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Brussels, 15 July 2010

European Commission and British American Tobacco sign agreement to combat illicit trade in tobacco

Today the European Commission announced a multi-year agreement with British American Tobacco (BAT) to work together in tackling the illicit trade in tobacco products. Under the legally binding agreement, BAT will work with the European Commission, its anti-fraud office OLAF, and Member States’ law enforcement authorities to help in the fight against contraband and counterfeit cigarettes. The Agreement includes substantial payments by BAT to the Commission and Member States, totalling USD 200 million (EUR 134 million) over the next 20 years. It should make a significant contribution to the EU’s efforts to fight the illicit tobacco trade, which robs the EU and Member States of billions of Euros every year.

Commission President José Manuel Barroso said: “I welcome this important agreement, which will help to protect the EU’s financial interests and strengthen our forces against contraband and counterfeit cigarettes.”

Commissioner for Taxation, Customs, Anti-fraud and Audit, Algirdas Šemeta said: “The illicit trade in cigarettes results in billions of euros of lost tax and customs revenue every year. Particularly at this time of economic difficulty, we must take every measure we can to stop this costly illegal activity. Today’s agreement will help greatly in combating the illegal trade in cigarettes and will send a strong signal to criminals that they have both the authorities and industry working against them.”

Fight against counterfeit and contraband

It is estimated that the EU and Member States lose up to 10 billion euro in unpaid taxes every year from counterfeit and smuggled tobacco products. In addition, counterfeit and other forms of contraband create a parallel illegal supply chain that undermines legitimate distribution channels and competes unfairly with genuine products distributed through legitimate channels. The illicit trade in cigarettes is often used to fund more sinister activities, such as terrorism and organised crime. For all these reasons, the Commission and the EU Member States have made the fight against counterfeit and contraband cigarettes a significant priority.

Over the last few years, despite the success of measures taken by the EU, Member States and the industry, the incidence of contraband and counterfeit cigarettes continues to diversify and grow. The Commission has therefore stepped up its efforts to combat the illegal trade in counterfeit cigarettes. These include working with Member State and third countries’ enforcement officials to investigate cigarette counterfeiting, targeting and interrupting the production of counterfeit cigarettes, and recording and pursuing seizures of counterfeit cigarettes in the EU to identify the source of the product and other relevant information.

An Agreement to improve the fight against contraband

Today’s agreement, which was initiated by BAT, reflects the fact that coordination and cooperation between EU law enforcement authorities and manufacturers like BAT can significantly contribute to the success in defeating the illicit trade in tobacco products.

The Agreement introduces strong provisions and procedures for cooperation and intelligence sharing, to allow law enforcement authorities to take more effective action against criminals in Europe and around the world. In addition, BAT will build on its existing supply chain controls, by strengthening its review process for selecting and monitoring customers, to enhance its capabilities to track and trace certain packaging, and to provide expanded support to European law enforcement bodies in the battle against the illegal trade in cigarettes. The Agreement also incorporates BAT’s existing compliance programmes, and builds them into a comprehensive contractual framework.

Far-reaching product-tracking procedures are also included in the agreement, to enable enforcement bodies to determine the sources and destination of BAT brands and verify if they may be counterfeit. Consistent with the Agreement, BAT will mark certain packaging with information indicating the intended market of retail sale, mark “master cases”1 of cigarettes with machine-scannable barcode labels, and implement other procedures to improve the tracking and tracing of its products.

These obligations are consistent with the anti-contraband provisions of the WHO Framework Convention on Tobacco Control and will underpin the efforts of the EU to promote a strong Protocol to that Convention on Eliminating the Illicit Trade in Tobacco Products.

In addition to the above benefits, the European Union and participating Member States will receive substantial payments from BAT over a number of years. BAT has committed to pay a total of USD 200 million (EUR 134 million) over 20 years.

The Agreement also includes a guarantee by BAT to make payments in the event of future seizures of its genuine products in the EU, above specified quantities. These payments will be available to all participating Member States.

More details: MEMO/10/334.

The Agreement:

1 :

"Master case" means packaging for approximately 10,000 cigarettes.

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