Читать книгу Dirty Tobacco - Telita Snyckers - Страница 15

Investigations, allegations and revelations like those in this book are typically met with a standard industry response: The industry generally denies all allegations of smuggling or criminality and pins them on rogue employees or their downstream supply chain partners (indeed, the industry has an astonishing proclivity for hiring ‘rogue employees’. I’d fire my entire HR department if they landed me with so many ‘rogue employees’.)

It is a tall ask of the tobacco industry to expect us to ignore the body of evidence as a whole. It is a tall ask of the industry to expect us to trust them to regulate themselves. It is a tall ask of the industry to expect us to trust them given their abysmal track record to develop internal systems that safeguard their supply chains sufficiently, so that cigarettes end up where they are meant to be. Because, I believe, they have proven themselves incapable of putting forth a serious and credible effort to implement the controls and checks needed to safeguard their supply chains. The very economics of doing so works against their overarching objective to sell as many cigarettes as they can to their addicted customer base. The industry is driven by pure profit at any cost.

Many governments and international bodies have become far more sophisticated in terms of how they regulate the industry from a health perspective. While these regulations are beginning to have an impact, relatively little has been done in terms of effectively managing the supply chains along which cigarettes travel.

The concept of trying to regulate the tobacco supply chain is nothing new. As far back as 1606 Spain’s King Philip III decreed that tobacco may only be grown in Cuba, Santo Domingo, Venezuela and Puerto Rico, and – taking securing the supply chain to its logical if somewhat grisly conclusion – made the sale of tobacco to foreigners punishable by death.

But while everyone seems to agree that better securing the tobacco supply chain is critical, very little is actually being done about it. In fact, in many respects we haven’t moved on much since governments first started looking at better regulating the tobacco supply chain in Maryland USA, as far back as 1666.

Maryland banned the production of all tobacco for a year in 1666, facing an oversupply; and in 1730 outlawed the bulk export of tobacco. Facing challenges with tobacco being adulterated with fillers (like dust and wood shavings) and with poor quality tobacco being exported, it also introduced rules to inspect tobacco before it was shipped. The Inspection Acts revolutionised tobacco regulation: Inspectors were empowered to break open every barrel of tobacco, remove and burn any trash inside it, and issue a certificate specifying the weight and kind of tobacco inside, making it both more difficult to ship adulterated tobacco, and easier to collect taxes. That’s 400 years ago.1

Since then? Many countries are arguably doing less now than Mary­land was doing centuries ago.

Why is this important? Because, as industry expert Luk Joossens has been arguing for more than a decade now, ‘the evidence strongly suggests that the key to controlling smuggling is controlling the supply chain, and the supply chain is controlled to a great extent by the tobacco industry’.2

Instruments like the global Illicit Trade Protocol begin to set the scene for better regulating the industry’s supply chain, but very little substantive progress has been made in terms of implementing the recommendations; there are virtually no consequences for countries who fail to implement them; and many countries have no obligations as yet under any regulatory regime.

It is common practice for tobacco companies to sell huge quantities to traders and dealers who are little more than pipelines to smugglers, and who are simply used to blur the line between the tobacco companies and smugglers – something many dealers acknowledge.3

Sales are often so indiscriminate that many dealers openly admit that both they and the tobacco companies know the cigarettes are headed for the black market.

Little wonder then that the UK’s Parliamentary Committee hearing on tobacco smuggling called them out on sales that nowhere near matched the legitimate demand in the countries they pretended to export to: ‘You wanted 5% of 5 million. That, to my mind, makes something like 250 000 people approximately, is that correct? We agree roughly a quarter of a million people. Yet, you imported 338 million cigarettes for 250 000 people. It does not make sense, does it?’4

Technically, in law, of course they are perhaps correct (in many countries). There often technically is no obligation on tobacco companies to secure their supply chains, to ensure that they only sell their products into legal supply chains, to legitimate customers who have a legitimate demand in a legitimate market. Technically there is often no legal liability on them once they have sold bulk consignments to middle-men who on-sell to smugglers. In most countries, technically there is no prohibition on ex-factory sales. In most countries, technically there are no ‘know your customer’ requirements.

For purposes of this conversation it almost does not matter whether the tobacco companies knowingly sell to traders who on-sell to smugglers, or even directly to smugglers themselves (although often they seem to know very well as we’ve seen in for instance Colombia where government charged that ‘since at least 1991, PMI were selling cigarettes to individuals whom they knew were reputed drug smugglers’.5) What matters is that the way the tobacco supply chain is regulated now, in most countries, is inefficient and vulnerable.

It’s a weakness that is exploited. And it’s a weakness that very much sits behind perhaps most of the cases we know of where big tobacco’s impunity leads to criminality.

