Fresh allegations of corporate espionage and possible money-laundering emerged this week against British American Tobacco (Batz) Zimbabwe’s parent company, British American Tobacco PLc (Bat) amid reports the SA Revenue Service (Sars) has unearthed errant and illegal behavior on the part of the company.
The allegations lend credence to accusations Batz could have been involved in hijackings of its competitors — Kingdom, Savanna Tobacco, Breco (Fodya), Cutrag, Trednet and Chelsea — export consignments valued at R100 million to armed hijackers three years ago.
The cigarettes were mostly destined for South Africa. None of Batz’s products were hijacked, prompting its competitors to believe the largest cigarette manufacturer in the country was involved in industrial espionage and possible sabotage, a charge Batz refutes.
According to reports, a March Sars tax probe of all the country’s tobacco companies revealed rampant illegal and unethical industry practices.
While Sars did not name specific companies, industry insiders said the letter referred to poor behaviour across the board — from large operators such as Bat to smaller “value-brand” companies under the banner of the Fair-Trade Independent Tobacco Association.
The letter was signed by Sars investigations head Johann van Loggenberg and sent to Lieutenant-General Anwa Dramat, who heads the Hawks crime-fighting unit, suggesting arrests and prosecutions could follow. Van Loggenberg said the companies “have been found wanting when it comes to accounting for and complying with their income-tax obligations”.
Damningly for Bat, the Sars letter appeared to confirm the claims of corporate espionage and possible money-laundering in which it is implicated, allegations first revealed by the Sunday Times two months ago.
In March, the Sunday Times published excerpts of a conversation between a Bat official and someone it hired to spy on rivals, in which the tobacco executive implores the “agent” not to “sell us out” by disclosing dodgy cross-border payments Bat made to the agent. The Bat official said: “We will never reveal who we pay because of the nature of the business and the danger to the individuals … I am not going to reveal that because it is a life-threatening issue.”
However, the Sars letter provided further confirmation, saying it had identified people “who have been employed by a manufacturer in a secretive manner to collect confidential information on their competitors”.
“This has led to these individuals receiving remuneration, in some cases from offshore sources, in a way that can only be considered to be money-laundering.”
Sars said the companies who do this “expose themselves not only to charges of tax evasion and money-laundering, but it falls within the South Africa statutory definition of general corruption” — as well as bribery provisions in the US and UK.
Tabby Tsengiwe, a spokesman for Bat, said the company took the allegations “very seriously”, and “regards compliance with all local laws as a priority and we do not engage in any illegal conduct”.
The scandal has not had any impact on the share price; Bat’s shares have climbed 12% on the JSE over the last year.
The company reported a 3% climb in profit for last year to £4,2bn, as it sold 676-billion cigarettes across the world under brands including Lucky Strike, Dunhill, Peter Stuyvesant and Craven A.
But revelations in the Sars letter — apparently pointing to Bat — that the UK and US tax authorities were now investigating the spying could increase pressure on the company.
In recent weeks, Sars launched a full-scale audit into Bat. Tsengiwe said this tax probe was not into Bat specifically, but “industry-wide”.
But Bat has already had a number of run-ins with Sars.
In a prospectus issued two weeks ago to raise £15bn, Bat said: “Sars has challenged the debt financing of British American Tobacco South Africa and reassessed the years 2006-2008 in the sum of R600m.”
Bat aside, the picture painted by Sars is of an industry rippling with dishonest tactics to dodge tax, from putting in place “artificial profit-shifting strategies”, pretending that entire shipments of tobacco were being sent to Zambia when actually they were being leaked into the local market, and hiring people to bribe Sars officials or to quash tax cases. In one case, a tobacco company paid R2 million to a tax adviser, who it believed had influence at Sars and who could make a tax case disappear.
“Apart from having engaged in questionable and possibly corrupt activities, [the companies] will most certainly have wasted their money,” said Van Loggenberg.
Back home, police has beebn clamping down on Batz’s imported Dunhill brand amid indications the products were not compliant with the country’s laws, prompting retailers to remove the product from the shelves briefly.
The Dunhill packs and dispensers carry South African health warnings, which are considered to be illegal under the instrument. SI 264 (2002) governs the sale and marketing of tobacco and tobacco related products. Among other things, it outlines the rules and regulations guiding the sale of cigarettes, packaging required and health warnings.
Bat’s competitors such as Savanna Tobacco, the manufacturers of the Pacific brand of cigarettes and Fodya, the makers of the Mega Brand of cigarettes, have complied. Authorities say Bat is using a South African health warning which reads: “Warning: Smoking Can Kill You”, among others that are used in the South African tobacco industry.
According to the Statutory Instrument, Zimbabwean cigarette manufacturers have to use the mandatory Zimbabwean health warning which reads: “Danger: Smoking Is Harmful to Health.”