MEMORANDUM BY MR DUNCAN CAMPBELL
PLANNING, ORGANISATION AND MANAGEMENT OF
CIGARETTE SMUGGLING BY BRITISH AMERICAN TOBACCO PLC, AND RELATED
ISSUES (TB 51)
1. This note of evidence concerns the activities
of British American Tobacco PLC ("BAT") and its predecessor,
subsidiary and group companies during the period from 1970 to
date. It is based on enquiries made by the author and others as
part of an international investigation conducted during 1999 by
the International Consortium of Investigative Journalists, a project
of the Center for Public Integrity ("CPI"). CPI is a
Washington based public interest research group.[1]
The larger part of our investigation has concerned company documents
which Bat agreed to make public as part of the terms on which,
in 1998, they agreed to settle the health action brought by the
State of Minnesota. These documents were inspected by us at the
Guildford Depository, with which Members of the Committee are
familiar.
2. The major issues which can be drawn from
our enquiries are:
How corporate sleaze developed within BAT
A. Smuggling, often organised in a furtive
and clandestine manner, has been BAT company policy since the
late 1960s. Under the stewardship of former chairman Sir Patrick
Sheehy[2]
the deliberate smuggling of BAT products evolved from an ad
hoc activity into an organised and centrally managed system
of lawbreaking. This was overseen at the highest levels within
the United Kingdom headquarters organisation. The company directors
and managers who were involved were, on evidence that is plentifully
available, fully aware that what they organised was unlawful in
those countries where they placed smuggled products.
Support for criminal activity is endemic among
BAT senior managers
B. All current executive directors of BAT
PLC and a majority of the current Management Board have been routinely
involved in planning, organising or managing criminal activity.
and/or have knowingly consented to the deliberate smuggling of
contraband BAT tobacco products around the world. A very substantial
part of the company's revenues derives from this misconduct.
BAT has provided support to narcotics traffickers
and other organised crime
C. During the period, and with increasing
importance in the 1990s, BAT's activities have supported the smuggling
of narcotics (cocaine, crack and heroin) by providing tobacco
products with which value may be returned to producer countries.
This particularly so where international controls have been developed
to restrict money-laundering of the proceeds of narcotics sales.
Colombia is the most obvious example. A further and direct consequence
of the company's actions is and has been to remove billions of
pounds annually from the income of governments and public authorities
around the world, and to deliver it instead into the hands of
[other] organised crime groups.
BAT has obstructed investigations into its involvement
in tax evasion and smuggling
D. In an attempt to prevent or at least
limit the disclosure of its unethical and/or illegal activities,
the company has systematically obstructed access by researchers
to the Guildford Depository. Members of the Health Committee have
been misled as to the electronic availability of documents, and
as to the actual reasons why so many of the company's documents
have yet to be inspected.
BAT fixes prices and discusses smuggling activities
with competitor companies
E. Executives of British American Tobacco
collaborate with competitors (in particular Philip Morris) to
fix prices and market shares within individual countries. These
collaborative discussions cover smuggled as well as legal products.
The argument advanced by BAT representatives that they are driven
to lawbreaking by the conduct of their competitors is misleading.
The evidence shows that, when they choose to (and, critically,
only when it is in their financial interests), the major tobacco
companies can and do collaborate to stop smuggling.
A criminal investigation should start in the United
Kingdom
F. Prior to 1999, executives of BAT who
planned and organised smuggling activities may have comforted
themselves, that, as they did not themselves transport contraband,
their role in organising smuggling in overseas territories was
not in apparent breach of United Kingdom law. This position was
reversed in September 1999. Since then, any conduct of BAT executives
amounting to a conspiracy to smuggle overseas has been a criminal
offence in the United Kingdom. Since such activities have been
admitted on behalf of the company by Mr Clarke in his Guardian
article, it follows that a police investigation would be appropriate.