It’s also a weakness that at least some players in the industry are beginning to acknowledge: Philip Morris will tell you that they have the ability to track 100% of master cases throughout the supply chain.6 But that doesn’t help all that much, because in another publication they themselves note how tracking at a master case level isn’t really enough because in, for instance, Algeria ‘evidence show[s] that there was high level smuggling of cartons. The situation called for more granular controls.’ And in Senegal investigations ‘showed that smugglers were diverting the products in cartons and not in master cases’.7

Philip Morris will also tell you how in 2017, ‘The outflow of PMI products from Algeria remains a top priority for PMI. Products tend to be diverted to France, Morocco and Tunisia’ and how in 2014, ‘we discovered that over 50% of the available supply of Marlboro in Australia was actually intended for the South Korean market’. They note that in 2015 ‘the UK tax authority HMRC asked PMI to review its supply chain controls in Belgium’.

They will tell you that, ‘Until 2015, large volumes of PMI brands destined for the Senegalese market were seized at national airports in Europe’ and in Serbia that, ‘The outflow of goods intended for the Serbian market remains a major problem.’

They admit to an ‘increased number of seizures and size of tobacco products originating from Ukraine’ in 2017; and in 2016 that, ‘Marlboro products represented a particular issue for PMI with approximately one in five consumed in Ecuador being duty-not-paid.’ They note how ‘Indonesia was identified as a high-risk market for diversion’ and that the ‘distribution model in Iraq is complex. This creates a heightened risk of product outflow.’8

I find this level of frank disclosure on PMI’s part moderately encouraging – but I’d really still like to know what exactly they are doing about it. There is a plethora of relatively simple solutions that could help secure the tobacco supply chain, and yet big tobacco fights tooth and nail against any suggestion of introducing them. (I’d also like to know why they only published this report once, and then never again.)

Just to be clear – industry does secure some of its supply chain quite rigorously, with upstream tobacco leaf traceability being possible down to the farm level.

In fact, a company like BAT has a fairly complex supplier network – its website shows that it has 350 000 farms, 1 500 direct materials suppliers and 30 000 indirect suppliers, all of whom it says are subject to rigorous independent audits and supply chain due diligence checks, and all of whom are assessed against risk scoring criterion.9

So, BAT would have us believe, in their own words, that, ‘All suppliers undergo an independent on-site audit, conducted by the global audit firm, Intertek, in order to be appointed as a supplier and then are re-audited every three years. The Intertek audit includes criteria covering forced labour, child labour, wages and hours, health and safety, environment and management systems. We also use our integrated supply chain due diligence programme to assess supplier’s inherent risks, using a series of independent indices. We prioritise those suppliers identified as being exposed to the highest risks for either a self-assessment or an on-site audit.’10

But this same company seemingly then tells us that it has no control over where its cigarettes end up; that it simply ships cigarettes in response to orders.

It is something of a mystery why the company would so intently secure its upstream supply chain for inputs into its manufacturing process, but do very little to secure its downstream supply chain for its outputs, in fact going so far as to very clearly state that it has no control over where its cigarettes end up or who they are sold to.

On Philip Morris’ own website, the company says that it only marks and tracks a percentage of its own cigarettes11 (in 2017, the last year for which I could find data, they say they were only marking 75% of their packs) and we don’t know to what extent the other big tobacco companies are using it.

In the JTI reply to my request for comment, they noted, ‘We have implemented far reaching anti-illicit trade measures, aiming at securing our supply chain. The tracking and tracing of our products are also part of supply chain control: at this date, 75% of our global production is tracked and traced.’

But why only track 75% of your packs?12

Every expert and his dog has recommended that all tobacco packs should be securely marked, so that packs can be traced through the supply chain, and so that we can see where a pack came from. Big tobacco has been telling the world that it has its own track and trace solution that can do just that: Codentify.

Codentify’s genesis is important: it was developed as part of the obligations imposed on PMI under its agreement to settle smuggling related charges in the EU (that would be the same agreement that saw PMI having to pay compensation to the EU to the tune of $1,25 billion for the smuggling of its packs). They subsequently licensed it for use by all of the big tobacco companies. It creates a code (really just an alpha-numeric number) that is printed directly onto packs during manu­facturing, so – if you know how to read it – it could in theory tell you who made the pack.13

