Book Extract | Why tobacco companies smuggle their own product

The following is an extract taken from Dirty Tobacco.

Dirty Tobacco by Telita Snyckers 

Published by Tafelberg

R295

What is more profitable than cocaine, heroin, marijuana or guns?

Illegally trafficked cigarettes . . . Reputable tobacco companies have – for decades – been complicit in cigarette smuggling. In this gripping exposé, the author uncovers the dark underbelly of the industry by recounting the instances where big tobacco was caught red handed.

She explores not only why a listed company would want to smuggle its own product, but also how it's done.

The result is a chilling chronicle of how the South African public and authorities were manipulated by tobacco interests and how big tobacco companies avoid coughing up their fair share, costing SARS billions.

Snyckers connects the dots and explains why the murky tobacco industry has managed to flourish as one of the most profitable enterprises in the history of capitalism. When word got out about this book, the tobacco industry offered Snyckers a job. She turned them down.

Below is an extract:

In fairness to the tobacco industry, it is conceivable that some of the examples I’ve assembled could perhaps be attributable to vindictive

whistle-blowers or rogue employees.

But it is entirely inconceivable that all of them are.

The industry – even licensed, bigger players – has a long and consistent history of fines, felonies and infringements, spanning decades, across the globe.

There is ample proof that the tobacco industry incorporated smuggling and other tax and duty evasion measures as an explicit part of its business strategy.

British American Tobacco’s (BAT) internal documents suggest that smuggling operations were almost certainly conducted with the knowledge and often the direct involvement of senior executives within the company, including regional directors, a former head of BAT’s marketing department, senior marketing managers and BAT area managers.

BAT executives appear to have expressly been put in charge of various smuggling and contraband operations.

And, indeed, despite being publicly called out, BAT declared that it would not sue over allegations that its senior staff had been involved in smuggling, with David Hinchcliffe, the chair of Britain’s House of Commons Select Committee on Health noting:

“I pressed BAT [on] whether they intended to take legal action and they said they did not. You will draw your conclusions from that, as I did mine.”

Jam on their face and still they do nothing

BAT’s apparent one-time plans to manufacture cigarettes in Andorra for smuggling to Spain in 1992 were not a secret – a document detailing the strategy was sent from a BAT marketing executive to the head of BAT’s marketing department and copied to a BAT lawyer.

In Brazil, the then-chair of BAT Industries is directly implicated in planned smuggling operations in a memo sent from the territorial director for Latin America to the managing director of BAT Industries,

the CEO of BAT’s Brazilian subsidiary, the chair of BAT and others:

“I am advised that the BAT Industries chairman has endorsed the approach that the Brazilian Operating Group increase its share of the Argentinean market via DNP [duty not paid, ie: contraband].”

As a lawsuit against Philip Morris International (PMI) noted: “Defendants created a circuitous and clandestine distribution chain for the sale of cigarettes to facilitate smuggling.

“The decision to establish and maintain this distribution chain was made at the highest executive level of PMI.

It would be stupid to ignore a growing market. I can’t answer the moral dilemma. We are in the business of pleasing our shareholders
Rothmans manager

“Defendants have collaborated with smugglers, encouraged smugglers and sold cigarettes to smugglers, either directly or through intermediaries, while at the same time supporting the smugglers’ sales through the establishment and maintenance of so-called umbrella [cover] operations.”

And, so, it is hardly surprising that a RJ Reynolds Tobacco Company (RJR) sales executive, interviewed for a CBS documentary, would note that “... We were considered the most – single-most – profitable business unit in the RJR Nabisco family of companies. They knew exactly where the money was coming from.

On an average of approximately every other Monday, an in-house lawyer from upstairs would come down and talk to us: ‘Yeah, it’s sensitive, but we’re here. We’re all in this together. And it’s ... it’s a loophole. It’s grey. It’s legal, okay?’ The company knows where they made the $100 million. They know the customers that produced the $100 million.”

The same Reynolds executive goes on to explain how: “We were told [by RJR vice-president of sales] to keep no paperwork in this business. He insisted: ‘You’re not keeping any documents, are you?’ He reminded me on many occasions not to keep any hard copy on any correspondence with their offices.”

In a statement, a spokesperson told CBS that neither RJ Reynolds Tobacco nor the parent company have been implicated in any criminal investigation.

At least some had the sense to ask how ethical this was, with one fax query from BAT’s headquarters to its branch office in Venezuela asking “whether the company could continue with duty paid and duty not paid [contraband] in parallel and be seen as a clean and ethical company at the same time”.

At a meeting at BAT’s UK headquarters, a memorandum records executives discussing smuggling into Nigeria: “Discussion was held concerning direct imports to Nigeria through Mr Adji, who would disguise the cigarette importation by calling the shipment something else, like matches.”

And although I haven’t seen the accounts for myself, numerous sources have alleged that this part of their trade was accounted for against separate cost centres, in dedicated bank accounts, typically in offshore tax havens like Switzerland – a fully entrenched, formal part of big tobacco’s business practices.

My concession aside that some of the examples may perhaps be attributable to rogue employees, there are many examples of big tobacco very well knowing about their employees being involved in illicit trade and doing nothing about it.

1
Dirty Tobacco

Big tobacco was articulately called out on their behaviour during the UK’s parliamentary committee hearings on tobacco smuggling: “When my four-year-old is standing in the kitchen with jam all over

his face and I go in and say: ‘Have you been at the jam?’ And he tells me: ‘No, daddy, I haven’t.’ That is what you three have been doing here.

“It is unbelievable. It is called circumstantial evidence and you are simply jam on their face and, still, they do nothing sitting there saying: “No, no, it wasn’t us. We didn’t know the market. We had no idea this was going on.’

“I believe you have lied to this committee. I believe you are the least credible witnesses that I have ever seen come before the committee of public accounts. You have lied unashamedly.

“If you did not know, all I can say is that you must have been incompetent. If I were one of your shareholders, I would say: ‘These guys are incompetent.’”

(While we have the comments from this committee on record, unfortunately, their ultimate findings were never publicly released.)

This reticence is just as apparent with BAT in South Africa. In 2016, they told us that they had requested a law firm to investigate allegations of criminality by the staff of a security firm employed by BAT.

Since then? Nothing. It’s been years. We don’t know what that investigation found, or what corrective steps have been taken to ensure that similar improprieties would not be repeated in the future.

Of course, they do nothing. As a Rothmans manager so articulately explains: “It would be stupid to ignore a growing market. I can’t answer the moral dilemma. We are in the business of pleasing our shareholders.”

Big tobacco washes its hands. They sell cigarettes ex-factory and, once the truck leaves their premises, argue that ownership is transferred to the buyer and the tobacco company has no legal liability for where the cigarettes go next.

At best, they may explain: “In our work, you can’t ask what they do with the cigarettes. They are simply rational actors, acting rationally in pursuit of profit.”

  • Telita Snyckers is an author and a tax and customs lawyer. She worked closely with Pravin Gordhan and Ivan Pillay during her tenure at the South African Revenue Service (SARS). She was admitted as an attorney of the High Court, she holds a masters degree in Constitutional Law, and diplomas in exchange control and the combating of money laundering.



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