JOHANN VAN LOGGERENBERG: Batsa’s crocodile tears over illicit suppliers pour over its dodgy record

In recent weeks the tobacco industry has featured prominently in local media for a few reasons, none of them positive. The first bit of noise came from the industry itself, through announcements by stock exchange darling and super multinational British American Tobacco’s (BAT’s) tentacle in SA, Batsa, which fired off a salvo loudly bemoaning how “illicit suppliers now run the market and rob SA of R35m a day”. 

Within days its next announcement went straight for the heartstrings. Batsa announced that it was in retrenchment talks with staff after a decision to downsize. The reason? The illicit market, of course. Batsa reportedly employs 1,100 people (though earlier reports have called into question how these numbers are calculated, suggesting they may be vastly inflated). 

Batsa says its tax contribution to the fiscus amounts to R13bn in “tax revenue”. However, it remains unclear whether this “tax revenue” is limited to excise duty on cigarette manufacturing or includes VAT and payroll taxes, and whether it also includes corporate income tax. That question has always been a fundamentally elusive one. 

Batsa bases much of its quoted statistics on a study by Oxford Economics — commissioned by Batsa — that was at pains to elaborate how Batsa is one of the anchors in the Lesedi district, where its Heidelberg factory is based. In a nutshell, the paid-for study suggests Batsa has lost major market share — from about 78% at its peak — and with that its great contributions to job creation and downstream economic benefits to third parties. 

This it attributes to the cigarette sales ban during the Covid-19 lockdown and government’s subsequent inability to curb the illicit trade, which has mushroomed to the point where it has brought Batsa to its knees. 

The second bit of local media noise came in the form of a press statement by the DA, which was presumably notified of the dire straits the cigarette industry finds itself in and took the opportunity to criticise government for its introduction of the Tobacco Products & Electronic Delivery Systems Control Bill specifically, and inability to combat corruption and crime in general. 

The DA relied heavily on a verbose but opaque outfit going by the name Tax Justice, but to its credit also referenced a recent research paper by the University of Cape Town’s Economics of Excisable Products Unit, which looked at trends in the illicit trade between 2002 and 2022 and concluded a total loss of mainly excise and VAT of about R120bn. 

It is about the only objective viewpoint on this world of smoke (and mirrors) in SA. 

The third bit of media noise came, somewhat cryptically, in a comment made by the SA Revenue Service (Sars) in its announcement of the tax revenue collections for the past fiscal year, attributing a few billion to compliance efforts focusing on the tobacco industry, state capture cases and syndicated crime. 

Batsa has always managed to sail close to the wind, not just in SA but also worldwide, and somehow weathered the storms. Nothing has been said about its Emerging Farmer Initiative, which seemingly left a host of subsistence farmers high and dry after many promises. Nor about “NGOs” that have reportedly been paid to “protest” outside Sars offices on behalf of Batsa. 

Little is known about the nature of contracts with local tobacco suppliers and growers, who won’t sell tobacco to Batsa’s competitors lest their contracts be revoked. And naturally all is silent on the front of all the law enforcement officials and state security operatives who were captured to advance whatever narratives Batsa and its UK based BAT employees wanted them to. 

Corporate espionage in SA 

There’s never been an admission by Batsa that it funded or participated actively in directing law enforcement actions against competitors in the most egregious ways imaginable. Take the lawyer who reported to the State Security Agency, Batsa’s private security agency and anyone else who was prepared to fork out some dough while pretending to act as an adviser to Batsa’s competitors. 

Or the State Security Agency operative that was flown to the UK at BAT’s expense, but did not want this made known to the inspector-general of intelligence because it was not authorised by his superiors. 

Then there’s the little question of more than 200 secret agents on the payroll of Batsa’s private security arm who have spied and lied their way around Batsa’s commercial competitors for years. That was quietly rolled up and disappeared as if the entire network never existed. 

Back home a few conversations were leaked by a Batsa whistle-blower some years ago that gave a sense of what its secret agents were up to. One said: “Our primary work description was to spy on competitors and disrupt business operations on behalf of Batsa, [which] was fully aware that [Batsa’s then private security outfit] was obtaining information illegally, and these (sic) included obtaining recorded conversations.” 

