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TOBACCO WARS

Have you anything to declare? Well, how about 28 billion cigarettes worth about 5 billion (Australian) dollars? That’s how much one major international company is alleged to have raked in through a massive illegal smuggling scam between Canada and the US. And now, another. British American Tobacco or BAT is alleged to have flooded the market in Vietnam with smuggled cigarettes to deliberately break a Government monopoly on sales. This extraordinary allegation, from a company insider, emerged earlier this year, just as Britain’s Tories were about to elect a new leader. Although eventually unsuccessful, for a while an even money bet to win that ballot was Kenneth Clarke, who also happened to be the Deputy Chairman of BAT. David Hardaker reports.

Clarke greets journos

Clarke: Hello there, Kenneth Clarke.

Hardaker: One of Britain's leading Tories has been running hard lately and not just for high political office.

00+00

Hardaker: Mr. Clarke, how do you justify peddling cigarettes to the third world?

00+09

Clarke: I don’t peddle cigarettes to the third world.

Hardaker: Your company does.

Clarke: We actually market to the better off people in South East Asia who wish western cigarettes instead of the ones made by their state owned factory.

00+15

Clarke montage

Music

00+25

Hardaker: It seems there are two Kenneth Clarkes – the big Tory, who's played an influential role in his party's affairs, and the man who’s in the pay of big tobacco. Kenneth Clarke is also the deputy chairman of BAT, British American Tobacco, the world’s second largest cigarette manufacturer.

00+29

Music

Hardaker: Now BAT stands accused of a major international sting – to illegally smuggle black market cigarettes into Vietnam, to break a government monopoly.

00+51

Music

Legresley

Legresley: The strategy there was to bring cigarettes in illegally in order to force Vietnamese government into a position where they would negotiate a joint venture with BAT.

01+05

Clarke doorstop

Clarke: Certainly as a company we have a firm policy of not having anything to do with smuggling, and that we will continue with.

01+20

Vietnam street scenes

Hardaker: With sales declining in affluent countries, tobacco giants like BAT are likely do whatever it takes to break into the huge markets of the poorer nations. In Vietnam – where smoking is a cultural tradition, millions of dollars – and lives – are at stake.

01+31

Music

Hardaker: The socialist republic of Vietnam --after a lifetime of war there’s a new feeling of opportunity, if not for the people, then certainly for big tobacco. The communist party is still in control, but Vietnam’s been opening up -- and what a market -- in this land of 70 million people it seems almost every second person smokes. The toll is mounting.

01+54

Dr. Duc with patient

Dr.: Has he been a smoker?

Man: Yes.

Dr.: How old was he when he started smoking?

Man: Well, he smoked for a very long time… I think since he was a teenager.

02+22

Hardaker: This man has come from the country to Hanoi’s leading cancer centre, the K hospital. Here business is booming.

02+36

New figures predict a grim future. In the next decade tobacco will kill 7 million – or 10% of the population. Nearly all will be men – few Vietnamese women smoke.

02+47

Dr. Duc

Duc: In Vietnam the number of people who smoke is high and smokers have the tendency to start when they are very young.

03+03

Hardaker: Professor Duc is the director of the K hospital. He knows the lure of Vietnam’s market is too tempting for the big tobacco companies.

03+17

Duc: They would use propaganda in their marketing … they will do all they can to attract young people to smoke when they are young, because then they will become long term customers of the tobacco companies.

03+25

Cigarette production line

Hardaker: Until six years ago the Vietnam government had kept foreign tobacco companies out. A state owned monopoly, Vinataba, supplied the local market, providing close to 100 million dollars a year in profit to the government.

03+44

BAT wanted to break Vinataba’s monopoly and set up a joint venture. It did so by creating a demand – through smuggled product in the country.

Eric: BAT wanted to come in both doors –

04+01

Legresley

at the same time they were engaging in a smuggling activity as indicated by the documents, they were engaged in joint venture negotiations with the Vietnamese government. The strategy there was to bring cigarettes in illegally in order to force the Vietnamese government into a position where they would negotiate a joint venture with BAT, that joint venture would then produced cigarettes that could be sold both by BAT and Vinataba in a variety of countries.

04+14

Legresley and Hardaker

Hardaker: Canadian lawyer Eric Legresley is the world authority on BAT’s Asian strategy. He’s had access to BAT’s internal documents, following a United States court ruling which forced the company to make them public. The documents reveal the full extent of the smuggling operation.

