Deloitte

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Background

Deloitte Touche Thmatsu Limited, most commonly known as Deloitte, is a global accountancy firm, one of the so-called ‘Big Four’, along with KPMG, PriceWaterhouseCoopers (PwC) and Ernst and Young. Deloitte employs over 244,400 people in over 150 countries and territories and its revenues for fiscal year 2016 were US$36.8 billion.[1] According to its website, Deloitte provides “audit, consulting, financial advisory, risk management, and tax services to selected clients”.[2]

Relationship with the Tobacco Industry

Deloitte has a longstanding relationship with the tobacco industry and the following list is not exhaustive: Deloitte & Touche LLP - a subsidiary of Deloitte,[3] were auditors for R.J. Reynolds Tobacco Company from 1989-2000,[4][5] and for Lorillard Tobacco Company until its purchase by Reynolds American in 2015.[6] [7] [8][9] Deloitte have also worked as auditors for BAT, dating back to the 1960s, 70s, 80,s & 90s.[10][11][12][13][14] Deloitte have also audited for multiple Indian tobacco companies in recent years, including Godfrey Phillips India[15] and the Vazir Sultan Tobacco Company.[16]

Deloitte’s Swiss-based global account team started an “innovation learning journey” with Philip Morris (PMI) in 2015. This involved “broad ranging discussion with PMI’s most senior executives”, seven members of PMI’s executive team attending a two-day visit to Silicon Valley in December 2015, and a subsequent workshop, led by Deloitte in January 2016, which was open to the “entire PMI executive team”.[17] The Malaysian division of Japan Tobacco International (JTI Malaysia) has also used Deloitte & Touche LLP as an auditor.[18]

Image 1: A chart from Deloitte’s 2011 ‘Tobacco packaging regulation: An international assessment of the intended and unintended consequences’.

Tobacco Industry Funded Reports on Effects of Plain Packaging on Illicit Trade

In 2011, the Tobacco Plain Packaging Bill, which considered the introduction of plain packaging for tobacco products, was put forward to the Parliament of Australia.[19] Tobacco companies vehemently opposed plain packaging in Australia, arguing, amongst other things, that the policy would negatively impact the illicit tobacco trade in the country.

Deloitte produced multiple industry-commissioned reports on both the illicit trade and plain packaging in Australia during the plain packaging debate.

In 2011, Deloitte produced a report for BAT titled ‘Tobacco packaging regulation: An international assessment of the intended and unintended consequences’.[20] It discussed the potential impact of plain packaging on Australia’s illicit trade and featured multiple industry commentaries on the topic (Image 1).

The tobacco industry front group, 'the Alliance of Australian Retailers’ (AAR) commissioned Deloitte to produce two reports on plain packaging in 2011 titled ‘Potential impact on retailers from the introduction of plain tobacco packaging’ and ‘Plain packaging and channel shift’.[21][22][23] Simon Chapman, a Professor of Public Health at the University of Sydney, described Deloitte’s work for the AAR as “nonsense”.[24]

Chapman argued that Deloitte’s report on “channel shift” (customers switching to larger outlets, such as supermarkets over small retailers) had set out to verify a “foregone conclusion”. He suggested that “push polling” may have occurred, whereby interview participant’s opinions are potentially manipulated by the questions that they are presented with.[24]

Another 2011 report, titled ‘Illicit Trade of Tobacco in Australia’ was commissioned by BAT Australia, PMI, and Imperial Tobacco Australia, and it suggested that, in Australia, all of the 15.9% of smokers who had bought illicit tobacco in the last year were using approximately 25 illicit cigarettes for 365 days of the year.[25] The report also claimed that:

“the increase in the trade of illicit tobacco has occurred concurrently with some material changes to the regulatory and taxation regime including [...]The federal government intends to legislate for the introduction of plain packaging of all tobacco products during the course of 2011”.[25]

Just days later, BAT issued the following press release:

"British American Tobacco Australia today congratulated Customs and Border Protection on their hard work for seizing 2.5 million illegally imported counterfeit cigarettes in Brisbane. Unfortunately 2.5 million counterfeit cigarettes (equal to 2500 kg) is less than 1% of the total amount of illegal tobacco making its way into Australia each year”. [26]

