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BAT’s bid to stub out spy saga

TOBACCO giant British American Tobacco (BAT) is scrambling to avoid having to come clean in the face of new evidence that it hired a network of agents to spy on rivals.

Claims of cross-border industrial espionage against BAT continue to mount, and evidence has now emerged which links the head of BAT’s global anti-illicit tobacco programme, Ewan Duncan, to an SA Revenue Service (SARS) probe into the payments made to these informants. One government official, who knows of this practice, described it as “al-Qaeda styled” payments.

One of the companies that claims that BAT spied on it is Carnilinx, a budget-brand tobacco producer run by Adriano Mazotti, a benefactor of EFF leader Julius Malema.

In August, Carnilinx launched a high court action accusing BAT of “corporate espionage”.

Carnilinx director Kyle Phillips claimed that BAT paid Pretoria lawyer Belinda Walter for commercially sensitive information she obtained while “infiltrating” the company and the industry body representing smaller independent producers, the Fair Trade Independent Tobacco Association (Fita).

“BAT has used unlawful means to interfere in the business of the applicant. It has paid Walter monies to spy on Carnilinx,” says Phillips.

Carnilinx makes the extraordinary claim that Walter — after initially working for state intelligence — was planted as the chairman of Fita to monitor BAT’s rivals.

Although BAT was due to file answering affidavits last month, it has not done so — and people close to the case say it is manoeuvering to reach a settlement that will allow it to avoid answering the claims altogether.

Mazzotti said: “BAT evidently would rather settle than have to deal with the allegations against them.”

These new revelations will prove uncomfortable for the tobacco giant, which has embarked on a campaign to discredit the new wave of “value” cigarette producers who, it claims, have eroded its market share through illicit practices that cost the fiscus billions in unpaid taxes.

In one audio recording in the possession of Business Times, an agent discusses these payments with a man believed to be a senior BAT official.

Payments to these agents were allegedly made using Travelex cards given to agents in different countries, including South Africa — a method of transferring cash across borders that some experts suspect broke money-laundering laws.

In the recording, the panicked BAT employee expressed concern that embattled SARS investigator Johan van Loggerenberg is “aware that you [the informant] have received payments from us”.

He said Van Loggerenberg “has a name, and the name is the guy you went to dinner with … in London.

“He has got a name. and that has been linked to the [Travelex] cards.”

But the agent has confirmed that “the guy” at that dinner was Duncan — the man tasked with running BAT’s global campaign to fight the illegal trade in cigarettes.

BAT’s network of informants — some of whom are known to Business Times — would infiltrate the businesses and industry bodies of BAT’s rivals and then send the information on their activities to the London-listed tobacco giant.

SARS stumbled on these payments, which it saw as undeclared income.

This week, BAT refused to answer questions by Business Times about the payments or its tax dispute.

BAT SA spokesman Tabby Tsengiwe said the company “takes its responsibility as a legitimate business very seriously” and “denies any allegations of wrongdoing or involvement in any illegal activity”.

Duncan did not respond to e-mails from this newspaper.

New evidence of the alleged spying has emerged in the wake of the acrimonious break-up of the romance between Van Loggerenberg, now suspended from SARS, and Walter.

Text messages between Van Loggerenberg and Walter show that SARS was intent on taking action against BAT months ago.

In November last year, Van Loggerenberg said in a text message to Walter: “We are going for BAT. I am speaking to HMRC (Her Majesty’s Revenue and Customs, UK) now to start investigating on that end.

“We are doing a formal approach to them. to engage BAT in so far as concealed transactions to employees in SA”.

He says “we will engage BAT SA at same time on this end”.

Later, Van Loggerenberg added: “What they are doing is illegal.There and here.”

The payments, made to at least eight informants identified by SARS, were allegedly recorded in BAT’s “anti illicit intelligence unit” expense account in a way that “made it look like expenses in production and deducted for tax purposes”.

Van Loggerenberg said those transactions were “illegal in the form of exchange controls and it is money laundering, in the UK and here”.
It has also emerged that SARS wants up to R1bn from the South African operation of BAT.

In those text messages, Van Loggerenberg refers to the tax claim against BAT, and says SARS “will start with the South African leg here — over R1bn”.

In its annual report, BAT reveals in the fine print that SARS has “challenged the debt financing of BAT South Africa and reassessed the years 2006 to 2008 in the amount of R600m”. BAT is appealing the reassessment.

This seems to be linked to BAT’s practice of reducing its tax burden by shifting profits abroad through transfer pricing — a mechanism used by many companies.

This article was first published in Sunday Times: — Business Times.

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