Читать книгу Dirty Tobacco - Telita Snyckers - Страница 9

‘The magician must expect the exposure of his tricks sooner or later, and see what it has required long months of study and time to perfect dissolved in an hour. The very best illusions of the best magicians of a few years ago are now the common property of travelling showmen at country fairs.’

– French magician Alexander Herrmann

In the simplest terms, there are three circles in the tobacco manufacturing industry: multinational big tobacco companies with their globally-known big brand names; smaller, independent manufacturers who typically make cheaper – but still legal – cigarettes (sometimes called ‘cheapies’ or value brands); and the guys who manufacture specifically for the contraband market, making counterfeits (addendum 3) or what are called ‘illicit whites’ or ‘cheap whites’ (addendum 4).

In an interview Johann van Loggerenberg, the tax sleuth and author of books like Rogue, Death and Taxes, and Tobacco Wars, describes them as bank robbers, bag snatchers and muggers respectively.1

The big guys, the little guys, the purely criminal guys, they all have three things in common: they all try in some way to minimise their tax liabilities; their products all – to a lesser or greater degree – seem to find their way on to the black market; and they all, in the end, will likely kill half of their customers.2

Increasingly, big tobacco is under material pressure from smaller, local low-cost manufacturers who are making inroads into its market share.3 For instance, South Africa’s Carnilinx sells its value brand for R17 (just over $1 at the time of writing) a pack. BAT’s most popular Peter Stuyvesant packs sell for around R44 (roughly $3).4 How can a Carnilinx pack sell for so much more cheaply than one from BAT does? They could be evading taxes, but not necessarily so: on average, it costs less than R1,50 to make a pack of cigarettes, and these smaller, low-cost companies do not have to send royalty payments, management fees and IT charges to an offshore parent company like BAT has to. And because what you’re allowed to put into cigarettes is reasonably well regulated, their product is at least in some way comparable to what big tobacco makes. For cash-strapped consumers it’s an obvious choice.

As Yusuf Kajee of Amalgamated Tobacco South Africa puts it: ‘It’s like people having a choice between Prada and Gucci [meaning the big tobacco companies] and then Mr Price [a value clothing and homewares brand in South Africa]. That’s all we are doing – offering a lower-priced cigarette to the ordinary man on the street.’5

In 2002, when the illicit cigarette trade was just beginning to pick up pace, BAT’s market share in South Africa stood at between 86% and 95%; it now sits at around 74%.6 Here’s why: In 1999, 27% of South Africans smoked. Big tobacco held more than 80% of that market, equating to some 4,6 million smokers buying their brands. By 2015, in large part because of targeted anti-smoking campaigns, only 11% of South Africans were smoking. Where big tobacco previously had a potential pool of 4,6 million smokers to target, they were now down to a pool of 2,7 million smokers7 – many of whom were now more price conscious. So, in the space of six years, big tobacco in South Africa had effectively lost 1,9 million smokers – close to half their market.

With fewer potential smokers to sell their products to, the entrance of competitors who sell what are essentially the same products more cheaply would be the last thing big tobacco needs.

What big tobacco instead appears to have done, is to effectively suggest that there are only two classes of tobacco manufacturers: big multinational corporations, and criminals. It’s a tactic that works well – by attempting to paint all of its competitors as inherently criminal, big tobacco plays to our collective sympathies and fears. In South Africa, big tobacco has claimed that the local market is being flooded with illicit cigarettes and seemingly lays the blame squarely at the feet of smaller, local low-cost manufacturers like Gold Leaf Tobacco and Carnilinx, portraying them as the veritable axis of evil.

Painting them as entirely criminal is not borne out by the facts. So, for instance, media reports suggest that in 2018 South Africa earned around R17 billion (more than $1 billion) from excise duties and VAT on tobacco products. R4 billion of that is reported to have come from local independent manufacturers of cheapie brands.8 If these reports are correct, it would suggest that almost a quarter of the tobacco tax being collected comes from value-brand manufacturers. Labelling them as intrinsically criminal just doesn’t add up: they seem to be paying at least some taxes, although they have also been implicated in allegations of unlawful behaviour.

