JTI Involvement in Smuggling

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Background

In November 2011, the Organised Crime and Corruption Reporting Project (OCCRP) unveiled the results of a major investigation into Japan Tobacco International's complicity in cigarette smuggling. The article alleged that:

  • Russia and Middle East were the “hub of smuggling by JTI distributors".
  • JTI’s own investigators say JTI “did almost nothing when faced with reports their distributors smuggled tobacco through Russia, Moldova, the Balkans, Afghanistan and the Middle East”. There was apparent “rampant smuggling”. Another transit route was through Kaliningrad.
  • When company investigators received information that 13 JTI employees or distributors may have been working directly with smugglers, a senior executive at JTI blocked an investigation into the activities.
  • Emails uncovered by the OCCRP detailed “how widespread the smuggling had become across several regions. JTI Investigators caught an Israeli distributor smuggling large quantities of cigarettes into Iraq and Belgium, but investigators say the company took no action".
  • In 2009 and 2010 as JTI investigators uncovered what they called substantial evidence of illegal trade, managers repeatedly interfered with efforts to stop the trafficking. A senior Vice President directly blocked an investigation into the Audeh Group, its main Middle East distributor, suspected of facilitating smuggling.
  • JTI continued and expanded its relationship, with another alleged smuggler, IBCS Trading, which is owned by the Audeh group, which had previously been accused in an EU lawsuit of being a “co-conspirator” with RJ Reynolds in smuggling operations.
  • The company’s general manager in Russia said that he wasn't concerned about an increase in cigarette seizures at Baltic borders because profits outstripped potential EU-imposed fines for not stopping the smuggling.
  • The head of the compliance team wrote that " JTI management has not lived up to the ‘zero-tolerance policy' of smuggling” and, “in those cases that touch on smuggling into or via the European Union, has specifically and repeatedly violated (its obligations under the European Commission agreement of 2007)".
  • The investigators had their computers hacked into by a company paid $300,000 by JTI. Subsequently, a JTI senior vice president eventually admitted ordering some of the hacking.
  • The same investigators were later fired and the information on what the investigators had uncovered was leaked to smugglers. [1]

Allegations Undermine Agreement with the EU

These allegations were all the more pertinent because in December 2007 JTI had signed an agreement with the European Commission (EC) and Member states to stamp out smuggling.

The agreement acknowledged that the "illicit traffic in cigarettes is a growing problem for the EC, for Member States and for legitimate trade in tobacco products". Due to this JTI had "committed to a continuous process of dialogue and cooperation with the EC and Member States to evaluate and address the trade in Illegal Product". [2]

On the signing of the agreement, JTI had issued a statement that said it "cooperates with government authorities around the globe in its efforts to combat the illegal trade of cigarette products. This problem is detrimental to the brand value of our products and it penalizes legitimate retailers and our customers, while depriving governments of revenues. Japan Tobacco believes that today’s forward-looking agreement represents a significant milestone in the Japan Tobacco Group’s endeavours to tackle this societal issue while protecting the brand equity of the company’s products".[3]

Despite these commitments, OCCRP alleges that JTI investigators identified "a persistent pattern of smuggling" by one of JTI's distributors IBCS, and in turn IBCS's distributors. In 2009, the company's Vice President Jean-Luc Perreard "wrote to the internal investigations team promising that JTI would start getting tough and would 'most likely' terminate two IBCS distributors the next time they got in trouble".

OCCRP also alleges that Perreard wrote one email to several JTI executives, indicated that "writing a stern letter to IBCS should be enough to appease OLAF regulators". Perreard wrote that "As soon as the letter is sent – please provide me with a copy so that I could – if needs be – use it to demonstrate OLAF that we are proactive in addressing such matters".[4][5] OLAF is the European Union's Anti-Fraud Office.

Despite this letter, JTI's company documents allege that "smuggling continued unabated". Furthermore a series of emails obtained by OCCRP show that in reality "Perreard and others took a softer stance" with IBCS. The emails also "said a proposed letter admonishing IBCS should be worded in 'such a way that it can be disclosed to OLAF.'" [6] [7]

OLAF Investigation Secretely Closed Down: "Did Not Prove JTI Involvement"

OLAF investigated the allegations of smuggling, but in April 2016 confirmed that:

"In July 2015, OLAF closed an investigation into the alleged involvement of JTI in the diversion of tobacco products from third countries into the EU, as well as possible non-compliance with the provisions of the Anti-fraud Agreement between JTI and the EU and its Member States of 2007. The investigation did not prove any involvement of any JTI entities or employees in illegal activities such as cigarette smuggling or diversion of cigarettes into the EU." [8]

JTI Denied "Sensationalistic and Salacious" Accusations

In response to the allegations, JTI issued a two page employee briefing paper that argued the story was "as sensationalistic and salacious" and "nothing more than an attempt at vengeance on the part of disgruntled former employees" and argued that "none of the outrageous allegations against JTI in the article is grounded in reality". [9]

The company also told the Reuters news agency that any issues raised in the article "had been resolved". Hideyuki Yamamoto, a spokesman for Japan Tobacco said: "These matters have all been properly addressed and handled within JTI in line with our overall stance towards anti-illicit trade and my understanding is that it has been all solved or addressed already as far as JTI is concerned." [10]

Related TobaccoTactics Resources

This page is part of the historical section of Tobacco Smuggling, which also includes:

TCRG Research

Visit Tobacco Control Research Group: Peer-Reviewed Research for a full list of our journal articles of tobacco industry influence on health policy.

TCRG Blogs

Notes

  1. Organised Crime and Corruption Reporting Project, Big Trouble at Big Tobacco: Tales of Mobsters, Smugglers and Hackers, 3 November 2011
  2. JT International S.A, JT International Holding BV and the European Community and the Participating Member States, Cooperation Agreement, 14 December 2007
  3. JTI, JTI and the European Commission Sign a Cooperation Agreement to Combat the Illegal Trade of Cigarettes, 14 December 2007
  4. OCCRP, Internal JTI documents
  5. JTI Documents
  6. OCCRP, Japan Tobacco Fights Back Against Former Employees
  7. OCCRP, Internal JTI documents
  8. OLAF Press Spokesperson, Email, 6 April 2016
  9. JTI, JTI Internal Document, undated
  10. Reuters, Japan Tobacco distributors in smuggling cases-report, 4 November 2011