Dalligate | A badly-handled resignation and the pax tobacco

Beyond the conspiracy theories of tobaccogate, John Dalli’s review of tobacco laws to reduce tobacco-related deaths threatened billions in profits and tax revenues, but also people’s freedom to choose.

John Dalli against big tobacco: the industry financed OLAF's efforts to fight contraband cigarettes.
John Dalli against big tobacco: the industry financed OLAF's efforts to fight contraband cigarettes.

Big tobacco and 'big death' saw in Dalli an unenlightened opponent of freedom of choice who could use the offices of the European Commission to come down hard on the cause of nicotine-related deaths that were also putting major stress on the financing of the European health care system.

Dalli pledged to fight tobacco-related illness, the single largest cause of preventable death in Europe (6 million globally according to the World Lung Foundation) and he employed 'controversial' ways of doing it: covering 75% of cigarette packs with health warnings, removing flavourings that encouraged minors and women to smoking, and even attacking electronic cigarettes by having them categorised as medical devices that would require onerous validation processes by Member States' medicinal authorities. Controversial, because they directly affected the €27 billion in combined profits by the six leading tobacco companies (2010), and the ensuing tax revenues for governments.

Critics felt that more regulation and standardisation would equal easier proliferation of contraband cigarettes because it would make it easier to replicate. Health associations interested in seeing smoking banned never bought into this claim.

Industries unrelated to tobacco smoking such as the Electronic Cigarette Industry Trade Association (ECITA) were particularly angry that Dalli appeared to favour big pharma's nicotine replacement therapies such as patches and cessation gum, by classifying e-cigarettes as medical devices.

The nanny-state directive

A 7 March 2012 meeting Dalli held with the tobacco industry, which included people from tobacco lobbies and members of Philip Morris, British-American and Imperial Tobacco, is candidly revealed by ECITA president Katherine Develin:

"All the representatives from Big Tobacco made their case by way of pleading not to be restricted too much, or hit too hard by changes. Several of them mentioned the problems caused to their business partners by the growing contraband 'industry'...

"In a quite astonishing display of utterly disingenuous irony, one of them suggested: 'Plain packaging just helps contraband and undermines public health goals.' Really? Or is it offensive to Big Tobacco because it undermines their sales in the global marketplace?"

While Develin was unhappy to hear big tobacco beat the 'public health goals drum', she felt that Sanco (the EC's health and consumer protection directorate) deputy director-general Dr Martin Seychell was of the opinion that e-cigarettes were not unlike tobacco cigarettes.

Develin explained why e-cigarettes were being incorrectly classified by the EC: "It seems like it might be a medicinal product, but EU law does not support this, so that's not a solution [Dr Seychell nodded in agreement]; on the other hand, it sort of looks like smoking, so maybe it's a tobacco product. But this doesn't fit either, because electronic cigarettes contain no tobacco, and although nicotine is extracted from tobacco, if that means that all nicotine products are tobacco products then NRT would have to be a tobacco product... but they are medicines. So we understand that it is difficult."

Seychell addressed her directly, talking of the risk of dual use: using electronic cigarettes together with patches. "He said they wanted to ensure no risk of overdose."

Develin said that millions of smokers had turned to 'vaping' (the name given to smoking an e-cigarette) and that they would switch to products from the illegal black market if electronic cigarettes were classified incorrectly and regulated out of existence."

Others from the tobacco industries said that if brands were obliterated from the 75% health warning pictorials on cigarette packs, consumers would switch to cheaper cigarettes, with ensuing tax revenue losses paving the way for contraband.

After the meeting, Develin was approached ("it seemed a particularly fortuitous approach") by the legal officer for health measures from DG-Sanco, who gave her the impression that Sanco had accepted ECITA's position that electronic cigarettes are neither tobacco products, nor medical products.

ECITA's hopes that e-cigarettes would be classified as consumer products were not answered in the Tobacco Products Directive, it seems.

'Pax tobacco'

If John Dalli's nanny-state attention to the sustainability of European health systems annoyed tobacco growers and the smoking industry, it angered non-tobacco and smokeless tobacco groups. Excluding ECITA from the picture, which differentiates itself from big tobacco by referring it to 'big death', the smokeless tobacco lobby ESTOC - whose chairman Patrik Hildingsson is also the vice-president of snus producers Swedish Match - felt that the general EU ban was persisting irrespective of the science they had at their disposal. But Swedish Match's alliance with big tobacco was sealed by their joint venture with Philip Morris to sell snus outside the EU. There is no doubt that the alleged bribe that Silvio Zammit was said to have asked of a Swedish Match lobbyist was manna from heaven for an industry that did not like John Dalli.

