WEDNESDAY 16 FEBRUARY 2000

MR M BROUGHTON, MR K CLARKE, MR C BATES and MR D CAMPBELL

  1480. I quote again from a fax from Mr Dunt. It says, "... can we pursue the approach noted in your last strategy submission, ie continuing with DP and DNP in parallel and be seen as a clean and ethical company at the same time". It then says, "This `ethical correctness' would be achieved via letters to Government ... etc—can we really do this and continue DNP". You are talking about ethics, he is talking about ethics. He himself is questioning the ethics of it whilst recommending that you carry on doing it. Despite the fact that he is recognising that there is an ethical dilemma in doing what he is doing he is nevertheless saying "Carry on chaps". How can you square that?
  (Mr Clarke) What is your answer to the ethical dilemma? It is no good searching around in the history which is not current in quite the form I have described in other countries. There is this ethical development. You have a large proportion of the market which is smuggled, say you have a proportion which is legitimate, you are advertising. You would much rather get rid of the smugglers who are actually competitors of your distributors in many cases, or people who are offloading your stuff from somewhere. I do not see what is wrong with protecting your brand, preparing, you hope, for a release of restrictions on legitimate imports. It is of course inescapable that you are also protecting your share of the smuggled market. All you are doing is advertising when the authorities are presiding over a chaotic situation, where despite what you say the products are on sale all over the place.

  1481. The point I am making is that you are condoning the market.
  (Mr Bates) What is happening when you advertise in a market where there is a small duty paid legal market or duty free market is you are creating a demand pull down the illegal channels while at the same time you are also engaged in a supply push down them. When you piece these things together you have demand pull and supply push working to ram as many cigarettes as they can down the illegal channel. If you take the previous quote on this, it gives an indication of where BAT stands on the ethics of all this. The first quotation in paragraph 8.4 of our evidence says, "The `Available in Duty Free' cover for extensive media coverage needs to be very carefully used, as it can easily become antagonistic and will draw attention to the source of market supply, which we would rather did not come under scrutiny". What they are saying there is let us privately admit what we are up to here, but let us not be too obvious about it because it will become clear to all and sundry that we are engaged in pulling cigarettes down the illegal channels and we do not want to be caught out.

  1482. Mr Bates having said that, are you in any doubt that the companies not only were condoning what was going on, but would you also go so far as to say that it could not have gone on if the companies had not been condoning it in that way?
  (Mr Campbell) Yes, of course. The point which we tried to address repeatedly was whether they intend this to happen. What we see are plans. I referred earlier to some code names. These were plans which were explicit. They included what Mr Bates was referring to, the umbrella support of cover. At a certain week the cigarettes would be tested in Geneva to see that they were good for the market. Then they would be manufactured in Venezuela. The plans go right down to the day they arrived in Aruba, the day they arrived in the smuggling centres in Maicao and the day they would be in the cities of Colombia, the day on which the advertising cover of the umbrella operation would start. In fact these plans were quite explicit, and I should be very glad to give this particular plan to the Committee for further scrutiny, that two weeks before, it was this explicit, down to the day, the smuggled product arrived. The legal product would arrive from a chap called Restrepo who is the legal distributor for BAT in Colombia. He is legit. He would take a small amount into the country so that it therefore seemed as though it were legal for the advertising to start, which duly starts and two weeks later, according to the plans in Mr Dunt's file, in comes the 95 per cent of the supply which is the illegal stuff, knowingly supplied, intended to be supplied, in fact you cannot have a better conspiracy in the eyes of the law than that. It is clear that the architect from the word go is Mr Dunt and the directors of BAT. Certainly they utilised the agent, certainly the immediate supply to their agent, Mr Harms in Aruba, was lawful of itself and in fact the supply out from Aruba was not unlawful. It became unlawful the moment it crossed, as it was intended to cross and as the timetable shows it would cross, into the rest of Colombia, two weeks behind the legal supply Mr Restrepo had brought down that road where Mr Clarke must have seen the containers coming. He saw the legal containers coming and two weeks later the illegal containers were being shipped over from Aruba for Maicao. I do not think it gets plainer than that.
  (Mr Clarke) I dispute his use of the word "conspiracy". Let us not get into a legal argument, but he makes plenty of use of a totally inaccurate description of legal definition of "conspiracy" elsewhere in these papers. What actually went on in Colombia, and I did speak to Mr Dunt after The Guardian article, the context from which all these things are snatched, is of Mr Dunt actually trying to sort out this mess in Colombia and move trade onto an altogether better organised basis whilst preparing the market we wanted for our brands and all the rest of it. Mr Dunt and BAT did not create this strange arrangement. Aruba is a duty free zone created by the Dutch Government in the Antilles. The arrangements on the mainland for duty free zones are made by the Colombian Government. As you see, we go to great lengths to try to find clean distributors in Aruba who can receive clean dollars in all this trade. We have been arguing with the Colombian Government firstly to tidy up the situation I described having seen on the border in 1992 or thereabouts and also to allow us to set our own distribution network up in Colombia. Mr Dunt presided over our operations in that part of the world at the time which went from chaos, which even the friendliest Colombian would admit at times exists in Colombia in quite a lot of parts of the market, to the present situation where the Colombians have been far more successful than the British Government in getting the illegitimate trade down to 10 per cent with our cooperation. Keith Dunt, who has these sentences hurled at him, actually helped preside over that arrangement.