3. These issues, and each of them, bear
directly on the health risks of smoking since:
(a) the use of smuggling enables and is intended
to enable the company to target more, poorer and younger consumers
than would be reached by products on which excise and customs
duties have been lawfully paid, thereby adding to the health burden
and mortality of smoking;
(b) BAT, in common with other tobacco companies,
have used smuggling as a deliberate tactic to frustrate and overcome
government policies intended to reduce smoking and thus limit
damage to public health. The long term goal of the companies'
smuggling tactics is to force governments to reduce taxation to
levels acceptable to the tobacco companies. Thus nullifying public
health improvements. The immediate effect of smuggling is the
same or similar, in that the increased availability of cigarettes
at lower cost enables smokers to avoid abandoning their habit
in the face of high excise duties, to the detriment of their personal
health. Currently, as the Committee is already aware, the United
Kingdom is the major target of deliberate smuggling;
(c) by arranging to supply the major commodity
used for money laundering by elements of the international narcotics
trade, BAT have assisted in the recent growth of hard drug addiction
to endemic proportions, to the substantial detriment of individuals
and the public health in the United Kingdom and other nations;
(d) by obstructing access to documents held
at Guildford, BAT has attempted to limit the discovery and disclosure
of material of relevance to public health. This is the case both
where the material is of direct medical relevance, and where it
relates to marketing and thus to the scale and severity of tobacco-related
morbidity and mortality.
5. The points made in this note of evidence
are mainly derived from BAT corporate documents. As the Committee
is aware, these amount to about eight million pages. The files
used by the CPI team include more than 30 lever arch files. It
would not be practicable in this, or indeed in a much lengthier
hearing, to produce or examine all the relevant documents and
files, and I have not sought to do so. However, all the pages
of disclosed documents which we have seen have been individually
paginated, using a system called "Bates numbers". Should
any particular observation be challenged by the company's representatives
at the hearing, we will be able to supply the Bates numbers of
documents that relate to the issue. BAT will then be able to provide
the Committee with the originals of these documents or files for
inspection.
6. Although Mr Broughton of BAT did not
make it clear in his previous evidence to the Committee, all of
the documents which BAT releases to researchers are electronically
scanned by the company's solicitors, Messrs Lovell White Durrant.
BAT should therefore be able to provide the Committee with copies
of any pages that are requested, without delay. Indeed, they could
put the already scanned pages on the Internet (as Members of the
Committee have requested) without significant delay or difficulty.
7. In the remainder of this note, I wish
to indicate briefly some of the factual basis for the points made
above.
8. To avoid confusion, it may be useful
first to set out part of BAT's corporate history, as this has
been the subject of recent major changes. British American Tobacco
Ltd was first in existence as a company from 1902 to 1976. In
1976, the name of the holding company was changed to BAT Industries
Ltd ("BATI"). In due course, BATI became a public limited
company and remained so until 1998.
9. During this period, the parent company
controlled four tobacco operating companies, and a separate financial
services group. The four tobacco companies were British American
Tobacco Company Limited (known as "BATCo"); Brown and
Williamson Tobacco Corporation in the United States; Souza Cruz
SA of Brazil; and BAT Cigarettenfabriken GmBH of Germany ("BATCF").
A fifth tobacco company in the BAT group was Imperial Tobacco
Ltd of Canada, which was partially owned through an intermediary.
10. In 1998, BATI reverted its name to British
American Tobacco Plc. The former financial interests were sold
off. The former tobacco operating companies were integrated. The
company now operates with a two-tier management structure. The
top level is the board of directors of the company, numbering
eight. Below this is the management board, comprising the three
executive directors of the company and 10 other executives who
are not members of the holding company board.
HOW CORPORATE
SLEAZE DEVELOPED
WITHIN BAT
11. In 1970, BAT operated an International
Exports Division (IED) from premises in Westminster. This organisation
was responsible for placing UK made cigarettes in both legal (duty
free) and smuggled markets. So far as we can determine from company
documents, the issue of smuggling as corporate policy was raised
within the group board as early as 1971. After receiving a study
on smuggling in Europe, the board directed that a new office be
established to co-ordinate BAT's use of smuggling in Europe. Following
this, an "IED Sales Office" was established in 1972
in Hamburg, Germany. Because of the illegality of the work it
undertook, this office was required to be located in separate
premises from the legitimate offices of BAT Germany. The director
of the new IED office was Emil Schildt. BAT documents show that,
between 1972 and 1983, Mr Schildt's operation was responsible
for smuggling an average of over a billion cigarettes a year.
