Here is why I largely believe what was on that thumb drive and what the smugglers I spoke to told me: because there is a common thread in all of their stories; because of the many lines where their allegations intersect; because they reference details that can be verified; because of the sheer volume of evidence; and because much of it simply validates tactics that are explicitly discussed in the tobacco industry’s own internal documents.
I believe it because it overlaps with serious allegations that many others have uncovered in other parts of the world, including the International Consortium of Investigative Journalists, which asked: ‘[Tobacco] executives meeting with criminals in Niagara Falls to discuss smuggling into Canada, or BAT executives in Hong Kong taking bribes to feed a Triad-backed smuggling ring, or Mafia bosses in Italy with a seemingly endless supply of Marlboros, all raise serious questions about international corporate participation in a conspiracy to defraud governments. Have BAT, Philip Morris, Reynolds, and Japan Tobacco become mafia-like organisations involved in massive illegal operations?’12
At the heart of this book sits a disturbing thought: big tobacco may just be too big to fail. Based on my research, I believe it thrives because its very own products end up on the black market, their packs being sold tax free. And they have managed to get away with it because they influence what we think by controlling the narratives and rhetoric we are fed. They get away with it because they influence the policy positions our governments take. They get away with it because of the political patronage networks they have established. They get away with it because they spy on their competitors and use our enforcement agencies as economic hitmen to put pressure on the smaller players making cheaper cigarettes.
If you only remember one thing from this book, make it this quote from George Osborne, a member of the UK Parliament’s Select Committee on Public Accounts, after hearing evidence from the big tobacco companies – because this sits at the heart of our story: ‘One comes to the conclusion that you are either crooks or you are stupid, and you do not look very stupid’.13
PART 1
Smuggling 101
1. The birth of big tobacco
If you’ve ever been to Geneva or Lausanne, you’ll know what it smells like. It smells like money. Not nouveau riche, flashy mobster money – old money.
In the quaint university town of Lausanne, just down the Rue de Lausanne, are the grandiose offices of British American Tobacco (BAT), Philip Morris International (PMI) and Japan Tobacco International (JTI), who have chosen one of the world’s most private and secretive corporate environments in which to base their global operations and house their massive profits. The setting stands in stark contrast to the addiction, devastation and ruin that their products dispense to the world with Swiss-like efficiency.
The industry has come a long way since the invention of the paper-rolled cigarette in Turkey in 1832. During the siege of Acre, an Egyptian artilleryman’s crew improved their rate of fire by rolling the gunpowder in paper tubes and were rewarded with a pound of tobacco. Their only pipe was broken, so they rolled the pipe tobacco in the same paper – giving the world its first paper-rolled cigarettes.1
Somewhere between the birth of hand-rolled Turkish cigarettes and PMI, BAT, JTI and Imperial dominating the scene today, lies the story of James Bonsack and Buck Duke.
Buck Duke’s father owned a US-based tobacco company, which he took over in the 1880s, over time earning himself the moniker of ‘robber baron’. He is often referred to as the ‘father of the modern cigarette’.
At the time, the cigarette market was small – cigarettes were expensive and hand-rolled by ‘cigarette girls’. In 1881, James Bonsack created a machine that was capable of rolling cigarettes 13 times faster than a cigarette girl could. But the industry wasn’t interested. Because the market for cigarettes was so small, they didn’t see the benefit of investing in a machine that produced more than they believed the market could consume.2
Buck Duke – who at that stage controlled a modest 1,5% of the tobacco market in America – seized his chance. He signed an agreement with Bonsack, giving him exclusive rights to use the machines (and paying very little by way of royalties).
He now had the capacity to produce millions of cigarettes but needed to create a market for them. He did so using spectacular promotions and advertising campaigns, spending an unheard of $800 000 in billboard and newspaper advertising (making Duke and Bonsack not only the godfathers of the industrialised cigarette trade but also of modern mass-market advertising and promotion). By 1887, Duke and Bonsack had refined the machines, and could easily produce 120 000 cigarettes in 10 hours.
With the power of both mass production and mass marketing behind him, Duke set out to conquer the tobacco market. He bought out Ligget&Myers; took over RJ Reynolds; absorbed Lorillard; and over time took over more than 200 other rival firms. So began the American Tobacco Company. He controlled 90% of the American tobacco market; and his company became one of the original 12 members of the Dow Jones Industrial Average, which is used to measure the performance of the stock market.
Not content with dominating just one side of the Atlantic, Duke set his sights on the British tobacco market. To avoid being gobbled up as part of Duke’s expansion plans, four smaller British manufacturers joined forces to create Imperial Tobacco.
Eventually, Duke and Imperial struck a deal: Duke would control the market in America; Imperial the market in British territories; and the rest of the world would be controlled by a new joint venture set up between them: British American Tobacco.
The American Tobacco Company was ultimately charged with breaking anti-trust legislation, and in 1911 the US Supreme Court dissolved the company as a monopoly, freeing RJ Reynolds and others from the American Tobacco stable.
With that, the tobacco wars really started.
Long before Duke started trading – as far back as 1847 – a gentleman named Philip Morris had opened a shop on London’s Bond Street, selling tobacco and hand-rolled Turkish cigarettes. It became the centre of the retail tobacco trade in Britain. Morris died in 1873, but his namesake company lived on.3
By 1901, when Queen Victoria – who passionately hated cigarettes – died, her successor, Edward VII, gathered friends in a large drawing room at Buckingham Palace and announced, ‘Gentlemen, you may smoke.’ By royal warrant, he appointed Philip Morris as tobacconist to the King.
Philip Morris had its next seminal moment when RJ Reynolds decided to hike cigarette prices at the start of the Great Depression in 1930, leaving a perfect opening for Philip Morris to counter with low-priced brands, in the process painting Reynolds as greedy and opportunistic.
By the time Duke’s monopoly was disbanded in 1911, Philip Morris was well-established, mainly off the back of brands like Marlboro, which initially targeted women.
Philip Morris embarked on a quest for world domination: buying out not just countless other tobacco companies but also the Miller Brewing Company (then the 7th largest brewery), most of the Seven-Up Company, General Foods and Kraft, a share in Brazil’s leading chocolate company, and Nabisco Holdings Corp for $18,9 billion – making it the world’s second-biggest food company (only trailing Switzerland’s Nestlé).
Aside from expanding its business empire beyond tobacco, PMI also made another strategic move: it began to establish a series of structures aimed at managing the public discourse around tobacco, setting up the Tobacco Research Centre in 1973 and the Tobacco Institute in 1978.
In 2001 Philip Morris decided to split its corporate identity: Altria (predominantly housing Miller Beer and Kraft Foods), and the two cigarette branches, Philip Morris USA and Philip Morris International. (At the time of writing, there were rumours that PMI and Altria are talking about a merger.)
As an aside, this book does not dwell on tobacco in China, because it warrants an entire book