[Intl-tobacco] Tobacco Companies Linked To Criminal Organizations in Smuggling
Robert Weissman
rob@milan.essential.org
Mon, 5 Mar 2001 10:36:58 -0500 (EST)
This story is from the Center for Public Integrity/International
Consortium of Investigative Journalists. A properly formatted version is
at <http://www.publici.org/story_01_030301.htm>. This is the introductory
piece of a larger report that includes stories on China, North America,
Italy, Latin America, Africa, Cyprus and the United States. They are all
accessible from the link above.
--
Robert Weissman <rob@essential.org>
Essential Information
P.O. Box 19405, Washington, DC 20036, USA
Tel: 1-202-387-8030
Fax: 1-202-234-5176
www.essential.org
Special Report
Tobacco Companies Linked
To Criminal Organizations
In Lucrative Cigarette Smuggling
By The International Consortium of Investigative
Journalists*
When Tommy Chui failed to show up at the grand
opening of his wifeÕs new boutique in downtown Singapore,
alarm bells rang 1,600 miles away in the offices
of Hong KongÕs Independent Commission Against Corruption.
It was March 29, 1995, and the news that Chui was
missing
devastated the commission's assistant director,
Tony Godfrey.
He immediately sent two investigators to
Singapore. Three days
later, on April 1, his worst fears were realized.
Dockworkers
found ChuiÕs bloated body floating in Singapore
Harbor.
A former director of British American TobaccoÕs
biggest
distributor of contraband cigarettes to China and
Taiwan, the
38-year-old Chui had been abducted, ritually
tortured, gagged,
suffocated and thrown into the harbor just weeks
before he was
to testify against his ex-associates.
Chui was the star prosecution witness in an
international tobacco smuggling investigation
launched
in 1993 by Hong Kong's Independent Commission
Against Corruption. He was about to blow the lid
off a
$1.2 billion smuggling operation to China and
Taiwan
and implicate three former British American
Tobacco
executives in a HK$100 million bribery scandal. In
addition, his testimony was key to the prosecution
of
his two former business associates, several
corrupt
customs officers and various members of AsiaÕs
most
notorious criminal gang, the Triad.
The case of Chui and the massive BAT-fed smuggling
network into China reveals the dark underbelly of
a
billion-dollar business fed by international
corporations
and operated by organized crime. While it is among
the more sensational examples of corporate
tobaccoÕs implication in international smuggling
and its links to organized crime, it is far from an
isolated instance.
Tobacco manufacturers have often
blamed the international smuggling of their
products on organized crime. But
a year-long investigation by the Center for
Public Integrity shows that
tobacco company officials at BAT, Philip Morris and
R.J. Reynolds have worked closely
with companies and individuals directly
connected to organized crime in
Hong Kong, Canada, Colombia, Italy and the
United States.
In fact, one Italian government
report obtained by the Center states that Philip
MorrisÕ and R.J. ReynoldsÕ
licensed agents in Switzerland were high-level
criminals who ran a vast
smuggling operation into Italy in the 1980s that was
directly linked to the Sicilian
Mafia.
Corporate documents, court records and internal
government reports Š some going back to the
1970s Š also show that BAT, Philip Morris and R.J.
Reynolds have orchestrated smuggling networks
variously in Canada, Colombia, China, Southeast
Asia, Europe, the Middle East, Africa and the
United States as a major part of their marketing
strategy to increase profits.
The corporate documents refer to this
black market business as "duty not
paid," "parallel" markets, "general trade"
or "transit." But these same documents
often clearly delineate between this
aspect of the business and legal trade.
For example, one BAT official, in a 1989
letter to associates in Taiwan, said, "With regard
to the definition of transit, it is essentially the illegal
import of brands from Hong Kong, Singapore, Japan,
etc. upon which no duty has been paid."
The companies have sought to undercut rising
government taxes, which studies show are the main
reason most smokers quit, as well as to gain
market share on their competitors or on
government-controlled tobacco monopolies by
offering competitively priced popular international
brands on the black market.
The result has been tax evasion on a global scale
that has greatly depleted government treasuries,
especially in Third World countries. Cigarette
smuggling has also fostered international crime and
money laundering and alarmed growing numbers of
law enforcement officials worldwide. Attracted by
huge profits, quick turnovers, a captive market
and relatively light penalties if caught, organized crime
now controls large sectors of the smuggling.
