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Wednesday, May 23, 2001
TRANSITION
Sumadija - Virginia or Columbia?
 Prime Minister Djindjic announced the good news: British American Tobacco is building a tobacco factory in Kragujevac, Sumadija, the home of the now defunct Zastava car factory. The bad part is that this multinational is charged with grave criminal misconduct all over the world.
Our public seems to have gotten used to having very little say (or none at all) in political decision-making on all levels of government. The Serbian parliament has already adopted several major laws, without even consulting the parties affected. In a similar manner, Serbian government proceeds with adopting a key law for any country headed for transition - Law on Privatization. And that's not all, as evident from the announced sale of a construction material factory in Vojvodina, as well as the building of a cigarette factory in Kragujevac. While Nenad Canak, speaker of the house in Vojvodina Parliament, made sure the first case received a whole lot of media attention and criticism, the transformation of Sumadija into a tobacco plantation was generally received with approval, save for a few complaints from the domestic tobacco industry.
On Sunday, May 13, Serbian Prime Minister Zoran Djindjic announced government's deal with British American Tobacco, the second largest tobacco manufacturer in the world, after Phillip Morris. The cooperation is to include the construction of a brand new tobacco factory in Kragujevac, which would employ 500 workers in production and another 5,000 in distribution. "We will set up a national tobacco industry, but anyone who is willing can build a new factory. The condition is a minimum of 100 million DM in technology investments. BAT is investing 150 million in the factory, 70 million is going to the government, on condition that no one can build a similar factory in the next two years; in return, BAT will not produce low-quality cigarettes produced in our domestic factories," said Djindjic in an interview for FoNet news agency.
Old idea - new people?
The idea to build a tobacco factory in Kragujevac is not a new one. It first turned up just after the Kosovo war, when it was rumored that a facility of the Zastava car factory would be reoriented to produce cigarettes. It was all to be organized and managed by Milan Bek, the man who mediated in the controversial sale of the Serbian state telecommunications agency. However, Serbian privatization minister Aleksandar Vlahovic said that "the initiative to build a tobacco factory is in no direct relation with Zastava. Rather, it has to do with bringing in a sizeable foreign direct investment which would create quality jobs and indirect engagement of other industries." He also said that it would not be possible to use the existing Zastava buildings, because cigarette production requires special objects.
Nonetheless, that did not stop Zastava marketing manager Ljubisa Jankovic from offering some good deals to the government's new business partners, expressing readiness to give up space for a future tobacco factory. Kragujevac mayor Vlatko Rajevic also felt called upon to inform the local public that foreign companies are showing great interest in buying real estate, but that he could not reveal the specifics, because they asked for discretion.
The government's choice of the site surprised even the multinationals. Minister Vlahovic reminded that immediately following the formation of the government, meetings were organized with the representatives of several tobacco multinationals that were interested in taking part in the privatization of tobacco factories in Nis and Vranje. "We however set out from the fact that this industry is a very sensitive area, and that in the past, more than 35 per cent of cigarettes in the domestic market came from illegal channels, so we wanted to stop that," said Vlahovic for Kragujevac weekly "Nezavisna Svetlost." He added that the government had determined that neither Nis nor Vranje factories are currently prepared for privatization, because their performances are inadequate-they account to only about a half of total Serbian market of about 20 billion of cigarettes annually. In early April, the government put out a tender asking the eight leading world cigarette producers to send in their offers. On that occasion, only BAT turned in a complete proposal. Thereafter, the government decided to enter direct negotiations with BAT and finalize the agreement. Toward that end, a commission was formed, headed by deputy Prime Minister Zarko Korac, and consisting of Vlahovic, Aleksandar Pravdic, Goran Pitic and Bozidar Djelic.
The announcement that BAT is arriving to the Yugoslav market received reactions from the Association of free and independent trade unions (ASNS) of the tobacco industry workers, and general manager of the Nis factory Slavoljub Dragicevic. ASNS stated that "any insufficiently thought out move could jeopardize the Serbian tobacco industry" and proposed that the existing tobacco factories receive additional investments, so that financial and technical disadvantage would not cause their downfall, and subsequent discontent of about 40,000 workers. Dragicevic said that the Nis factory was not consulted in the negotiations to build a new tobacco factory in Serbia. He also proposed channelling additional investments, giving the government a chance to decide on the strategic partner that this factory would negotiate with.
Who is the Serbian government's strategic partner?
