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In a second report by the International Consortium of Investigative Journalists, a
project of the Center for Public Integrity in Washington, D .C ., British American
Tobacco's exploitation of smuggling routes in Asia and the Third World are
examined .
(Washington, Feb . 2) In its search to maintain and enlarge
cigarette markets and corporate revenue, British American
Tobacco - the world's second largest tobacco multinational
and parent company of Brown & Williamson - exploited a
sophisticated network of smuggling routes throughout Asia .
A review of more than 11,000 corporate documents,
conducted over a six-month period by the International
Consortium of Investigative Journalists at the Center for Public
Integrity, shows that, as with corporate operations in Latin
America, BAT managers and executives used a series of
euphemisms in corporate correspondence to discuss
smuggling operations that helped them gain a greater share of
smokers and profits .
But unlike Latin America, where
company executives commonly used
the euphemism "DNP," meaning Duty
Not Paid, to denote smuggled goods,
BAT documents discussing Asian
operations most often used the term
"GT" or General Trade . The company
documents, on Asia, mostly covering
Note :
: Link to Adobe POF
file. Links will open in
a new browse r
window .
the years 1990-1994, repeatedly Adobe Acrobat
contrast legal export sales with GT Reader is required to
and break down the total trade in view the PDF files .
particular countries into th e
categories of legal or "GT ." One plan for Singapore, for
example, 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 ."
Difficulty with Closed Borders
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 (Burma) from Thailand, a Nov . 30,
1992 fax from BAT's Singapore subsidiary warned that dutypaid
sales to Myanmar had been cut off because of politica l
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turmoil. "The closure of the Thai border as the result of the
May political upheaval meant that Embassy, legally border
traded and duties paid, no longer had a legitimate route into
the country." The same report also noted that "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 . . ."
AGENT S
SUT L
DUTY FREE DUTY PAID G .T. JOINT VENTURE
I S .C . Myanmar Bangladesh Myanma r
Singapore SMp Stores Cambodia Pakistan Cambodia
Thailand Thailand M . C . M, City
Indo China
Vietnam
Indonesia
Laos
Afghanistan
India
Diagram of distribution areas of SUTL, as laid out in a 1992 BAT repor t
A large part of BAT's GT sales in Asia were handled by one
Singapore distributor, SUTL (Singapura United Trading
Limited). 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 Dec. 10, 1991, document identified risks to
the 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
the phrase "GT" interchangeably with "DNP" and "transit,"
internal euphemisms that also appeared on BAT papers in
place of direct references to smuggling . This and other similar
evidence from the BAT papers lead to the conclusion that,
within British American Tobacco, references to GT in the
papers of directors and managers were references to
smuggled cigarettes .
The reviewed documents, part of a cache of about 8 million
pages made public as a result of the 1998 U .S. tobacco
settlement, do not suggest that BAT employees themselves
ever transported contraband across borders . But they sought
to exploit and control to their advantage smuggling markets
around the world through a network of agents who, on an
annual basis, transferred billions of cigarettes into the hands
of smugglers .
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 United Kingdom
factories was made for this market .
From its factory at Southampton, i n
BAT brava: tread and Lucky
are popular in east Strike
Asia southern England, more than 60 billion
cigarettes are made annually by BAT
(UK and Export) Ltd . (BATUKE). On average, about 20
containers of cigarettes leave the port every day .
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The information appears in the BATUKE company plan for
1993 to 1997. Marked "SECRET," the document is noted as
having been provided to the then-chairman of the BAT
Company Ltd, Barry D . Bramley. BATCo was then the main
tobacco manufacturing subsidiary of BAT Industries Plc .
125 Different Markets
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, BAT
anticipated that more than one-fifth of its U .K. and Export
production would be "GT." Under the heading "General
Trade," it states that "two key General Trade markets will
account for 4 .7 billion units or 22% of BATUKE's total
shipments . "
The two key centers of distribution identified in the report are
SUTL and "Unit 11 ." SUTL covered countries from Afghanistan
to the Philippines, while Unit 1 was involved with Africa . Other
centers that can be identified as playing a major role in BAT's
GT trade are the Gulf state of Dubai and Hong Kong .
The Company Plan suggests that BAT then proposed to invest
in expanding its use of GT methods to reach its end markets .
The company "strategy [focuses] on maximising the G T
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 "£3 .8 [million] [$5 .9
million] . . . will be invested to grow our business in the GT
markets ."
