Examination of Witnesses(Questions 540-559)
MR GARETH
DAVIS, MR
BRUCE DAVIDSON
AND MR
JOHN DIBBLE
WEDNESDAY 19 JUNE 2002
540. Established smuggling—
(Mr Davis)—with a very high—
541. Established smuggling locations. If you
had to list the five places—I do not know about Latvia but
certainly Kaliningrad, Afghanistan, Moldova and Andorra—they
are all notorious places where smuggling takes place.
(Mr Davis) They all have a high presence of international
brands and smoking. Those are quite legitimate target markets
for us to go to.
542. If they are quite legitimate target markets
to which to go, how come you do not sell cigarettes to any of
them now?
(Mr Davis) Because, in the light of experience, as
we have gone through many times this afternoon—
543. You have just said it is a legitimate market.
(Mr Davidson) It is.
544. So you do not sell any now? You sold 1
million to Andorra, 1 million to Latvia, where you previously
last year sold 1.4 billion. If they are a legitimate market, why
do you not sell to them?
(Mr Davidson) Because our distributor's distribution
chain was clearly breaking down so we—
545. "Was breaking down"? What do
you mean?
(Mr Davidson) Sales were being diverted somewhere
in the distribution chain because the seizures were indicating
they were coming back to the UK.
546. So they are not legitimate markets?
(Mr Davidson) They are legitimate markets but some
of our product was leaking from those markets. We have legitimate
sales, we have consumer franchises in these markets, so we were
having success in these markets, but we had to sacrifice—
547. You certainly were having success in these
markets.
(Mr Davidson)—we had to sacrifice some markets
because stock was being diverted back.
548. So you suddenly abandoned a third of your
export market in these so-called legitimate markets?
(Mr Davidson) Yes, as there was increased pressure
on many markets—as the prices had been going up in the UK
there was more and more demand and it is more and more difficult
for people to secure some of these markets—we sacrificed
them, yes.
549. Sorry, go through that again?
(Mr Davidson) As the prices in the UK escalated, so
did demand and therefore the profit which was available for anyone
who was going to smuggle, and with the pressure on some markets
we decided we would forgo those markets because we did not want
to be part of the process whereby stock was coming back to the
UK.
550. One comes to the conclusion that you are
either crooks or you are stupid, and you do not look very stupid.
How can you possibly have sold cigarettes to Latvia, Kaliningrad,
Afghanistan and Moldova in the expectation that those were just
going to be used by the indigenous population or exported legitimately
to neighbouring countries, and not in the expectation they would
be smuggled? You must know—you only have to read a newspaper
every day, a member of the public could tell you—these are
places which are linked to organised crime, that the drugs trade
passes through all of these countries, that prostitution passes
through all these countries. Did you not know that? Have you ever
been to Kaliningrad?
(Mr Davidson) I personally have not been, no.
551. Have you ever been there?
(Mr Davis) No.
552. Mr Dibble?
(Mr Dibble) No.
553. I suggest you all go. You are telling me
that you naively thought there was a huge population out there
in Kaliningrad which wanted to smoke your cigarettes?
(Mr Davidson) A lot of the cigarettes have Russian
tax stamps and they are sold in Russia. We know they were sold
because I have visited Russia and I have seen them on sale in
the Russian markets.
(Mr Davis) We advertised and promoted in the Russian
market. These are some markets of a vast range of markets that
we trade in.
554. Obviously the Afghanistan market closed
because of events beyond your control, but are you looking to
open up in Afghanistan again?
(Mr Davis) At the present time, no.
555. You probably do have a legitimate market
there now since there are some Western soldiers out there now.
(Mr Davis) Maybe we should be looking.
556. There is some dispute about the number
of smuggled cigarettes or your product coming back to the UK.
In your business calculations for your business, in your estimates
and internal business strategy, do you make any projections for
smuggle cigarettes?
(Mr Davis) Not at all.
557. So even though, according to Customs, you
only sell 3 billion Superkings legally in this country and 4.4
billion are sold illegally in this country, you do not take that
into account at all when developing a strategy?
(Mr Davis) I do not think those figures are quite
right actually. I do not want to get into a tit for tat on numbers
but there are certainly numbers which are not correct.
(Mr Dibble) The numbers do not square with Customs'
own document. We should point out that Customs say there are 16
billion cigarettes smuggled, of which 50% are Regal and Superkings.
That is one figure.
558. What do you say?
(Mr Dibble) I would go to Customs' next figures which
are the countries from where smuggling occurs, and our peak sales,
if you tot them up for those countries total just over 3 billion,
so we find it hard to accept that we only sell 3 billion but 8
billion come back. Therefore even Customs' own estimate—
559. What are your estimates?
(Mr Dibble) We do not know.
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