Dirty Tobacco. Telita Snyckers
An illusion that was subsequently adopted by smaller competitors, who can operate even more obscurely than big tobacco can, but using the same supply lines and facilitators and tactics as the ones originally perfected by big tobacco. They have mastered the art of infiltrating illicit products into the legal supply chain, making it more and more difficult to distinguish between licit and illicit products on the market.33
It’s clear that between the explosion in illicit cigarettes, the rise of legitimate independent cigarette manufacturers, and the growing regulatory framework, big tobacco is increasingly under pressure. And a business under pressure is a business with an incentive to play dirty.
Big tobacco needs governments to focus their efforts somewhere else. Why? For two key reasons, which we explore in the rest of the book: to get our law enforcement agencies to get rid of the competition that is eating into its market share, and because big tobacco appears to have had its own hand in the cookie jar.
Smoke. Mirrors. Obfuscation.
3. ‘Bigger than drugs’
Jacques Pauw’s bombshell book The President’s Keepers includes a revealing quote from Glenn Agliotti – one of South Africa’s best-known crime bosses (in turn described as a fixer, drug dealer and gangster, sometimes called The Landlord): ‘I have been smuggling cigarettes for thirty years. I am a fucking gangster. Cigarette game is bigger than drugs.’1
The picture he paints of smugglers fits in with the perception many people have: ‘We terrible. We gangsters. I believe in the AGE. A in AGE stands for Arrogance. Most of us, we are arrogant. G for greed. E for Ego.’2
This is part of the problem, of course: We have a certain picture of what a cigarette smuggler looks like. Tough, a bit rough around the edges, enigmatic, crew-cut hair, bad grammar.
Part of the challenge in telling the story of how big tobacco smuggles is that the ‘optics’ are wrong – in essence, how things look, how they seem from the outside. Big tobacco doesn’t look like a smuggler, and so we believe it isn’t one.
Having worked in more than 25 countries around the world – from Singapore to Serbia; from Cape Town to Canberra – I can assure you: smugglers don’t have a ‘look’. They may be burly musclemen with gold chains and chunky rings, or skinny boys with flipflops and haunted eyes, or men wearing tight Armani shirts and Rolex watches in shiny Porsches. They may be good people simply trying to put food on the table, or they may be fraudsters or mobsters or all-round bad guys. They may carry boxes across a border for a pittance, or they may be living it up in luxury villas and Instagram-worthy offices with plush carpets. They may be dads who take their kids to football practice on Saturdays. They may well live in a temple with pig sties. They’re all smugglers.
But the really good smugglers? They do have a look. They’re suave, smart, well-spoken. They’re generally quite likeable. And they’re always – always – powerful.
When I first started toying with the idea of writing this book – and in subsequent conversations about it – virtually every person I spoke to met the notion that a big, listed company could be smuggling its own products with incredulity.
The risks to the company would be too big. There would be no incentive to do so. They would never get away with it. Illicit cigarettes are made by criminals, not by large listed companies with shareholders to account to. Right?
To tell you the truth, until a few years ago, it is most likely what my reaction would have been, too. Because, while I’ve long known that big companies have no qualms playing both sides of that thin line between evasion and avoidance, the very idea that a company like BAT or PMI or JTI would stuff packs of cigarettes into containers destined for the black market just seemed anathema to their very business model. Surely illicit trade was harming them – not being perpetrated by them? Surely big companies stick to white collar tax evasion, leaving criminals to sell dirty cigarettes in dark alleys?
Surely, if there are illicit cigarettes being sold anywhere, they must all come from smaller companies like Gold Leaf, Savanna, Amalgamated Tobacco, Carnilinx or perhaps from Zimbabwe or China or the United Arab Emirates – but most certainly not from the big tobacco companies?
There is also another factor that drives public scepticism of the notion that big tobacco’s hands may be dirty: most of the industry’s tax troubles – for both the big players and the smaller independent manufacturers – are hidden from sight under a veil of legislated confidentiality and secrecy. It is relatively easy to compile a dossier with examples of instances where tobacco companies defrauded us with respect to the supposed safety of tobacco products. It is far more difficult to compile a list of examples where tobacco companies defrauded the tax man, simply because tax and customs agencies are invariably subject to secrecy clauses. We tend to only know about the complicity of established, licensed tobacco companies in criminality where a case is referred to court and becomes a matter of public record and where they are no longer subject to the secrecy clauses imposed by legislation. Consequently, much of the criminality on the part of the tobacco industry – including that of the bigger tobacco companies – goes unreported and under-exposed publicly.
Against this backdrop, it is entirely natural to initially be sceptical of claims that big tobacco companies smuggle their own products or in some way supply the illicit market. The optics are all wrong. Why would any company potentially undercut the sales of their own legal products? And indeed, by conventional wisdom, why would a listed company potentially put its reputation at risk?
The answer in a capitalist system is simple: profit. For the most part, tobacco companies effectively make the same profit per pack on smuggled cigarettes as they do on legally sold ones. Smuggling allows tobacco companies to sell their cigarettes in countries that they would otherwise not be able to do business in because of import bans, sanctions and government monopolies. In many countries, smuggling may be the only way for a cigarette company to get their product on the market. In Somalia, documents suggest BAT had a strategy to continue selling its cigarettes in spite of warnings by fundamentalist group Al-Shabaab that it would punish those who sold them under Sharia law. A slide from an internal BAT PowerPoint presentation – revealed in an article by The Guardian – notes ‘The No-Smoking ultimatum made by Al-Shabaab now in effect. Cigarettes are now a black-market commodity. Distribution is being made in black paper bags.’3
Evidence suggests that smuggling also makes it possible for cigarettes to be sold in countries where tax rates and duties would otherwise make legal imports too expensive compared to cheaper domestic brands. Indeed, often the contraband market seems to have been so profitable that it discouraged the companies from entering the legal market, as appears to have been the case for BAT in China: ‘On China, a visit by the Chairman to Beijing in October might actually be counterproductive if he was under pressure to commit to investment … why are we looking at joint ventures rather than a continuation of transit [smuggling]?’4
But smuggling could also simply be a matter of undercutting competitors and maintaining market share. In Colombia PMI had exclusive rights to sell the Belmont brand. BAT continued to make Belmont cigarettes elsewhere, and reportedly simply smuggled them into Colombia, cannibalising PMI’s market share.5
In Canada, Imperial blatantly noted: ‘Although we agreed to support the Federal government’s effort to reduce smuggling by limiting our exports to the USA, our competitors did not. Subsequently, we have decided to remove the limits on our exports to regain our share of Canadian smokers. Until the smuggling issue is resolved, an increasing volume of our domestic sales in Canada will be exported, then smuggled back for sale here.’6
Smuggled cigarettes, of course, are also inherently cheaper than their legal cousins, giving them a competitive advantage against legally sold cigarettes. By helping to keep overall cigarette prices down, tobacco companies get to retain more price-conscious smokers who otherwise may have quit, which helps to increase overall sales.7
The simple fact is that tobacco companies benefit from cigarettes that end up in the hands of smugglers. They sell them at the same prices that they would to legal wholesalers.
As South Africa’s Dr Yussuf Saloojee (the Executive Director