"Organized criminals, who have traditionally been
involved in smuggling illicit
narcotics, are suddenly realizing that tobacco is
a good thing to get into, as
you make just as much money, and it's perhaps not
quite as anti-social,"
Douglas Tweddle, the outgoing director for
compliance and facilitation at the
World Customs Organization in Brussels, told the
Center. "The public generally
aren't against you if you're selling smuggled
cigarettes; in fact, they rather
appreciate you. And if you get caught, in
virtually all countries, the penalties
for smuggling tobacco are a great deal less than
smuggling heroin or
cocaine."
In the United States, cigarette imports have risen
so dramatically that
investigators are looking into whether the country
is being used as a way
station in the global smuggling trade. "Profits
from cigarette smuggling rival those of narcotic
trafficking," then-U.S. Customs Commissioner
Raymond Kelly told Congress last year. "The United
States plays an important role as a source and
transshipment country."
The investigation by the
CenterÕs International
Consortium of Investigative
Journalists is based on a
review of thousands of pages
of corporate and government
documents and dozens of
interviews with law
enforcement officials,
smugglers and other sources
worldwide. It indicates that
tobacco smuggling is
increasingly dominated --
often with the knowledge and
consent of the tobacco
companies -- by a handful of
criminal organizations that in
some cases have links to
organized crime.
The Italian Mafia in Western
Europe, East European
gangs, Triads in Asia, drug cartels in Colombia,
and motorcycle gangs and the American mafia in
North America all have become entrenched in the
game. Licensed distributors for the manufacturers
feed these organized crime syndicates billions of
cigarettes worldwide, often with corporate
knowledge.
"A primary driving force behind the proliferation
of cigarette smuggling in both Colombia and Europe
is the need of narcotics traffickers, Colombian,
Russian, and others, to launder enormous amounts of
money that can no longer be laundered through
banks," said one recent court filing in a cigarette
smuggling case.
The black market trade
ItÕs estimated that about one in every three
cigarettes exported worldwide is sold on the black market.
This enormous business is operated through a web
of offshore companies and banking institutions
that often employ the same routes and
distributors. Russian and Italian mafia use Cyprus and
Montenegro. The drug cartels and U.S. mafia use
Aruba and Panama. The same names turn up in
smuggling networks into Colombia, Canada and
Europe. In Southeast Asia, the same distributors
who smuggle out of Hong Kong to China also control
distribution out of the Philippines and
Singapore.
The Center investigation shows that the
manufacturers funnel massive amounts of their brand name
cigarettes into these smuggling networks, often
employing circuitous routes in an apparent attempt to
shield themselves from accusations of wrongdoing.
Distributors and manufacturers work hand-in-hand
to feed this market. But, in some cases, the
manufacturers have worked directly with organized crime
figures.
In Colombia, tobacco companies are alleged to have
helped launder drug money and to have
worked closely with distributors who are involved
in drug trafficking. A Colombian lawsuit against Philip
Morris and BAT accuses them of involvement in
drug-money laundering through what is known as the
"black market peso exchange," a circuitous system
by which drug dollars are laundered for clean
pesos through the purchase and importation of such
goods as cigarettes and alcohol.
In a federal civil racketeering lawsuit launched
in 2000, ColombiaÕs governors accused tobacco
company executives of illegally entering the
country to organize smuggling networks and retrieve
cash payments, which were then smuggled out for
deposit in offshore banks. Company employees
are also alleged in the lawsuit to have bribed
border guards. And their agents have been implicated
in illegal cash campaign contributions to
ColombiaÕs former president Ernesto Samper.
In Italy, court cases and police and
government reports reveal an intricate
web of Mafia families that through
bribery, intimidation and murder control
the smuggling of billions of Philip Morris
and R.J. Reynolds cigarettes into
Europe through Cyprus, Albania and
Montenegro.
In Spain, at least one major distributor for RJR
is allegedly a black market distributor linked to illegal
drug trafficking.
In Canada, RJR sales executives dealt directly
with smugglers linked to the American and Canadian
mafia.
In some cases, tobacco industry executives
actively played various gangs off against each other and
solicited and received millions of dollars in
kickbacks or bribes in return for selling to preferred criminal
syndicates, according to court records and
sources.
The Center investigation also shows that when
senior or mid-level executives have been charged
criminally with aiding and abetting smuggling,
tobacco companies often donÕt cooperate with
investigators. In a Louisiana case, for example,
lawyers for one tobacco company used their
connections in the administration of former
President Bill Clinton to force the removal of a prosecutor
pursuing a Brown & Williamson sales executive for
smuggling into Canada.
The major tobacco companies all vigorously deny
any involvement in the smuggling of their products.
