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Philip Morris to Pay EU $1B to Tackle Smuggling, Settle Differences

BRUSSELS, Belgium - Philip Morris has agreed to pay $1 billion to the European Union to tackle smuggling and counterfeit products and simultaneously resolve a long-standing legal dispute between the two parties, Reuters reports.

The financial terms are said to be the highest ever extracted from a corporation by the EU. A statement from the EU said the broad agreement reached with Philip Morris, which would find the tobacco giant paying the sum over 12 years, would "resolve all disputes" between them.

In 2001 the EU filed a lawsuit against the company in a New York court, accusing Philip Morris and other tobacco firms of complicity in smuggling by oversupplying neighboring countries where excise duty is lower.

Excise taxes run from 211 percent in Britain to just 10 percent in Latvia, creating an incentive for smugglers to buy in the east and sell in the west. The illegal cross-border activity is estimated to cost European governments $1 billion a year in lost tax revenues. The suit was dismissed, but a U.S. appeals court said in January that the EU could refile its case.

Both Philip Morris and the EU were keen to characterize the $1 billion as a commitment as opposed to a fine, to bring harmony to the parties as they pursue solutions for mutually problematic issues. Philip Morris has not admitted to any wrongdoing in reaching the accord. The cash will be used to fund anticontraband and anticounterfeit measures.
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