  1483. This is aimed at Mr Broughton and Mr Clarke. Having sat here for some number of hours now, I have observed that you are indeed undertaking an exercise in trying to prevent this Committee getting to the bottom of the real truth of smuggling and the involvement of your company in smuggling. That is what I think you have been doing this afternoon.
  (Mr Clarke) You can say that. I think you have not been paying proper attention. The trouble with this subject of tobacco is that some people start with totally closed minds. There is a legitimate debate, as I have already said, in which this Committee is quite rightly engaged, on the health hazards of tobacco, how it is marketed as a legal product, what it is legitimate to expect by way of behaviour in advertising. The trouble with anti-tobacco lobbyists is that the health argument is a bit played out. Most of the public accept the health hazards are well known, most of the public accept that adults are going to make their own minds up and then there is an argument about how public policy holds the balance in this. Strident anti-tobacco campaigners therefore wish to move the argument on. In the States that is how the plaintiffs' lawyers made their tens of millions. You start hurling at tobacco companies not arguments about health but suggestions that they are fraudulent, they are engaged in conspiracy, they are engaged in organising smuggling. As we keep pointing out, smuggling is totally contrary to the commercial interests of BAT. The board would have taken leave of their senses if they allowed the company to smuggle. All you are saying is that you came here with a complete preconception that it would be quite useful to be able to hurl allegations of smuggling at tobacco companies. I have been listening as well and in my opinion there is not a case to answer. There is a great deal of innuendo, there is tendentious use of sentences taken from millions of pages of documents and an attempt is being made to discredit the tobacco companies but the tobacco companies are ethical companies handling a controversial product. I think, Mr Hesford, you came here with your mind made up before you started.

  1484. That is not the first time you have been insulting to this Committee and that is indicative of BAT's attitude to this whole affair. This is a health committee.
  (Mr Clarke) That is my personal opinion of your response to the evidence this afternoon. In parliamentary exchanges you and I will exchange much worse than that.

  1485. You have introduced a new phrase into the smuggling argument. You have known that you were coming to this Committee for 12 days. The articles which have been written have identified many of these documents. I put to you that it is a positive charade that you have tried to obfuscate today by saying you did not know about these documents, that you did not know about these sources, you have amply tried to be assisted by Mr Burns in this I regret to say, but you knew, you have told us that it is your job to know, you are on the audit committee, you have spoken with authority on many of these issues. You have recounted and regaled us with anecdotes about your trips to Colombia and the rest of it. You were prepared for this hearing so I will have no nonsense about your lack of preparation and the two gentlemen to your right suddenly springing these things on you. That is rubbish. How do you react to that?
  (Mr Clarke) How many more times are you coming out asking for some more insults? You are a masochist. I just think, with the greatest respect, that there is no point in the two of us descending to mere abuse.

  1486. Why?
  (Mr Clarke) It is too late in the evening. There is a lack of evidence. The fact is that in my opinion you must ask questions addressed to the issue. We have answered the issue. The suggestion that British American Tobacco organises smuggling does not stand up. This is a classic use of highly selective quotations from millions of documents and interpretations put upon them. Even in the slightly more balanced representations and I quite accept that the ASH submission is altogether more balanced and does not make the wild allegations of Mr Campbell that everybody is guilty of crime all over the place. Even in the more balanced representations if you contrast the headings, the text with the little quotations which follow—I refer you back to the exchange with Mr Burns—there is a tremendous contrast with the assertion on the headline and the two sentences taken from a long document below which are supposed to substantiate it. That happens over and over again in all this.

  1487. You yourself have introduced a new concept not previously in these documents which we have in terms of the smuggling debate. You yourself, in an answer about 20 minutes ago, described smuggling as a market operating in an informal way. Those were your words. As a businessman, and for these purposes you are, can you explain that?
  (Mr Clarke) As a politician you would find in the Treasury, Department of Employment and elsewhere that people talk about informal labour markets and so on. It is a jargon phrase; it is not the best use of language. Smuggling is smuggling but I agree it is a bit of a jargon euphemism to describe it as an informal market in those instances. It is a gross understatement in parts of Latin America.