Indeed, illicit cigarette sales are on the increase in South Africa as they are in many parts of the world, and they do put our tax offices under greater pressure. They may well come from smaller, low-cost manufacturers like Gold Leaf, Savanna, Amalgamated Tobacco and Carnilinx. Or they might not. Let me be very clear – I don’t pretend that these new kids on the block are squeaky clean.

Globally, we’ve seen how smaller manufacturers – who don’t have as many sophisticated tax avoidance mechanisms at their disposal as multinationals do – cheat the system a bit differently: they might post9 illicit cigarettes, because small, high-frequency smuggling by post goes largely undetected;10 hang gliders take off from Ukraine and drop as many as 100 cartons of contraband cigarettes per flight in Hungary;11 a drone was caught smuggling cigarettes from Lithuania to Russia – it cost $10 to build, could carry up to 500 packs of cigarettes per trip, and was fitted with a GPS device allowing it to make drops at pre-­determined waypoints, making $1 300 profit per trip;12 a 700-metre-long tunnel between the Ukraine and Slovakia was fitted with an electric railway which was used to smuggle contraband cigarettes;13 and on the border between Russia and Estonia, consignments of illicit cigarettes are simply dropped at a strategic point along a river bank in Russia, where it drifts along the current and is promptly deposited on the Estonian side, with nobody needing to carry the packs across any borders.14

(It’s easy enough to set up a back-yard operation. Want to make your own commercial batch of illicit cigarettes? Order a manufacturing machine off Alibaba,15 buy bulk loose tobacco and filters without a licence – none of which are actually illegal in many countries – and you’re in business.)

Where did they learn how to smuggle? One of the smugglers I spoke to was explicit: ‘Initially, we bought our tobacco from the big guys, but we soon realised that we could make far more profit making our own cigarettes, initially in places like Dubai, and later here in South Africa, and just play the same games they always have, but this time with all the profit going to us.’16

He went on to claim: ‘Of course big tobacco supplies the local illicit market. But they do it the same way I do it. We’re not stupid enough to do the smuggling ourselves – we pay agents to do it for us. That is why I have never been caught, and that is why they have never been caught here.’ (In fairness, he has his own motivations for speaking out against big tobacco, and so I don’t expect you to take his word for it – read the rest of this book and decide for yourself.)

To be clear – I was not a member of the Project Honey Badger team, and I don’t know what evidence they found. I have not personally investigated any of the names now being bandied about as the sources of illicit cigarettes in South Africa – I left SARS before they became players in this saga. I am certainly not suggesting that these independent manufacturers of what are loosely referred to as ‘cheapies’ are innocents – there are allegations about them being associated with cocaine dealers, wanted by Interpol, and linked to apartheid assassins and arms traders, after all – just that their potential role in the abuses of tobacco is but one dimension of a bigger story.

More information about these smaller players, and the allegations that they face, can be found in Van Loggerenberg’s books, and in Jacques Pauw’s The President’s Keepers.

I should also mention that the Fair Trade Independent Tobacco Association (FITA), which represent many of these smaller players, and is predictably at loggerheads with TISA, has denied that any of its members are involved in illegal activities, and has pledged to take action against any of their members found to be contravening the laws of the country.

For what it’s worth – it’s not just smaller competitors who are fuelling the illicit trade in cigarettes. Many politicians are doing the same, doing more than just giving tobacco room to breathe, but actively getting into the black market themselves.

As far back as the 1730s in France, we see examples where those in power got their hands dirty. Local churches exploited the niche market, hiding hundreds of pounds of contraband tobacco in their buildings – the Couvent de la Trinité was widely known as a reliable source of cheap tobacco, and over time various religious orders were found guilty of smuggling.

