More evidence of BAT & smuggling

Wednesday 16 February 2000

Press Release: 16th January 2000 – Embargo: 16:00 GMT

Summary of ASH’s submission to the House of Commons Health select committee ­ Tobacco Industry Smuggling

Over the last six months ASH has been undertaking research in parallel with others, including the International Consortium of investigative Journalists, on the documents in BAT’s litigation archive in Guildford,England. Our work has been independent, but we have co-ordinated publication.

Correspondence between BAT executives shows the company was heavily involved in orchestrating, managing and controlling cigarette smuggling in Asia and Latin America in the early 1990s.

BAT exercised control on illegal distribution channels through intermediaries, notably Romar in Aruba and SUTL [Singapura United Tobacco Ltd] in Singapore. The form of control was:

Adopting an approach to business planning and sales target setting which treats the various routes for smuggling as near-normal distribution channels which are under the same sort of control as legitimate channels;

Deliberately establishing business relations with intermediaries that directly or indirectly supply smugglers and directing these companies so as to gain share in the illegal markets;

Controlling the price and availability of products through these channels and so influencing end-market conditions;

Building warehouses and stationing marketing personnel close to borders with poor customs controls;

Using a small legal or duty-free market to justify advertising campaigns which have the real purpose of stimulating demand for cigarettes on sale in the illegal market (these are known as ‘umbrella operations’);

Organising complicated movements of cigarettes through several jurisdictions or multiple levels within an elaborate distribution chain ­ leading to difficulties in tracing the products;

Identifying and/or developing transit routes where official controls are weak or corrupt.

Colluding with other international tobacco companies over pricing and smuggling strategy;

BAT executives knew the nature of their business and sought to conceal it.

BAT was not the only international tobacco company involved.

Quotes from documents illustrating each of the points aboveform the bulk of the body of this submission.

The personnel involved are very senior ­ the memos feature current BAT board members including the Managing Director (Ulrich Herter),Finance Director (Keith Dunt) and Marketing Director (Paul Adams). No documents have been found to date, which refer to the current Chairman or Deputy Chairman.

The assertion by BAT that it only acts legally is false.While there is little evidence of BAT smuggling tobacco itself, there is compelling evidence to suggest that BAT is a significant part of a conspiracy which causes smuggling to happen. At least one BAT executive has been convicted for smuggling-related offences in Hong Kong and other legal actions are possible. While conspiracy action in the UK is unlikely for technical reasons,conspiracy-equivalent actions in the jurisdictions where the smuggling has taken place are plausible. US-based racketeering actions (RICO) have been launched against the tobacco industry for its involvement in Canadian smuggling and RICO actions against BAT and Philip Morris are reportedly under consideration by the Colombian Governors.

The prevalence of tobacco smuggling in Colombia and the Golden triangle points to a wider picture which almost certainly involves the laundering of illegal ‘narco-dollars’ ­ proceeds of cocaine and heroin trafficking. There is no suggestion in the documents that BAT staff are directly involved in this process, but it is very likely that contraband distribution in these areas is carried out by established organised crime networks, and for these organisations tobacco smuggling would provide effective money laundering with advantages to all parties. By failing to take responsibility for the markets that its product enters, BAT is facilitating the spread of illegal drugs as well as that of tobacco.

Recently smuggling has reached serious proportions in the UK and Europe, and from what we know, it appears that similar patterns of distribution management are being used to those documented from Latin America and Asia. This is particularly true of tobacco company relationships with intermediary groups in specific distribution nodes who supply smugglers. For a time, Andorra was used by British manufacturers, Gallaher and Imperial Tobacco in a manner similar to BAT’s operations in Aruba detailed below. As a result of this distribution network, UK tobacco exports to Andorra rose from 13 million cigarettes in 1993 to 1,520 million in 1997 ­ vastly more than the Andorran population of 63,000 could conceivably consume.

ASH believes the issues raised by these revelations are a matter for a DTI investigation. The Secretary of State for Trade and Industry has powers to mount an investigation into corporate conduct in these circumstances under s.432 of the 1985 Companies Act. An HM Customs & Excise investigation is unlikely because we have already established that the relevant conspiracy offence did not come into force until 1999 and all the evidence we have pre-dates this.

It is also important that BAT’s own business practices are subject to internal checks and balances and that the company is properly supervised by its non-executive directors, led by the Deputy Chairman, Rt. Hon.Kenneth Clarke QC MP. Mr. Clarke should now launch an internal inquiry to report to the AGM on 27th April 2000. BAT should also make a clear statement to shareholders regarding its exposure to smuggling related-legal action.

Smuggling is not a victimless crime. Current projections suggest one billion people will die of tobacco-related disease in the 21st Century ­ 10 times as many as the 20th Century and overwhelmingly in developing countries. Taxation is one measure to counter this dreadful toll,and smuggling undermines it by lowering prices and reducing the political feasibility of a high tobacco tax policy. To this extent, tobacco companies benefit from the impact of smuggling in their markets ­ and health suffers.

The responsibility for tackling smuggling ultimately lies with governments. A new WHO convention, the Framework Convention on Tobacco Control has a proposed protocol on smuggling. This could form the basis of a global response to tobacco smuggling by creating a secure distribution system,introducing anti-fraud markings, tracking and tracing the movement of tobacco products and holding each person responsible for ensuring that they sell only to legitimate businesses.
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