Swiss e-commerce start-up takes on Philip Morris

Swiss tobacco retail company Yesmoke is sending US customs profits up in smoke. swissinfo.ch

A small Swiss cigarette retailer with an eye for legal loopholes has found a simple – and apparently legal – way of bypassing United States customs duties.

Chiasso-based Yesmoke has hit on a simple and lucrative business model: worldwide retailing of tobacco brand names for prices up to one-fifth of what shops charge.

The virtual firm, which was set up four years ago by Italian brothers Gianpaolo and Carl Messina, already has annual revenues totalling an enviable $100 million (SFr126 million).

The Swiss Post Office is not complaining either – it benefits to the tune of 20,000 parcel deliveries per day.

However, US-based tobacco giant Philip Morris, whose international headquarters are in the Swiss city of Lausanne, is not taking the competition lying down.

Smoke in their eyes

This is how it works: Yesmoke buys duty-free cigarettes on the so-called “parallel market” and offers them on the internet for retail worldwide at rock-bottom prices.

For instance, 20 packs of Camel cigarettes cost just $14, compared with a post-tax price of $70 for US high-street shoppers.

Carlo Messina says the cigarettes are acquired from retailers in other duty-free depots, such as Antwerp and Rotterdam, as well as from stock clearouts.

He vehemently denies that there is any connection to the international tobacco smuggling business.

The brand-name cigarettes arrive at the duty-free depot behind Chiasso train station, are sorted and repacked by Yesmoke staff, and sent to their final destination inside a plain A3 envelope.

Anyone who didn’t know better would probably mistake the parcel, sent under the name of Yespeedy Logistics SA, for a book delivery.

That’s just as well for Yesmoke, as officials estimate the US loses some $300 million dollars a year in potential customs revenue.

Street legal

Fritz Weber, who is responsible for tobacco import duties at the main customs office in Bern, confirms that Yesmoke is not committing any offence under Swiss law.

All parcels are sent with the official green customs declaration duly filled out.

He says the problem lies at the US end: “If all packets were subjected to customs duty on arrival in the US, the price would rise so steeply that recipients would simply refuse to accept delivery.”

But US customs obviously allow the parcels through in large number, despite the fact that goods ordered by internet are not exempt from import duties.

“We have told the American customs attaché here in Bern about this, but so far no action has been taken,” adds Weber.

Name of the game

The same cannot be said of Philip Morris.

Following legal action by the tobacco multinational, a US district court has ordered the transfer of Yesmoke’s international internet domain name to Philip Morris, ruling that the Swiss-based company is violating US law.

Visitors to www.yesmoke.com are now automatically redirected to a Philip Morris site, which warns of the dangers of buying cigarettes via the internet.

A spokesman for Philip Morris in Lausanne says Yesmoke is also selling counterfeit cigarettes and failing to control the age of customers.

Messina retorts that it is “laughable” to be given a “moral sermon” by the world’s number one tobacco company.

swissinfo, Gerhard Lob (translation: Chris Lewis)

Key facts

Swiss officials say Yesmoke complies with export rules, and it is up to US customs to check imported packages more carefully.
A US court has backed a claim by Philip Morris that Yesmoke infringes both US import and brand protection laws.
Legal action is continuing, with the tobacco giant saying Yesmoke should cough up SFr395 million ($498 million) in damages.

In brief

A Swiss-based virtual retail company offers customers, particularly in the US, massive discounts on brand name cigarettes.

Yesmoke buys stocks in duty free areas and ships them in plain envelopes, avoiding the unwanted attentions of customs officers.

Export forms are filled out, but the packages can easily be mistaken for book deliveries.