But does the European Commission also figure in the picture of a 'pax tobacco'?

MEPs from the European Parliament's budgetary control committee are starting to ask questions about this. This week, the committee's coordinators from all political groups demanded that the Commission grants them access to the cooperation agreements OLAF has with Philip Morris, British-Tobacco, Imperial Tobacco and Japan Tobacco, which pay $2.15 billion to the EU to address the problem of contraband and counterfeit cigarettes.

"All documents and correspondence concerning these agreements are of special importance to evaluate and analyse the possibility of conflicts of interest of the Commission emerging from those agreements," the MEPs write in the letter, citing articles in the agreement which terminate the money they pay to the Commission if "there is a sustained and substantially complete failure of the reasonable expectations of JTI of the benefits to that Party of said agreement due to the behaviour of the other Party".

"We demand comprehensive information on the relationship to the tobacco industry, in full disclosure," the MEPs write, of which they include OLAF rapporteur and German conservative MEP Inge Graessle, who has raised doubts over the handling of the OLAF investigation and the role of the anti-fraud office's supervisory committee in the entire matter.

Adding to this soup of conspiracy was the resignation this week of Christiaan Timmermans from chairman of the OLAF supervisory committee, and the fact that one of the committee's members, Rita Schembri, is herself head of Afcos, the OLAF liaising unit that dealt with the Dalli investigation in Malta. Schembri has withdrawn from the supervisory committee's handling of the Dalli investigation now that it has been completed.

Perhaps even more illustrative of the Commission's intimacy with big tobacco was the exclusive news on euractiv.com this week that Edmund Stoiber, a German Bavarian politician who heads the European Commission's high-level group on cutting administrative burdens, lobbied Dalli on the controversial tobacco directive during one of his group's meetings.

Stoiber's intervention on behalf of a Bavarian snuff manufacturer took place in a meeting between the High Level Group of Independent Stakeholders on Administrative Burdens (HLG) on 3 May 2012, when the group met Dalli in Brussels to discuss health policies.

Stoiber mentioned a complaint from a medium-sized tobacco company and then followed up by forwarding the letter from the tobacco company to Dalli on 10 May 2012. The interjection was not mentioned in the official minutes of the HLG which are published on its website. In replying to Stoiber on 28 June, Dalli explained the rationale behind his directive and "this closed the matter for the HLG".

The fact that Stoiber was effectively lobbying Dalli on the issue which led to the Maltese commissioner's resignation is believed to have been nothing different than the lobbying saga that has now cost Dalli his job.

Some members of the High-Level Group believe Stoiber may have exceeded his mandate. Jim Murray, a former secretary-general of EU consumer organisation BEUC who sits on the HLG said: "It has always been my view that the Group should not comment on draft proposals for possible legislation and certainly should not have privileged access to interrogate Commissioners on such proposals behind closed doors."

Even Commission President José Manuel Barroso was informed of the HLG straying beyond its original mandate in a letter from BEUC dated 12 April: it identified a "clear danger" that the group "would serve as a political focus for those who had opposed the legislation in question and who would simply repeat arguments that the co-legislators had in effect rejected".

The lobbying contradiction

This example illustrates the reality of rife lobbying inside the European Commission and the billion-dollar interests it represents: an estimated 25,000 lobbyists wield some influence in the EU through business groups and informal meetings and dinners. The Corporate Europe observatory says lobbying takes place "against a backdrop of lax regulation, from a voluntary lobby register and a vague code of conduct for commissioners, to inadequate implementation of revolving door rules and insufficient scrutiny of conflicts of interest in the Commission, its agencies, the Parliament, and other EU bodies."

Additionally, Dalli's tobacco directive was already delayed by Commission secretary-general Catherine Day twice, which MEPs and health groups believe forms the background to the unpopularity elicited by Dalli's anti-smoking campaign.