Like many others, I am sceptical of Codentify-type digital tax verification solutions (in other words, one that simply uses an alphanumeric code to mark cigarette packs, without another visual security feature like a physical tax stamp), simply because they are easy to copy or clone, with the same code being reprinted on multiple packs. You would only know that a pack had a fake code on it if you scanned a second item with the same code. It is a highly inefficient enforcement tool from a customs agency perspective – the cost of detection, in terms of the sheer number of checks an enforcement officer would have to do to detect duplicate codes far exceeds the potential revenue loss.14 In a peer-reviewed paper, tobacco control economist Hana Ross – along with my colleague Michael Eads – estimated that in a relatively small market, a law enforcement authority would have to inspect almost 31 000 packs per week to have a 95% certainty that it did not miss a fraudulent pack under Codentify-type systems. A material-based track and trace solution – so, using a physical tax stamp – would require only 59 pack inspections a week to have the same level of confidence.15 (Inexto, which bought Codentify, claims Professor Ross is not a track and trace expert. I’m not sure that is true, but she is a world-renowned expert specialising in the economics of tobacco, and her team’s math adds up. Read the paper, make up your own mind.)

In Europe alone where 30 billion-plus fast-moving consumable items move through the market every year I am happy to argue that the statistical probability of finding a twin code is next to nil.

The digital tax verification-type solutions being advocated for by the tobacco industry are hardly more than a fig leaf for a morally bankrupt industry.

Not too long ago – in 2013 – BAT was accused of bribing a politician in Kenya to make sure that a cigarette track and trace tender was not awarded to an independent service provider.16 In Uzbekistan they tried to convince government to introduce a tax stamp traceability system for smaller manufacturers, but from which it wanted to be exempted itself.17

After SARS announced a tender for a traceability solution to mark cigarette packs – after 12 years of promising to do so – in the space of less than six months, around 22 directly-related articles appeared in the media. Of those, only 3-13% argued in favour of a secure marking solution (one of them by Eads, one by the tax stamp association ITSA, and one by South Africa’s Council Against Smoking). The rest all advanced an industry line that sought to delay, derail or dilute SARS’ efforts to better secure the tobacco supply chain. The media onslaught was relentless: the new system had been ‘rushed’, ‘would capture only the legal market’, would ‘drive illicit trade up further’, accused SARS of ‘wasting billions of rands’, and the industry raised concerns about rolling out such a ‘sophisticated system’. And yet every single expert agrees that traceability is the one key solution to curbing illicit tobacco. But it works to big tobacco’s advantage if the supply chain stays opaque. Because they need our governments to believe that big tobacco has it all under control, and that additional checks and balances on big tobacco’s supply chain are not necessary.

Between industry rhetoric and administrative capture, governments around the world are simply not adopting good practice measures that could easily regulate the tobacco supply chain. One would also have imagined that the tobacco industry could easily have taken a leaf from what other industries are doing to better secure their own supply chains.

The ability to know where your products are, or to trace a product back to where it came from, is not something that is unique to the tobacco industry. It is something that other companies with commodities that are far less susceptible to criminality have faced and quite successfully manage.

For many consumer products, traceability is an issue mostly because of the genuine desire to protect their brands and their reputation, and so they can coordinate product recalls if necessary.

We generally don’t associate cigarettes with product recalls because there are not that many recorded instances, but it does happen: PMI had to recall 8 billion cigarettes (worth $100 million) because the filters used had been sprayed with a plasticiser containing half a dozen chemical contaminants, which together formed methyl isothiocyanate, a commercial pesticide used as a soil fumigant. PMI explained that, given the ‘complexities’ of the tobacco distribution system, it could not track where the 8 billion cigarettes had been shipped to.18

Eight billion cigarettes, and nobody knew where on earth they were.

Many other industries, with commodities that are far less hazardous, and that are far less vulnerable to criminal enterprise, and that are far less susceptible to tax evasion, have implemented far more robust supply chain security solutions than the tobacco industry has.

Something as obscure and innocuous as a simple tube of toothpaste travels along a far more secure supply chain than tobacco does, despite the fact that tobacco kills far more people, loses governments far more in unpaid taxes, is far more susceptible to smuggling, and is far more intrinsically linked to organised crime.

When one begins to unpack the reasons other products are regulated, a curious question emerges: Why on earth are the supply chains around cigarettes not being regulated more and better?

How is it possible that tubes of toothpaste, or tins of infant formula, which both most likely pose less of a health risk than cigarettes do, are better controlled and tracked as they travel through the supply chain, than a pack of cigarettes is? How can Toyota track the more than 30 000 individual parts in one of their showroom vehicles back to its original supplier,19 but big tobacco does not know where its cigarettes go?

A quick look at some other fast-moving consumable goods put big tobacco’s supposed inability to track its products through the supply chain in perspective:

ThisFish20 lets you trace your fish fillet back to the particular fisherman who caught it on the other side of the world, giving consumers a fish-to-fork view of their purchases.