One thing is for sure: all the actors in the story owe to the public more information about the foreign partner, which, according to the Serbian government, is willing to invest a considerable sum into our tobacco industry. BAT was formed in 1902, following a trade war of the two rivals: British "Imperial Tobacco Company" and the US-based "American Tobacco Company." Currently BAT holds about 15 per cent of the world market, has active business presence in 180 countries, and manufacturing facilities in 66 countries. The best known BAT brands are: Lucky Strike, Dunhill, Kent, Rothmans, Peter Styvesant, Pall Mall, Viceroy, and HB. In the first quarter of 2001, BAT registered a profit of $662 million before taxes, and the total profit last year was almost $2.2 billion, which is about $250 million more than Serbia's annual budget. The company sells about 800 billions of cigarettes each year.
However, this fantastic business success story has a dark underside. For decades, the leading tobacco companies have been accused of criminal activities, primarily tobacco smuggling and laundering money of narcotics traffickers. "British American Tobacco, the world's second-largest multinational tobacco company, for decades secretly encouraged tax evasion and cigarette smuggling in a global effort to secure market share and lure generations of new smokers," claims a report by the Center for Public Integrity, Washington-based public interest research group. The CPI project "International Consortium of Investigative Journalists" has scrutinized more than 11,000 pages of documents from BAT and its subsidiaries, dating from 1990 to 1995. The final report claims that frequent terms in the documents such as "duty not paid," "general trade," "parallel market," "second channel," and "border trade" were used as euphemists to describe trade in smuggled cigarettes.
The report also states that three BAT executives have either pled guilty to or been convicted of charges related to a smuggling scheme that shipped cigarettes marked "Duty Not Paid" and "Not for Sale in Canada" back into Canada from Louisiana, where they had been sent allegedly bound for offshore fishing boats. One of the men left the company before pleading guilty to the charges; the other retired in December 1997, six months after pleading guilty. Next year, a BAT executive in Hong Kong was convicted of taking bribes from a cigarette smuggling mafia. The judge in that case said in sentencing BAT export manager Jerry Lui, "that management of BAT (HK) was aware duty-not-paid cigarettes … would ultimately be smuggled in China and other countries. There could be no other explanation for this enormous quantity of duty-not-paid cigarettes worth billions and billions of [Hong Kong] dollars [hundreds of millions of US dollars]." The judge, according to Hong Kong press reports, commented that BAT's "irresponsible behavior amounted to assisting criminals in transnational crime."
BAT is accused of applying the same business strategy in the Latin American market. On September 20th, 2000, governors of 21 Colombian states, and mayor of the capital Bogota, pressed charges against BAT and Philip Morris with the Eastern District of New York Court. The governors are accusing BAT and PM for cigarette smuggling, racketeering and money laundering.
Finally, the cigarette smuggling story had to reach Britain. The Select Committee on Health of the House of Commons gave a statement on February 16, 2000 on BAT's involvement with tobacco smuggling. The statement lists several claims: that support for criminal activity is endemic among BAT senior management; that"BAT has provided support to narcotics traffickers and other organized crime; that BAT has obstructed investigations into its involvement in tax evasion and smuggling; and that BAT fixes prices and discusses smuggling activities with competitor companies. The committee concluded its findings by recommending that UK authorities launch a criminal investigation.
The company assisted mafia organizations all over the world in money laundering operations. A drastic illustration is the murder of a director of Hong Kong company Giant Islands Ltd, which distributes BAT products. The manager, Tommy Chui was to testify on close ties of the company to the Triads. He was found dead on April 1, 1995 in the Singapore port. Ian McWalters from the Hong Kong Department of Justice described the case in detail at his presentation on the 9th international anti-corruption conference in Durban, South Africa. Chui disappeared on March 29, and his body was later recovered from the sea, bound, tortured and gagged. He was still alive when he was thrown into the sea.
BAT's problems in Britain don't end with the report of the parliamentary committee. Department of Trade and Industry (DTI) has launched an investigation into allegations that BAT is involved in smuggling. "I have given careful consideration to the unanimous recommendation of the select committee that the DTI should investigate the allegations of BAT's involvement in smuggling. I have decided to appoint investigators to look into this and to report back to me as soon as possible. I will then decide what further steps I must take," said trade and industry secretary Stephen Byers. Among those certain to be questioned are managing director Ulrich Herter and finance director Keith Dunt, as well as CEO Martin Broughton (who happens to be a non-smoker) and former Tory health secretary and BAT deputy chairman Kenneth Clarke.
Warning from Switzerland
In the end, one cannot help but wonder what could have made a company that spends 200 million DM annually just to settle legal suits all over the world, a strategic partner of the Serbian government. This question remains unanswered. May the case of Peter Hess the speaker of the Swiss parliament serve as a warning to our politicians. Hess resigned his post on May 8th this year, after it was discovered that he was a member of 48 executive boards of various offshore companies all over the world. The scandal began in early February, when Swiss media published the information that the Parliament speaker was a member of BAT executive board.
Boris Milicevic
photos: Andrija Ilic
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