What is the problem faced by the organizations in this case? What is the cause of the problem? What is its impact?

The problem that Phillip Morris must deal with is the lapses occurring in its supply chain. In 2004, agents from the U.S. Department of Justice’s Bureau of Alcohol, Tobacco, Firearms, and Explosives stopped a DHL express freight plane at JFK Airport because of what it had on board. 82,000 cartons of illicit cigarettes worth $1.1 million were found inside of the plane. The cigarettes were shipped by a Swiss tobacco company, Otamedia, to fill orders from American customers even though these types of transactions are illegal in the United States. Phillip Morris got in trouble when it was discovered that the shipment included large amounts of its Marlboro and Marlboro Lights Cigarettes. Reports show that Phillip Morris International (PMI), which is based in Switzerland, manufactured the cigarettes in Europe where it was then purchased by Otamedia. Otamedia was able to avoid taxes and import duties leading to savings in upwards of 40% for its American customers. PMI has categorized Otamedia as an unauthorized dealer, but the European Union has said that tobacco companies like PMI are responsible for what happens along the entire length of the supply chain.

4 years earlier, the European Union and 10 other member states filed a civil suit against 3 tobacco companies including PMI, accusing them of money laundering, smuggling, and illicit activity. After the seizure, PMI agreed to a major settlement in the case that included toughening procedures for selecting and monitoring customers. In addition, they were required to pay taxes and custom duties on any Phillip Morris items seized as smuggled goods I the European Union. Their parent company, Altria Group, was required to pay $1.25 billion to the European Union over 12 years.