Philip Morris International: KPMG Study Shows Illicit Cigarettes In EU Reach Highest Recorded Level In 2011, Fifth Consecutive Yearly Increase

Philip Morris International Inc. (PMI) (NYSE:PM) (Paris:PM) today announced the results of a comprehensive analysis undertaken to assess the illicit trade in contraband and counterfeit cigarettes in the European Union (EU).

The study, conducted by KPMG LLP (KPMG), estimates that the annual consumption of illicit cigarettes in the EU in 2011 was 65.3 billion cigarettes. This is the highest ever recorded level and constitutes the fifth consecutive yearly increase. KPMG estimates the annual EU-wide tax loss due to cigarette smuggling to be approximately 11.3 billion euros.

Commenting on the results, Artyom Chernis, PMI's Vice President Illicit Trade Strategies and Prevention, said: “Illicit cigarettes represent a serious problem for business and government alike. Beyond the significant economic damage, the illicit cigarette trade breeds criminality as profits are often used to fund other criminal activities such as drug smuggling, human trafficking and terrorism.”

“Despite efforts by law enforcement authorities to curb the illegal cigarette market, it remains a significant problem, having grown by more than 5 billion cigarettes in the EU in the last 5 years. PMI remains committed to continuing its close cooperation with governments and other stakeholders to implement effective solutions to tackle this critical issue.”

Significant findings of the KPMG study include:

• Illicit cigarette consumption increased by 1.1 billion in 2011 versus 2010 to a total of 65.3 billion cigarettes, which equates to 10.4% of all cigarette consumption in the EU. This is the highest ever recorded level and constitutes the fifth consecutive yearly increase.
• Illicit cigarette consumption in the EU in 2011 was larger than the total legal cigarette markets of France and Portugal combined.
• Illicit cigarette consumption increased in Mediterranean countries, including Spain, Italy, Greece, Portugal, Cyprus and Malta and amounted to 12.6 billion cigarettes in 2011.
• 2011 witnessed a sharp increase in “illicit white” cigarettes - cigarettes that are manufactured for the sole purpose of being smuggled into and sold illegally in another country. In 2011, illicit whites reached more than 15.7 billion cigarettes across the EU, compared to nearly zero in 2006.

PMI is firmly opposed to the illicit trade in cigarettes and has undertaken a broad series of measures to combat this growing problem, including implementation of a global tracking and tracing system, comprehensive know-your-customer policies, consumer education and collaboration with governments. The key to success in this effort is local and international cooperation among numerous stakeholders, including governments, enforcement agencies, manufacturers and retailers.

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