BREAKING: SEC Investigating PMI and Inexto for Corruption in Argentina

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Diagram by Argentinian Authorities explaining conspiracy between Inexto and PMI

It has recently come to light that Phillip Morris International ( PMI) and Inexto are facing criminal investigation charges in Argentina. The tobacco conglomerate is under investigation for charges of corruption, collusion, bribery and conspiracy. In an article released the Spanish language magazine, the Tribuna de Periodistas, lawyer Jay Clayton has been cited as leading the investigation.

Clayton, for those who may be unfamiliar, is the head of the Securities and Exchange Commission. The SEC has been investigating PMI for some time on suspicion of illegal trade practices and falsifying records. The company’s are suspected of being falsified to show losses that have not been incurred in order to” manipulate the company’s control system [using] sophisticated methodologies and defraud its shareholders with fraudulent practices, and may even include money laundering.” The case is of interest to shareholders who purchase stocks of PMI publicly and would risk loosing a great deal of money if the company were to be served a lawsuit of the size hinted at.

Clayton received a letter from lawyer Alejandro Sánchez Kalbermatten informing him of the development in the PMI lawsuit. In the letter to Clayton Kalbermatten wrote, “It is necessary to reveal the macabre and repudiate practices of the dishonest leaders of the PMI company in the Argentine Republic, and possibly in the rest of the world where it interacts by itself or by subsidiaries, affiliates or controlling companies.” The judicial file Kalbermatten refers too is CFP 17766/2016, titled in court as “Costa Marcelo et al. unlawful association” Costa, the subsidiaries of PMI and Phillip Morris Products South America are all named in the suit. Interestingly, PoliticaJudicial.com sites the leadership of Inexto including Philippe Chatelain, Patrick Chanez and Erwan Fredat. as many of the accused. These three individuals are really the men behind Codentify, who originally developed the system for PMI and moved with the technology to Inexto when it was sold.

PMI is being accused of manipulation of the market under the guise of another independent party, Inexto. Inexto and their Codentify technology are supposedly monitoring the production and supply of tobacco and tobacco products in Argentina. However if in fact Codentify is being used as cover for Phillip Morris International then the reliability of their reports would be undeniably low.

The repercussions of this investigation can not be ignored. If PMI and Inexto are implementing practices like this in Argentina the threat of them transplanting their tactics to Europe is just a matter of time. The Codentify technology would not be trusthworthy and in fact meerly a puppet for PMI. The attack against PMI includes an attack on Argentinain offiicals who would have accepted bribes in order to allow these practices to continue undetected. “The big tobacco companies devised and planned a strategy to install this pseudo control system,” Kalbermatten claims in his letter to Clayton, “ in this particular case the Argentine Republic and the public officials of the AFIP and INTI, even appear to act encouraged by fees paid by the tobacco giant.”

Inexto and Codentify: Connecting the Dots.

As my readers know by now, Codentify is the tracking and tracing system proposed by the tobacco industry as the solution for governments to meet their obligations under Article 8 of the Protocol to Eliminate Illicit Trade in Tobacco Products when it will enter into force.

The Codentify system was developed and patented, and the trademark registered, by Philip Morris International in 2006. To promote the system as an “industry standard,” the four major tobacco multinationals, PMI, BAT, JTI and Imperial Tobacco Group (ITG) created in 2011 the Digital Coding and Tracking Association (DCTA), based in Zurich, Switzerland.

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2006 Codentify Patent

Codentify has been criticized for the inadequacy of its technology with the requirements of the IT Protocol. Furthermore, the role of the tobacco industry in controlling and promoting this system raises serious concern, notably because the past and current record of the tobacco companies’ involvement in illicit trade of tobacco products, and with respect to Article 5.3 of the FCTC which requires that the tobacco industry be kept at arm’s length of governmental decisions. In their 2013 paper, Joossens and Gilmore indicated that the tobacco industry had devised a strategy to circumvent this concern by licensing the Codentify technology “to ‘credible’ third party providers who would in turn promote Codentify on their behalf.”

Last June the system was sold off to a so called “third party. The DCTA announced in a press release that its four members had signed and completed an agreement “by which Inexto, an affiliate of the French Group Impala, has acquired the DCTA’s track & trace and product authentication technology,” adding that “a specialized and independent technology company is now best placed to further develop this technology.”