04+47

Documents

Legresley: You don’t see the word contraband being used, and you don’t see the word smuggling being used, at least not very commonly, but what you do see is the term duty not paid, or DNP, being used, and where BAT themselves identifies and defines what that term means and it's clear that it can only mean contraband products.

05+05

Cigarette montage with document super:

“de facto responsibility for most end markets”

“legal or transit”

Hardaker: A key player in the illegal trade was Singapora United Tobacco limited – BAT’s main Asian distributor. In one memorandum, BAT states candidly that the Singapore company has “de facto responsibility for most end markets” - which they define as “legal or transit” -- in other words, contraband. In another, BAT keeps tabs on the price it sells to its Singapore distributor, and then the end price as the goods enter Vietnam, at a time when their cigarettes were banned.

05+25

Man on motorbike smuggling cigarettes over border

This is how easy it is to smuggle cigarettes into Vietnam. Moc Bai is a major checkpoint on the Cambodia Vietnam border, yet barely 300 metres away, and in full view, this woman has no problem -- she simply rides around the checkpoint, taking another load of tobacco through the rice paddies.

06+03

Vietnamese checkpoint

The Vietnam government says it places a high priority on halting smuggling, but the chief at this gate is happy to concede its an uphill battle.

06+26

Mr. Ngot

Mr Ngot: At the border areas here I am certain where the tobacco is kept. It is in the people's houses on the Cambodian side next to the Vietnam border. They just wait for a suitable time when there are no border guards about and smuggle the tobacco into Vietnam.

06+36

More cigarettes on motorbike

Hardaker: As we speak another load of cigarettes, this time BAT’s flagship 555 brand makes its way across, bound for Vietnam's market. Around 10 million cigarettes come through this and other points on the border -- that’s each day. And there’s a more than ready supply of carriers.

07+02

Mr Ngot

Mr Ngot: One of the major difficulties that I see is that many of the farmers at the border areas are very poor and because they have no work they become involved in smuggling cigarettes.

Legresley: One third of the worlds cigarettes disappear into the black market.

07+22

Legresley

Now do I believe that BAT, if we can make the assumption that one third of BAT's cigarettes also disappear into the black market , do I believe they should be able to control those sorts of quantities? Yes. Do I believe that they're responsible if their most senior executives are sitting in meetings where they are planning these sort of operations? Yes.

07+42

Cigarette production line

Hardaker: The Vietnam government – which loses many millions of dollars a year in unpaid duties and taxes, caved in to the BAT strategy -- the company got its joint venture and the BAT production line now hums along nicely, pumping out as much as the market will take -- all from inside the government owned factory.

08+03

Legresley: One third of the worlds cigarettes disappear into the black market.: Their business is not just to sell legal cigarettes their business is to sell cigarettes however necessary. Sometimes the companies decided the only way they could get into a market was through smuggling. And these are people who are willing to compromise a lot.

08+25

Legresley

They’ve already rationalised that their products are going to kill half their consumers, so it's not a big step to say well if I’m going to sell products that'll kill people, I'll do it through smuggling as well.

08+41

Police boat on St. Lawrence Seaway

Hardaker: But it's not just BAT which is accused of smuggling. There’s compelling evidence that smuggling has been a modus operandi of the major tobacco companies around the world. The St Lawrence Seaway, on the border between the United States and Canada, too, has been a haven for the black marketeers.

08+53

Hardaker: Lewis Mitchell has the job of stopping them.

Mitchell

Mitchell: This island right here is Cornwall Island, this is in Ontario. This is St. Regis island over, this is in Quebec, the Quebec portion, and this piece of mainland off to your back over here, that's in New York State. Somewhere along the waterline, right in the middle is where the international border runs.

09+18

Hardaker: In the mid nineties a major smuggling ring took advantage of this jumble of jurisdictions to run billions of cigarettes into Canada’s black market. The aim of the operation was to defeat the country’s high taxes on cigarettes.

09+38

Sweanor

Super:

David Sweanor

Non Smokers' Rights Association. Canada

Sweanor: It has been described as the biggest case of corporate fraud in the history of the country and it's something that's ever more complicated because of the international dimensions. So what in effect we had were some multinational tobacco companies that basically said we can’t afford to let the government of Canada set fiscal and health policy, we're going to have to dictate that for them, we're going to have to force them to back down, we’re going to, in a sense, go to war against this country to prevent it from having these strategies that are reducing tobacco consumption.

