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Tobacco giant denies encouraging smuggling to China

Abergavenny Roger Dobson

British American Tobacco (BAT) has denied that it benefited from, encouraged, and attempted to control smuggling of tobacco into China, allegations reported in an online journal.

Contraband has been a hugely profitable and integral part of the company’s operations in China over the past two decades, claims the report by Kelley Lee from the London School of Hygiene and Tropical Medicine, and Jeff Collin, of the University of Edinburgh, published online on 18 July in PLoS Medicine (http://medicine.plosjournals.org, doi: 10.1371/journal.pmed.0030228).

The illicit trade is described in the report as being worth billions of dollars, and the report says that internal documents of the company show that at one point significant profits were coming from “transit” trade to China—which, alleges an accompanying article by Thomas Novotny (doi:10.1371/journal.pmed.0030279), is a code word for smuggled cigarettes.

The accompanying article claims that the documents show evidence of BAT’s efforts to build a market presence in competition with other popular brands, using whatever it takes to succeed in the new market, including smuggling.

Dr Lee and Dr Collin say that international action is needed to fight tobacco smuggling.

“While public statements by BAT have portrayed smuggling as ‘inimical to our long-term business interests,' internal documents illustrate how the company’s strategy in China, nonpareil among its future priorities, centred on the supply, oversight, and control of the illicit trade,” they write. “The documents demonstrate that contraband has been a hugely profitable and integral part of BAT operations in China over the past two decades.”

The article was based on an analysis of company documents dating from the early 1900s to 2003 that are stored at the company’s depository in Guildford, Surrey, and elsewhere and that were made public as a result of legal action against tobacco companies. The article says that the Chinese tobacco market was closed to foreign companies for more than three decades until policy changes in the 1970s allowed access. It says that tobacco companies made limited progress because of tight import quotas and high tariffs.

“Within this context, industry documents suggest large-scale smuggling of foreign cigarettes into China to circumvent barriers to market access,” says the article.

The authors cite what they describe as dramatic discrepancies between official figures of legal imports and BAT’s sales figures. “For example, during 1990, official imports from all transnational tobacco companies totalled 10.5 billion sticks [a single cigarette] whereas BAT documents describe company exports to China of over 20.3 billion sticks. The company recognised this trade as one of the larger profit centres in BAT Industries, with 25% of profits coming from transit trade to China.”

“Initially a means of circumventing restricted access to the Chinese market, it became a hugely profitable income stream. Contraband was then used to build market presence, in competition with other international brands, with supply and price carefully managed.”

The authors say that neither BAT nor its senior directors have yet been held accountable. They say that concerns expressed by the House of Commons select committee on health led to an investigation by the Department of Trade and Industry, which the department abandoned without publishing any findings “amid reports of undue political influence exercised on BAT’s behalf at the highest levels of government.”

The authors add, “This, alongside the continued accumulation of documented evidence of complicity, raises questions that the Health Select Committee might usefully revisit.”

But a BAT spokesperson responded by saying: “These are old allegations. We have said many times that our companies do not smuggle, and we do not condone smuggling.

“The document that is referred to in the paper as the basis for these claims was probably created in either 1995 or 1996 and is a series of projections and estimates of potential future sales, although we do not know the assumptions on which they are based. This document was deposited in legal archives around 2002 so clearly is not a retrospective look at sales figures. The figures in this document are inaccurate in respect of other markets, not just China, so it does not represent an accurate portrayal of actual global sales.

“We strongly support global efforts to combat smuggling and counterfeit. Illicit trade harms our brands, prevents us from competing fairly and openly, devalues our investments in local operations and distribution networks, and undermines the regulatory regimes governing the legitimate industry.

“The UK Department for Trade and Industry [DTI] did not ‘abandon’ its investigation into allegations that British American Tobacco was involved in smuggling, as the report’s authors claim. In 2004 the DTI said its investigation was complete—that no evidence of illegal activity was found and no further action was to be taken.”

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