BAT spies un­der SARS’s spot­light

Sunday Times - - NEWS - ROB ROSE

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

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