By Pinky Khoabane
AUDITORS are rarely independent from the clients they scrutinise.
IN October 2013, auditing firm KPMG published a report which claimed that “volumes of illicit manufactured cigarettes have increased by 154% since 2012.” The year 2012 was when Australia introduced a law on mandatory packaging for cigarettes that removes brand colours and logos from packaging.
The law requires cigarettes to be sold in olive green packets, with graphic images warning of the consequences of smoking.
The KPMG research, funded by big tobacco companies Philip Morris International (PMI), British American Tobacco (BAT) and Imperial Tobacco just so happened to prove the industry’s argument, in Australia and elsewhere, that the introduction of plain packaging and other measures of curbing cigarette smoking, would lead to an increase in tobacco smuggling.
PMI is the leading international tobacco company, with “six of the world’s top 15 international brands are ours, including Marlboro, the world’s number one,” according to its website. BAT is the world’s second largest tobacco company.
Backed by the KPMG report, the tobacco industry continuously warned that their predictions that illicit tobacco activity had been exploding since the introduction of plain packaging in Australia, were true.
“These arguments routinely seek common ground with government concerns by exaggerating the level of illicit tobacco trade in Australia. They also distract from expert recommendations for improved enforcement to reduce illicit trade,” according to experts quoted in www.tobaccotactics.org
This research has been circulated among Scottish MPs, British media and has swayed some commentators to argue against the removal of cigarette branding.
A review of plain packaging of cigarettes undertaken in Australia by a team led by Sir Cyril Chantler questioned the reliability of the KPMG report. It noted the following:
“Australian Government departments, both Health and Customs, appear to be strongly of the view that KPMG’s methodology is flawed.
“These Departments point to official Customs data, which shows no significant effect on illicit tobacco following the introduction of plain packaging, backed by analysis undertaken by the Cancer Council Victoria.”
Illicit Estimates “not Accurate”
Notes from the Chantler team’s meeting with the Australian Government and Customs reveal the detailed concerns the Government had over the KPMG report:
“The Australian Government does not consider the KPMG report estimates of illicit tobacco in Australia to be accurate. Like previous illicit trade reports commissioned by the tobacco industry, the KPMG report appears to substantially exaggerate the size of the illicit tobacco market in Australia and the consequent loss of excise and duty revenue.
… The KPMG report is based on an online survey (of only 2,107 people) and an empty pack survey. There are fundamental problems with the representativeness of these two surveys which produce the foundation data for the report.
The empty pack methodology is not representative, as empty packs discarded outdoors are not representative of all packs used in Australia. For example the empty pack survey collects packs discarded in rubbish bins and public places, and packs in litter on the street but not in domestic rubbish, or bins and rubbish receptacles in offices and other.
It is also highly likely that the empty pack survey over-represents the packs used by tourists who are more likely than the average Australian smoker, to be eating out and socialising at outdoor venues, and much more likely to be in possession of packs purchased overseas.
KPMG calculated its estimate of the illicit proportion of cigarettes brought in from overseas by deducting from its estimate of the prevalence of foreign packs, the proportion of packs that is legitimate. KPMG’s very low estimate of legal consumption of foreign cigarettes is highly problematic, and is fundamental to KPMG’s estimate of prevalence of contraband cigarettes.”
KPMG’s analysis of the illicit market has also been questioned in Europe by the Tobacco Control Research Group and others”, the website www.tobaccotactics.org reported.
BAT Concedes That No Counterfeit had Increased in Australia
Giving evidence to the to the Chantler review team on plain packaging, the tobacco industry conceded there had been no increase in counterfeit and on the contrary, confirmed levels had decreased.
Mark Connell of BAT said: “One of the things that we did say… is that there would be an increase in counterfeit of the standardised packaging. In other words, the legislation was virtually a blueprint that was given to counterfeiters… that hasn’t happened, well it may have happened in small quantities…”
When asked by the Chantler review team “have you actually seen a reduction in counterfeit?” Connell replied: “Absolutely. Absolutely.”
BAT Lies to Investors
In an article in the Sydney Morning Herald on March 2014, BAT chiefs reportedly said that the introduction of plain packaging in Australia had had no impact on cigarette smoking except to increase illicit activity by 30%. The newspaper’s own investigation into official Customs figures showed that plain cigarette packing had had no impact on tobacco smuggling. http://www.smh.com.au/business/plain-packaging-making-no-impact-on-australian-smokers-say-tobacco-chiefs-20140303-3411j
- Tobacco Tactics. Have Illicit Levels risen in Australia? http://www.tobaccotactics.org/index.php?title=Plain_Packaging:_Have_Illicit_Levels_Risen_in_Australia%3F
- Report of Review of Plain Cigarette Packaging undertaken by Sir Cyril Chantler https://www.kcl.ac.uk/health/Packaging-review/packaging-review-docs/meetingsandbriefings/Philip-Morris-International-29-January-2014.pdf
- Australia Plain Packaging Law Upheld by Court http://www.bbc.com/news/business-19264245