This month nine US politicians wrote to the US Department of Justice demanding that it investigate the London-listed British American Tobacco (BAT) following claims that the company engaged in widespread bribery of politicians and policymakers in Africa. Police in the UK are also investigating claims in relation to BAT's dealings in South Africa and an explosive affidavit by a whistleblower summited to the Competition Commission also suggests large scale industrial espionage and the corruption of government officials. Meanwhile, the Fair-Trade Independent Tobacco Association has come out guns blazing. By MARIANNE THAMM.
In November 2013, shortly after Ivan Pillay stepped in as acting commissioner of SARS, the country’s tax collection agency made a bold move, announcing that it was requesting the NPA to prosecute 15 local tobacco manufacturers and importers for tax evasion and illicit trade in an attempt to collect around R12 billion in unpaid taxes.
About 18-months later, Pillay and several other top officials, found themselves jobless.
The warning to the tobacco industry in 2013 arrived in the form of a letter penned by then SARS enforcement head Johan van Loggerenberg. It read: “SARS will apply the most appropriate punitive measure in law to deal with serious offences, which could include the withdrawal or refusal of registrations and licences”.
It was a letter sent to mainstream tobacco manufacturers, including British American Tobacco SA (BATSA), Carnilinx and Amalgamated Tobacco Manufacturing (owned by Edward Zuma’s business associate Yusuf Kagee). In 2010 two of Kajee’s companies, CK Tobacco Trading and CK Tobacco had been targeted by SARS for a failure to pay pax and income duties on cigarettes imported from Zimbabwe. The investigations resulted in the liquidation of parts of CK’s operations. Kajee, however, was later granted a new permit to manufacture and distribute cigarettes through ATM.
The illicit trade in cigarettes is often cited by large tobacco companies as the reason for a decline in profits. Tobacco smuggling results in the loss of an estimated annual R5 billion in taxes and is regarded as the largest organised crime operation in sub-Saharan Africa.
However, in a 2014 working paper on the Tobacco industry by UCT’s South African Labour and Research Development Unit authors Corné van Walbeek and Lerato Shai proposition that “The threat of an increase in the illicit trade of cigarettes is often used by the tobacco industry as an argument against an increase in the excise tax by the government. The tobacco industry has an incentive to exaggerate the size of the illicit market.”
Their paper considered the industry’s estimates of the illicit market, as published in the media in a country, South Africa, that had experienced large excise tax increases over the past 20 years.
“The industry has adjusted previous estimates downwards in order to create the impression that the current illicit market is not only large, but has been growing rapidly. Policy makers should be aware of this tactic and should not believe the industry’s estimates, because it is in the industry’s interest to deceive,” write Van Walbeek and Shai.
Van Walbbek and Shai write that BAT estimates of the size of the illicit market showed a strong upward bias that “has no reasonable explanation”.
“For example, BAT claims that the illicit market share increased from 26% in 2011 to 30% in 2012. Legal cigarette sales, based on official tax revenue data, increased by 2.6% in the 2012 financial year. This would imply that aggregate cigarette consumption increased by nearly 7% in 2012. In a country with fairly strong tobacco control legislation, a history of decreasing smoking prevalence, stable real cigarette prices and modest economic growth (2.5%), this is simply not credible.”
For an industry worth billions both internationally and locally, the 2013 SARS letter posed a serious and imminent threat and it was inevitable that there would be some fallout – and just how devastating that fallout would be for SARS officials would soon become startlingly apparent.
Over the years there have been countless in-depth investigations of the tobacco industry in South Africa and elsewhere in Africa. These reports, many by the independent investigative unit amaBhungane, have revealed how the Hawks, the State Security Agency, and SARS had all been drawn into and compromised to some extent by this industry.
It was a war that spilled over onto the pages of the Sunday Times which published a series of stories about an apparent “rogue unit” in SARS and that led ultimately to the dismissal of several key SARS officials, including Pillay and Van Loggerenberg. The charges also resulted in several investigations launched by Pillay, current commissioner Tom Moyane, appointed by President Jacob Zuma, as well as former Finance Minister Nhlanhla Nene.
BAT has consistently denied it has been involved in any illegal activities. The company’s standard response is that it “strongly denies any involvement in industrial espionage or illegal activity that may be linked to other local tobacco manufactures.”
But this month several US politicians wrote to US Department of Justice demanding that BAT, one of the UK’s largest companies, be investigated following claims that it engaged in widespread bribery “of politicians and policymakers” in Africa. BAT is listed on the NYSE and as such is subject to the US Foreign Corrupt Practices Act.
Jamie Doward, writing in The Guardian, reported that nine US politicians, led by congressman Lloyd Doggett and senator Richard Blumenthal, have suggested that BAT’s actions “may have violated both the Anti-Bribery and the Foreign Corrupt Practices Acts (FCPA). If proven, the allegations – denied by BAT – could result in jail terms for the company’s executives”.
