No Smoke Without Fire
THE BIG ISSUE: 2nd October 2000
Tobacco smuggling has reached epidemic levels. But tobacco companies themselves are fuelling the trade. Andy Rowell and Rich Cookson report.
"I never thought we'd see such big hauls. I'm really surprised we've seized this much." George (not his real name), a Customs officer, was celebrating last week. His Bristol-based team have made two huge seizures of cigarettes recently, and were proudly showing off their spoils. In late August they found six million illegal fags at a garage in Cheddar. Just one week later they seized another 4.5 million on a ship in Avonmouth docks. At a secret warehouse, piles of household brands - Regals, Superkings, Embassy and Sovereigns - are waiting to be destroyed.
Tobacco smuggling has reached epidemic levels. Five years ago, Customs seized 32 million cigarettes. Last year they seized 1.3 billion. This year they expect to seize a record two billion, and at best they are only catching ten per cent of what is actually being smuggled. Industry insiders say that almost a third of cigarettes sold in the UK are smuggled. So if 80 billion fags are smoked here each year, 24 billion enter the country illegally.
Most people believe that tobacco smugglers are small time bootleggers, buying fags cheaply in Europe where taxes are lower, and re-selling them in Britain for a profit. But this only accounts for a quarter of the trade, according to Customs. Serious criminals are shipping millions of cigarettes in containers and are paying no tax at all. This is costing the Exchequer £1.9 billion a year in lost revenue - the equivalent of running over 60,000 hospital beds or employing more than 100,000 new teachers. It also encourages under-age smoking, because there are no checks on illegal distributors.
But a Big Issue South West investigation carried out with Action on Smoking and Health, has discovered something remarkable - that tobacco companies are exporting British brands to countries where almost no-one smokes them. These cigarettes are then entering the black market, to be smuggled back into the UK. Although exporting cigarettes in this way is completely legal, the companies are actively fuelling large-scale tobacco smuggling. Furthermore the biggest supplier of illegal cigarettes entering the UK in this way is Bristol-based Imperial Tobacco.
Customs insiders say they are on course to seize a record one billion Imperial cigarettes this year. Given that Customs only seize ten per cent of what is really being smuggled, then 10 billion illegal Imperial cigarettes are due to be smoked in the UK this year. That's over half of what the company exported last year.
Imperial maintains that it is doing everything it can to stamp out smuggling. "What we are doing is legal, but the law is being broken at some point," says Imperial's spokesman Paul Sadler. "We have thought long and hard about smuggling within the company, and we don't believe there is anything more that we can do." However, the company has refused to provide us with export figures for specific countries.
Furthermore, there is evidence from all over the world that tobacco companies are facilitating the illegal trade, or at worst smuggling themselves. Big companies like Philip Morris, the makers of Marlboro, and RJ Reynolds, which makes Camel, are being sued in the US. So too is British American Tobacco which faces allegations of racketeering. The law suit against BAT alleges "involvement in organised crime in pursuit of a massive, ongoing smuggling scheme." A number of the BAT board members are personally named in the suit.
The export scam works like this. Gallaher and Imperial's main market is the UK - they sell the brands that are smoked in the high street. But the domestic market is declining and they need to find new markets. So they sell abroad. This is perfectly legal, but somewhere, the cigarettes enter the black market and are brought back into the UK.
The smugglers profit from this because they do not pay tax on the cigarettes - some 80 per cent of the cover price - and the companies profit because they still make the sale. Even if the cigarettes are seized, more will be ordered by the smugglers, so the companies sell even more. Smokers, too, profit because they pay less for smuggled goods. But the Exchequer loses out on massive amounts of revenue for our hospitals, schools and health service.
Customs officials know what is going on. A spokesman for the EU's Anti-Fraud Office says: "It is very suspicious that Regal and Superkings, mainly smoked in UK, are transported to several countries apparently with no reason". An Irish Customs official adds: "The Regal and other Imperial brands tend to come back to the UK market. The UK would be the principal market for Regal cigarettes exported from the UK."
European Customs officers first became suspicious in the mid-Nineties, when exports of British brands to the tiny principality of Andorra rocketed. Britain had seen a massive tax hike in the 1993 Budget and with EU border controls becoming more flexible, smuggling mushroomed. According to Andorran Customs, exports from the UK to Andorra increased from 13 million cigarettes in 1993 to 1.52 billion in 1997. In just three years, between 1995 and 1997, Imperial's exports to Andorra increased 35 times.
By 1997, EU investigators had become alarmed at what they recognised as a new smuggling route opening up. The EU anti-fraud unit reported a "significant increase in exports to Andorra of brands popular in the United Kingdom". It was not as if Andorrans had suddenly acquired a taste for British brands, noted the EU investigators, as "importations were far in excess of the amount required for local consumption". Every Andorran would have had to have been smoking 130 a day. Later that year a crackdown by Spanish and Andorran authorities effectively closed the Andorran route, and by January 1998 there were no British exports to Andorra.
But this was just the start - the companies simply began exporting elsewhere. In October 1997 Italian Customs seized what became the first of many Superkings and Regals off the Adriatic Coast, coming from Montenegro and other Balkan countries. "Before 1997, it had never happened. Since then we have seized many cigarettes destined for the UK market," says an Italian Prosecutor from Bari. Importantly, many of the cigarettes had British health warnings on them.
That year, investigators from the EU Anti-Fraud Office had visited Montenegro, worried that the war-torn country was also being used as a conduit for smuggling cigarettes. They found that that billions of British cigarettes, mainly Superkings and Regals, were being exported to Montenegro. The cigarettes were going via land, probably being exported through Belgium, or Cyprus, a favoured transit country for the UK companies. By last year, according to the EU Anti-Fraud Office, over 40 per cent of cigarettes seized on the Adriatic coasts coming from Montenegro by speedboat were British-made.
Because of the Balkan war and a crackdown by EU investigators, cigarettes are no longer shipped to Montenegro directly. Now most come in from Cyprus, a country with little or no home market for British brands. Cyprus has become a transit country, from where cigarettes are shipped to Israel, Ukraine, Syria, and Egypt. Cyprus is a booming destination for Imperial. Leaked export figures obtained by The Big Issue South West show that Imperial is on course to ship some five billion cigarettes there this year alone. The 4.5 million cigarettes Bristol Customs seized last month at Avonmouth had come from there.
Cigarettes are also transported from Cyprus to Latvia, a country where millions of cigarettes have also been exported by Imperial. The other major seizure of cigarettes by the Bristol Customs teams - of Regal and Sovereign cigarettes, made by Imperial and Gallaher respectively - had come from neighbouring Lithuania.
One country that UK Customs is especially worried about is South Africa, where Imperial is on course to ship some nine billion cigarettes this year. The company says that it ships cigarettes from South Africa to Angola and Mozambique. However, Dawn Primarolo, the Paymaster General and Bristol South MP, whose constituency houses an Imperial factory, singled out the country last week as a new smuggling route, as she announced a new £3 million initiative to stamp out smuggling. It is a move backed by Imperial. "They are obviously starting to make a big effort to clamp down and we are in favour of it," says Imperial's Paul Sadler.
Andy Rowell and Rich Cookson
- home -