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Publisher's Profile: John "Jack" H. Holleran

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Virginia Business
November 2004

Philip Morris USA has been the leading manufacturer of cigarettes in the United States for the past two decades. About 6,300 of its 12,000 employees live and work in Virginia, with the largest segment of that work force in the Richmond area. Half of the Richmond-based employees are hourly workers at its South Richmond manufacturing center, which began operations in 1973. It is one of the largest facilities of its kind in the world. Located on 200 acres, the 1.6 million- square-foot plant produces about 600 million cigarettes per day. The center processes an average of 1.1 million pounds of tobacco daily, yielding about 3 million cartons of cigarettes for shipping throughout the nation and the world.

As a major supplier of cigarettes, the company is keenly aware of the growing traffic in contraband cigarettes, which deprives localities and the U.S. government out of tax revenue. In response, Philip Morris is putting more resources into fighting contraband cigarettes and illegal imports.

Holleran works at the company's new Richmond headquarters where he is charge of brand integrity and compliance issues.

You are originally from New England. What brought you to Virginia?
After college I came down to Lexington to attend law school. After I graduated law school, I took a job here in Richmond with Hunton and Williams. So I moved here in 1988 and practiced law with Hunton and Williams for about seven years in the trial law area.

How did you get your start with Philip Morris?
In 1995 a former mentor of mine who had come over to the Philip Morris law department took a new job in New York. So his former position became available, and he asked me if I had any interest in coming to practice in-house here. It wasn't an opportunity I had sought or considered — I had expected to become a partner at Hunton and Williams. However, the more I learned about the company and the legal issues it was facing, especially back in 1995, it sounded like a fascinating opportunity for professional growth.

Is your position a new one for the company?
Yes, it is a relatively new position. I was asked in September of 2002 to take the position of vice president of brand integrity, which is a business position and not a position in the law department. It was a newly created position designed to lead a team of people who were fighting a new problem for us at the time — contraband cigarette trafficking. I was in that job until May of 2003 when I joined the senior [management] team where I took on my current job — which is also a new position.

What drew you to brand integrity and compliance issues?
The way I think about it, it's almost two jobs. One is to lead the efforts against the growing problem of contraband cigarette traffic. In addition, about a year ago I picked up the responsibility of serving as Philip Morris USA's chief compliance officer, which is a position many companies created to ensure that compliance responsibilities are centralized in one part of the organization and that there is a culture of compliance throughout the organization. Given the legal challenges we face, the sense of the senior team and the chairman was that we needed to have somebody with a legal background to serve in both those roles.

What is contraband cigarette trafficking?
It is an umbrella term used to describe several types of illegal activity. One type of activity is counterfeit cigarettes. The packaging looks very similar to our genuine packs but the contents are cheap knock-offs. Almost all the counterfeit packages we have seen have counterfeit excise tax stamps, thus depriving jurisdictions of their intended tax revenue.

The second kind of activity is what we call illegally imported cigarettes. These cigarettes are intended for sale outside the U.S. and are illegally imported into this country without the payment of the appropriate taxes. This has been happening principally over the Internet, which raises a further problem of the lack of controls to make sure kids don't have access to these products.
The third category is your traditional smuggling. Cigarettes are bought in low-tax states like Virginia, North Carolina or Kentucky and then transported and resold in states or localities that have higher excise taxes.

What challenges do you face in brand integrity?
These are growing problems for our business, but they are not just a problem for Philip Morris USA. There is increasing evidence linking contraband cigarette trafficking and organized crime and terrorist financing. There was a study that came out from the GAO [federal General Accounting Office] earlier this year that talks about some of those links. And no business wants its products tied to those kinds of activities.

Philip Morris USA is the largest taxpayer in the U.S. Cigarettes are a heavily taxed commodity, so all this illegal activity is depriving the federal, state and local governments of hundreds of millions, if not billions, of dollars in uncollected tax revenue. Third, all this illegal activity is bad for our suppliers and trade partners. All our partners in the supply chain — farmers, wholesalers, packaging suppliers and logistics — all have a significant investment in the existing lawful distribution system. This illegal activity undercuts that investment.

Return to Virginia Business - November 2004