The companies' campaigning websites also claimed that plain packaging would increase smuggling and illicit trade by making cigarettes easier and cheaper to counterfeit. Australia's Home Affairs Minister, Brendan O'Connor, who was responsible for customs issues, responded by accusing the powerful tobacco lobby of scaremongering to protect its commercial interests. "It is baseless to claim that one in six smokers [is] consuming illegally imported tobacco. Big tobacco regularly quotes from reports that it commissions itself - rather than the independent research - because independent research does not back its claims," he said.[27]

Officials from the Australian Customs and Border Protection Service also outlined their concerns regarding the accuracy of the claims made in the report. They noted that the size and methodology of the survey that Deloitte used to estimate the size of Australia’s illicit tobacco market were not revealed and that it was “potentially misleading” to identify organised crime gangs as the fourth largest tobacco ‘player’ in Australia.[28] In 2012, Deloitte released an updated version of the ‘Illicit trade of tobacco in Australia’ report which, along with the 2011 edition, was critiqued by Cancer Council Victoria (see below). Findings from Deloitte’s reports on illicit tobacco in Australia have been included in similar reports by other firms, such as KPMG’s report on Australia’s illicit tobacco trade in 2015.[29]

Image 2. Snip taken from CCV’s critique, comparing Deloitte’s estimations with findings from the National Drug Strategy Household Survey, 2011.

Cancer Council Victoria Critique of Reports

The non-profit cancer charity organisation, Cancer Council Victoria (CCV) published critiques of Deloitte’s 2011 and 2012 reports on the illicit tobacco trade in Australia. In its critique of the 2011 report, CCV outlined how Deloitte’s findings had been used by the industry to oppose plain packaging:

“Deloitte claimed that the size of the illicit tobacco market in Australia is 15.9%, a figure widely quoted by tobacco companies and since included in A4+ sized newspaper advertisements aiming to discourage members of the Australian Parliament from supporting legislation to mandate plain packaging”[30]

The critique discussed multiple methodological problems with the survey data that the report is based on and outlined how some of its findings were misinterpreted by Deloitte.[30] CCV compared Deloitte’s findings to a Government survey which found that only 1.2% of smokers used illicit tobacco products half the time or more.[31]

Image 3. An explanation of the errors in Deloitte’s quantification of use of contraband/counterfeit cigarettes, taken from CCV’s 2012 critique.[32]
CCV’s critique of the 2012 Deloitte report identified “much (of) the same problems” regarding the quality of the data reported on, identifying high respondent drop-out rates and a lack of methodological transparency. It also outlined problems related to how the report quantifies counterfeit and contraband cigarettes, due to it adding the two categories together rather than accounting for the significant level of overlap.

Adding the figures for counterfeit and contraband together creates a higher estimate of overall illicit tobacco use as it does not account for the fact that most survey respondents would have been referring to the “same product and set of purchases”.[32]

CCV referred to the definition of contraband cigarettes that Deloitte used in its 2012 report:

“According to the definition included in the (Deloitte) report on page 2, contraband cigarettes can include counterfeit as well as genuine cigarettes that are imported without payment of taxes.”[32]

CCV noted that this definition allowed for an overlap, whereby most, but not all contraband (smuggled cigarettes where domestic duty is not paid), are counterfeit (cigarettes that have been manufactured without the authorisation of the brand owners). Despite this, Deloitte added the two categories together as if they were completely independent, thus inflating the findings (Image 3).

Image 4. Snip of PMI citing Deloitte’s AAR reports in its consultation submission.

Industry Funded Reports cited by BAT, Imperial Tobacco, JTI and PMI in their 2012 Consultation Submissions

The UK government’s first public consultation on the plain packaging of tobacco products took place between 16 April 2012 and 10 August 2012 and saw significant industry opposition to plain packaging. See Plain Packaging Opposition in the UK: 2012 Consultation. BAT, Imperial Tobacco, JTI, & PMI all submitted responses to the consultation, with each referring to at least one of Deloitte’s industry commissioned reports. BAT’s submission cited ‘Tobacco packaging regulation: An international assessment of the intended and unintended impacts’, JTI’s Submission referred to the two AAR-commissioned reports in order to portray retailer opposition to standardised packaging, and Philip Morris’ Submission also referred to Deloitte’s work for the AAR to highlight extensive retailer opposition to standardised packaging (Image 4).

