Fighting against the diversion of our products, and more generally against illicit trade in tobacco products, is a key component of our sustainability program . Fighting illicit trade links directly to combatting corruption, contributing to improving human rights, labor rights and environmental standards, principles that organizations involved in illicit trade surely ignore or violate.
Over the years, our supply chain controls have been improved through our cooperation with regulators and other governmental agencies with whom we have specific commitments and obligations. In the EU, PMI’s 2004 signing of the Anti-Contraband and Anti-Counterfeit Agreement and General Release (“EC Agreement”) and our commitments to, and cooperation with OLAF and the Member States under that Agreement have helped us to develop a better understanding of the evolving nature of the illicit trade in tobacco products and the potential solutions to this complex problem. Further to this we:
The supply chain control measures developed through the EC Agreement have become part of the way we do business. We view these controls as global best practices, are committed to continuing them, and encourage others to adopt similar policies.
We have learned more about how to increase the effectiveness of our supply chain controls through our compliance with country-specific regulations, like the UK’s Tobacco Products Duty Act 1979, and our ongoing cooperation with national customs and similar officials, such as the UK’s HM Revenue & Customs (HMRC).
During the course of 2014, HMRC conducted a review of our supply chain controls and recommended that PMI initiate a more formal global body to oversee coordination in the area of anti-diversion. We took this recommendation seriously, and launched a process that led to the creation of the Anti-Diversion Governance Committee and a review of the entire supply chain control program.
The Governance Committee’s key objective is to ensure that PMI has the best possible approach to preventing the illicit flows of our products. The Committee’s members are drawn from PMI’s senior management. The creation of a global governance body comprised of senior company officials is further recognition that addressing product diversion requires effective coordination across countries, regions and departments.
An Anti-Diversion Working Group that includes representatives from across the business, reflecting the many PMI departments involved in supply chain control, supports the Governance Committee.
Under the Governance Committee’s direction, we further refined our anti-diversion strategy and moved to a risk-based approach for our supply chain controls. We believe that a risk-based approach will enhance our efforts and efficacy by focusing resources and controls where they are most needed.
We classify markets into risk categories. In a “high risk” market, profit opportunities and enabling factors make diversion of our products likely if not already evident. A “low risk” market, on the other hand, is a market where lack of profit opportunities and other factors make diversion of our products unlikely. For example, for a market with a simple distribution network and a high retail price, such as the U.K., the market risk profile would indicate limited or no incentives to smuggle product out of the country, and therefore, the U.K. would be classified as a “low risk” market. We continuously re-examine and adapt our supply chain control tools to fit the risk profile of the market.