09+54

Cigarette manufacturing plant

Hardaker: The cigarettes were made in Canada – and marked for export only – to the US. But the cigarettes only got as far as Niagara Falls on the United States side of the border, where they were held in a bonded warehouse. From there they were taken by an organised crime group and trucked across the top of the United States. Finally the tobacco was run over the river and back into Canada where it had begun its journey.

10+22

Photo of Les Thompson

RJR MacDonald tobacco executive Les Thompson was a lynchpin in the operation. Two years ago he pleaded guilty to laundering $150 million and was gaoled for seven years. The company paid a $30 million fine – but claimed Thompson had acted alone.

10+48

Sweanor

Sweanor: If it's true I think les Thompson is superman and the tobacco companies are just about as dumb as a rock, and that if we look at the facts here you've got somebody who is a salesman, a career salesman with the company, doing what he was told by the company, and they're claiming that this man single-handedly was responsible for over half of all the sales of product by RJR in Canada and nobody in the company noticed.

11+08

Canadian flag

Hardaker: But the Thompson case has kicked on – dramatically. On the basis of the evidence its collected, the government of Canada has launched a racketeering action against RJR Reynolds, claiming billions of dollars in unpaid taxes.

11+34

Phillip Morris building

The European union, too, has filed Racketeering actions against RJR Reynolds and Phillip Morris, claiming the companies orchestrated smuggling into its member states. And in England BAT is coming under real pressure – its pride of place in the city under threat because of a special inquiry into smuggling allegations by Britain’s Department of Trade and Industry.

11+50

Clarke giving speech

Clarke: The issue of Britain's relations with Europe has poisoned the internal politics of the conservative party for a decade.

12+15

Cigarette montage/documents

Hardaker: And now Kenneth Clarke faces new questions. An extraordinary letter has emerged, written by a former BAT executive, Iain Hacking. The letter was written in March last year to the Chairman of BAT, Martin Broughton – a copy was also sent to deputy chairman, the Right Honourable Kenneth Clarke -- the accusations couldn’t be more stark. Iain hacking explains how BAT “has been brilliantly successful over thirty years in growing and optimising the profits from managing the smuggling of various group brands into numerous international markets.” Hacking then poses the question: “Why did our blue chip company need to produce billions of pounds from this unsavoury source?”

12+21

Clarke doorstop

Clarke: …the more hysterical and fanatic anti-tobacco campaigners often distort what…

13+07

Hardaker: When we attempted to ask Mr. Clarke questions on the hacking letter this was the response.

Man: Excuse me, could you leave?

Hardaker: You've denied me any chance to ask him these questions.

Man: Well, you haven't asked me.

Bates

Super: Clive Bates

Director ASH--UK

Bates: Ian hacking is a former BAT marketing executive, extensive experience in Latin America and Far East. He’s not a zealot, he’s not an extremist he’s a former tobacco executive who feels that when BAT comes out and issues a denial as they did to parliament in Britain in the early part of the year 2000, enough's enough, he has to speak up. He’s a man of some honour and integrity in doing so, and he’s taking a risk in doing so, and I’m sure he wouldn’t have done it lightly.

13+25

Clarke with Hardaker outside building

Clarke: No, we haven't got time to do it inside. We haven't got time to do it inside.

Hardaker: After first refusing our request for an interview, Kenneth Clarke QC relented -- though on his terms.

14+02

Clarke: Okay, and a couple of questions that’s all, I’m not going to do the great long investigative journalism bit.

14+13

Hardaker: Mr Clarke, do you accept that BAT has been knowingly involved in smuggling tobacco products into Vietnam?

Clarke: No, I think that is quite untrue but I will wait and see what the results of the British government’s DTI inquiry which is now taking place into all these wild allegations that have been made in recent years.

14+18

Hardaker: Well now have you received that – Iain Hacking’s memo?

Clarke: Yes I think I have.

Hardaker: Now do you acknowledge that this memorandum is telling you that BAT has been brilliantly successful in managing smuggling operations around the world for decades?

14+38

Clarke: Well I don’t believe its accurate although that’s the allegation the letter makes, but that’s the kind of thing the DTI is now looking into.

Hardaker: But you’re deputy chairman of the company – don’t you want to know for yourself, why are you waiting for a bunch of public servants?