BAT has refused to comment on the meaning of such terms
as "GT," "DNP" or "transit," or to discuss the implications of
any particular document. In a statement last week, BAT said
the 11,000 pages of reviewed documents were taken out of
context. However, a year ago, the company's public affairs
director, Michael Prideaux, said in response to smuggling
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 government s
concerned. The only sure way is to cut tobacco taxes . "
Far From Blind
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 1992 report prepared by Fred Coombe, BATUKE area
manager for the Far East, were Bangladesh, Myanmar,
Thailand, Laos, Vietnam, Indonesia, Philippines, North Korea,
Afghanistan and Taiwan . The largest potential market of al l
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was mainland China . Evidence from Hong Kong suggests that
BAT cigarettes worth more than £490 million ($810 million)
were smuggled into China during the 1990s .
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 it 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 offense .
The case against Lui nearly foundered after the chief witness
against him, trader Tommy Chui, was murdered . His body was
found floating in Singapore harbor in 1995, stuffed in a
garbage bag with tape over his mouth . Another potential
witness committed suicide . Nevertheless, in June 1998 Lui
was convicted and sentenced to three years and eight 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
Justice Wally Yeung Chun-kuen to comment: "The evidence
suggests that management of BAT (HK) was aware duty-notpaid
cigarettes . . . would ultimately be smuggled in China and
other countries . . . . To some extent such irresponsible
behaviour amounted to assisting criminals in transnational
crime . "
The company claimed at the time that the smuggling was the
work of "rogue" employees and replied that "British American
Tobacco does not smuggle. It does not condone smuggling
and its business is entirely lawful ."
Exploited Traditional Route s
The documents obtained and reviewed by the Center's
international consortium of investigative reporters show that in
many Asian countries BAT did not merely tolerate GT trade
channels, but exploited traditional smuggling routes when that
would maximize sales. The documents also trace the rise
and fall of Lui within BAT ranks .
At first, Lui worked for BAT's U .S. subsidiary
Brown & Williamson . His job was "aiding and
abetting our efforts to get U .S. brands well
established in export markets," a BAT
document said . At the end of 1991, he was
appointed the director of exports for British
American Tobacco (Hong Kong) Ltd . His job 5t Express 555 is BAT's
was to supply export distributors in the
man brand in east Asi a
region. Many of them transported contraband cigarettes into
China .
In internal BAT documents, the job that Lui had held in Hong
Kong was described more clearly as "Director of Exports to
China." The same BATCo file also noted company worries
about the "dependence of continued transit trade into China ."
According to court proceedings in Hong Kong last year, Lui
had to report to BAT (HK) executive meetings on the volume
of cigarettes being supplied to each distributor .
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Global Reach of Tobacco Company's Involvement In Cigarette Smuggling Exposed B Page 5 of 9
"It was because the market in China was the largest source of
profit for BAT (HK) Ltd that the post of director of exports was
so important within the BAT organisation," according to the
Hong Kong Court of Appeal . At the time, only the Chinese
Tobacco Import and Export Corporation was legally allowed to
import cigarettes and charged heavy duties to do so .
When officers from the Hong Kong Independent Commission
Against Corruption raided the offices of BAT's largest Hong
Kong distributor in 1994, they found accounts showing that
$5.36 billion [HK] dollars worth of cigarettes had been
purchased - about 50 billion cigarettes .
In Vietnam and other nations, where "With regard to the
the documents note that all cigarette definition of transit,
imports were illegal in the earl y
1990s, files held by BAT Asia-Pacific it is essentially the
Regional Director Paul Adams show illegal import of
that the company monitored, brands from Hong
encouraged and facilitated "GT" or Kong, Singapore,
"transit" sales imports when these Japan, etc . upon
suited corporate needs . It is clear which no duty has
from the documents, many of which been paid .
are marked "SECRET," that the
senior directors and staff who A . George-Perutz
handled such sales understood what BATUKE
they were doing. One company Marketing Intelligence
document referred to "transit" as
"essentially the illegal import of brands . . . upon which no duty
has been paid . "
Another report noted that transit sales created "apparently
paradoxical requirements of an arm's length approach and
close supervision ."
Getting into Banglades h
In 1992 and 1993, for example, smugglers about whose
activities the company were informed faced particular
difficulties in getting cigarettes into Bangladesh through
adjacent Myanmar because of "(a) Increased customs
surveillance in Chittagong/Cox's Bazaar ; (b) border
confrontation between Bangladesh and Myanmar over the
Rohinga Moslem refugee crisis ."
