[Intl-tobacco] Paper trail to markets of the East (fwd)

[Robert Weissman]

Paper trail to markets of the East
Papers leave little doubt that company's top directors and executives were
far from blind to smuggling activities
by Duncan Campbell, Maud S Beelman  and Erik J Schelzig
Source: The Guardian/The Observer, Wednesday, 2/2/00

British American Tobacco's Southampton complex is one of the most modern
tobacco plants in the world and will soon be capable of churning out 96bn
cigarettes a year.

Virtually all the tobacco is exported, with 20 huge containers loaded most
days on to ships bound for the Middle East, the Far East and Asia.

Many go to Singapore, a key hub in Asian distribution routes, and to Hong
Kong and Dubai.

In their search to maintain and enlarge cigarette markets, BAT exploited a
sophisticated network of smuggling routes operated by others in Asia and
the Near East, company documents reveal.

Unlike in Latin America, where company executives commonly used the
euphemism "DNP", meaning duty not paid to denote smuggled goods, BAT
documents discussing Asian operations mainly used a different term, "GT"
or general trade. Company documents repeatedly contrast legal export sales
with GT, and break down the total trade into particular countries into the
categories of legal or "GT". One plan for Singapore refers to how "the
legal market fell but the shortfall was taken up by GT product". Another
plan, for Taiwan, showed "the split between Legal and GT."

 Legal routes

 Other pointers to the meaning of GT in company documents include
references to difficulties with customs or closed borders, indicating that
the reason why GT trade was illegal was because it involved smuggling. In
relation to moving cigarettes into Myanmar (formerly Burma) from Thailand,
a fax of November 30, 1992 from BAT's Singapore subsidiary warns:
"Duty-paid sales to Myanmar had been strong but the political situation
had closed all legal routes in from Thailand, leaving only GT trade..."

The report added: "This closure coincided with the monsoon season and the
consequent redeployment of security forces from rebel engagements to
internal security activities. The GT route thereby became more difficult."

A large part of BAT's GT sales in Asia were handled by one Singapore
distributor Singapura United Trading Limited (Sutl). According to company
papers, Sutl handled both legal and GT products in the region. Its normal
market channels were broken down into domestic sales, duty paid exports,
which were legal, duty free sales in airports and to ships and GT. A
document of December 10, 1991 identified risks to the company's GT
business "Sutl appreciate that dependency on GT leaves them very
vulnerable to market liberalisation (Thailand) and market closure
(Vietnam), therefore they are seeking to move that core business to
long-term legal ventures involving ownership interest."

Other company documents from Latin America and Asia used GT
interchangeably with DNP and "transit", internal euphemisms which also
appeared on BAT papers in place of direct references to smuggling. This
and other similar evidence from the BAT papers leads to the conclusion
that, within British American Tobacco, references to GT in the papers of
directors and managers were references to smuggled cigarettes.

 Network of agents

 The documents from their Guildford depository do not suggest that BAT
employees themselves ever transported contraband across borders. But they
took advantage of smuggling markets around the world, using a network of
agents who on an annual basis transferred billions of cigarettes into the
hands of smugglers.

But so large was the role of GT that, according to the most recent
information available, a plan covering the period from 1993 to 1997, more
than one fifth of the output of BAT's UK factories were made for this
market. From their factory at Southampton billions of cigarettes are made
annually by BAT (UK and Export) Ltd (Batuke).

The information appears in the Batuke company plan for 1993 to 1997. This
was one of thousands of documents examined by the International Consortium
of Investigative Journalists, part of the Centre for Public Integrity
(CPI) based in Washington DC in the course of their BAT investigation.

The copy of this document obtained by CPI and seen by the Guardian is
identified as being the copy provided to the then chairman of the BAT
Company Ltd, Barry Bramley.

Batuke was then the main UK tobacco manufacturing subsidiary of BAT
Industries plc. It is marked "Secret".

According to the plan, Batuke operates in 125 different markets, shipping
tobacco products to these markets through 360 agents. The markets are
broken down into "domestic", "duty free" and "general trade (GT)".

During the period covered by the disclosed documents, extending to 1995,
BAT anticipated that over one fifth of its UK and export production would
be "GT". Under the heading "General Trade", it states that "two key
General Trade markets "will account for 4.7bn units or 22% of Batuke's
total shipments".

The two key centres identified in the report are Sutl and "Unit 1". Sutl
covered countries from Afghanistan to the Philippines, while Unit 1 was
involved with Africa. Other centres which can be identified as playing a
major role in BAT's GT trade are Dubai, and Hong Kong.

The company plan suggests that BAT then proposed to invest in expanding
its utilisation of GT methods to reach its end markets. The company
"strategy [focuses] on maximising the GT market opportunities to provide
funds to build a stable volume/profit base for the long term ... via
investment in duty free and domestic markets". It added that "=A33.8[m] wil=
l
be invested to grow our business in the GT markets".

BAT has refused to comment on the meaning of terms like GT, or to discuss
the implications of any particular document. The company's public affairs
director, Michael Prideaux, said in response to earlier allegations that
"if people wish to draw the inference that we are turning a blind eye to
smuggling, they are free to do so. Deterring smuggling is a matter for the
governments concerned. The only sure way is to cut tobacco taxes".

But the hundreds of documents in BAT's files on marketing activities in
Asia and around the world leave little doubt that some of BAT's top
directors and executives were far from blind to smuggling activities. They
received reports about new opportunities in GT trade, as well as regular
assessments of sales levels that went through legal and GT channels.

Important markets in the region for GT cigarettes, according to a report
prepare by Fred Coombe, Batuke area manager for Far East, were Bangladesh,
Myanmar, Thailand, Laos, Vietnam, Indonesia, Philippines, North Korea,
Afghanistan, and Taiwan. The largest potential market was mainland China.
Evidence from Hong Kong suggests that BAT cigarettes worth more than =A3490=
m
were smuggled into China during the 1990s.

 Floating corpse

 In the late 1980s, competition between Hong Kong based rival traders
smuggling BAT cigarettes into China became so intense that bribes were
paid to the BAT local director whose job was to deal with them.

After one jilted trader exposed the system to Hong Kong's anti-corruption
commission, former BAT (HK) export director Jerry Lui was extradited from
the United States. BAT itself was not charged with any offence.

The case against Lui nearly foundered after the chief witness against him,
trader Tommy Chui, was murdered. In 1995 his body was found floating in
Singapore harbour. His corpse had been placed in a rubbish bag, with tape
over his mouth.

The warning to other witnesses could hardly have been clearer. Another
potential witness committed suicide. Nevertheless, in June 1998, Lui was
convicted and sentenced to three years and 8 months imprisonment. He later
launched an ultimately unsuccessful appeal and awaits the outcome of a
continuing appeal application.

BAT company documents disclosed during Lui's trial led judge Mr Justice
Wally Yeung Chun-kuen to comment: "The evidence suggests that management
of BAT (HK) was aware duty-not-paid cigarettes ... would ultimately be
smuggled in China and other countries. There could be no other explanation
for this enormous quantity of duty-not-paid cigarettes worth billions and
billions of [Hong Kong] dollars.

"To some extent such irresponsible behaviour amounted to assisting
criminals in trans-national crime".

The company claimed at the time that the smuggling was the work of "rogue
employees", and replied "British American Tobacco does not smuggle. It
does not condone smuggling and its business is entirely lawful".

But the documents now disclosed show that in many Asian countries BAT not
merely tolerated GT trade channels, but exploited traditional smuggling
routes when they would maximise sales. The documents also trace the rise
and fall of Mr Lui within BAT ranks.