This was only a small part of the international smuggling trade
organised by IED. Smuggling from Britain to Nigeria and other
African states was at least five times larger, and continues to
the present time.
12. Also during the 1970s, BAT established
strong and enduring links with major smuggling organisations around
the world notably the Harms Brothers company (later, Romar) in
Aruba, Dutch Antilles; and Singapura United Trading Limited (SUTL)
of Singapore. These companies ran and developed a large range
of smuggling routes into Latin America, Asia and the Middle East.
Other smuggling routes were developed in West Africa (especially
Nigeria) and North Africa (especially Sudan). As IED's business
expanded, it was converted into a new company BAT (UK and Exports)
Ltd ("BATUKE").
13. A quantum leap in the scale of smuggling
as a proportion of BAT's corporate business followed the appointment
of Sir Patrick Sheehy as group Chairman in1982. He identified
Asia as the major area in which smuggling would afford substantial
additional business. A "China team" was set up in Britain
to plan the development of smuggling routes into the lucrative
Chinese market. The key centre for smuggling into China was BAT's
Hong Kong subsidiary. Many different smuggling routes and channels
were used. BAT (Hong Kong) Ltd initially supplied cigarettes to
12 local smuggling operators.
14. The largest of BAT's smuggling distributors
was Giant Island Ltd. Officers from Hong Kong Independent Commission
Against Corruption raided Giant Island's offices in 1994. They
found accounts showing that Giant Island had by then purchased
$HK5.36 billion (£490 million) worth of cigarettes from BAT
(Hong Kong) Ltd. This could correspond to 50 to 60 billion cigarettes.
In the year 1994 alone, Giant Island smuggled 16 billion BAT cigarettes
into China. These were made either in Britain or by Brown and
Williamson in the United States.
15. Two examples of the range and diversity
of the smuggling routes and agents used by BAT are illustrated
below. Figure 1 details the Asians markets (other than into the
People's Republic of China) operated by BAT's Singapore Office
in 1993. This shows that BAT's cigarettes were legally imported
into the domestic market in only five of 23 countries listed in
the region, but were smuggled into 11.
Figure 1
This list of BAT smuggling markets in Asia was
contained in a "secret" file belonging to Paul Adams.
Mr Adams is currently BAT Regional Director for Europe.
"GT" standing for "General Trade"
is a standard BAT euphemism for smuggling.
16. Table 1, also from 1993, shows the smuggling
centres and agents BAT employed in South America.
Table 1: Extract of fax sent by Keith Dunt
(currently, BAT Plc Finance Director) to Buenos Aires in November
1993, identifying 13 separate smuggling distributors used by BAT
operating companies in South and Central America. (Bates page
no 301742119).
| Market/channel |
| Brown & Williamson |
Souza Cruz | BATCo |
Future |
| Colombia | DNP | Romar Giovannes
| Romar J Vegaz Giovannex | Romar
| Romar Giovannex |
| Panama | | Giovannex
| Giovannex | TISA Romar | Romar Giovannex
|
| Suriname | DNP |
| Icomtrade | Icomtrade | Icomtrade
|
| Guyana | DNP |
| Icomtrade | Icomtrade | Icomtrade
|
| Ecuador | DNP |
| | TISA Motta ? Segovia |
? |
| Peru | DNP | General Supply
| Marinho Extralan | General Supply Extralan
| Extralan |
| Bolivia | DNP | General Supply
| Marinho Extralan | General Supply Extralan
| Extralan |
| Paraguay | DNP |
| Santimar | | Santimar
|
| Uruguay | DNP | Diltox
| Extralan | Waltrix | Extralan ?
|
| Iqueque | | General Supply
| Extralan | General Supply Extralan
| Extralan |
| Punta Arenas | | Jacqueline Int'l
| Jacqueline Int'l | Jacqueline Int'l
| Jacqueline Int'l |
Figure 2
Map of BAT smuggling routes and centres in South America.