The same report also promised that SUTL would "strive to
improve this situation by developing land routes via Myanmar
and optimising duty free leakage ." Another problem
encountered was that BAT representatives were unable to visit
countries such as Vietnam, Bangladesh and Pakistan because
of "legal or political sensitivities . "
SUTL was a Singapore company, Singapura United Trading
Ltd (SUTL), and is characterized in BAT files as a family
dynasty run by Chinese patriarch Tay Choon Hye . During a
decades-long relationship, Tay and SUTL had developed an
intimate working partnership with BAT . BAT staff oversaw
many aspects of company activities while others were
seconded to work inside SUTL . SUTL's significance to BAT's
trading was such that Tay, its boss, was felt by some BAT
staff to have access to the highest levels of BAT Industries
Plc .
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Global Reach of Tobacco Company's Involvement In Cigarette Smuggling Exposed B Page 6 of 9
SUTL was responsible for serving four duty-paid markets, 20
duty-free markets, and 11 "GT' markets, according to a 1993
BAT "Asia-Pacfic study ." SUTL was not itself involved in
smuggling cigarettes across national borders, according to the
reviewed documents, but sold them on to other distributors or
wholesalers . Attempts to reach SUTL for comment before
publication were unsuccessful .
Company executives examined which mix of these channels
would serve BAT best . In August 1994, Asia-Pacific Regional
Director Paul Adams received a lengthy report on BAT's plans
for SUTL from 1995 until 1999 . The report defined th e
company's responsibilities as "to maximize BAT's market and
profit shares in South-East Asia / Indian Sub-Continent export
business through the most efficient distribution of ou r
international and regional brands, irrespective of sub-channel
(Domestic, Duty Free, GT) . "
While other BAT companies took responsibility for sales
channels into China, SUTL focused on developing new
markets such as Vietnam . This plum Asian market had a
population of 71 million and was viewed as a strong prospect
for new business .
In the years since the war had ended, Vietnam had fought a
seemingly losing battle against smugglers . Until 1990, the
"transit" market into Vietnam was estimated by BAT to be 12-
18 billion cigarettes a year. Then, following a clampdown that
September, "smuggling was virtually eliminated for 18
months," according to a report to Adams . The hiatus did not
last long. As border conditions relaxed, contraband routes
again appeared, particularly coming through Cambodia. In
1992, the company's "Cambodia Business Plan" referred to
this situation as, apparently, a temporary contingency :
"Cambodia will continue to service the Vietnamese market
until the [Vietnamese cigarette import] ban is lifted . "
Contraband to Vietnam Climbs
Soon, contraband into Vietnam was climbing toward pre-1990
levels. In 1992, Adams was told that BAT's State Express 55 5
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brand of cigarettes was the "major smuggled brand in the area
. . . there is no doubt it has a tremendous image and sales
potential ." Sales of smuggled State Express 555s were then
estimated to be about 1 billion cigarettes, worth roughly £10
million ($16 million) a year .
A series of company papers showed that, from 1991, BAT
then pursued a twin-track strategy to maximize its earning
from Vietnam . One track was to negotiate with th e
Vietnamese government and its tobacco monopoly, Vintaba, in
order to produce international brand cigarettes locally .
The other was track was monitored from BAT's UK-based
"Asia-Pacific Regional Business Unit," where a 1994
marketing plan for Vietnam noted that "the high margins on
illegal product are justified on grounds of risk . . . The amount
of handling associated with imported distribution coupled with
the requirement of frequent concealment has produced a
standard of visual presentation that is inferior to local
manufacture." Both tracks went ahead . By mid-1993, BAT
State Express 555 brand cigarettes were being sold as "Made
in Vietnam." Meanwhile, back in Britain, executives in BAT's
"Far East Support Unit" (FESU) juggled complex calculations
to assess what balance-of-trade channels would deliver
maximum profit .
A memorandum found in the file of then-New
Business Development Manager Nick Brookes -
now CEO of Brown & Williamson - set out BAT's
pricing strategy, which attempted to predict the
final consumer price of BAT cigarettes smuggled
into Vietnam .
