Philip Morris allegedly manipulated KPMG report on cigarette consumption

20 October 2022 Consultancy.uk 2 min. read
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A former partner of Philip Morris has claimed the tobacco giant has manipulated a report from KPMG on illegal cigarette consumption. The revelations come ahead of a court case, which calls into question the power of the tobacco lobby on European tax policy.

In 2020, a report was commissioned by Philip Morris International to look into the consumption of cigarettes throughout Europe. The study, executed by KPMG, found that cigarette consumption was on the decline across the continent – but also suggested that the number of illicit cigarettes consumed still was costing the European Union billions in lost tax revenue every year.

Upon its release, the paper claimed that the EU missed out on £9.5 billion in revenues every year – a statistic which was used to represent the offence as one which needed to be dealt with more urgently. Meanwhile, counterfeit consumption was also said to be increasing year on year, a trend that had it was asserted had policy makers and tobacco producers worried.

Total manufactured cigarette consumption in the EU, 2015-2019

Two years later, however, the report has resurfaced, amid controversial claims that Philip Morris has exploited KPMG’s work to enhance its lobbying powers in the EU. A former business partner of Philip Morris has launched an indictment of against the tobacco company, according to reports from anti-smoking lobby group TabakNEE – and it is said to revolve around a so-called Empty Pack Survey (EPS), used for the report to determine the size of the illegal cigarette trade.

An EPS sees researchers pick up empty cigarette packets on the street to estimate illicit trade. The company conducting the research in this case is located in Switzerland and was founded by Israeli Raoul Setrouk. The former Philip Morris partner is the one behind the lawsuit, accusing the cigarette manufacturer of manipulating the EPS data in this case – creating an incorrect picture of the extent of the illegal trade.

The allegations suggest that this inaccurate picture suits Philip Morris, and other tobacco traders, as it would strengthen their arguments against tax increases. Tobacco industry advocates have long argued that increases in excise duties on smoking products are beneficial to the illegal trade – as the more expensive the cigarettes are in shops, the more people will turn to smuggled goods for a discount. If Philip Morris has indeed tampered with the EPS data, however, its claim that tax hikes lead to more illegal trade may be called into question.

In the wake of the allegations, KPMG has issued a statement that it "accepts no responsibility and no liability whatsoever with respect to this report other than to the beneficiary." The firm adds that "any person or entity (other than the beneficiary) who reads this report and chooses to rely on it (or any part of it) does so at their own risk." It is a standard disclaimer for consulting work, with firms making it clear that they sell advice – and that they are not responsible for the implementation of what they have to say.