I initially helped break the story in June of 2016 in an EU Observer article on the subject of the sale.

Since then I also indicated based on my sources that the Codentify product will be broken up and re-branded which is since evident in this latest Inexto/Codentify brochure which today makes no mention of Codentify or their tobacco industry past. The above mentioned brochure has since been removed from the web.

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Inexto’s 4 technological offerings based on Codentify, since removed from the web.

Since the publishing of this article the above mentioned presentation has been removed. Today the link appears below with a 404 error.

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Inexto products slideshow removed from the internet after the publication of this blog.

How independent is this new company? Its statutes are completely anonymous and offer no clue to answer this question. They simply indicate that the company maintains a list of owners which can be “accessed at any time in Switzerland.”

What we do know is a number of their key leadership roles are filled by the creators of Codentify back in PMI. This is a topic I have covered heavily in the past.

Inexto’s head office is located at avenue Edouard-Dapples 7 in Lausanne, not far from PMI’s headquarters. Interestingly, this address does not correspond to an office building but to a residential apartment building, with about 15 occupants.

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Inexto offices at avanue Edouard-Dapples 7 in Lausanne

After some web-searching of all building resident, none of the tenants had the profile to host the new company, except perhaps one…

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Inexto doorbell in same building as a tobacco industry executive.

Sylviane Marguerat Jendly, who is … Manager Procurement Switzerland at PMI.

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Marguerat’s linkedin CV title.

Below is her address listing publicly available on the internet.

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Proof of Marguerat’s address publicly accessible online.

Perhaps Marguerat, was the one to suggest to Inexto a convenient and discrete office space just blocks from PMI’s offices.

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Inexto’s office is just a 5 minute drive from PMI’s.

These bits of information about the company, together with the opacity otherwise surrounding its creation, suggests that Inexto may have links with PMI. Consequently, regulators and policy decision makers who might have to deal with Inexto should be careful before assuming that the company is independent from the tobacco industry. They should request that solid and trustworthy evidence of its independence be provided by the new company. In particular, they should request Inexto to produce the list of its shareholders and copies of all its contractual agreements with DCTA and its member companies, notably Philip Morris, including full information about the conditions under which intellectual property rights for Codentify were transferred to the new company.

Connections between GD SANTE, PWC and PMI Continued

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Two weeks ago I published an initial report on the fact that DG SANTE has hired PWC and Everis to conduct both a feasibility and implementation study of potential track and trace solutions to be implemented across the EU.

My article highlighted the fact that PWC has deep and open ties with the tobacco industry: mainly that they are the auditors of PMI and have done other work for other tobacco giants in the past.

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PMI’s website citing PWC as their auditors.

After discovering and publishing this information I inquired via the DG SANTE press office on the matter, to no reply.

Only after reaching out to several MEP’s and even the EU Ombudsman’s office did DG SANTE provide a long response from spokesperson Enrico Brivio which is featured below:

The Commission’s executive agency, Chafea, concluded a contract with the consortium of PwC and Everis for carrying out the implementation analysis regarding the technical specifications and other key elements for a future EU system for traceability and security features in the field of tobacco products. To avoid any kind of doubt, the ultimate responsibility for shaping an EU system remains in the hands of the European Commission, which for this purpose will prepare necessary implementing and delegated acts as envisaged in Articles 15 and 16 of the TPD

The Commission has taken multiple steps to ensure that a new contract for conducting the Implementation Study, which is intended to support the Commission in preparing the implementing and delegated acts as envisaged under Articles 15 and 16 of the Tobacco Products Directive 2014/40/EU , is free of the conflict of interest, in particular with the tobacco industry.

 Both consortium members, PwC and Everis, provided the necessary declarations in this regard. Furthermore, the project team’s members: (a) exclude at the present stage the employees of PwC, (b) are subject to personal declarations of the absence of conflict of interest and (c) where required are protected with Chinese walls within their structures.

The work of the project team, including potential conflict of interests, is continuously monitored by the Commission’s services. The key outcomes of the project will be also scrutinised externally, including discussions with stakeholders (including health NGOs), the Subgroup on Traceability composed of national experts and a panel of independent experts.

