Philip Morris faces SEC Whistleblower complaint, claims it bribed Argentina National Congress to tax tobacco rivals

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Tabacalera Sarandí CEO Pablo Otero | Tabacalera Sarandí

The CEO of an Argentinian cigarette maker has filed a whistleblower complaint with the U.S. Securities and Exchange Commssion (SEC), accusing Virginia-based tobacco giant Philip Morris of bribing members of that country's National Congress in order "to maintain a market monopoly and manipulate product pricing structures to the detriment of both public health and fair market competition."

Pablo Otero, who runs Tabacalera Sarandí, a rival of Philip Morris, filed the complaint on April 23, Globe Banner has learned.

"This complaint concerns alleged corrupt practices involving Philip Morris International (NYSE:PM) and its associate, Massalin Particulares S.R.L., aimed at manipulating legislation and regulatory measures in Argentina to unlawfully benefit their business operations," the complaint says. "The activities include regular payments and contributions to members of the national congress... direct influence over public officials in crafting legislation that disproportionately benefits the company, particularly regarding the sale and taxation of tobacco products (and) direct influence over public officials in crafting legislation that disproportionately benefits the company."

Otero's complaint says Philip Morris is violating Argentine law and potentially "violating U.S. securities laws by misleading shareholders and the market about the company's operations and compliance with applicable regulatory standards."

"The sustained nature of these activities, their scope extending beyond Argentina to potentially other Latin American countries, necessitates a thorough investigation by the SEC to address and mitigate risks to investors and uphold fair market practices," it says.

Founded in 2000, Tabacalera Sarandi sells lower cost cigarettes in Argentina, including popular brands Kiel, West Red and Red Point that compete with Philip Morris brands Marlboro and Chesterfield in the country. The company has 400 employees, according to published reports.

"Designed to exponentially increase the price of cigarettes manufactured by local companies"

Argentine laws establishing, in effect, a "minimum tax" for cigarettes sold by Argentina-based companies are at issue.

A 2015 law effectively barred companies like Tabacalera Sarandi from pricing its cigarettes at a discount of more than 25 percent to the country's best-selling premium brand, which at the time was owned by Philip Morris.

In 2017, lawmakers created the "minimum tax" on cigarettes, setting it five percent lower for multinational companies like Philip Morris and BAT, establishing a higher tax for national brands like Tabacalera Sarandi's Red Point, which had become Argentina's most popular, with a reported 33 percent market share.

In a letter to customers posted on his company web site on April 19, four days before he filed the SEC complaint, Otero said these laws were engineered by Philip Morris and British American Tobacco (BAT) to make it "impossible" for local companies to compete on price.

Tabacalera Sarandi challenged the laws in an Argentine court and had them declared unconstitutional. It and other local cigarette makers have refused to pay the taxes, citing the court rulings, though officials of the country's revenue service, AFIP, have claimed the companies still owe the money.

In his customer letter, Otero said the Argentine government is mistaken.

"Tabacalera Sarandí does not owe AFIP a penny a day. There is no debt determined by the AFIP, much less that is enforceable for the simple reason - and this is a fact that should not be ignored by the (Argentine) media that are considered respectful of the institutions of the Republic and the Rule of Law,"  he wrote. "The minimum tax has been declared unconstitutional by the Judiciary."

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits U.S.-listed companies from bribing foreign officials for goverment contracts, or other business benefits.

In 2021, medical waste service provider Stericycle, Inc. paid a $28 million fine to settle SEC charges it bribed officials in Argentina, Brazil and Mexico.

In 2010, two U.S. tobacco companies-- Universal Corporation and Alliance One-- were charged with paying more than $5 million to officials in Thailand in exchange for receiving tobacco sales contracts. The companies paid combined $30 million in fines.

The 2010 case was "the first time the U.S. government had taken action against tobacco companies for payoffs overseas," FCPA Digest wrote.