Out of the four responses, Imperial Tobacco’s Submission to the 2012 UK Consultation on plain packaging cited Deloitte’s industry commissioned research the most. Imperial Tobacco referred to the report on ‘intended and unintended impacts’ as well as to the two AAR-commissioned reports. The company’s submission also attempted to defend Deloitte’s estimates, arguing that a study which “is widely referred to by anti-tobacco lobbyists in response to the Deloitte reports”, “misrepresents” Deloitte’s view.

TobaccoTactics Resources

Relevant Links

TCRG Research

Visit Tobacco Control Research Group: Peer-Reviewed Research for a full list of our journal articles of tobacco industry influence on health policy.

Notes

  1. Deloitte, About Deloitte, 2016, accessed November 2016
  2. Deloitte, About Deloitte, 2, 2016, accessed November 2016
  3. Google Finance, Deloitte & Touche LLP, 2016, accessed December 2016
  4. D. Campbell, R.J.R. ousts longtime auditor in favor of KPMG, The Business Journal , February 2000, accessed December 2016
  5. RJ Reynolds, RJ Reynolds Form 8-K, 2000, accessed December 2016
  6. PR Newswire, Lorillard Announces Results of Annual Meeting of Shareholders, May 2009, accessed December 2016
  7. Deposition of Robert H Temkin 27 August 2010, Bates no:temkinr20100827, accessed December 2016
  8. US SEC, Lorillard Form 8-K, May 2014, accessed December 2016
  9. R. Craver, The Big Day: Reynolds completes acquisition of Lorillard today, Winston Salem Journal , 12 June 2015, accessed December 2016
  10. Deloitte, BAT Report of Group Internal Auditor, 1 July 1992, Bates no: 201066328-201066335, accessed December 2016
  11. Deloitte, BAT Independent Auditors Report, 27 January 1993, Bates no: 202300530, accessed December 2016
  12. BAT, BAT Industries: Reports & Accounts, 31 December 1980, Bates no: 500350850-500350887, accessed December 2016
  13. BAT, BAT Industries: Annual Report and Accounts 1977, 1997, accessed December 2016
  14. BAT, BAT Central Africa Limited: Annual Report 1968, 1968, Bates no: 300076890-300076906, accessed December 2016
  15. Godfrey Phillips India, Annual report of Godfrey Phillips India (GPI) Ltd for the year 2013-14, 2 August 2014, Bates no: IND02607-IND02706 accessed December 2016
  16. Vazir Sultan Tobacco Company, Annual report of Vazir Sultan Tobacco (VST) industries Ltd for the year 2008-09, 23 April 2009, Bates no: IND02812-IND02919, accessed December 2016
  17. Deloitte, PMI: embarking on an innovation learning journey, 2016, accessed December 2016
  18. JTI Malaysia, About JTI Malaysia, 2012, accessed December 2016
  19. Parliament of Australia, Tobacco Plain Packaging Bill, 2011, accessed December 2016
  20. Deloitte, Tobacco packaging regulation: An international assessment of the intended and unintended impacts, May 2011, accessed December 2016
  21. Cancer Council Victoria, Industry opposition: predicted retailer effects, accessed December 2016
  22. Alliance of Australian Retailers, Potential impact on retailers from the introduction of plain tobacco packaging, February 2011, accessed December 2016
  23. Alliance of Australian Retailers, Plain packaging and channel shift, June 2011, accessed December 2016
  24. 24.0 24.1 S. Chapman, Why is Deloitte's name on junk tobacco research?, 9 July 2011, accessed December 2016
  25. 25.0 25.1 Deloitte, Illicit trade of tobacco in Australia, February 2011, accessed December 2016
  26. British American Tobacco Australia, Illegal tobacco haul a drop in the ocean, 10 March 2011
  27. C. Houston, Big tobacco lobby ‘scaremongering’, 22 May 2011, The Age, accessed December 2016
  28. MediaWatch, Re: Media Watch Query 10 June 2011, accessed December 2016
  29. KPMG, Illicit Tobacco in Australia: 2015 Full Year Report, 15 April 2016, accessed December 2016
  30. 30.0 30.1 Cancer Council Victoria, Illicit trade of tobacco in Australia, 2011 report: a critique, 18 November 2011, accessed December 2016
  31. Australian Institute of Health and Welfare, National Drug Strategy Household Survey, 18 December 2008, accessed December 2016
  32. 32.0 32.1 32.2 Cancer Council Victoria, Illicit trade of tobacco in Australia, 2012 report: a critique, May 2012, accessed December 2016