Contraband cigarette sales continue with AG’s knowledge

Contraband cigarettes continue to be sold on Guam store shelves despite the Office of the Attorney General’s knowledge of the ongoing sales. The OAG, under a national and binding agreement, is the law enforcement agency responsible for the enforcement of Guam’s tobacco laws.

For the past year, the cigarette brands This, Carnival, and Time, have been sold on Guam despite a December decision by its manufacturer – KT&G – to suspend operations in the United States. Kandit first raised the issue with the OAG in early March, informing the OAG of the suspension of operations and providing evidence of the continuing sales of the cigarette brands.

The suspension of U.S. operations raised suspicions that the manufacturer would not make further payments in the Master Settlement Agreement fund for Guam operations.

The MSA is a 1998 agreement between 52 state and territorial attorneys general, including Guam’s, and the major tobacco manufacturers selling cigarettes in the United States. Generally, that agreement means cigarette makers pay each member state and territory a sum of money per cigarette sold in each state or territory in perpetuity. Nationally, the added cost to manufacturers has raised the cost of smoking, making the habit less attractive.

Guam uses the money it receives from the participating MSA members to pay for the cost of the medical care associated with smoking-related illness, efforts to prevent young people from smoking in the first place, and technology for people with disabilities.

In exchange for these payments, the attorneys general of these states and territories have agreed not to pursue these cigarette makers in court for damages resulting from decades of misinformation and purposeful targeting of minors to take up smoking.

Non-participating Tobacco Manufacturer

Some manufacturers chose to be “Non-participating Tobacco Manufacturer.” While these companies do not pay into the tobacco settlement fund assigned by each state and territory under the MSA, they do make payments into a state-held escrow account.

The Twenty-fifth Guam Legislature and then-Gov. Carl Gutierrez on July 7, 2000, created this reserve fund. The law mandated that Non-participating Tobacco Manufacturers pay an assessment of 1.88 cents per cigarette sold on Guam, or generally almost 38 cents per pack into escrow.

One such Non-participating Tobacco Manufacturer on Guam is KT&G, which manufactures the brands Carnival, This, and Time on Guam.

The cigarettes are imported through its Guam distributor, MidPac. On December 16, 2021, and following damning investigation by the U.S. International Trade Commission, KT&G announced it had immediately ceased all U.S. operations.

Cigarettes remain on some store shelves

In early March and after being presented with evidence of the continued sale of those cigarette brands, OAG spokeswoman Carlina Charfauros told Kandit, “Every year we issue a conditional release, which means, yes, this company can sell these products here on Guam, because in KT&G’s case, they paid into escrow. The payments are due by April every year. If they don’t make payment in April, then they have to pull those brands from the shelves.”

On May 4, Kandit sent a Freedom of Information Act request for the documents indicating KT&G had made the payment to satisfy its sales of cigarettes on Guam for the previous year.

“KT&G has not made a deposit nor submitted a certification this year,” OAG General Counsel Stephanie Mendiola wrote to Kandit in a May 10 response. She added, “According to public reports from December 2021, KT&G has suspended its tobacco business in the United States for an unspecified period.”

Kandit in March alerted the OAG to this suspension and provided visual evidence of the continued sale of the cigarettes on Guam despite the suspension. Ms. Charfauros provided assurances the sales could continue until it was evident KT&G failed to make payment by April 30. That is when those brand cigarettes would have to be pulled from shelves, she said.

Several companies have indeed pulled the brands, including SPPC’s Circle K stores and Shell gas stations. However, those cigarettes continue to be sold in PayLess Supermarkets and in some other stores.

The cigarette sales and revenue paid to GovGuam is significant. According to KT&G’s last certificate of compliance, the company – through MidPac – certified the sale of 3,869,000 of its cigarettes on Guam during calendar year 2020. It paid $142,651.58 into the escrow fund for those sales.

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