17. From 1993 onwards, control and management of BAT's
smuggling operations was centralised at the Staines headquarters
of BATCo, under the control of a single senior executive. The
post of "Senior Regional Export Manager" was held initially
by Tony Pereira, and subsequently by Padraigh O'Keefe. The job
description was "Co-ordinator of GT (ie, smuggling) worldwide",
and included a requirement to conduct "proactive" searches
for new smuggling routes for BAT to use.
SUPPORT FOR
CRIMINAL ACTIVITY
IS ENDEMIC
AMONG BAT SENIOR
MANAGERS
18. Our examination of BAT's files revealed an abundance
of euphemisms which were routinely (although not exclusively)
used in place of exact terms, such as "contraband",
"smuggling" or "illegal". The more common
terms we noted were "DNP" (Duty Not Paid), "GT"
(General Trade), "Transit", "parallel", "second
channel", and "recycled".
19. Examination of the papers also showed that involvement
in smuggling was so prevalent in BAT that a majority of the present
management board of the company can be shown to have been complicit
in the commission of criminal offences overseas. Table 2 lists
the executive directors and management board members in respect
of whom such information is available. The third column gives
brief examples of activities with which these directors and executives
have been involved.
Table 2 (A). BAT BOARD OF DIRECTORS
| Current and past position
| Notes |
| Martin Broughton | Chairman since 1998; previously Deputy Chairman and Group CEO (1993-98); group director since 1988.
| As Chief Executive of BATI from 1993 onwards, Mr Broughton chaired the Chief Executive's Committee and exercised control and oversight of all tobacco division operations.
|
| Ulrich Herter | Managing Director/CEO; previously Managing Director since ****.
| As managing director of BATI, Mr Herter endorsed and approved plans for smuggling massive quantities of Imperial Tobacco Limited cigarettes into Canada in the early 1990s, with the intention (directly or indirectly) and the effect of defeating the Canadian government's fiscal and health policies on smoking.
|
| Keith Dunt | Finance Director/CFO; previously Regional Director, Latin America and the Carribean (from 1992).
| As Regional Director for Latin America in the early 1990s, Mr Dunt supervised and managed extensive smuggling operations into Colombia.
|
Table 2 (B). BAT MANAGEMENT BOARD
| Current and past position
| Notes |
| Paul Adams | Regional Director, Europe since 1998; previously Regional Director, Asia-Pacific (1991 to 1998).
| As Asia-Pacific Director, Mr Adams was responsible for planning and directing smuggling into Asian territories including China, Taiwan, Vietnam.
|
| Nick Brookes | Regional Director Asia-Pacific; Chairman and CEO of Brown and Williamson since 1995; previously BATCo manager of New Business Development.
| While working for BATUKE, Mr Brooks oversaw sales of smuggled cigarettes into Nigeria, Sudan and China; he was also advised of smuggling operations into Colombia.
|
| Antonio Monteiro de Castro | Regional Director, Latin America since 1996; previously president and CEO of Suza Cruz, Brazil (1991-96).
| As president of Suza Cruz S.A., from 1991 to 1993, Mr de Castro developed and enlarged smuggling into Argentina through Paraguay, as well as arranging the "recycling" of duty not paid cigarettes into Brazil.
|
| Dick Green | Regional Director, Amesca (Africa and Middle East); previously Vice President, Brown and Williamson (1993-99).
| Mr Green took part in planning to enlarge BAT smuggling activities in South America, including routes through Panama and Chile.
|
| Jimmi Rembiszewski | Marketing Director from 1991 to date.
| In Latin America, Mr Rembiszewski decided to continue the illegal reimportation of DNP cigarettes into Venezuela. In Asia, he oversaw plans to smuggle cigarettes into India, knowing that all cigarette imports were illegal.
|
20. By way of further example, figure 3 is an illustration
of one BAT smuggling route into Colombia, via the island of Aruba
and the northeastern town of Maicao. This map was held in a file
belonging to Keith Dunt.
BAT HAS PROVIDED
SUPPORT TO
NARCOTICS TRAFFICKERS
AND OTHER
ORGANISED CRIME
21. During the 1980s, the use of cocaine and related
products in the United States and Western Europe expanded massively,
particularly as the result of extensive development in the key
producer country, Colombia. Western governments responded from
the late 1980s onwards by introducing financial controls which
were intended to impede the proceeds of narcotics trafficking
from being returned to the Colombian cartels. After US intervention
in Panama in particular, the cartels sought new means with which
to receive and repatriate their proceeds from drugs sales.
