Ocean Traders

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In February 2013, some 12,000 new Gallaher documents were posted online by the Legacy Tobacco Documents Library, which were related to the bitter 3-year legal fight between Gallaher and its ex-Cypriot distributor, Tlais Enterprises [1]

In April 2008, Gallaher won in the High Court against Tlais, when it was ruled that the tobacco company had lawfully terminated its contract with Tlais due to concerns over smuggling. However, the lawsuit also highlighted Gallaher’s own complicity in tobacco smuggling. [2]

Gallaher directly and indirectly supplied millions of cigarettes to a distributor in Southern Africa, Ocean Traders International (OTI) and its “sister” company Bacco.

This was despite the fact that Gallaher knew OTI was smuggling its product and it had a history of smuggling millions of Imperial’s cigarettes. Cigarettes from the two companies later ended up being smuggled.

See also:


2002

September: “Unacceptable Amounts of Cigarettes Being Smuggled”

By September 2002, British Customs already had “serious concerns” about the smuggling activities of Ocean Traders International, a distribution company in Southern Africa. [3]

At a meeting between Customs and Gallaher in September 2002, Gallaher pointed out it wanted to supply Ocean Traders direct, rather than via its Cypriot distributor, Mr Tlais Customs told Gallaher that OTI had been responsible for smuggling at least 160 million Imperial cigarettes:

Essentially unacceptable quantities of cigarettes, which have in the first instance been supplied to Ocean Traders, are being smuggled back into the UK on a significant on-going basis.[4]

So serious was the situation that Gallaher told Customs that whether to supply Ocean Traders was now “under review”.[5]

Gallaher Ships Millions of Cigarettes to Ocean Traders

However, just two months later, in November 2002, Gallaher shipped 28 million cigarettes to Ocean Traders in Mozambique. [6] A proportion of these cigarettes were later seized by Customs.

2003

The documents show that Gallaher continued selling cigarettes to Ocean Traders, even though they knew the company was smuggling.

In March 2003, after reviewing the seizures of cigarettes in the Autumn of 2002 delivered to Mozambique via Cyprus, one Gallaher executive noted “For yr info. This proves that Ocean Traders are shipping to the UK.”[7]

Just two months later, Norman Jack, Gallaher’s main international salesman for the region, wrote to Tlais: “Further to our various conversations, we are happy to receive a further order for Ocean Traders and you should proceed to issue your pro-forma to them.”[8]

May/June: Just Make a “New Company”

Despite the fact that Gallaher knew Ocean Traders was smuggling, the UK tobacco company was looking to deal directly with OTI, circumventing the trading agreement it had with Tlais, who supposedly had the sole right to trade in Southern Africa.

In one email in May 2003, Gallaher wrote to Keith Harris, the sales director from Ocean Traders, saying:

In the future you will receive all products directly from the factories either in England or in Austria. L/Cs have to be opened directly with Gallaher Ltd England (as done before). The only change is, that we do need a new company, to whom we have to send.

He continued:

Please give us the name of one (in the worst case, you have to open a new company) and send us the company profile (Name, Address, Telefon; Fax etc. Management, Activity etc.) as our legal department has to give the green light before we can start. It is more or less a formality. [9]

At around this time, Keith Harris, the sales director from Ocean Traders set up a new company with his wife called Bacco. There are other documents showing that Ocean Trader’s Managing Director, Brian Nathan, was also involved in Bacco. < ref> Logie Pillay, RE: Gallaher, Email to Rudi Thurschmid, 19 May 2003 </ref>

In May, Gallaher approved the sale of sixteen million Sovereign cigarettes to the company.[10] Gallaher executives were then confused as to which company would be billed: “He [Harris] is expecting detailed info as to whom we want to send, OTI or Bacco(Pty)Ltd, Matsapho, Swaziland.”[11]

The following month the company shipped 16 million cigarettes of Sovereign and about 4 million cigarettes each of Ronson and Memphis Blue to Bacco. [12]