How is it that a fisherman out at sea somewhere off the coast of Java, armed only with a smartphone, can set in motion the ability to trace a single fish fillet from a London supermarket all the way back to his boat – but the tobacco industry says it has no control over where its packs of cigarettes end up?

Harvest Mark21 lets you trace your punnet of tomatoes back to one of its 3 000 farms.

How is it that Indonesian teak farmers on a remote family-owned plantation can achieve traceability down to the individual tree stump, across a complex supply chain that includes mills and kilns and furniture factories, all the way to a salesroom in Europe22 – but the tobacco industry cannot track where its cigarettes end up?

It is nothing short of preposterous. Fish only rarely kill people; tobacco does so routinely.

Having a better chain of custody, with better traceability, for a salmon fillet or a bag of grapes than we do for tobacco is nothing less than astonishing.

But there is more to it than fish fillets or bags of grapes. There are arguably very few companies in the world that are quite as vilified as big tobacco. Monsanto – which has many characteristics in common with big tobacco from a supply chain perspective – is perhaps one of them.

Monsanto is interesting because it has adopted a very progressive supply chain security framework, fully digitising their entire supply chain from product development in the laboratory, to a farmer on a combine harvester, to its customers.23

But most importantly, for our purposes, they simply do not do business with anybody who does not secure their own supply chains.

If Monsanto can enforce supply chain security protocols on the people it does business with, surely it is possible for the tobacco industry to do the same?

An even more complex example lies in Procter & Gamble’s supply chain and distribution network24 (the company manufactures some of the world’s leading consumer brands including Tide, Crest, Pringles, Pampers, Clairol and 300 or so other products). It somewhat echoes the tobacco industry’s distribution network, selling to 5 billion consumers in 140 countries the world over.

P&G cut out the middle-man and now directly distribute their products to major accounts themselves; they ended their direct relationships with smaller accounts; and they focus on the use of a real-time instrumented supply chain, making it possible for them to literally track a bottle of shampoo anywhere around the world.

If it is possible for a company with multiple different product categories, diverse supply chains and a complex global distribution network to connect actual sales with their supply chain management process, and to cut out sales to middle-men, for a tube of toothpaste, it is entirely possible for the tobacco industry – with what is a largely homogenous product – to do the same.

Of course, it’s not just private companies that have sought to benefit from more robust supply chain security practices. A number of government agencies and international instruments (like the ones for authorised economic operators and the customs trade partnership against terrorism),25 are increasingly developing good practice principles that are as applicable to cigarettes as they are to other commodities: requiring traders to know and screen the customers they do business with; including supply chain management as a strategic objective at a corporate level; integrating risk analysis of the supply chain into business practices; screening and monitoring customers; and the use of trace­ability solutions. Big tobacco does not and should not qualify as a ‘trusted trader’ under these programmes because its supply chain inherently lacks integrity – and yet it does.

Other industries adopt these recommended practices – most often voluntarily – because they view supply chain management as a strategic asset, that is used to increase their profit margins (like Procter & Gamble) and reduce their reputational risk (as De Beers does to guard against conflict diamonds).26

The tobacco industry has simply not adopted these practices. Why? Most likely because it chooses not to.

This is not an industry fighting for its life. It’s a thriving industry simply not being held to account for its products and its supply chains, unlike other industries that are held to account for their products and supply chains.

Want to significantly curtail the illicit trade in cigarettes? Manage the cigarette supply chain better, by stopping indiscriminate sales of cigarettes, and by creating the ability to track and trace cigarettes through the supply chain, back to their point of manufacture. Mark cigarette packs with secure, unique identifiers, so that they can be traced back to their point of manufacture. Introduce know-your-customer requirements, only allowing sales to customers who have their own strict chain of custody and supply chain management protocols; and introduce legitimate demand conditions on all sales. Stop ex-factory sales, only allowing for sales to larger retailers directly.

Philip Morris itself said it best in one of its vintage ads (at the time promoting their cigarettes as a healthier option): an ounce of prevention is worth a pound of cure.27

Secure the supply chain and watch contraband dry up. The reason it’s not happening? Because the tobacco industry has developed a playbook for profit that has left it virtually untouchable, and that allows it to operate with impunity, everywhere.

Vintage big tobacco ad from the Stanford University catalogue

Date: 1943

Brand: Philip Morris

Manufacturer: Philip Morris

Campaign: Johnny Calls for Philip Morris

Theme: For your Throat

Quote: An ounce of prevention is worth a pound of cure!

Comment: Johnny Roventini (1910–1998), the famous Philip Morris spokes­person, is shown calling ‘An ounce of prevention is worth a pound of cure’, presenting the brand as the healthiest cigarette option. The ad capitalises on public fears over smoking-related health conditions.28