LONDON, August 22, 2001 — Kenneth Clarke, currently embroiled in an increasingly acrimonious bid for the Tory leadership, today faces a major embarrassment through his boardroom connection with the cigarette manufacturer British American Tobacco.
New evidence from a whistleblower suggests that, during Mr Clarke’s tenure as deputy chairman, the controversial firm has been using a Swiss subsidiary and bank account secretly to control a worldwide smuggling network.
The whistleblower is a former director of the firm’s offshore agents in the Caribbean. He says: “BAT ran the whole show” and has handed over a sheaf of documents backing his claim.
But Mr Clarke maintains that he did not know what was going on. He has previously publicly defended BAT’s integrity to MPs. But he now says he did not at the time in fact have “any detailed knowledge of the day to day activities” of BAT’s Swiss operation.
Because of the high tobacco duties levied by most governments, there is a big market in smuggled cigarettes on which no taxes have been paid and which can be sold cheaply under the counter. Firms like BAT can make large profits and expand their sales if cigarettes that they manufacture and export duty free are purchased by smugglers.
BAT insiders estimate that up to a third of BAT’s 1bn annual profits in recent years, have been the fruits of cigarette smuggling, not only in Latin America, but mainly in China, as well as Africa and Asia, and such markets as Vietnam, where Kenneth Clarke returned from a recent BAT trip seeking official entry to the Vietnamese market.
The new evidence has been obtained by the International Consortium of International Journalists (ICIJ), a US-based group of investigative journalists, linked to the non-profit Centre for Public Integrity in Washington, who have published a series of exposures accusing BAT of black marketeering.
Mr Clarke responded to those allegations last year with an ambiguous admission that BAT does not actually seek to prevent smuggling. He said the cigarette firm faces a dilemma because it wants to keep up with its rivals. He wrote in the Guardian: “We act, completely within the law, on the basis that our brands will be available… in the smuggled as well as the legitimate market.”
But the latest material shows the company going much further. The documents may be a “smoking gun” because they suggest BAT not merely colluded with smugglers in the past, but is centrally organising the process and collecting hundreds of millions of pounds worth of black market proceeds. This raises the possibility of criminal proceedings against some BAT executives, while laying Mr Clarke open to charges not only of foolishly lending his name to a misbehaving company, but of misleading the Commons.
Mr Clarke, who became 100,000-a-year deputy chairman in 1998, assured parliament’s all-party health committee in February 2000 that as a member of the BAT board audit committee he had investigated the allegations. He said: “I … seek to ensure that the company follows the highest standards of probity”.
The Guardian asked him last week whether he had in fact been aware of his Swiss subsidiary’s activities. He replied: “As a non-executive director of the parent company, I do not… have any detailed knowledge of the day to day activities of the company.”
When we put the information to him yesterday, while he was out campaigning, he said: “I know nothing of the detail of the allegations… At the present time I am in no position to investigate them myself.” BAT would reply, he said.
The newly disclosed files show billions of cigarettes being shipped into Latin America in circuitous BAT transactions involving Swiss banks and Caribbean hideaways.
They were legally shipped, without any tobacco tax being paid on them, to BAT’s agents in the tiny Dutch-speaking island of Aruba, a few miles off the coast of Venezuela. From there, the cases of cigarettes were transhipped to the mainland and smuggled by middlemen into Venezuela and neighbouring Colombia, to be sold cut-price in the streets.
For much of the 1990s the proceeds appear to have gone back to a BAT company in Woking, Surrey – BAT (UK and Export) Ltd – and payments were made in a branch of the Chase Manhattan Bank in the City of London.
But after the setting up in 1997 of the special Swiss subsidiary, the cash is recorded as returning to BAT via a dollar account at a Credit Suisse branch in Geneva. In 1998, smuggling money from Latin America alone was flowing to Switzerland at a rate of about $200m (120m) a year, according to the documents.
“BAT never stopped smuggling,” says the whistleblower, Alex Solagnier, former finance director of Romar Freezone Trading in Aruba, in an interview due to be transmitted on tonight’s Channel 4 news.
Solagnier, who lost his job at Romar at the end of 1999, maintains he had personal knowledge of contraband trafficking to Colombia and Venezuela. He says he worked with BAT staff who visited the mainland smuggling operations and controlled pricing.
The files suggest the company may have restructured its smuggling arrangements since 1995 to move them out of the reach of lawsuits. The accounts of new Swiss subsidiaries in Geneva and Zug are not made public. Swiss bank accounts also remain out of the jurisdiction of investigators from the Department of Trade and Industry (DTI), sent in by the UK government last October to probe smuggling allegations.
We asked BAT last week whether they had shown DTI investigators their Swiss records. They refused to answer but said they were cooperating fully. The Guardian is handing copies of the whistleblower’s files to the DTI.
BAT said in a statement last night: “British American Tobacco does not smuggle and does not condone smuggling. Romar is duly licensed to conduct operations in the freezone of Aruba for a number of duty free products, including liquor and cigarettes. Sales to Romar for resale in the freezone are completely legal.”
Read the documents:
This article and accompanying stories originally were published in the Aug. 22, 2001, issue of The Guardian newspaper in London and are reproduced here with permission.