OLAF's director Giovanni Kessler says Dalli's fault lay in not acting on the fact that Silvio Zammit was setting up lobby meetings with him, while the Commission pounced on this fact to say that Dalli's unofficial contact with industry through Zammit made his position untenable. At this point the jury is still out on whether Dalli was lackadaisical and nepotistic in his informal conduct, or whether a tobacco conspiracy is at hand.

"So why is it only Dalli who has been sacrificed to the gods of political tenability when other Commissioners, embroiled in similar situations, have been allowed to stay?" Corporate European Observatory noted.

CEO illustrates other similar examples: Commissioner for Energy, Günther Oettinger had met the European Steel Association, in 2011, allegedly for a fee through the office of the former head of the Austrian energy company ÖVP, and Austrian Vice Chancellor, Wilhelm Molterer. The case was reported in a large Austrian newspaper, but the Commission did not act. Or Rolf Linkohr who in 2007, was an energy industry consultant and also advisor to then Energy Commissioner Piebalgs. "Piebalgs was not only 'aware' that somebody was making money selling access to him, he had appointed Linkohr. On the website of his consultancy, C.E.R.E.S, Linkohr advertised his status as special adviser to the Commissioner. But no action was taken against Piebalgs. Only Linkohr's position was not renewed."

Badly-handled resignation?

The contradiction in these examples seems to raise the matter in the was John Dalli has been robbed of any political support from José Barroso, who acted fast on OLAF's investigation - the report of which has not yet been published - to offer Dalli 'an honourable way out'.

German MEP Inge Graessle (EPP), who said the allegations that have cost John Dalli his job, are not yet clear enough has raised the matter of whether this scandal has been badly-managed by Barroso. "I wonder how [OLAF's] work was done and what the conclusions were that led to the resignation - this for me is relevant: what is the criminal act at the heart of the investigation? We still don't know, and I'm interested in the work that the police will do on the investigation.

"I'm sure a commissioner from a bigger member state would not have been dealt with that way... We should also care about small member states."

OLAF in Malta

The last week's development in the Dalligate affair also raised questions on the role of Afcos, the coordinating unit that handles OLAF investigations and which is ensconced within the Office of the Prime Minister's internal audit and investigations department - the government's own anti-fraud unit.

The director of both Afcos and the IAID is permanent secretary Rita Schembri, who is also a member of OLAF's supervisory committee.

The main role of the Supervisory Committee is to reinforce OLAF's independence and ensures that the fundamental rights of persons concerned by the investigation are respected. However, the Supervisory Committee is neither allowed to get involved in ongoing investigations nor would it have to examine the respect of fundamental rights in each individual case before a case can be closed.

The involvement of Afcos is known to have happened on 5 July, which means that Schembri was aware of the investigation. Since OLAF must forward reports to the Supervisory Committee before they are sent to national judicial authorities, Schembri withdrew from any supervisory role in the Dalli case on 17 October, a day after the commissioner's resignation.

There is no smoking gun on allegations about OLAF's investigation as yet, but news of the resignation on 22 October of supervisory committee chairman Christiaan Timmermans in the Frankfurter Algemaine Zeitung claimed the former jurist was unhappy that the supervisory committee was not informed about the Dalli investigation. OLAF as well as director Giovanni Kessler denied that the resignation had anything to do with the Dalli investigation.

In a behind-closed-doors meeting Kessler held with MEPs from the budgetary control committee, the OLAF chief failed to explain how Dalli had acted wrongly, but strongly hinted at the nature of the accusation: "He [Kessler] said: 'Imagine if I met my friend [a middleman] and some lobbyists in my flat. How would you feel about it?' But he phrased it in a very hypothetical way. We asked him: 'So what are the facts?' And he said: 'I can't give you the facts'," a source privy to the talks quoted by Euractiv said.

This example links up to the story being reported by the Wall Street Journal, which has also obtained more emails of a conversation between ESTOC and Silvio Zammit on how he would organise a lobbying plan through some consultancy company. The date of the meeting is being put at 10 February, where Zammit told a Swedish Match lobbyist how €60 million could reverse the snus ban.

But Dalli has denied this: he says he met a young, female Maltese lawyer who was accompanied by Zammit on 6 January and thereafter never discussed any tobacco-related matters with Zammit. The 10 February meeting, he told MaltaToday, was held with Zammit alone and concerned the former Sliema deputy mayor's political candidacy for the local council.

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