[Exclusive] Philip Morris Faces Administrative Sanctions... Limited Edition Cigarette Ingredient Measurement Omitted

Board of Audit and Inspection Points Out 'Ingredient Measurement Omission' in Some Philip Morris Tobacco Products During Ministry of Economy and Finance Regular Audit
Company Says "Products Already Discontinued, No Additional Contact from Ministry... Matter Under Investigation"

[Asia Economy Reporters Hye-seon Lim, Seon-hee Son (Sejong)] Korea Philip Morris, a well-known tobacco importer and distributor of brands such as Marlboro and IQOS, is facing the risk of a business suspension. This is due to the omission of ingredient measurement reports for some limited edition tobacco products. Given that the company holds a 24% share of the domestic tobacco market and 50% of the heated tobacco market, significant repercussions are expected.

According to the Ministry of Economy and Finance and the tobacco industry on the 5th, it has been confirmed that Philip Morris was found by the Board of Audit and Inspection to have omitted ingredient measurements and reporting for certain tobacco products.

Under the current Tobacco Business Act, tobacco manufacturers and importers/distributors must have the ingredients of each tobacco product measured by a measurement agency designated by the Minister of Economy and Finance within one month after the start of each quarter, and report the results. In particular, even for tobacco products whose sales have been discontinued, measurements must be conducted at least once after the notification of sales discontinuation. This is because products discontinued by the manufacturer may still be distributed in the market for a certain period.

The problematic products are known to be limited edition cigarettes released by Philip Morris last year. During the process of discontinuing sales of these limited edition cigarettes, the ingredient measurement report was not submitted to the Ministry of Economy and Finance.

The Board of Audit and Inspection reportedly confirmed this fact during a regular audit of the Ministry of Economy and Finance conducted between April and May. However, it has not been confirmed whether the Treasury Bureau of the Ministry of Economy and Finance, which manages the domestic tobacco business, failed to detect this fault by the company or detected it but did not take proper administrative action. A Ministry of Economy and Finance official stated, "We cannot comment on the audited content."

The Board of Audit and Inspection is expected to announce the results of the Ministry of Economy and Finance's regular audit as early as mid-this month. Depending on the audit results, the Ministry of Economy and Finance may be held accountable for management responsibilities, and administrative sanctions against Philip Morris are highly likely. According to the "Business Suspension Criteria for Importers and Distributors" specified in the Enforcement Rules of the Tobacco Business Act (Ministry of Economy and Finance Ordinance), a one-month business suspension is imposed if tobacco ingredients are not indicated, incorrectly indicated, or ingredient measurement is not requested.

However, within the industry, there are opinions that a business suspension is excessive since there was no intentional wrongdoing. A tobacco industry official said, "It is true that Philip Morris failed to submit the ingredient measurement report, but since the product was a limited edition sold temporarily and there was no intentional wrongdoing, administrative sanctions up to business suspension are excessive."

Regarding this, Philip Morris stated, "We submitted related materials earlier this year at the request of the Ministry of Economy and Finance, but have not received any additional contact since then," and added, "The product in question, which the Ministry of Economy and Finance inquired about, was already discontinued last year, and we are currently confirming the ongoing investigation."