22. From 1990 onwards, the major means by which the cartels
sought to bring funds back to Colombia was by means of smuggling.
The principal centre for this activity was Aruba, and the principal
product involved was cigarettes. At this time, the three most
prominent smuggling agents in Aruba were the Harms family, the
Mansur family and Randolph Habibe. The Harms worked for BAT, while
the Mansurs worked for Philip Morris, the manufactures of Marlboro
cigarettes.
23. The basic mechanism of money laundering was that
US dollars raised from cocaine sales were transferred to Aruba,
and used to purchase cigarettes from agents such as the Harms
or the Mansurs. The cigarettes were then smuggled into Colombia
along traditional routes, and sold in urban black market centres
known as Sanandresitos. The proceeds of the black market sales
were then transferred to the cocaine producers, as "clean"
Colombian pesos. This mechanism, known as peso broking, is the
basic means of money laundering associated with cocaine trafficking.
24. From 1990 onwards, contraband cigarettes increasingly
took over from legal cigarette sales in Colombia, at times constituting
70 to 90 per cent of the market. BAT (and Philip Morris) responded
to the situation by massively increasing contraband shipments
into Colombia, primarily by way of Aruba. BAT files show that
successive illegal operations were planned from the United Kingdom
to increase smuggling sales into Colombia. Most of the BAT cigarettes
concerned came from Venezuela. Smuggling into Colombia was so
important to BAT that when Venezuela threatened to introduce export
taxes, BATCo responded with an emergency plan to relocate its
factories and equipment to Chile instead.
25. By 1992, both the Mansurs and the Harms were under
active investigation by American and British law enforcement agencies
for involvement in cocaine related money-laundering. Yet in the
same year, BAT Director Keith Dunt visited Aruba to be briefed
by Roy Harms about smuggling, and then invited him to enjoy corporate
hospitality at Wimbledon alongside ambassadors and a Foreign Office
Minister.
26. Similar features are present in other major BAT smuggling
markets. In Hong Kong, the close involvement of the smuggling
trade with Triad gangs has resulted in the murder of a BAT manager
and an agent, the prosecution for corruption of the company's
former export manager, and other ex-employees fleeing justice.
27. In Asia as in Latin America, smuggling routes used
by BAT into Myanmar, Thailand, Afghanistan among others overlap
directly with traditional narcotics export routes, in this case
from the "Golden Triangle" and "Golden Crescent"
regions.
28. During the 1990s, the volume of UK-made product made
by BAT for smuggling purposes can be estimated to have placed
at least £500 million annually in the hands of such criminals.
Worldwide, the total is many billions of pounds every year.
BAT HAS OBSTRUCTED
ENQUIRIES INTO
ITS INVOLVEMENT
IN TAX
EVASION AND
SMUGGLING
29. In his evidence to the Committee on 27 January, Mr
Broughton made a number of remarks which were incorrect or seriously
misleading. In particular, he suggested that the small proportion
of pages which he said had been inspected, 350,000 out of eight
million was evidence that no-one was interested in the files.
In a similar vein, he claimed that the depository was empty on
many days was because of a lack of interest by researchers.
30. Mr Broughton's statements to the Committee may usefully
be contrasted with a letter sent by his legal department on 21
October 1999 to Ms Judith Watt[3],
explaining why access to the Depository had to be restricted.
She was told:
"The volume of copies requested by our visitors has far
exceeded our expectations; since mid June we have received requests
for over 170,000 pages of documents. This has placed a considerable
strain on our resources . . ."
It will be apparent from this that BAT in fact faced considerable
demand for copies of their files, and set out to curb this demand.
31. Some of Mr Broughton's other statements to the Committee
were also disingenuous, at best. The primary reason that so few
pages have been inspected, and that some days may not be utilised
is that BAT has set out to obstruct access. The company refused
to open the Depository at all until early in 1999, and then only
did so after receiving a legal warning from the attorneys for
the State of Minnesota. Instead of allowing access on five days
notice in compliance with their undertaking to the US Court, BAT's
legal department operates a complex booking system, the mechanics
of which are varied at whim and concealed from requesters. The
hours of access are greatly restricted, and copies of documents
now take more than two months to be produced. Some of the tactics
used by BAT's legal department have simply been childish; for
example, the visitors book which BAT previously required to be
completed by searchers was removed last week to prevent anyone
checking whether statements BAT has made about the availability
and use of the Depository were true or not.