I remind you also that DG SANTE in particular has been praised in the recent past by the Ombudsman for the transparency of its procedures.

I inquired further, asking for elaboration on what type of “monitoring” will be taking place as well as what declerations PWC and Everis provided. As of the publication of this article I have received no further elaboration.

My concern is not intentional misconduct of the part of DG SANTE, I just want to insure there is no tobacco industry meddling in such an important consultation.

Further elaboration is needed.

My ultimate fear is the tobacco industry could influence PWCs recommendations in a way that suggest since Codentify has been sold to Inexto that it is now somehow independent.

I will be investigating the sale of Codentify further and already have some interesting leads which I hope to share in the coming weeks.

 

 

Connections between DG SANTE, PWC and PMI.

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On June 22nd the EU Commission Tobacco working-group’s  Subcommittee on Tracibility and Security Features convened a meeting in which DG SANTE informed the committee that they have subcontracted consulting work to two firms to conduct both a feasibility and implementation study of potential track and trace solutions to be implemented across the EU. The question is: are these third party firms truly independent of tobacco industry influence.

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Screenshot from DC SANTE document citing PWC and Everis as consultants on tractability solutions.

The Tobacco industry has produced and promoted a system called Codentify which they have begun implementing across Europe in an attempt to create an unavoidable reality in which their system must be chosen by default. In actuality this system may not even track or trace products and as the health conscious community raised concerns about the systems capabilities the tobacco industry sold the system off to a, so called, “Third Party” company named Inexto in an attempt to distance the product from themselves. This story I proudly broke to the EU observer some months ago.

The World Health Organization’s (WHO) Framework Convention on Tobacco Control (FCTC) has explicitly stated that Codentify does not meet their standard for a solid track and trace solution for the industry.

The two company’s assigned the consulting task by DG SANTE  are PWC and Everis. The hiring of such firms came as some surprise to those watching this committee closely and when the firms names where announced it was important to explore if these firms have an intrinsic interest in supporting a tobacco industry produced solution.

After just an initial search it is clear that PWC has strong ties to the tobacco industry which put their objectivity in inherent question. PWC are the primary auditors for Philip Moris International (PMI) and have in the past done auditing work for British American Tobacco (BAT) as well.

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Proof from PMI’s website of an existing relationship with PWC.

Although this is just preliminary information I will continue to delve deeper into this issue and publish as more information comes to light.

 

Initially  DG SANTE refused to respond to requests for clarity on these matters but in recent days have responded. I will be including their full response in a follow up article.

The European Union Must Divorce Philip Morris International

If the EU doesn’t divorce PMI, Codentify will only be the beginning of our problems.

In my previous posts I’ve expressed my honest support of the FCTC protocol, and today I would like to give you the counter-example of a REALLY BAD deal, that most likely will expire in a few months, and I certainly won’t miss it – I’m talking about the EU’s agreement with PMI:

In general, under this agreement PMI was obligated to pay the EU over $ 1.1 billion, to prevent illicit trade of their products (through several measures, such as creating the Codentify system, allowing governments access to their data, cooperating with customs, etc.).

Moreover, supporters of the renewal of this agreement claim that thanks to it, illicit trade of genuine PMI product had been reduced in 85% (and that’s seemingly impressive).
At this point skeptics would probably think – WHY IS IT BAD?

Let’s say I’m a very popular and successful teddy-bear manufacturer (bear with me), and I’m not only agreeing to pay over a billion dollars to help the authorities catch contraband teddy-bears, but also succeeding in doing so by 85%. Why in the world should you refuse continuing this arrangement?

The EU commission and its member states shouldn’t even consider renewal of the agreements for at least three good reasons:

1.    Big Tobacco were no teddy-bear resellers in the first place:
Prior to the negotiations upon the initial agreement between PMI and the EU, the EU commission and member states had launched a huge lawsuit against PMI and two other Big Tobacco companies, for (and this is an actual quote):
“‘an ongoing global scheme to smuggle cigarettes, launder the proceeds of narcotics trafficking, obstruct government oversight of the tobacco industry, fix prices, bribe foreign public officials, and conduct illegal trade with terrorist groups and state sponsors of terrorism”
Normally I put the most problematic parts in bold, but here I found nothing to leave unmarked.