  1488. May I put it to you straight, which I hope I am, that it is the sort of phrase which is designed to gloss over what is really happening.
  (Mr Clarke) I am not denying the product is being smuggled; far too many cigarettes are being smuggled. I deplore the situation where such a high proportion of cigarettes are smuggled in this country and in many other countries.

  1489. In many markets which you face you have, as Dr Stoate identified with you, an ethical dilemma. In your article in The Guardian, talking about smuggling, you say, "However, where governments are not prepared to address the underlying causes of the problem", smuggling, "businesses such as ours who are engaged in international trade are faced with a dilemma". You have amplified that today by calling it an ethical dilemma. You will build up your market share in a market where you currently have virtually no legitimate sales, knowing that the only reason you are doing it, or one of the strong side effect reasons for doing it, is to have your product sold in an illegal way, in a smuggled way. That is part of company policy, is it not?
  (Mr Clarke) No. There is no point my repeating everything I have said for the last three hours.

  1490. You have said no.
  (Mr Clarke) With great respect, you are putting a totally tendentious interpretation on the discussions we have had now for about three hours in this Committee.

  1491. Your company, will it not, if it comes across what it considers to be an unhelpful government policy, will try to subvert the market and undermine that government policy?
  (Mr Clarke) Definitely not, that is a new allegation to me but we most definitely do not do that.

  1492. May I follow one of the points made by Mr Hesford about euphemisms like "border trade", "parallel exports", "free markets", "value for money". We have been told that the documents on which these allegations have been made which are in the depository basically are up to about 1995. If BAT is as concerned about smuggling as Mr Clarke has suggested and if there is nothing to hide, will you make publicly available as soon as possible all company documents produced after 1995 which include the terms "DNP", "transit", "GT" or any of the other alleged euphemisms to which I have referred?
  (Mr Broughton) No; basically. I do not see any reason for doing so whatsoever. A lot of those are about current trading operations, are commercially confidential and would be a great advantage to our competitors where we are talking about what is going on in various markets.

  1493. You have made your position on that very, very clear indeed.
  (Mr Clarke) We must repeat that a large part of the case against us is based on this assertion that things like "duty not paid" mean smuggled. They do not.

  Chairman: We have been over this point and we understand exactly the point you have made on that and there is a difference of views.

  1494. In some cases it does and in some cases it may not. It would be a key word in terms of identifying the documents which may be of interest to the Committee. In evidence to the Committee BAT have said that all the documents in Guildford which were likely to be of interest to public health officials were already on the internet as part of the 300,000 pages which have been requested by the US lawyers. Were the papers on which the smuggling allegations are based previously on the internet? Had they been scanned electronically prior to journalists requesting copies of them or not?
  (Mr Broughton) They would not have been scanned until somebody requested a copy, whether it was Mr Campbell or somebody else. I do not know who was the first person to make a request. As soon as a request is made for a copy at the same time as it is copied it is scanned. So there is a scanned record of all the documents which have been requested by somebody.

  1495. So the documents which this Committee might consider to be relevant are not necessarily available on the internet and you are not willing to make available documents after 1995 which may be relevant to the smuggling issue.
  (Mr Broughton) Where we started this debate was as a health committee. What we talked about was the documents in that depository, files, complete files wherever there was anything that may be responsive to the Minnesota litigation. Basically it was all about health. What I was saying to you is that we have had lawyers crawling over all eight million for three or four years and I think they took round about 80,000 documents or something like that. They were the ones which were scanned and sent to Minnesota. Since then we have had a number of other lawyers, ASH frequently, a number of other public interest groups and that is what is now the other 270,000-odd papers. They have looked over things. What I was saying to you, for what is relevant to health and the health issues I think what is of material relevance is very likely to be in the 350,000.

  1496. Do you have any reason to believe that BAT have acted in any way differently to any of your competitors, in particular Philip Morris?
  (Mr Broughton) I would have to say I do not feel qualified really to operate and speak on behalf of my competitors. I would say as a generalisation that the big companies—and I made this point before—are the responsible companies in the tobacco industry. If I take you to a number of markets, what you will find on a frequent basis for example in Brazil, in Pakistan and I could name a number of other countries as well, are the big players like Philip Morris and British American Tobacco and a number of small local players who, for example, will quite commonly take some of the goods out of the front exit paying duty and take plenty more out of the back door paying off the customs officials or something like that and not paying duty at all.

  1497. So you do think some companies, small companies, do break the law quite openly.
  (Mr Broughton) Yes.

  1498. You believe they do but you are saying that the big competitors and your major competitors are not doing that. That is your position.
  (Mr Broughton) Yes.

  1499. Okay, that is clear enough.
  (Mr Clarke) For obvious reasons, because we are subject to scrutiny in Britain and the United States. If you are a Paraguayan local manufacturer you are subject to less scrutiny.