TOBACCO GIANT IMPLICATED IN GLOBAL SMUGGLING SCHEMES

Exposed: How Billions Of BAT Cigarettes End Up On Black Markets

British American Tobacco condoned tax evasion and exploited the smuggling of
billions of cigarettes in a global effort to boost sales and lure
generations of new smokers, secret company documents reveal.

The London-based corporation, the world's second-largest international
tobacco company with sales of 900bn cigarettes a year, has benefited from
black marketeering on a massive scale.

Senior BAT executives arranged to supply huge numbers of "sticks" a year -
the industry term for cigarettes - to wholesalers and distributors,
expecting that they would find their way into crooked hands and onto black
markets after being smuggled across national borders, without duty being
paid. In some countries the company also knowingly advertised and promoted
smuggled cigarettes to improve its market share.

Facts and figures about the contraband trade are detailed in internal
company documents, including memos and faxes marked "restricted" and
"secret", found among 8m pages BAT lodged at a depository in Guildford,
Surrey, as part of the settlement of a 1998 US court case.

The International Consortium of Investigative Journalists, a group based
within the Center for Public Integrity in Washington DC, spent six months
analysing 11,000 pages of the papers that BAT agreed to make public.

They suggest that the background to the growth of international cigarette
smuggling in the 1990s included rivalry between BAT and its major
competitors, as well as the tobacco companies' joint wish to bring down high
taxes and increase smoking markets.

The disclosed documents, which span a period up to 1995, do not suggest that
BAT employees committed any crime in Britain. They show that the smuggling
"channels" which the company's cigarettes travelled along were always
operated and managed by others.

But the documents do show how euphemisms - including "duty not paid",
"general trade" and "transit" - were often used to describe unorthodox
cigarette sales channels, which could be as an alternative to legal "duty
paid" deals.

Sometimes the duty paid and duty not paid markets were combined so sales of
smuggled goods could benefit from advertising for the legal products under
so-called "umbrella operations" which expanded sales.

Marketing strategies and sales drives in Canada, Latin America and Asia were
uncovered by the CPI team. Well-know BAT brands involved included Kent, Kool
and Lucky Strike as well as regionally popular brands such as State Express
555 and Belmont.

Since the 1997 general election Kenneth Clarke, the former Tory chancellor
and health secretary, has been appointed deputy chairman of BAT, a FTSE-100
company that reported profits of more than UKP1bn for the first nine months
of last year.

BAT declined to answer specific questions about its activities and those of
individual executives named in the papers, including Ulrich Herter, the
managing director, and Keith Dunt, finance director.

The company issued a general statement denying the "allegations of
smuggling". It claimed that researchers "have 'cherry picked' a selected
number of documents from the 8m pages in the depository, and could be at
high risk of drawing and publishing conculsions which are at variance with
the facts".

BAT went on: "We do not intend to answer questions or address allegations
apparently based on highly selective and out-of-context documents about
matters which are more properly addressed - and in many instances are being
addressed with our full co-operation - by governments and customs
authorities around the world."

Many of the disclosures concern routes that go through the Caribbean island
of Aruba and enter Colombia, where they finish up in contraband markets. In
an interview on Channel 4 News tonight, Ricardo Ramirez, the Colombian
government minister responsible for tax and customs, says BAT recently
agreed not to sell to any unauthorised dealers. "We have told them not to
sell through the San Andresitos markets but through official channels. If we
have evidence that directors or anyone else in the organisation promotes
smuggling we will not hesitate to prosecute them."

Today's disclosures, however, could lead to Martin Broughton, BAT's
non-smoking chairman, being recalled before the Commons all-party health
select committee to explain his company's policy. David Hinchcliffe, the
committee's Labour chairman, said last night: "This information is of direct
relevance to our current inquiry. I will be suggesting to the committee that
we seek further evidence on this matter from the company concerned."

Another member of the committee, the Liberal Democrat MP Peter Brand, said:
"It's as clear as a pikestaff that they are deliberately trying to undermine
the governments' efforts by, if not in cahoots with the black marketeers,
certainly doing nothing to hinder them."

The UK government alone loses an estimated UKP2.5bn in duty from smuggled
cigarettes.

Clive Bates, director of Action on Smoking and Health, today challenges Mr
Clarke to order an internal BAT inquiry and calls for an independent
Whitehall inquiry into the corporation.

"The deputy chairman of BAT, former chancellor Kenneth Clarke, should
immediately launch an internal inquiry and report back to the BAT AGM on
April 27," he says.

"The DTI should begin an in-depth inquiry into BAT's business practices and
conduct. It is up to the government to ensure British multinationals do not
treat developing countries like some lawless wild frontier."