14 Distributors Not Signed up to Gallaher’s Trading Policy

In the rush to trade with Bacco, Gallaher started selling cigarettes to the company, even though it had not signed its International Trading Policy, Gallaher’s supposed safeguard against its distributors selling into the illicit market. A list produced in mid-2003 shows that some 14 distributors were not signed up, though Ocean Traders and Tlais had signed.[13]

July: Ocean Traders Deny they are the Parent of Bacco

In July 2003, the British High Commission in Swaziland produced a market intelligence review on Bacco for Gallaher. The report stated:

We also telephoned the contact in South Africa who happened to be Ocean Traders International (OTI) who, however, denied that they were a parent company of Bacco. Their core business is liquor distribution.

The report continued:

Being a new company, Bacco is still in the process of establishing itself and is not involved in any business yet. The company will rely on Gallaher’s cigarette products to launch its business activities. No other supplier has been approached and the company says it has no intention of distributing other products other than cigarettes. They expect the first consignment from Gallaher in two weeks' time.

Bacco was renting an office, warehousing and showroom facilities from Ocean Traders in the same building. [14]

Gallaher approved the sale of 8.4 million of Memphis Blue and Ronson cigarettes to Bacco. [15] This order was shipped in September 2003. Many of these cigarettes later ended up in Romania or were found en route to the country.

October: Ocean Traders Invited to Weybridge

The British tobacco company even invited Brian Nathan, the managing director of Ocean Traders to Gallaher’s HQ at Weybridge in October 2003. [16]

That month, Gallaher’s hierarchy authorised the sale of 16 million Sovereign cigarettes to the new company, Bacco. [17] [18]

By now Bacco had finally signed Gallaher’s Trading Policy, [19] however the company would soon be “red carded” by Gallaher.

October / November: “Shocked” that Cigarettes Ended up in Romania

In October it emerged that product delivered to Bacco was appearing in Romania, the following month its product appeared in Port Said in Egypt.

Bacco wrote to Gallaher that:

It was a great shock for us to be told that cases of Ronson and Memphis, bearing our Mozambique Code, had been reported to be found in Romania … We apologize for any inconvenience and embarrassment that this unfortunate incident has caused and assure you that we will take extra precautions for route to market.[20]

Other Gallaher Memphis cigarettes also apparently ended up in Austria.[21]

December: Sovereign is a “smuggling” brand

There is evidence that Gallaher saw Sovereign as a brand that would be smuggled. In a letter to Tlais on 23rd December 2003, Nathan stated that “Sovereign has always been presented to us as a trading Brand, unlike Ronson and Memphis. Mounif stressed the fact that these were sensitive Brands and they were prepared to put a promotional and marketing spend behind the product. Sovereign, on the other hand, was a trading situation with no special spend behind it all.' [22]

If Gallaher was not supplying resources for promotion and marketing in the country where it was being exported, and Sovereign had no “spend” behind it, the inference is that the brand was essentially a transit brand for smuggling.

This is reflected in a letter from Tlais to Gallaher’s chief lawyer, Tom Keevil, after cigarettes from Ocean Traders had arrived in Port Said in Egypt en route to Romania. He wrote that: “The customer [Ocean Traders] was informed that Sovereign was a transit brand and as such could not be supported”.[23]

December: Blacklist Bacco?

Although on 19 November 2003 Norman Jack advised Tlais that Bacco had been red carded and would not be supplied in the future; [24] other documents suggest that Gallaher was still considering shipping further consignments to the company.

In December 2003, Rudi Thurschmid, the Gallaher executive who had advised Ocean Traders to just set up another company, was concerned after the Romania seizures.

He wrote:

Concerning Memphis/Ronson Mozambique I talked to Bacco and asked them for sales and stockfigures. I just repeat that the big quantity of the first container (400 Ronson and 440 Memphis) came back to Romania.

