BAT spies under SARS’s spotlight

BRITISH American Tobacco (BAT), the largest company listed on the JSE and an investor darling, seems to be squarely in the sights of the SA Revenue Service (SARS).

A letter sent by SARS to all the country’s tobacco companies on March 6, now obtained by Business Times, reveals that a tax probe in recent months has laid bare rampant illegal and unethical industry practices.

While SARS does not name specific companies, industry insiders said the letter referred to poor behaviour across the board — from large operators such as BAT to smaller “value-brand” companies under the banner of the Fair-Trade Independent Tobacco Association.

The letter was signed by SARS investigations head Johann van Loggenberg, and sent to Lieutenant-General Anwa

We will never reveal who we pay because of the nature of the business and the danger to individuals

Dramat, who heads the Hawks crime-fighting unit, which suggests arrests and prosecutions could follow.

Van Loggenberg said the companies “have been found wanting when it comes to accounting for and complying with their income-tax obligations”.

Damningly for BAT, the SARS letter appears to confirm the claims of corporate espionage, and possible money-laundering in which it is implicated, allegations first revealed in this newspaper two months ago.

In March, the Sunday Times published excerpts of a conversation between a BAT official and someone it hired to spy on rivals, in which the tobacco executive implores the “agent” not to “sell us out” by disclosing dodgy cross-border payments BAT made to the agent.

The BAT official said: “We will never reveal who we pay because of the nature of the business and the danger to the individuals . . . I am not going to reveal that because it is a lifethreatening issue.”

However, the SARS letter provided further confirmation, saying it had identified people “who have been employed by a manufacturer in a secretive manner to collect confidential informa- tion on their competitors”.

“This has led to these individuals receiving remuneration, in some cases from offshore sources, in a way that can only be considered to be money-laundering.”

SARS said the companies who do this “expose themselves not only to charges of tax evasion and money-laundering, but it falls within the SA statutory definition of general corruption” — as well as bribery provisions in the US and UK.

Tabby Tsengiwe, a spokesman for BAT, said the company took the allegations “very seriously”, and “regards compliance with all local laws as a priority and we do not engage in any illegal conduct”.

The scandal has not had any impact on the share price; BAT’s shares have climbed 12% on the JSE over the last year.

The company reported a 3% climb in profit for last year to £4.2-billion, as it sold 676 billion cigarettes across the world under brands including Lucky Strike, Dunhill, Peter Stuyvesant and Craven A.

But revelations in the SARS letter — apparently pointing to BAT — that the UK and US tax authorities were now investigating the spying could increase pressure on the company.

In recent weeks, SARS launched a full-scale audit into BAT. Tsengiwe said this tax probe was not into BAT specifically, but “industry-wide”.

But BAT has already had a number of run-ins with SARS.

In a prospectus issued two weeks ago to raise £15-billion, BAT said: “SARS has challenged the debt financing of British American Tobacco SA and reassessed the years 2006–2008 in the sum of R600-million.”

BAT aside, the picture painted by SARS is of an industry rippling with dishonest tactics to dodge tax, from putting in place “artificial profit-shifting strategies”, pretending that entire shipments of tobacco were being sent to Zambia when actually they were being leaked into the local market, and hiring people to bribe SARS officials or to quash tax cases.

In one case, a tobacco company paid R2-million to a tax adviser, who it believed had influence at SARS and who could make a tax case disappear.

“Apart from having engaged in questionable and possibly corrupt activities, [the companies] will most certainly have wasted their money,” said Van Loggenberg.

The writer holds shares in BAT