In a statement to the Center, BAT also said it
knew of no evidence "to substantiate allegations that
some of our employees or distributors have worked
with criminal organisations and/or organised
crime."
Companies such as BAT have stated that they canÕt
be expected to keep
track of their 90,000 employees, even though in
many cases those named in
smuggling are senior managers. The companies also
argue that they sell a
legal product to wholesalers over whom they
exercise no control. Kenneth
Clarke, BATÕs deputy chairman and the former
Conservative chancellor of the
exchequer, told the British House of Commons
health select committee on
Feb. 16, 2000, that "there is no evidence I have
ever seen that BAT is a
participant in this smuggling. We seek to minimize
it and avoid it."
However, writing in the Feb. 3, 2000, issue of The
Guardian, in response to a
Center exposˇ released a few days earlier, Clarke
complained that high
cigarette taxes caused smuggling and added: "where
governments are not
prepared to address the underlying causes of the
problem . . . we act, completely within the law, on
the basis that our brands will be available
alongside those of our competitors in the smuggled as well
as the legitimate market."
Top BAT executives, at a meeting last summer,
considered the companyÕs marketing strategy in light
of expanding investigations, media reports and
civil lawsuits. An industry source told the Center that
BAT executives discussed halting all "transit"
business but worried that shareholders would be furious
at the resulting drop in profits, which one
government source estimated to be as high as £500 million
(US$720 million) annually. BAT decided to continue
the "transit" business, the industry source said,
but no longer to refer to it as transit, DNP or
GT. The new company term is "WDF" for "Wholesale
Duty Free."
The executives also discussed taking steps to
counter any civil and penal actions that could threaten
the companyÕs survival, the source said.
Massive smuggling
has sparked a growing number of
lawsuits. In a
12-month period ending last year, Canada,
the governors of
Colombia, Ecuador and the European
Union all filed
separate racketeering suits in the United
States against
the tobacco giants. Seven nations Š
Germany, Spain,
France, Italy, Belgium, the Netherlands
and Finland Š
have since joined the EU suit. Among the
charges, the EU accuses the tobacco companies of
aiding and abetting smuggling, involvement in
organized crime, defrauding state treasuries of
billions of dollars, laundering drug money and
committing wire fraud and mail fraud.
In addition, criminal investigations have
multiplied.
In the United States, several grand juries are
examining the allegations of tobacco company
involvement in cigarette smuggling, including one
in Raleigh, N.C., and another in New York. A
multi-agency investigation, coordinated out of
Atlanta, is also looking into possible corporate
involvement in cigarette smuggling and its related
crimes, such as money laundering, according to
federal government sources.
Canada, Italy and Britain have also launched
criminal investigations.
Still, with the exception of one case in Syracuse,
N.Y., where a unit of RJR called Northern Brands
International pleaded guilty in 1998 to
smuggling-related charges, the tobacco industry has not faced
criminal prosecution.
The growing list of civil cases, however, could
prove devastating. Faced with possible treble damages
under the U.S. Racketeering Influenced and Corrupt
Organizations (RICO) Act, the tobacco
companies are vigorously fighting the lawsuits.
Already, allegations have surfaced in the Colombian
lawsuit that Philip Morris is corrupting the legal
process through threats and the destruction of
documents. BAT is alleged to have engaged in
influence-peddling by putting political and
government officials in Colombia on paid
consultant contracts.
An affidavit sworn in September 2000 by Josˇ
Manuel Arias Carrizosa, the executive director of the
Colombia Federation of Departments [or states]
says that Philip Morris Vice President J. Armando
Sobalvarro tried to persuade Arias, in an Oct. 27,
1999, meeting, that a lawsuit against Philip Morris
was "not in the Departments' best interests."
Sobalvarro noted that Philip Morris was lobbying
Washington for a large aid package for Colombia
and concluded the visit by threatening Arias that if
the lawsuit against Philip Morris proceeded,
"there would be blood."
For investigators like Hong KongÕs Godfrey, there
is "absolutely no doubt" that BAT knew its
cigarettes were being smuggled into China and
Taiwan. "(BAT is) a very sophisticated company," he
said in an interview. "ThereÕs no reason why they
shouldnÕt know." Godfrey also said he believes that
bribery became institutionalized at BAT-Hong Kong.
Blood, threats, bribery and corruption are no
strangers to cigarette smuggling. And tobacco
companies seem to know that as well as anyone.
*Reported by Maud S. Beelman, Bill Birnbauer, Duncan Campbell, William
Marsden, Erik Schelzig and Leo Sisti
and written by William Marsden.