2.    Big tobacco are definitely not teddy-bear resellers today:
Their product has more complexed relationship with authorities and regulators and have a much broader effects on a country’s budget than most industries’. Without diving into the debate on public health promotion strategies, but especially in countries that are highly invested in public healthcare policies – reducing nationwide smoking rates, are in the government’s best interests. It is not only about general fake products and tax evasions, and as I said in many of my previous posts – it is a decision between making the industry the solution (not even a part of it… the whole solution) and accepting it as (a major) part of the problem.

3.     Possible renewal of the agreement will be used to legitimize the industry’s self-regulation. “If you agree to take our money, something we do must be working, right?”
Wrong. First of all, let’s address the issue of 85% decline in genuine PMI product seizures – the main part of the previous sentence is GENUINE PMI PRODUCT – although it is not clear from the agreement itself, but from what I’ve personally heard from my sources , it is up for PMI employees to decide if a package caught by customs are indeed genuine.

In parallel, while the amounts of seized genuine product is decreasing, the amount of what is called “cheap whites” cigarettes are rising rapidly. Therefore, it is not an example of the industries achievements, but of what happens when you allow it to influence regulation statistics…

Second, from a budgetary point of view, the money received from PMI goes directly to the EU commission and member state’s general budget. Which means it is not earmarked directly to tackle illicit tobacco trade. Hence, without using harsh words, it is PMI’s money paid to keep authorities and governments in a certain status, which benefits PMI directly – as opposed to a fine, or an obligation to sponsor independent regulatory measures that benefit public causes at PMI’s expense (which was, allegedly, the original plan…).

And last but not least, continuation of this agreement, at this stage, means total support for Codentify against any attempt for independent track & trace solution. From PMI’s perspective, it would be rational to argue that you cannot make the company pay these amounts of money to develop Codentify to match EU standards, and in the same time force it to invest additional efforts to integrate with an independent solution. The irrational decision is to allow this situation in the first place.

So where does the decision stand now?

Last month  the European Parliament gave the commission a very clear say against the renewal of this deal – 414 MEPs voted against the deal, 214 backed it and 66 abstained. Now let’s hope that the European commission will not let the public and its brave representatives down.

INCREASED CORRUPTION, THE CODENTIFY NIGHTMARE

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The fight against Big Tobacco is nowhere near over. In fact, it’s only just beginning. The tobacco industry is ridden with scandal, corruption and hypocrisy and Codentify is only the tip of the iceberg.

Last week I covered the unprecedented greed of British American Tobacco, as I covered the story of BAT enforcer-turned-whistleblower Paul Hopkins. In his testimony to a British investigative show, Hopkins revealed the truly disgraceful activities of cancer-merchants BAT – who are already rolling in an amount of cash of which only Scrooge McDuck could be jealous.

Hopkins’ role in East Africa was essentially to undermine, bribe or physically contain any and all legislation that might cause awareness of tobacco’s negative health effects and to stamp out any calls for increase taxes, tariffs or penalties against Big Tobacco.

What’s funny (or horrifying, depending on the way you look at it), is that in the broader tobacco industry, such behavior is so blasé and unremarkable. But each and every article you read about, and all of the negative coverage against Big Tobacco should only be met with more scrutiny, more promotion and more anger.

Why is it that whenever tobacco companies commit corporate and ethical atrocities across the world no one flinches? You know why? It’s because it’s simply what we’ve all come to expect. It’s an everyday occurrence. It’s all part of the plan.

But while most of the world may passively slumber within their cocoon of complacency towards evil, I will not sit idly by as this diabolical industry kills more and more people while their shares and profits skyrocket.

Let’s expose the tobacco industry’s nefarious ways, one scandal at a time. Thankfully there are plenty of past scandals to reveal here.

In an Independent UK article published this past May, a report by the Action on Smoking and Health organization found that the tobacco industry is actually bolstering the illegal trade and purchase of their own cigarette brands. Codentify by the way, will only make that easier for them as they will be allowed to regulate and report their own production numbers.