In a document suggesting clarity and
precision of BAT's understanding of
pricing in the GT trade, the document
noted: "Ex factory price should be such
that retail price falls at parity with GT (not
fully controllable) . GT price structure is :
BATUKE to SUTL, $245, SUTL to
importer, $290, Importer to Wholesaler,
$348, Wholesaler to Trader (Cambodian
border) $350 ." In other words (and
recognizing the independence of
smugglers), BAT staff seemed to wish to
adjust the sale price of their cigarettes to
their agent so as to set the final
smuggled end-market price in Vietnam .
BAT's records suggest that Vietnamese
officials treated the company's conduct
with suspicion and told them so .
Company executives had a series of
meetings with Le Dinh Thuy, director
general of the Vietnamese Vintaba
tobacco company. A letter from
Singapore to BAT's then-headquarters in
Staines, England, reported that at a June
1991 meeting, "Mr Thuy . . . was
obviously fully aware of both BATUKE's
and SUTL's activities in Vietnam, stating
-'what are these people doing visiting
Vietnam when the import of cigarettes is
banned?' It is a point I think should be
taken very seriously ."
Brown & Williamson
Brands
• American
• Barclay
• Belair
• Capri
• Carlton
• GPC
• Herbert
Tareyton
• Kool
• Lucky Strike
• Misty
• Pall Mall
• Prim e
• Private Stock
• Raleigh
• Richland
• Silva Thins
• Summit
• Tal l
• Tareyton
• Viceroy
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Similar enterprises took place across Asia. In Taiwan, BAT
reckoned in the early 1990s that it had about a 1 billion share
of the 4-billion-a-year "transit" market . In Thailand, the market
was over 555 million a year . In Vietnam, it was 1 billion a year.
In 1993, BAT employed a single senior executive to take
charge of GT sales around the globe . The post of "senior
regional export manager" was based at BATCo in Staines .
Although ostensibly the job was to coordinate sales in Asia
and the Pacific, the executive's second task was "Co-ordinator
of GT worldwide . "
In this capacity, the manager was made "responsible to all five
Regional Directors for the co-ordination of all BATCo general
trade sales worldwide." He was charged with th e
"maintenance of profiles of all main dealers, and monitoring of
supply routes ; negotiation of trans-regional accounts, e .g .
SUTL . . . ."
But there was a special warning . "Due to the nature of Export
General Trade business, the Distributors handling this are not
easy to manage and difficult to motivate . Their loyalty is
sometimes questionable . Due to the type of business and
sums involved, bribery attempts are frequent . . . [The person
appointed] must be permanently alert to the confidentiality
needed in some areas of the business ." He had to be on
continual lookout for new smuggling routes, by conducting a
"proactive search for new GT business ."
The report concluded, without apparent irony, that "integrity is
an absolute must . "
The disclosed BAT documents indicate that "GT," "Transit," or,
more plainly, smuggling seemed to be seen by BAT Industries
in the early 1990s as a necessary and indeed substantial part
of being competitive and successful in the internationa l
tobacco business. BAT Industries directors were told in a
1993 paper: "A significant proportion of the world export trade
is transit . It exists wherever there are widely different excise
rates and trade restrictions, and is expected to continue where
these conditions exist." But, as with their Singapore agent
SUTL, they also had a long-term desire to move, when and if
advantageous, to legal markets - provided always that
national taxes were low and that current and future smokers
were easy to reach .
Related Reports :
• >Major Tobacco Multinational Implicated
In Cigarette Smuggling, Tax Evasion,
Documents Show (Jan 31, 2000)
Related Links: (Links will open in new browser
window)
• Tobacco Firm Relied on Smuggling in
Asia Market, Memos Reveal (Los Angeles
Times )
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. . .: Global Reach of Tobacco Company's Involvement In Cigarette Smuggling Exposed B Page 9 of 9
• Dilemma of a cigarette exporter (In
response to ICIJ investigation, Kenneth
Clarke, the former Tory chancellor who is
now deputy chairman of British American
Tobacco, admits that the multinational
company supplies cigarettes knowing they
are likely to end up on the black market;
the Guardian, London . )
• Cigarette giants 'in smuggling rackets'
(Hong Kong Standard )
• Tobacco giant 'condoned smuggling into
mainland' (South China Morning Post,
Hong Kong )
• Cigarette firm's'smoking gun' (South
China Morning Post, Hong Kong )
• Sales pitch : illicit supply of the mainland's
smokers. Agence France-Presse photo
(South China Morning Post, Hong Kong)
(free registration may be required for South China
Morning Post)
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