[Intl-tobacco] UK: Smuggling Investigation II

[Robert Weissman]

Billions for cigarette smugglers
by Nigel Rosser
Source: This is London (Associated Newspapers), Monday, 1/15/01

Armed Customs officers intercepted the 1,542-ton Cambodian registered
freighter Marina off the coast of Crete after the vessel had attempted to
ram their patrol boat. The ship had been tracked from Cyprus to Port Said
in Egypt and now she was bound for Latvia.

Aboard were seven million packs of British-produced cigarettes, mainly
Mayfair and Sovereign Kings, worth more than £17million on the black
market in the UK.

When the cargo reached Latvia it was due to be diverted to a fictitious
front company run by a former KGB officer from Kazakhstan, then smuggled
back into Britain.

The contraband seized off Crete was another consignment in a vast
smuggling operation run by highly organised gangs that are flooding the
British black market with up to 20 billion cigarettes a year, accounting
for almost one in three cigarettes smoked in the UK.

Ironically, most of the smuggled cigarettes are produced in Britain by our
leading manufacturers.

The trail from the seized shipment led to a 34-year-old playboy on the
island of Cyprus, Christos Tornarides, scion of a local political dynasty
and one of the island's mysterious new rich.

Mr Tornarides and his firm, CT Tobacco, are now the focus of an
international investigation by police and Customs in Greece, Cyprus and
Britain. Mr Tornarides is alleged to have been in regular telephone
contact with the Marina's Greek skipper as the ship sailed to Latvia.

Bank accounts controlled by Mr Tornarides in Cyprus, Eastern Europe and
Hungary are reportedly being examined by the authorities.

Around six billion British cigarettes are exported to Cyprus each year, an
island of 700,000 people, according to Customs & Excise - and most of them
end up back in Britain. On the dockfront at Limassol you can see them
spilling from bonded warehouses, all bearing familiar names - Regals,
Superkings and Sovereign.

Tonight, in bars, clubs and car parks all over Britain a booming,
clandestine trade in smuggled cigarettes is taking place. Most smokers
probably already know where to get these smuggled cigarettes - at £2.50 a
pack they are some £1.70 cheaper than the ones you can buy over the
counter.

What they probably don't know is that these cigarettes haven't been
brought across the Channel by opportunists in white vans or estate cars.
They are part of an international conspiracy that is earning smugglers a
fortune. The cargo aboard the Marina was worth around £1 million profit in
Britain and the trade is estimated to be worth £2billion a year to
smugglers.

Another consignment of five million cigarettes was seized on a grey August
day in Bristol last year when Customs officers raided a container on a
ship that had sailed from Cyprus. The Gallaher cigarettes they found were
worth more than £500,000 on the black market.

Nearly two billion cigarettes being smuggled into Britain have been seized
by Customs in the past 12 months; around half of those were brands smoked
almost exclusively by Britons and produced by Imperial Tobacco and
Gallaher. After leaving Gallaher's factory in Ballymena, Northern Ireland,
or Imperial's base on the Lenton industrial estate in Nottingham,
cigarettes are normally sold to a large distributor for around 30 pence a
packet by the cigarette firms.

Most are bought by legitimate wholesalers who take another 20 pence per
packet before selling them to British tobacconists. They are then sold at
about £4.20 a packet to take account of duty at around £3.50 a packet,
leaving the newsagent with around 20 pence profit per packet.

However, a vast amount - an estimated £1.8 billion worth by Imperial alone
this year - is being sold to overseas distributors, some of whom are just
as quickly diverting it into a huge worldwide smuggling operation.

Back on the streets of Britain the cigarettes, especially those popular in
the North, like Superkings and Regal - made by Imperial - or Sovereign -
made by Gallaher - are sold for £2.50 per packet. The focus of this trade
in the Mediterranean is Limassol, where the cigarettes arrive by container
from Britain. They are taken to warehouses in the port's free trade zone
and stored.  They are then distributed to markets such as Eastern Europe,
Dubai, the Baltic states and parts of former Yugoslavia.

But these are what is known in the trade as "phantom markets". Somehow,
the big cigarette firms have been persuaded to sell billions of cigarettes
to markets that can't sustain such numbers.

What then happens is the inflated consignments are absorbed by the
smuggling gangs and redirected, often with great sophistication, to
Britain. Typically, five containers "for the local market" will be sent
to, say, Montenegro.

Most of those 40ft containers will find their way into the hands of
smugglers who bribe customs officials to turn a blind eye to the cargo. A
container costing £5,000 to ship can earn the smuggler £1 million. The
smugglers are mostly part of organised East European crime syndicates
which have moved into tobacco smuggling because the profit margins are
high and there is considerably less risk than in drug smuggling.

Before Cyprus started importing six billion British cigarettes, Andorra
took in 1.5 billion - which represents a 140-a-day habit for every man,
woman and child in the tiny Pyrenean state. Spanish and Andorran Customs
closed the loophole and the smugglers moved on.

Before Andorra was closed to smugglers, only 435 million British
cigarettes were shipped to Cyprus. Immediately afterwards, around 11
billion were sent, which has now stabilised at six billion.

A British Customs spokesman says officers were on target to seize two
billion illegally imported cigarettes last year. One billion of these are
expected to have been made by Imperial.

If, as Customs & Excise claims, seizures represent a mere 10 per cent of
total cigarettes smuggled into Britain, this means Imperial alone will
probably have 10 billion cigarettes smuggled into Britain this year - well
over half the 16 billion the firm legally exported. There is increasing
concern that the major tobacco companies should do more to prevent
smuggling.

British American Tobacco (BAT) is currently under Department of Trade and
Industry investigation for allegedly encouraging smuggling following a
House of Commons Health Select Committee report on the tobacco industry.

The EU is taking American firms Philip Morris and RJ Reynolds to court in
New York accusing them of smuggling cigarettes into Europe, money
laundering, racketeering and organised crime.

The big tobacco firms are exporting huge amounts of cigarettes to
countries they know have no sufficient market for them, investigators
allege, and are not carrying out rigorous enough checks to prevent them
being smuggled back into Britain.

Certainly, profits from overseas markets are booming for Britain's big
tobacco firms.

In 1999, Imperial's international cigarette sales increased by 40 per
cent, to 16.5 billion cigarettes. Its operating profit in the first half
of 2000 was £115 million, compared with £93million in the same period in
1999.

Gallaher increased first half year volumes in 2000 to 8.6 billion
cigarettes, up from 6.8 billion cigarettes in 1999. Both companies deny
collusion in smuggling and say they deplore it.

A spokesman for Imperial said: "We strongly deplore cigarette smuggling
and we do everything we can to assist Customs by stamping it out."

A spokesman for Gallaher said: "Gallaher deplores smuggling and uses every
opportunity to bring it to the attention of the Government."