14+57

Clarke: I am waiting for independent inquiry rather than rather fanatic campaigners who make these allegations without producing evidence in support of them. And we are, certainly as a company, we have a firm policy of not having anything to do with smuggling and that we will continue with.

15+08

Hardaker: This man is no fanatical campaigner, he’s a former senior member of BAT.

Clarke: He’s used by fanatical campaigners and no doubt it's now being seen that people are trying to discover whether this ex-employee can produce any evidence to support his allegations.

15+24

Hardaker: Are you telling us he's lied here.

Clarke: I am telling you it should be properly investigated and I’m not going to agree with him simply because you have pressed me vehemently on the streets of Newcastle.

Hardaker: You’re paid tens of thousands of pounds per year to hold high office in BAT – isn’t it your role and responsibility to know the truth?

Clarke: Precisely, it is.

15+39

Hardaker: Don’t you want to satisfy yourself you’re not being paid with money derived from criminal activity?

Clarke I certainly don’t want to get any money from criminal activity – the company does not condone, organise or take any part in any criminal activity. The idea that one piece of paper should in itself make me not wait for a Dept of Trade inquiry seems to me rather preposterous.

15+58

Hardaker: You’re in the position of being a senior political figure in this country and not knowing whether or not you are being paid with criminal money?

Clarke: I know that the company’s policy is to have nothing to do with smuggling, not to condone smuggling. We instruct our employees to have nothing to do with smuggling, and I know that so far no-one has produced any evidence at all to substantiate any of these allegations.

16+20

Hardaker: Kenneth Clarke might be able to dodge further questions from this reporter, but the smuggling allegations aren’t going away.

16+39

Bates

Bates: Clarke's taking a risk because the Department of Trade and Industry in the UK is going to go through all this evidence and show it is true, BAT is involved in smuggling.

16+48

Cigarette production line/Vietnamese smokers

Music

Hardaker: And BAT’s finances may also be at risk. Iain Hacking’s letter discloses the company had planned to strip 500 million pounds out of its profits to clean up the mess from smuggling.

17+02

In the streets of Vietnam there’s overwhelming evidence of BATs success -- the endpoint of an international enterprise which has swept all before it. Indeed it appears Vietnam’s customs officials remain blissfully unaware of how London had plotted and planned to crack the country’s market.

17+21

Mr Le

Hardaker: I have something here which we got from England which I’d like you to look at it. It says in that letter there that BAT has been brilliantly successful in managing tobacco. Now does that sound like an admission to you?

17+43

Hardaker: It's perhaps a testament to BAT that as Mr Le ponders the evidence against the company, he does so with the help of a BAT 555 cigarette – incidentally from a packet which had been smuggled into the country.

17+59

Le

Super: Le Thanh Hien

Director, Vietnam Customs

Mr Le: It’s the company’s own business, they are producing and selling their products. They are selling products to gain a profit. And here you give me some big information… raising some of the major issues relating to the big international tobacco companies. If this smuggling is happening… we should try to stop it.

18+12

Hardaker: While the customs chief contemplates how he’ll nail the multinational which makes the cigarettes he smokes, the state owned tobacco company – which generates so much money for the country – is only too happy to think the best of its joint venture partner.

18+35

Van De

Super: Nguyen Van De

Chief, Vietnam Tobacco Group

Van De: BAT has been co-operating well with us here in Vietnam. We are more than willing to read the information you have provided but we have a habit for quite some time that we don’t discuss our friend’s company’s business.

18+52

Vietnam

Music

Hardaker: It's part of the politics of tobacco in the developing world that whatever the language in the end money talks -- with health policy running a poor second. In a country which is accustomed to repelling the foreign invader, there are those who desperately want to see the back of companies like BAT.

19+20

Music

Duc: If there is a message I would give to foreign tobacco companies… I would like to say if possible

Dr. Duc

please make another product and please stop continuing to produce tobacco.

19+56

Cigarette production/Vietnam scenes

Hardaker: The Vietnam government says its concerned about the health of its people – and has announced it will ban all foreign cigarettes by the end of the decade. But why would that worry BAT? After all, as it's demonstrated before, subverting a government’s policy is all in day’s work.

20+06

Credits:

TOBACCO WARS

Reporter: David Hardaker

Camera: Neale Maude, Gregory Heap, Mark Slade

Sound: Kate Graham, John Benes

Editors: Garth Thomas, Bryan Milliss

Producer: Ian Altschwager