distributorships,18 and in Montenegro, a JTI distributor was apparently retained despite being a convicted cigarette smuggler.19) The consultant passed the information on to JTI for them to investigate the allegations against their employees and contractors. The VP heading Global Brand Integrity Operations, David Reynolds, apparently wanted to take action against the individuals on the list; but instead says he was told in no uncertain terms to return the information to the consultant, to delete all copies of the data from JTI’s servers, and to refrain from using similar information in the future.20
Mr Reynolds went on to pen an extraordinary note explaining his concerns in some detail, including noting, ‘Shipments to unauthorized buyers have reached a massive scale exposing the company to fines potentially of around €30 million. We have repeatedly reported our findings to JTI management … but have yet to elicit any concerted effort to halt these diversions. In recent months members of my team have been directed not to investigate several instances of smuggling related to specific JTI distributors … and the possible involvement of JTI employees with known smugglers.’21 (The full text of his email is included in addendum 8 – it’s really worth a read.) Not surprisingly, he was fired days after sending the email, along with his assistant. JTI says he is an ex-employee spreading false information. You make up your own mind.
Another colleague in JTI subsequently commented: ‘You have to ask yourself how serious they are when they bring in people from Gallaher to take over. The culture in Gallaher was very much, “Let’s not get caught, but if we do get caught, be prepared to defend ourselves.” They didn’t take steps to stop smuggling, just to insulate themselves when it came out.’22 (Gallaher had been bought by JTI after having been implicated repeatedly in smuggling operations, and with court papers detailing how they helped smugglers evade more than $1,5 billion in customs duties in the UK.)23
Two things stand out for me: the first is that big tobacco must have known and did nothing. But the second is that there are a few good souls in the industry who are willing to take a stand. We need more of those.
Even in more recent Project Sun reports – published by KPMG, and dealing with the state of illicit tobacco, commissioned by the tobacco industry – it is noted how ‘… varying sanctions across member states currently influence decisions by big tobacco about where to conduct operations or which routes to take when transporting goods across the EU.’24 Where I come from, ‘sanctions’ generally tend only to worry those who have something to hide.
The question, of course, is what big tobacco’s position is on this today, and how their local in-country corporate strategy and profit considerations and risk appetite differ from their global counterparts.
What we’ve seen with big tobacco’s heavy involvement in supplying the contraband market is attributable to a permutation of only one of three possible explanations:
Firstly, perhaps it’s in their DNA and it simply forms part of their business strategy (and there certainly seems to be at least some evidence of this being the case).
Secondly, maybe they just turn a blind eye. Perhaps the existence of illicit activities within the company is known, albeit perhaps not explicitly endorsed, and are allowed to perpetuate, as the bottom-line benefits from it.
Or, thirdly, perhaps they simply employ countless rogue employees across the globe who perpetually perpetrate illicit activities without their knowledge or endorsement, and with the companies unable to establish internal controls and processes to offer any level of protection against such employees.
I can’t think of any other scenarios that explain the industry’s persistent history of and association with criminality. Whichever one of the three it is, it means that our governments can have no confidence – at the very least – in industry’s tax and duty declarations. In all three cases the solution is simple: the industry cannot be trusted to regulate itself and requires stronger regulatory oversight and more robust supply chain security measures across the tobacco value chain.
‘At best, tobacco companies are failing to control their supply chain, overproducing in some markets and oversupplying to others in the knowledge their products will end up on the illicit market,’ writes Prof. Anna Gilmore, Director of the Tobacco Control Research Group at the University of Bath. ‘At worst, ex-employees insist JTI remained actively involved, describing “rampant smuggling”. BAT staff suspected JTI was facilitating smuggling into the DRC but BAT also clandestinely moved millions of dollars in cash from Uganda to the DRC to buy tobacco leaf which was presumably then illegally exported. BAT cigarettes being distributed by a company implicated in tobacco smuggling were ending up in the illicit market with BAT staff agreeing not to discuss the problem by email.’25
Many other industries, with commodities that are far less hazardous, and that are far less vulnerable to criminal enterprise, and that are far less susceptible to tax evasion, have implemented far more robust supply chain security solutions than the tobacco industry has.
The number of examples where big tobacco is charged with some kind of fine, felony or infringement is staggering – not just in smaller, less-advanced economies, but in leading economies; not just in isolated instances, but globally over an extended period of time. Big tobacco is a serial repeat offender, and is repeatedly being sanctioned, and agreeing to pay massive fines (in the billions), with very little real, substantive change being evident in their behaviour over time.
What would the industry have us believe? What are they actually doing to fix the systemic issues that recur year after year? We simply don’t know. We certainly aren’t seeing any real change in either their behaviour or in the risks they pose.
At the very best, giving industry every conceivable benefit of the doubt, it is clearly highly vulnerable to criminality (even if you buy its occasional plea that this is not of its own making but the doings of countless rogue employees), making the case for far stronger regulation of the industry.
As Gilles Pargneaux, Member of European Parliament, puts it: ‘What are we witnessing when it comes to our dealings with the tobacco industry? It is illegal activities flirting with criminal organisations, duplicity in the fight against illicit trade of tobacco products and strategies of fiscal evasion which were unveiled by the special committee of the European Parliament on Tax Evasion. This is the worrying assessment we have to make in order to stop these practices and rein in the influence of the tobacco industry.’26
Why have they managed to get away with this on such a grand scale? Because our law enforcement agencies and policy makers have failed to put up a meaningful fight.
7. They play a weak defense
Despite having had centuries to refine their regulatory efforts and tactics, governments are failing dismally in their efforts to curtail the illicit trade in cigarettes.
An internal PMI corporate affairs document perhaps says it best: ‘[They] play weak defense.’1 As a result, cigarette smuggling is now one of the fastest growing forms of organised crime.2
Cigarettes are the world’s most widely smuggled legal substance.3
Dealing in illicit cigarettes is a lucrative, relatively low-risk activity, netting around $2 million profit on a black-market container. As one enforcement officer notes, cigarettes are easy to smuggle, easy to buy, drug dogs can’t sniff out the difference between a licit or illicit pack, and you don’t go to jail for 50 years if you get caught.
They differ from other illicit commodities like methamphetamines or cocaine in that they are not inherently illegal, but the business is no less dirty for it.
Against that global perspective, just how big of a problem has this been in South Africa? Some years ago,