Yes, you heard that correctly. But while ludicrous as it may sound, the tobacco companies obviously have an economically sound reason for doing so. Aside from gaining profits without having to pay taxes on their illegal exports, the tobacco companies use the increase in smuggling to show that it just isn’t worth increasing trade regulations or anti-tobacco legislation. The tobacco companies can turn around to their governments and say, “Hey look, it’s not like your new laws are actually going to do anything!”

According to chief executive of ASH Deborah Arnott, “They can argue that there is already a lot of smuggling, so you can’t increase duties further. Our paper shows the appalling hypocrisy of the industry: they have been shouting about illicit trade, while remaining up to their necks in it themselves.”

This “appalling hypocrisy” is part and parcel of the tobacco industry’s tactics around the world. If you were ever confused about their manta, I’m pretty sure it goes like this: fool the world, kill vulnerable people, make billions.

So in typical form, the lobbying tentacles of Big Tobacco must rebut any and all criticism of their practices. This is no exception. Giles Roca, the director general of the Tobacco Manufacturers Association (aka Big Tobacco’s rhetoricians), whined that, “The tobacco industry is firmly committed to tackling illegal trade. Anti-smoking lobby groups such as ASH fail to demonstrate any real understanding of the drivers of the illegal market, such as the UK’s very high tax policy, and instead focus on making unhelpful allegations.”

Roca is actually trying to divert the attention of readers to the “misgivings” of those who actually want to bring down true unabashed evil and smear them as liars, while claiming that the massive conglomerated cancer-merchants that he represents are in fact the moral actors in this case. Meanwhile, he casually slips in that smuggling happens because taxes are too high. I am truly sick to my stomach. Cry me a river, Giles.

Another interesting scandal happened when late night host and proud anti-tobacco whistleblower Jon Oliver of Last Week Tonight dedicated a twenty-minute segment to blasting the legal practices of Philip Morris International. The late night segment is worth a watch, I have posted it previously, and is both uproariously funny and frighteningly revealing about the evils of Big Tobacco.

In the segment, Oliver showed how PMI would specifically target young teenage boys in South East Asia to turn them onto cigarettes, thereby addicting them for life.

Moreover, he revealed that PMI used truly despicable law practices to stamp out any criticism of their company, including bankrupting all poor governments – like Togo – who want to establish common-sense laws against or warning against smoking. They did so on the grounds of too many bullshit platitudes to even name. Suffice it say, PMI won time after time in corner governments into doing their bidding.

And despite all of this, and despite the respectful nature of Oliver’s broadcasts, after the show, PMI had the gall to issue a laughable statement in response, claiming that, “The segment includes many mischaracterizations of our company, including our approach to marketing and regulation, which have been embellished in the spirit of comedic license.”

The statement also alleged that, “We support and comply with thousands of regulations worldwide — including advertising restrictions, penalties for selling tobacco products to minors, and substantial health warnings on packaging. We’re investing billions into developing and scientifically assessing a portfolio of products that have the potential to be less harmful and that are satisfying so smokers will switch to them. And, like any other company with a responsibility to its business partners, shareholders and employees, we ask only that laws protecting investments, including trademarks, be equally applied to us.”

I must have laughed out loud while reading that load of garbage. If you want any proof as to the level of B.S. that statement was, just go back around five hundred words.

Which brings me back to a topic that cannot be understated, that of the potential “Codentify nightmare”. I come back to this time and time again only because it is one of the most pressing issues in world health and anti-smoking campaigns. It is still currently being discussed in the European Union!

To repeat, Codentify is a bogus tracking system that Big Tobacco invented in order to circumvent any prosecution against the smuggling of their own products. They made it so that the European Parliament can pat itself on the back for endorsing a dedicated track-and-trace system to monitor the legal trade of cigarettes. The only problem? Codentify doesn’t have track and trace, and allows no technical means to actually monitor illegal sales – meaning that Big Tobacco reaps the massive profits of both legal and illegal cigarettes without paying taxes on the smuggled ones.

We cannot let Codentify become a reality. We cannot let these evil, murderous corporations win total control.

The Truth is I am seriously considering releasing to the public my newest round of exclusive evidence provided by former tobacco industry employees. I am just waiting on feedback from a few experts who are much wiser then I.