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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 http://www.public-i.org/story_01_020200.htm 04/02/200 0 http://legacy.library.ucsf.edu/tid/ume14a99/pdf 322048114
. Global Reach of Tobacco Company's Involvement In Cigarette Smuggling Exposed B Page 7 of 9 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 http ://www.public-i.org/story_01_020200.htm 04/02/2000 322048115 http://legacy.library.ucsf.edu/tid/ume14a99/pdf
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