He was now worried about sending further containers:

My problem is now if we should send - in case of relevant figures - another mixed container by end of January. I know how sensitive this matter is, once we have got our experience with the first container.

He added:

I hardly can believe that Bacco will risk not to monitor closely the sales and to prevent cases like in the past. If it would happen again, I would definitely blacklist the whole Bacco Group for all products. [25]

But another Gallaher sales executive wanted to carry on selling to Bacco:: “Mounif Fawaz did not want Bacco added to the list of customers with whom Gallaher will not do business.” [26]

2004

January: “I am surprised with your change of position with Ocean Traders”

In January, one salesman wrote a revealing memo to Gallaher’s senior executives, including the company’s senior lawyer Tom Keevil about the staff’s willingness to carry on trading with Ocean Traders. “I am surprised with your change of position towards Ocean Traders. Only 2-3 months ago you were suggesting their red carding.” [27]

This shows that the company had thought about “red carding” Ocean Traders, but, as yet, decided against it.

The same letter continued that: “Following my market visit to Mozambique and Swaziland with Rudi Thurschmidt, we have come to a conclusion that there is no demand for our products in these markets. Consequently, we have frozen orders for Bacco in Swaziland. This has also coincided with a seizure of Ronson in Romania.”[28]

Why a market visit was not undertaken before selling to the company for months is unclear, as is the concept to selling to a sister company of a known smuggler.

March: Gallaher Confirms it Had Stopped Supplying Bacco

On 9 March 2004 Tom Keevil wrote to Tlais: “Please note that Bacco was placed upon the list of companies that we will not do business with in 2003, as we believe the product was ultimately diverted into Europe.” [29]

Although doubts about Ocean Traders remained, and the two companies shared the same personnel, Gallaher was yet to cease trading with OTI.

Keevil wrote to Tlais some ten days later: “I have also already confirmed to you that we have put the offending party on a list that we maintain of people/companies with whom we will not do business. Given what you say, I think we should jointly consider whether we should add Ocean Traders Limited to that list; [30]

The judge in the court case between Gallaher and Tlais later issued a comment about Gallaher allowing Tlais to supply to Ocean Traders, saying: “Gallaher appears to have been content for Tlais to supply notwithstanding concerns about Mr Nathan.” [31]

June: Seizures of Ocean Trading

In June, Gallaher confirmed that two batches of cigarettes exported in 2002 as part of a consignment of 28 million to Ocean Traders in Mozambique were its own product.[32]

The following month, in July, Gallaher confirmed that five batches of cigarettes sent to Ocean Traders in 2003 and seized by Customs were also its own genuine product [33]

Part of the 28 million cigarettes supplied to Ocean Traders in late 2002/ early 2003, were smuggled back to the UK being seized by Customs. A witness statement from Norman Jack stated: “I can state from company records available to me that these cigarettes were part of shipments of 28m cigarettes and were shipped to Durban, South Africa for our customer Ocean Traders International (Pty), South Africa”[34]

In fact during 2004 there were five seizures of cigarettes that Gallaher had supplied to Ocean Traders, the first three in the first quarter of the year; the 4th in the second quarter and 5th in the third quarter.[35]

In March 2005, further cigarettes shipped to Ocean Traders via Tlais in 2004 were seized.[36]

2005

Gallaher Finally Ceases Trading With Ocean Traders

By July 2005, Gallaher had finally decided not to trade with Ocean Traders. [37]

Gallaher Deny Ocean Traders Were Ever Investigated by Customs

Gallaher would later try and deny that they knew that Customs had investigated Ocean Traders over smuggling: “TEL [Tlais] has alleged that OTI was investigated by HMCE in relation to smuggling, but Gallaher has no direct knowledge of this,” the company would tell the press. [38]

