London-based multinational British American Tobacco Plc (BAT) agreed to contribute 200 million dollars over the next 20 years to European Union efforts to stub out cigarette smuggling, officials said Thursday, DPA reported.
The European Commission estimates that counterfeit and smuggled tobacco products cost it and EU governments up to 10 billion euros (12.8 billion dollars) a year in unpaid taxes, with profits from the trade going to organized crime networks.
"Particularly at this time of economic difficulty, we must take every measure we can to stop this costly illegal activity," the EU's taxation commissioner, Algirdas Semeta, said.
Tobacco companies lose millions every year when criminals fake their products. However, some sources claim that the companies themselves may turn a blind eye to smuggling, which does not hurt their profits directly.
As part of the deal to crack down on smuggling, BAT promised to keep a tighter on supply chain networks, introduce tracking and tracing mechanisms on its products and cooperate with law enforcement bodies, including the EU's anti-fraud agency OLAF.
Reporters at a news conference in Brussels asked BAT Western Europe executive Jack Bowles whether the company's willingness to pay implied complicity in the smuggling of its own products.
He did not answer directly, but in a written statement insisted that fighting the illegal tobacco trade was in BAT's interest.
"We are sending a very strong message to the criminals who counterfeit our products and evade taxes by smuggling - their activities will not be tolerated," he said.
Under the legally binding deal, BAT is to pay a 10-million-dollar annual contribution to the EU's central budget and to participating member states - all 27 of them barring Spain, Sweden and Poland.
Semeta said the three countries were expected to join the scheme at a later stage.
BAT is also committed to shelling out more money if seizures of its smuggled products rise above a certain threshold.
The EU signed similar deals in the past with other major tobacco firms. In 2004 Philip Morris International Inc agreed to pay over 1 billion euros over 12 years, while Japan Tobacco International SA vowed in 2007 to shell out around 350 million euros over 15 years.
Bowles said 75 billion cigarettes, worth 13 per cent of the market, were being illegally sold in the EU every year.
Semeta indicated that counterfeited or smuggled products originate from the Russian Baltic-sea enclave of Kaliningrad as well as from Russia, Ukraine, Moldova, Belarus and China. dpa alv bn im se Authors: Alvise Armellini, Ben Nimmo