, tobacco is one of the world's largest industries. Across the globe, there are stories similar to that of the Way'uu and Philip Morris: "mules" who have helped put four tobacco companies in control of 70 percent of the world market. Smuggling insulates the companies from national controls to limit cigarette consumption--which the World Health Organization warns will cause another 10 million deaths by 2030. Wherever smuggling occurs, the pattern, says Luk Joossens, a consultant to the International Union Against Cancer and member of the Belgian delegation to the WHO, is the same: "If you have high tariffs or a state [tobacco] monopoly, they smuggle to get into the market, weaken the state monopolies, and lead the market into the hands of the multinationals."
Smuggling has also become a big-time criminal activity. The European Union's Anti-Fraud Office, which has investigated cigarette smuggling in conjunction with the national police forces of Spain, Italy, the Netherlands and elsewhere, claims that organized crime is increasingly a major player in what has become a multibillion-dollar business. In Montenegro last December, the Parliament held a series of explosive hearings on allegations raised by a Croatian newsweekly, Nacional, that Montenegro's President, Milo Djukanovic, has ties to cigarette smugglers linked to the Italian Mafia. In August the Iranian health ministry released statistics indicating that up to two-thirds of all cigarettes in the country had been smuggled. As part of its legal complaint, the European Union introduced evidence in February indicating that the profits from smuggling have gone to finance terrorist groups in Iraq and elsewhere. Here in the United States, four Arab immigrants confessed in early March to sending the profits from cigarette smuggling back to Hezbollah contacts in Lebanon; another fourteen people will be going on trial in Charlotte, North Carolina, this spring on the same charges, which now, according to the FBI, include "aiding and abetting a terrorist organization."
The World Health Organization has come to see smuggling as a major public health issue, asserting that it incapacitates one of government's best weapons for lowering tobacco consumption: high taxes. The WHO puts forth a simple calculation: More smuggling equals cheaper cigarettes equals more smokers, which means more smoking-related illnesses and deaths. According to the World Bank, if the price of cigarettes were to increase just 10 percent--which could be mandated through taxation--an estimated 40 million people would quit smoking worldwide.
At a meeting in Geneva March 18-23, representatives from WHO's 191 member states began finalizing plans for a Framework Convention on Tobacco Control, which would become the first international public health treaty. Proposals include measures to combat smuggling by requiring that tobacco companies mark each cigarette pack with a clear electronic code identifying its origins and destination; licensing all parties involved in cigarette distribution; and eliminating duty-free sales, which is a primary means of skimming off tax-free cigarettes into national markets.
The tobacco industry has been fighting those provisions, as well as others proposed by the WHO. Representative Waxman charges that the Bush Administration's delegation has been trying to weaken the organization's effort to limit tobacco consumption and contraband. In a letter to President Bush last November, Waxman accused his negotiators of embracing ten out of eleven changes to the convention proposed by Philip Morris, which had expressed opposition to the strongest of the anti-smuggling measures as well as controls on cigarette advertising, and even a proposal insuring that health warning labels appear in the language of the country of destination. A follow-up meeting on the issues raised in Geneva will be held in New York in July under the aegis of the Bureau of Alcohol, Tobacco and Firearms.
The tobacco companies refused repeatedly to be interviewed for this article. A spokesman for BAT, David Betteridge in London, said that the company would not comment on anything relating to smuggling, due to an ongoing investigation by the British Department of Trade and Industry. In December the company stated publicly that it would "apply even more stringent criteria" to its international distribution system to counter smuggling, and shortly thereafter BAT issued a statement that it was revising its projected earnings downward for the coming year. Philip Morris's director for public communication, John Sorrells, e-mailed me a statement on March 22, which reads, in part, that "Philip Morris does not condone, facilitate or support the smuggling of cigarettes and cooperates with governments in their efforts to prevent an illegal trade in the products we manufacture. We have taken significant steps, both internally and in cooperation with foreign governments, to prevent the smuggling of our products." The company also indicated that it now agrees with several measures proposed by the World Health Organization and foreign governments "to prevent cigarette smuggling," including "licensing of distribution chains" and "marking of duty-free products" intended to make it easier to track contraband cigarettes.
Clearly, the companies are uneasy about the lawsuits still winding their way through the US court system. At a court hearing on the case last January, Philip Morris's attorney, Irvin Nathan of Arnold & Porter, expressed the company's dismay. "We are a public corporation," Nathan stated to the court. "It is unfair to us to have to be engaged in discussions about terrorism and money laundering. To have to put that in our disclosure documents is misleading to our shareholders."
As for the Way'uu, Alvaro Iguaran says: "The biggest social debt Philip Morris has is with us, the Way'uu. We showed Colombia and Venezuela that Marlboros existed...they used us because we opened their markets. And after their markets were opened, they didn't need us anymore. They owe us a lot of money."