32. In the autumn of 1999, the legal department created
a new rule that only members of one single organisation could
be present at one time. Initially, this was explained as being
in the interests of "privacy". When organisations such
as ourselves challenged this and said that we were content for
others to be present, the "one organisation at a time"
rule was then justified on the basis above, namely that BAT's
copying department was being overwhelmed by demand and could not
cope. On 20 September, I was present, personally at the depository
when Ms Judith Watt, representing the Protocol Management Group
of Australia, attended and sought admission. She had given the
requisite notice, but was told that no places were available.
She was forced to wait in the building lobby for the entire day.
BAT's claim that no places were available was, to my knowledge,
false. On that day, there were six places available, but only
two people searching. These were myself and Maud Beelman, also
from ICIJ.
33. Mr Broughton's other remarks such as "nobody
has shown any interest in it despite all the people who have been
there"(Q942) or that "most of the material that is of
any relevant can be found on the Internet already" (Q966)
may perhaps best be answered with the observation that four days
later the immense public interest and relevance of such documents
were set out on the front page of The Guardian, leading
directly to the Committee's further enquiries.
34. Mr Broughton also told the Committee that apart from
material sent to Minnesota, "other documents are not scanned"
(Q928-929). My understanding is that this is not true. I understand
that the Committee were not invited to see the separate BAT building
behind the Depository, where scanning of company files has been
underway for many months. Separately from this, BAT's lawyers
scan every document that is requested before supplying it. That
is how, for example, the sample document I have illustrated on
page 5 contains the identifying line at the bottom; it was added
during scanning.
35. It follows that, contrary to what Mr Broughton said
previously, many hundreds of thousands of pages (at least) are
already available and have been scanned, and could rapidly be
made available on the Internet.
A CRIMINAL INVESTIGATION
SHOULD START
IN THE
UNITED KINGDOM
36. The BAT documents which we examined leave no room
for doubt that BAT directors and senior executives agreed with
their agents and others that smuggling should take place overseas.
In the years for which BAT documents are currently available to
us, this was not of itself a criminal offence in Britain.
37. Parliament passed the Criminal Justice (Terrorism
and Conspiracy) Act in September 1998. This law came into effect
on 5 September 1999. Section 5 of the Act creates the new offence
of "conspiracy to commit offences outside the United Kingdom".
The key elements of this offence are that parties within the UK
agree to conduct outside the United Kingdom which will involve
the commission of an offence or offences under the law in force
in that country or territory. It seems plain that any agreement
within BAT "to act . . . on the basis that (company) brands
will be available in the smuggled market" overseas is an
admission of offences contrary to the 1998 Act.
38. As the Committee will detect, the words quoted in
the previous paragraph come from Mr Kenneth Clarke, the Deputy
Chairman of Bat Plc, writing in The Guardian two weeks
ago. They confirm that BAT has not desisted from the corporate
policy of cigarette smuggling which was exposed by our investigation.
Although Mr Clarke qualified his remark by claiming that the conduct
he acknowledged was within the law, it is not—either overseas
or, since 1999, in the UK.
39. If this is the correct and current position, then
serious offences contrary to the United Kingdom law are being
committed even as the Committee investigates and deliberates.
If that is so, then there must be a duty on the public authorities
in Britain to begin a criminal investigation.
February 2000
1
The observations contained in this document are made by the author
and are not statements made by or on behalf of either the International
Consortium of Investigative Journalists, the Centre for Public
Integrity or the Guardian newspaper. Back
2
Sir Patrick Sheehy became a member of the BAT group board in 1970.
He became the Chairman of BATCo in 1976, and was Chairman of BAT
Industries Plc from 1982 until 1995. Back
3
I understand that Ms Watt has already provided a copy of this
letter and other written evidence to the Committee. Back
| 