BAT responded that it would “co-operate” with any investigation by the US Department of Justice.
Late last year the BBC programme Panorama uncovered evidence that BAT had illegally paid politicians and civil servants in various countries in East Africa. The whistleblower was former BAT employee, Paul Hopkins, who shared “hundreds of secret documents” with the Panorama team. More documents have surfaced since the broadcast.
In May last year, City Press reported that police in the UK are investigating whether secret payments made to informants in South Africa violated that country’s bribery laws.
Part of the backdrop to the case and the story are contained also in an affidavit submitted to a Competition Commission hearing in South Africa. Earlier this month EWN’s Barry Bateman reported that a whistle-blower, a former policeman, had provided the affidavit as part of a Fair-Trade Independent Association (FITA) complaint to the Competition Commission.
It exposed how BAT had allegedly paid numerous spies and agents through the Tobacco Industry of South Africa’s private “law enforcement agency” Forensic Security Services (FSS). BAT provided R50 million a year in funding for the FSS, to specifically disrupt the trading of competitors including local producer Carnilinx.
The whistle-blower alleges that BAT paid agents as well as corrupt government officials to “ensure the disturbance to the business of each of Carnilinx’s distributors to the point that it becomes more trouble to stock Carnilinx’s product and that any profits to be achieved by stocking the product are outweighed by the inconvenience of the interventions and confrontation with law enforcement agents”.
The campaign, allegedly approved by BAT, was named “Operation Knysna” and executed by FSS which gathered a network of around 170 spies. The whistle-blower maintains that there was no proof of illicit trading and that the campaign was designed simply to disrupt the business of competitors.
The Fair Trade Independent Association has said that the body had gathered enough evidence to support the allegations and would also be pursuing criminal charges.
In a press statement earlier this month FITA expressed “disappointment when the South African Revenue Service Sikhakhane report and Kroon report did not reflect any light on the shenanigans in the tobacco industry… We have good reason to believe that certain former South African Revenue Service officials are in possession of material evidence in support of our enquiries. Several attempts by FITA members to obtain such directly from them have failed.”
One of the key players in the downfall of SARS’s Johan Van Loggerenberg is Pretoria attorney Belinda Walter. Van Loggerenberg embarked on an ill-advised relationship with the double agent which ultimately led to claims that SARS had been operating a “rogue unit”.
City Press reported that according an affidavit deposed by Walter in February 2014, she had been introduced to BAT through her handlers at South Africa’s State Security Agency and agreed to spy for the tobacco company while already acting as an agent for the SSA.
According to the City Press report; “Over 11 months in 2013 BAT paid Walter roughly £3,000 (R55,650 at the current exchange rate) a month – a total of £30,500, although a letter from BAT indicates an additional £5,500 was outstanding. BAT either gave Walter cash or loaded the money on to Travelex cards registered in the name of a BAT employee in the UK. Walter was then given the cards and instructed to use them to withdraw cash from ATMs in South Africa.”
The affidavit by the whistle-blower seems to confirm suspicions, as set out in a letter in 2013 by SARS to the the UK Revenue and Customs counterparts, that at least eight South Africans had been identified as having “a peculiar relationship with BAT” and had allegedly received “concealed transactions” for their work.
In April 2015, a letter penned by former SARS spokesperson Adrian Lackay, and which he had hoped to table for discussion at Parliament’s Standing Committee on Finance before current commissioner Tom Moyane’s appearance before the committee on March, was leaked by the Democratic Alliance.
The letter sets out in detail the sequence of events that led to the purging of top SARS officials. In it Lackay outlines attempts to discredit the work of the National Research Group, the unit tasked with investigating tax evaders and headed by Van Loggerenberg, and which was subsequently labelled a “rogue unit”.
Even a gumshoe, one-eyed detective in a raincoat would conclude, after scanning much of the evidence that has made it to the public realm so far, that there has been a campaign which has sought to undermine SARS and in so doing, the state itself.
Meanwhile the Guardian writes that those pressure groups seeking to curtail the global influence of big tobacco would welcome a US Department of Justice investigation. The US is a signatory to the World Health Organisation’s global tobacco treaty, set up to stop tobacco companies from influencing policy.
“The treaty, which protects more than 90% of the world’s population, could save 200 million lives by 2050 if fully implemented. But measures to undermine it, by illegally influencing politicians, limit the treaty’s impact.” said the Guardian.
FITA has come out guns blazing saying it expected government to investigate complaints “with the same vigour and allocation of resources as they appear to have directed against us in their multiple inspections, raids and criminal investigations over the past few years”.
FITA has also warned that where it cannot effect a criminal investigation by the NPA it will seek private prosecutions against suspects.
Said FITA:“We believe the days of ‘big business’ having some sway over how the state should direct its powers, actions and resources in the tobacco industry should now come to an end.” DM
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