Notes

  1. Legacy Tobacco Documents Library, Gallaher Collection
  2. Michael Gillard & Andrew Rowell, Court case smokes out Gallaher, The Sunday Times, 27 April 2008, Business section, p11
  3. Jeff Jeffery, Anti-smuggling Measures, 6 September 2002
  4. Duncan McCallum, Letter from Duncan McCallum to Jeff Jeffery regarding Gallaher to supply Ocean Traders direct 9 September, 2002
  5. Norman Jack, Letter to Mike Clark regarding provision of a list of customers not to trade with, 12 September 2002
  6. Sue Fordan, Email to Blake Tanner regarding Request for Information BT49/04 and BT49/04B, 1 November, 2004
  7. Mounif Fawaz,Email to Gerald Barry regarding Italian seizures of Tlais stock, 21 March 2003
  8. Norman Jack, Letter to Mike Clarke, 24 May 2003
  9. Rudi Thurschmid, Gallaher, 16 May, 2003
  10. Gallaher, New business development request, 27 May, 2003
  11. Rudi "Thurschmid, Order from OTI, 6 May 2003
  12. Jeff Jeffery, Email to Richard Las regarding Sunday Times article and attached Reply and Defence to the Tlais Counterclaim, Undated
  13. Gallaher, International trading, mid 2003
  14. British High Commission, Tailored Market Information Report requested by Gallaher International Ltd, 22 July 2003
  15. Gallaher, New Business Development Request 45-08202003, 20 August 2003
  16. Mounif Fawaz, Email to Terri Kovic regarding the reservation of a taxi for Brian Nathan, 20 October, 2003
  17. Gallaher, New Business Development Request 51-09042003 regarding Sovereign Classic, September 2003
  18. Gallaher, Proforma invoice, 4 September 2003
  19. Mounif Fawaz, International trade policy, 2 October 2003
  20. Brenda, Letter to Gerald Barry regarding Ronson & Memphis – Romania, 12 November 2003
  21. Gallaher, Ocean Traders International-summary of discussion with Norman Jack, 232 December 2003
  22. Gallaher, Ocean Traders International-summary of discussion with Norman Jack, 22 December 2003
  23. P. Tlais, Letter to Tom Keevil, 16 March 2004
  24. Jeff Jeffery, Email to Richard Las regarding Sunday Times article and attached Reply and Defence to the Tlais Counterclaim, Undated
  25. Rudi Thurschmid, Email to Mounif Fawaz, 10 December 2003
  26. Gallaher, Ocean Traders International-summary of discussion with Norman Jack, 232 December 2003
  27. Mounif Fawaz, Ocean Traders, Email to Jack Norman, 23 January 2004
  28. Mounif Fawaz, Ocean Traders, Email to Jack Norman, 23 January 2004
  29. Tom Keevil, Letter to Abu Hameed regarding the arrangement Involving Bacco, 9 March 2004
  30. Tom Keevil, Letter to P. Tlais regarding the matter raised with HM Customs & Excise, 18 March 2004
  31. Judgment in lawsuit between Gallaher International Limited and Tlais Enterprises Limited and Ptolomeos Tlais, 18 April, 2008
  32. Nigel Espin,Letter to G Carmichael regarding sample return as requested by Joe Daly in his letter CTIT ref JD09/04, 17 June 2004
  33. Nigel Espin, Letter to P Irish regarding a Witness Statement Excel spread-sheets relating to the seizure, 16 July, 2004
  34. Norman Jack, Letter to Roisin McMullan regarding the excel copy and witness statement relating to seizure, 6 December 2004
  35. Gallaher Group, List, 31 December 2004
  36. Garry Lawrinson, Letter to Mark Minetti regarding hard copy of the Excel spread sheet relating to seizure, 8 March, 2005
  37. Karen Douglas, Email on behalf of Jeff Jeffery to Nigel Espin regarding business entities and persons Gall will not sell to, 15 July 20054
  38. Jeff Jeffery, Email to John Gildersleeve, 2 December 2005