We employ and continuously refine a set of practices and tools to control our supply chains and prevent the smuggling of our products. Forming the acronym ENFORCE, these demonstrate our commitment to halting this problem:
The ENFORCE Tools
When markets are identified as having a higher risk of product diversion, we introduce enhanced volume monitoring processes, in addition to the standards requirements of PMI’s Know Your Customers program, to mitigate this risk.
Generally, on a monthly basis, as part of our Know Your Customer program, each PMI affiliate is required to analyze the sales of customers selling significant volumes of PMI products in an effort to identify any unusual activity or trends.
When there is a higher risk of product diversion, we work to extend our volume monitoring further into the supply chain, to increase our ability to detect unusual purchasing patterns that may reflect diversion somewhere down the supply chain.
All PMI employees are duty-bound to notify their supervisor, manager, department head or the Compliance Department of any suspect violation of the law, or violation of one of our Compliance Policies. Alternatively, employees can report these activities to the Head of Human Resources, Internal Controls, the Law and Compliance Department, or use a dedicated Compliance Helpline. Furthermore, under our Know Your Customers and third party manufacturer policy, employees are required to report suspected diversions of product occurring in our supply chain.
We take any suspected violation of the law or of our compliance policies very seriously. Those cases are investigated and acted upon in accordance to our policies.
In 2015, PMI created a new seizure follow-up standard. This standard ensures that our customers are informed of seizures involving products they purchased and that, together with them, we take the necessary actions to sell in volumes commensurate with the intended market demand. It also ensures that our customers are performing a strong Know Your Customers follow-up with their own customers. Alternatively, failure to comply with PMI standards or evidence of a customer’s involvement in the diversion of our products may result in termination of the business relationship with that customer.
The main objectives of the new seizure follow-up standard are:
Our affiliates and distributors generally observe strict controls when the customer orders the product. In markets with significant risk of diversion, the control is often performed by benchmarking risky against non-risky brands in each customer order. In other words, when an order is received from a customer, the ratio of high-risk brands is compared to the total ordered volume. If the ratio is higher than a benchmark based on average market demand, the delivery of the high-risk brand volume is reduced or declined.
Information campaigns to raise awareness of the illicit trade of tobacco products are a key tool for PMI to prevent the diversion of our products.
Tracking is the ability to monitor the forward movement of finished goods through the supply chain. Tracing is the ability to recreate the movement up to a certain point in the supply chain to help determine where the product was potentially diverted into illegal channels.
We have made large investments to implement a broad range of measures and technologies that meet and exceed our historic EC Agreement contractual commitments and current regulatory requirements. These measures and technologies are effective solutions to prevent the diversion of genuine products from the legal supply chain.
Our tracking and tracing systems operate successfully across our global supply chain. Today, we have more than 700 tracking locations covering 133 markets, an effort that has required an investment of more than EUR 100 million.
Our sales conditions make clear to all PMI customers that tracking and tracing data may be shared with law enforcement.
Whenever they, or their customers, are identified as having been involved in a transaction that eventually led to a seizure of PMI contraband cigarettes, our affiliates are required to perform prompt follow-up actions through a variety of means. This may include warning letters, training to our employees and customers, face-to-face meetings to thoroughly investigate the issue, enhanced volume and order monitoring, along with volume caps, if appropriate.
Carton and pack tracking technologies enable us to associate all cartons and/or packs with a scanned master case, which enables us to identify the potential source of diversion following the seizure of our products. By the end of 2015, PMI’s carton tracking coverage reached 60% of total PMI shipments. In almost all instances PMI was able to identify the customer(s) who sold the seized cigarettes by using our carton tracking capabilities (master cases with labels that enable tracking and tracing are not commonly found in seizures).
Tracking and tracing technologies help us identify the potential points of diversion. When performing seizure follow-up, we utilize this information to deter reoccurrence.
Well-informed and properly trained employees are a key pillar of our Know Your Customer Program.
In 2015, PMI affiliates trained over 9,000 employees in the area of the Fiscal Compliance Program and Supply Chain control measures. The objective of the training was to enhance awareness of product diversion issues and increase employees’ abilities to recognize situations of product diversion risk, based on learnings from past incidents.