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UK: Tobacco giants face smuggling fines

by Tom McGhie and Dan AtkinsonFinancial Mail
December 18th, 2005

Giant tobacco firms face punishing fines of more than 350m a year if they fail to help squash a smuggling racket that costs the Treasury billions in lost revenue.

Under tough legislation expected in next year's Budget, manufacturers will effectively be held responsible for ensuring that their products do not end up in the hands of criminal gangs, which then smuggle them back into Britain.

If the UK scheme is modelled on a similar one in use on the Continent, fines of about 5m would be levied on every container of ten million smuggled cigarettes intercepted by Customs. At current levels of smuggling, that could land the industry with a total annual bill of more than 350m.

The crackdown on the illicit tobacco trade was heralded in Gordon Brown's Pre-Budget Report this month. The Chancellor said legislation would be introduced in the Budget 'aimed at preventing organised criminal gangs from exploiting weaknesses in supply chains for tobacco products'.

Chief among these weaknesses is thought to be what Revenue & Customs described as 'organised criminal gangs gaining access to commercial quantities of genuine product, which is then smuggled back into the UK'.

It added: 'Legislation will allow for the imposition of a financial penalty where we have grounds to believe a manufacturer has failed to control its supply chains.'

A scheme operating on the Continent involving the European Commission and cigarette giant Philip Morris makes the firm responsible for paying any tax due on any of its smuggled cigarettes seized by customs.

And, should more than 90m cigarettes be attempted to be smuggled in any one year, the firm pays what amounts to a fine of about 5m on every container of ten million cigarettes.

Some of the major tobacco companies have been affected by smuggling and several legal cases have proved that tobacco companies around the world have been turning a blind eye to criminal activities.

Some firms have sold to smugglers in the past because they know these cigarettes will end up back in Britain at much lower prices, so increasing consumption.

Meanwhile, the 2,000-team of Revenue & Customs staff dealing with tobacco is to be boosted by 10%.

Anti-tobacco group Ash said: 'We have been calling for many years for the Government to fine tobacco companies for allowing their cigarettes to be smuggled. Finally, it has listened to us.'

Imperial Tobacco said: 'We have an excellent relationship with the Government. We are not concerned about fines for not helping enough on anti-smuggling measures because the amount of smuggled Imperial cigarettes has fallen by 98% since 2001.'



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