Cyprus: Big Tobacco’s favorite smuggling hub into the UK

On August 28, 2000, a ship owned by Greek Cypriot Christos Tornaritis attempted to ram a patrol boat of armed customs officers off the coast of Crete. The officers had tracked the 1,542-ton Cambodian-registered freighter from the Cyprus port of Limassol to Port Said, Egypt. It was now bound for Latvia. The officers seized the “Marina” and discovered 7 million packs of British-made cigarettes on board, brands normally smoked only in the United Kingdom.

On August 28, 2000, a ship owned by Greek Cypriot Christos Tornaritis attempted to ram a patrol boat of armed customs officers off the coast of Crete. The officers had tracked the 1,542-ton Cambodian-registered freighter from the Cyprus port of Limassol to Port Said, Egypt. It was now bound for Latvia. The officers seized the "Marina" and discovered 7 million packs of British-made cigarettes on board, brands normally smoked only in the United Kingdom. The entire cargo was worth about 17 million pounds [US $23.8 million] on the black market in Britain. Investigators from Britain and Greece have since discovered that when the cargo reached Latvia it was to be diverted to a fictitious front company called "Kazakh-Pakistani Joint Venture" run by a former KGB officer from Kazakhstan, then smuggled back into Britain. The ship was one of 14 seized last year in Greek waters loaded with British brand cigarettes.

The British government claims about one in every three cigarettes smoked is smuggled. British Customs officers seized a record 2 billion smuggled cigarettes in 2000 compared with 1.3 billion in 1999. This has led to losses climbing to about 2.5 billion pounds [US $3.75 billion] for the British treasury, the government claims. Cyprus has become a principal hub for this vast smuggling trade, according to investigators. British Customs and Excise say about 6 billion British brand cigarettes are exported to Cyprus each year even though the island has only 700,000 people.

British Customs believe that the vast majority end up right back in Britain, brought in by a number of criminal organizations. Tornaritis, 34, is a rising star over the Cyprus corporate landscape. The scion of an important Cypriot family, he has almost overnight become one of the richest men in Cyprus. His principal corporate vehicle is CT Tobacco, now listed on the Nicosia stock exchange. His newfound wealth has allowed Tornaritis to buy Cyprus' most important football team, Olympiakos, as well as purchasing race horses and property. CT Tobacco Ltd. has transit warehouses in Belgium, Cyprus, and in Thessaloniki, Greece. CT Tobacco sells various international brands, including those of R.J. Reynolds, Philip Morris and the U.K. company Gallaher.

Although Tornaritis claims to be the Cyprus agent for Britain's Imperial Tobacco, the British tobacco company has denied any connection with him. CT Tobacco claims in its prospectus to have quintupled its turnover in 2000 and now contemplates entering the tobacco manufacturing business.

Cyprus has not always been a major tobacco hub for British cigarettes. Until recently, that honor went to Andorra, the tiny principality tucked into the Pyrenees on border of France and Spain. After Britain imposed steep tax increases, exports to Andorra from the U.K. increased from 13 million cigarettes in 1993 to 1.52 billion in 1997. This represented a 116-fold increase and a 140-a-day habit for every man, woman, and child in Andorra. Spanish and Andorran Customs stopped the tax-free imports. By January 1998, British exports to Andorra had dried up. Only 435 million British cigarettes were shipped annually to Cyprus before Andorra was closed to smugglers, according to recent U.K. press reports. After the crackdown on tax-free imports to Andorra, that figure skyrocketed to 11 billion before stabilizing at 6 billion. A large portion of these cigarettes comes from Imperial's U.K. factory. In 1999, Imperial exported 16.5 billion cigarettes, brands smoked almost exclusively in Britain. This represents a 40 percent increase over 1998. The company's international operating profit in the first half of 2000 was 115 million pounds [US $172.5 million] compared with 93 million pounds [US $153.5 million] in 1999. Gallaher, which is Britain's second major exporter to Cyprus, increased first half-year volumes in 2000 to 8.6 billion cigarettes, up from 6.8 billion cigarettes in 1999. Both companies deny collusion in smuggling and say they deplore it.

Cyprus has been a traditional transit point for cigarettes into the Middle East. Documents obtained by the Center show that as early as 1976, BAT's American subsidiary Brown & Williamson employed the services of Kental Traders Ltd. of Cyprus to handle "DNP" [duty not paid] or "transit" cigarettes into Turkey, Syria, Jordan, Yemen, Sudan, Ethiopia, and Somalia with hope of opening routes into Iraq and Iran.

BAT and Brown & Williamson's long-term involvement in what their own documents indicate was an illegal business became evident when two separate quarrels arose in 1983 involving Kental and rival tobacco agents fighting over the smuggling trade in Lebanon. The first quarrel was over 2,970 cases of BAT cigarettes smuggled into Lebanon by Kental. BAT had contracted with Kental to pay a Lebanese trader named Souren Khanamirian two dollars for every case of cigarettes smuggled into Lebanon. At the time, Khanamirian was a board member of The Regie, which was Lebanon's government-controlled tobacco monopoly. Documents obtained by the Center show that Khanamirian complained in 1983 to BAT that he had not received his commission on the shipment. BAT settled the matter in March 1983 by paying the commission from its own accounts directly to Khanamirian. BAT then billed Kental for reimbursement.

The BAT document notes that Khanamirian was paid a commission for "transit deliveries that go to Lebenon [sic]." The second quarrel broke out in 1984 in the midst of the Lebanese civil war when Brown & Williamson's official agent in Lebanon, Albert Abella, was found to be selling "duty not paid" cigarettes in Lebanon and Syria. Concerned that Abella was selling contraband in his own backyard, Kental Traders complained on October 10, 1984, to Brown & Williamson that "your Lebanese agent should not be involved directly or indirectly because by participating in the transit business, which is unlawful and a criminal offence in Lebanon, when the time of normalization will come, both Abella and Brown and Williamson might have catastrophic repercussions and of course being black-listed."

The issue was addressed again in a June 18, 1986, fax from W.L. Telling at Brown & Williamson (Europe) to W.B. Knable at Brown & Williamson. Telling said he was "concerned that our official agent in Lebanon (Abella) is directly involved in DNP to the same territory. No other manufacturer has been willing to accept this risk." The concern grew out of the fact that Abella, through his company Peregrini, was also the official agent for the Lebanese tobacco monopoly, The Regie. One internal Brown & Williamson document, dated April 29, 1987, noted that this "conflict of interests" could "cause considerable embarrassment and commercial disadvantage to Brown & Williamson, should the Lebanese Authorities decide to take an official interest in the Peregrini/Tbeily movements of cigarettes to and from Lebanon." The same documents cautioned "were his [Abella's] transit activities to be seized upon by the Lebanese Authorities, this conflict of interests could well have serious commercial repercussions for Brown & Williamson in the area."

It is not clear how Brown & Williamson settled its problems with Abella. But by 1987, documents indicate that Kental was in firm control of the transit market into Lebanon. A 1987 Kental document shows the company annually pumping about 4 billion cigarettes into Lebanon's transit market (over The Regies imports of 3 billion). The document notes that Lebanon is the "visa for all brands for entering many other countries. So the success of B&W hopefully soon will escalate in all Middle East countries." At the time, the chaos of civil war still seized the country.

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