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Thirty-three State Attorneys General and Philip Morris USA Reach Landmark Agreement To Reduce Illegal Internet Cigarette Sales

PRESS ADVISORY

Thirty-three State Attorneys General and Philip Morris USA Reach Landmark Agreement To Reduce Illegal Internet Cigarette Sales

January 26, 2006

Attorney General Thurbert Baker today announced that Philip Morris USA (“PM USA”) has agreed to incorporate protocols aimed at combating the illegal sale of PM USA cigarettes over the Internet and through the mails. The protocols are being adopted voluntarily by PM USA pursuant to an agreement reached with 33 state Attorneys General across the country, as well as the District of Columbia and 3 American territories.*

The protocols provide for the: (a) termination of shipments of cigarettes to any of PM USA’s direct customers that the Attorneys General have found to be engaging in illegal Internet and mail order sales; (b) reduction in the amount of product made available to direct customers found by the Attorneys General to be engaged in the illegal re-sale of PM USA cigarettes to the Internet vendors; and (c) suspension from the company’s incentive programs any retailer found by the Attorneys General to be engaging in such illegal sales.

“Illegal internet sales of tobacco have been an easy conduit for minors to obtain cigarettes,” said Attorney General Baker. “Today’s agreement should significantly reduce the flow of cigarettes through illegal internet sales and constitute a strong step forward in reducing under-age access to tobacco.”

"Our voluntary agreement with the state Attorneys General builds on Philip Morris USA's existing trade programs and policies intended to preserve the integrity of our brands and the legitimate trade channels through which they are sold," said Denise Keane, Philip Morris USA executive vice president and general counsel. "It sets a framework for continued information sharing with law enforcement and support of their efforts to eliminate illegal sales of Philip Morris USA products."

The Attorneys General believe that virtually all sales of cigarettes over the Internet are illegal because the sellers are violating one or more state and federal laws, including: (1) state age verification laws; (2) the federal Jenkins Act (which requires that such sales be reported to state authorities); (3) state laws prohibiting or regulating the direct shipment of cigarettes to consumers; (4) state and federal tax laws; (5) federal mail and wire fraud statutes; and (6) the federal RICO law. Many of the sales made by foreign websites also violate federal smuggling, cigarette labeling, money laundering and contraband product laws.

While “brick-and-mortar” retailers check photo IDs to prevent children from buying cigarettes, the vast majority of Internet sellers have age verification systems that are wholly inadequate. Numerous studies have shown that the earlier an individual begins to smoke, the more likely it is that the person will become addicted, and thus age verification through photo IDs is essential to protect children from a lifetime of smoking.

Today’s agreement is the third major development in the Attorney Generals’ multi-pronged effort to restrict the payment, shipment and supply operations of the illegal Internet cigarette traffickers. In March 2005, the Attorneys Generals announced that the major credit card companies had all agreed to stop processing credit card payments for the Internet retailers. Later in the year, both DHL and UPS agreed to stop shipping packages for the vendors engaged in these illegal sales.

*The negotiations with PM USA have led to agreements with the following states: Alabama, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Mexico, New Jersey, New York, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming. In addition, PM USA reached agreements with the following non-state jurisdictions: American Samoa, District of Columbia, Northern Marianas and Puerto Rico.