In eighteenth-century France, convicted smugglers were frequently ordered to join the army instead of being sent to the galleys, bringing with them both their proclivities and black-market skills. As soldiers they had access to two sources of cheap tobacco: troops only paid half price for tobacco; and they had easy access to cheap tobacco from neighbouring countries from their border patrols, allowing them to buy cheaply, and still make a profit on-selling on the black market.

It’s a trend that continues to this day:17 The ex-president of Paraguay reportedly owned the company that produced the majority of smuggled cigarettes in Latin America, although he frequently denied this accusation.18 The Montenegrin Prime Minister was accused by Italian prosecutors of having run a cigarette smuggling operation worth more than $1 billion – but he could not be prosecuted because he had diplomatic immunity.19 Belarus, which only has two state-owned tobacco manufacturers, has been the largest single identifiable source of contraband cigarettes smuggled into the EU.20 Seven Gambian diplomats were convicted for dealing in illicit tobacco, defrauding the UK Treasury of £4,7 million.21 North Korean diplomats at the Stockholm Embassy were involved in contraband tobacco and alcohol sales as far back as 1976, and more recently were again caught smuggling cigarettes into Sweden in 2009.22

In China some local governments are so zealous about defending the tobacco industry that at some point, officials in Hubei were reportedly required to smoke a collective 230 000 packs of regional brands a year.23

In the last two years alone we saw government officials really get their hands dirty: In Jordan politicians have reportedly been involved in an illicit tobacco manufacturing scheme resulting in an estimated $100 million in evaded taxes and duties.24 In Montenegro a journalist was shot following a series of allegations of senior policemen being involved in a counterfeit cigarette syndicate.25 Greece disbanded a contraband cigarette syndicate headed by an ex-policeman. In the US, three military veterans were charged with cigarette smuggling. In one of the Balkan countries illicit tobacco largely comes from two factories in the country – both of them rumoured to be run by the state security agency.26

Not all government complicity takes the form of corruption, though. Sometimes governments’ complicity may be unintentional: The Indian government resells some of the smuggled cigarettes it seizes in special customs shops. However, a BAT document reveals how it viewed these shops as a new marketing opportunity: cigarettes were being smuggled directly to the shops, where they were illegally sold under the cover of the shops’ legal sales of seized cigarettes.27

Other politicians actively encourage illicit trade and smuggling as an act of patriotism. Former Australian senator David Leyonhjelm praised tobacco smugglers, calling them patriots. He said people dealing in illicit tobacco were simply avoiding unreasonable taxes, arguing that the government is only getting away with harsh new measures to target tobacco smugglers because ‘smokers are sneered at by the elites of society.’28

Of course, the illicit trade in tobacco frequently involves crime syndicates. In Europe alone, organised crime groups rake in at least €9,4 billion a year from illicit cigarettes. Illicit tobacco in France yields more than €2 billion a year. In Canada, an estimated 105 crime syndicates are involved in the illicit tobacco trade.29 At one point, illicit tobacco in Ireland was generating up to €3 million a week.30

And some reports suggest that illicit tobacco may be funding extremist organisations who are increasingly turning to cigarette smuggling as a high-profit, low-risk way to finance their operations. It’s an extremely lucrative business, earning the Real IRA an estimated $100 million over a five-year period. It also provided the bulk of the financing for AQIM, formerly backed by Osama bin Laden; constituted the second biggest source of funding for the Taliban (after heroin); and – together with oil – earned Saddam Hussein as much as $2,7 billion annually.31

Where do syndicates get the cigarettes from? The smaller independent manufacturers may be fuelling some of it, but a study by a US-based think-tank claims that they simply may not have the capacity to produce those kinds of volumes by themselves.32 The smaller independent manufacturers are an indisputable problem – but they are certainly not the whole problem.

Whether we’re dealing with the new crop of smaller independent manufacturers, or senior politicians, or crime syndicates, the road was paved by big tobacco. What big tobacco did – globally – was perhaps to perfect the trick of making tons of cigarettes disappear. 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.