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Smoke gets in BAT’s eyes

Published on Sunday, 28 October 2012 18:39

Written by J.A. de la Cruz / Coast-to-Coast

IN 2000 an official of the Action on Smuggling and Health (ASH), the United Kingdom-based health charity, appeared before the House of Commons Health Select Committee to reveal fresh evidence on the alleged promotion of smuggling by British American Tobacco (BAT), the biggest international tobacco company.

In his testimony, ASH Director Clive Bates provided a summary of BAT’s alleged smuggling operations based on six months of research independently undertaken by his organization and done in parallel with, among others, the International Consortium of Investigative Journalists. BAT, which “abandoned” its operations in the Philippines in the 1990s over what it said was “uneven playing field” in the industry, is now deeply involved in pushing through Congress what many sectors consider as an inequitable, unachievable and deleterious “sin” tax bill.

In addition to reportedly drawing up with senior finance officials the contentious P60-billion incremental sin-tax measure now being deliberated in the Senate, BAT has titillated Malacañang and the public with a promised $200-million investment in a cigarette manufacturing plant as and when its preferred measure is passed.

That advisory, of course, has drawn howls and a laugh for how can administration officials agree to work that out when they continue to insist that their bill is a “health,” not a “revenue,” measure? Evidently, there appear to be duplicity and schizophrenia there and we are not surprised.

We are excerpting parts of ASH’s documented testimony to provide one and all, especially the public, President Aquino and our legislators a clear idea of BAT’s record of governance worldwide. It is alleged to have a record of duplicity and active participation in the illicit trade in tobacco products—smuggling. This illegal operation, Senate President Juan Ponce Enrile and Ralph Recto, resigned chairman of the Senate ways and means committee, warned, will surely ensue if the Department of Finance (DOF)-sponsored bill passes muster in Congress. Excerpts from the ASH report:

BAT’s control over smuggling

“Correspondence between BAT executives shows the company was heavily involved in orchestrating, managing and controlling cigarette smuggling in Asia and Latin America in the early 1990s. BAT exercised control on illegal distribution channels through intermediaries, notably Romar in Aruba and SUTL [SingapuraUnited Tobacco Ltd] in Singapore. The form of control was:

a) Adopting an approach to business planning and sales-target-setting that treats the various routes for smuggling as near-normal distribution channels, which are under the same sort of control as legitimate channels;

b) Deliberately establishing business relations with intermediaries that directly or indirectly supply smugglers and directing these companies to gain a share in the illegal markets;

c) Controlling the price and availability of products through these channels and so influencing end-market conditions;

d) Building warehouses and stationing marketing personnel close to borders with poor Customs controls;

e) Using a small legal or duty-free market to justify advertising campaigns, which have the real purpose of stimulating demand for cigarettes on sale in the illegal market (these are known as “umbrella operations”);

f) Organizing complicated movements of cigarettes through several jurisdictions or multiple levels within an elaborate distribution chain–leading to difficulties in tracing the products;

g) Identifying and/or developing transit routes where official controls are weak or corrupt; and

h) Colluding with other international tobacco companies over pricing and smuggling strategy.

BAT executives knew

BAT executives knew the nature of their business and sought to conceal it.

Allegedly involved are senior personnel and the memos released feature current BAT board members, including the managing director (Ulrich Herter), finance director (Keith Dunt) and marketing director (Paul Adams). No documents have been found, to date, which refer to the current chairman or deputy chairman.

BAT assertion that it only acts legally is false. While there is little evidence of BAT smuggling tobacco itself, there is compelling evidence to suggest that BAT is a significant part of a conspiracy that causes smuggling. At least one BAT executive has been convicted of smuggling-related offenses in Hong Kong and other legal actions are possible. While conspiracy action in the UK is unlikely for technical reasons, conspiracy-equivalent actions in the jurisdictions where the smuggling has taken place are plausible. US-based investigations have been launched against the tobacco industry for alleged violations of the Racketeer Influenced Corrupt Organization (RICO) Act.

The prevalence of tobacco smuggling in Colombia and the Golden Triangle points to a wider picture, which almost certainly involves the laundering of “narco-dollars,” proceeds of cocaine and heroin trafficking. There is no suggestion in the documents that BAT staff are directly involved in this process, but it is very likely that contraband distribution in these areas is carried out by established organized crime networks, and for these organizations tobacco smuggling would provide effective money laundering with advantages to all parties. By failing to take responsibility for the markets that its product enters, BAT is facilitating the spread of illegal drugs as well as that of tobacco.

Recently, smuggling reached serious proportions in the UK and Europe, and from what we know, it appears that distribution management is similar in pattern to those documented from Latin America and Asia. This is particularly true of tobacco company relationships with intermediary groups in specific distribution nodes which supply smugglers. For a time, Andorra was used by British manufacturers, Gallaher and Imperial Tobacco, in a manner similar to BAT’s operations in Aruba detailed below. As a result of this distribution network, UK tobacco exports to Andorra rose from 13 million cigarettes in 1993 to 1,520 million in 1997, vastly more than the Andorran population of 63,000 could conceivably consume.

It is important that BAT’s own business practices are subjected to internal checks and balances and that the company is properly supervised by its non-executive directors, led by the deputy chairman, Rt. Hon. Kenneth Clarke QC MP. Mr. Clarke should now launch an internal inquiry to report to the AGM on April 27, 2000. BAT should also make a clear statement to shareholders regarding its exposure to smuggling-related legal action.

Smuggling is not victimless crime

Smuggling is not a victimless crime. Current projections suggest 1 billion people will die of tobacco-related disease in the 21st century—10 times as many as those in the 20th century and overwhelmingly in developing countries. Taxation is one measure to counter this dreadful toll and smuggling undermines it by lowering prices and reducing the political feasibility of a high tobacco tax policy. To this extent, tobacco companies benefit from the impact of smuggling in their markets—and health of society suffers.

The responsibility for tackling smuggling ultimately lies with governments. A new World Health Organization convention, the Framework Convention on Tobacco Control, has a proposed protocol on smuggling. This could form the basis of a global response to tobacco smuggling by creating a secure distribution system, introducing anti-fraud markings, tracking and tracing the movement of tobacco products and holding each person responsible for ensuring that they sell only to legitimate businesses.”

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