As excise taxes increase, so do the prices of tobacco products. Criminal organizations exploit these high costs by selling contraband or counterfeit tobacco products for their own financial gain. Contraband trafficking is a concern for our business, law enforcement and regulatory authorities, and the legitimate wholesale and retail trade. This illicit activity deprives governments of tax revenue and hurts law-abiding businesses.
Contraband trafficking includes trafficking in smuggled cigarettes (genuine cigarettes intended for sale in the United States, but on which applicable excise taxes have not been paid), counterfeit cigarettes (cigarettes not manufactured by or with the consent of the trademark owner), illegally imported cigarettes (cigarettes manufactured for sale outside the United States), and stolen cigarettes (cigarettes that become contraband as a result of crimes such as truck hijacking, theft from cargo shipments and warehouses, or stealing from retail stores).
The increased cost of cigarettes, driven by excise taxes, creates a lucrative financial incentive for criminals to engage in contraband cigarette trafficking. It is estimated that tobacco diversion costs the states and the federal government over $5 billion in revenue annually from unpaid excise taxes.1 One shipping container of counterfeit cigarettes represents over $900,000 in state and federal tax losses.2 Although Philip Morris USA does not sell cigarettes directly to adult consumers, contraband cigarette activity undermines the significant financial investment PM USA has made in the legitimate cigarette trade channels. The contraband cigarette trade undermines trade programs that PM USA offers wholesalers and retailers to responsibly market and sells its products, and harms legitimate members of the trade who can face unfair competition when lower-priced contraband cigarettes are introduced into a market by individuals engaged in illegal activity.
PM USA plays an active role in addressing the problem of contraband tobacco products. First and foremost, we support the efforts of law enforcement and regulatory agencies at the federal, state and local levels to address the sale and distribution of contraband. We also monitor the marketplace through intelligence gathering and product purchase programs to gain an understanding of contraband cigarettes and other tobacco products; we enforce applicable trade policies at the retail and wholesale level; and we pursue civil remedies, including litigation, to protect our trademarks.
We also actively support federal and state legislation to better protect the legitimate channels of distribution, impose more stringent penalties for the violation of laws, and provide additional tools for law enforcement. For example, at the federal level, PM USA strongly supported the Prevent All Cigarette Trafficking Act (The PACT Act). Enacted in 2010, the PACT Act will strengthen federal laws governing the sale of cigarettes and smokeless tobacco products over the Internet. At the state level, we strongly support legislation to ensure reasonable regulation of the distribution system through licensing of manufacturers, wholesalers, and retailers, and enhanced penalties for those that engage in contraband activity.