In another email, one asks, “Can we use current network to ‘set up’ anyone?”. In another, a proposition is floated to “cause a substantial rift between the distributors. This can be done through means of jealousy or false reports.” 

An octopus dodging bullets 

BAT is a truly enormous multinational business. It is active in more than 180 locations worldwide, but deliberately structured so that each arm of this huge octopus is seen as a stand-alone from any jurisdiction’s perspective. What this means is that each arm of BAT is presented as a single taxpaying entity in any particular country. 

But when you’re at the head over at the London offices, of course then it is a group, and the financial and business structuring is of a complexity that would require far more space to elaborate on than is available here. This lends itself to incredible financial manoeuvres of all kinds. 

Incidentally, Mother BAT in the UK has reportedly never really paid much (if any) corporate income tax. BAT has been in all sorts of trouble for decades, all over the world, and is astonishingly adept at containing the flak when its shenanigans occasionally see the light of day. 

BAT has a rap sheet longer than that for many gang bosses. Which brings me to another recent media article, not as visible as the others and probably not as widely read locally. Batsa’s London offices managed to dodge a bullet after having shown up on the radar of the once renowned Serious Fraud Office (SFO). Declassified UK has reported on how the case was inexplicably dropped by the SFO despite a wealth of evidence against BAT. 

To get a sense of the trouble BAT has been in for years one only has to reflect on what was said as far back as 2000. The Guardian, with the International Consortium of Investigative Journalists, wrote that BAT “condoned tax evasion and exploited the smuggling of billions of cigarettes in a global effort to boost sales and lure generations of new smokers”. 

That same year, Kenneth Clarke, a former UK chancellor of the exchequer turned deputy chair of BAT, admitted that it supplied cigarettes knowing they were likely to end up in the illicit market. And as recently as December a Dutch court ordered BAT to pay €107m for tax evasion. The court said BAT had intentionally understated profits by €1.8bn between 2013 and 2016. 

Months before, in Bangladesh, the National Board of Revenue served notice on BAT for Tk2,054 crore (a unit of value equal to 10-million rupees, or about $120,138) in evaded tax and for concealing information. In 2019, The Guardian reported that the international Tax Justice Network estimated that BAT would avoid paying $700m between then and 2030 in Bangladesh, Indonesia, Kenya, Guyana, Brazil and Trinidad & Tobago. It was further reported that in 2016 alone BAT managed to shift $941m from overseas companies into its British subsidiary, BAT Holdings. 

A decade of hell at the dirty hands of the weirdest bedfellows 

My (and other former Sars colleagues’) past decade of hell with the state capture gang and their sycophants — and anyone else who wished to jump on that bandwagon of a malicious and damaging propaganda campaign about a “rogue unit” — had its genesis among a handful of Batsa pals. One was a lawyer/state security agent/Batsa spy I briefly dated (I ended the relationship as soon as I came to know about her multiplicity). 

Others included a police crime intelligence operative who had no qualms about sharing government’s secretly recorded telephone conversations of Batsa competitors with Batsa’s own secret agents; a now-retired Hawks colonel who headed some sort of tobacco project or task team; a former Sars official who was fired for rhino poaching and possession of illicit arms and ammunition (and who never forgave me for it) and promptly turned Batsa spy; and a seriously compromised state prosecutor. 

Between them, in 2014 — to avoid being exposed by me and held to account for their incestuous and improper relations with BAT and their own dirty hands — they had to cast me as the bad guy. And that’s how the nonsense started. Unsubstantiated, flimsy, undeveloped false claims about what a horrible person I was. Apart from a feeble attempt to extort BAT, they quickly read which direction the wind was blowing and realised that both Sars and I had more enemies than just them, and began to weave a spectacularly false tale that kept on morphing and adapting as time went by. 

Enemies of enemies became friends, making for the weirdest bedfellows. It eventually became a veritable propaganda feast that served so many for so many purposes. The originators slunk off out of sight and, eventually, out of mind. I doubt anybody can even recall the original three false claims that started the hullabaloo back in May 2014, which were usurped by the mythical unit. 

They couldn’t possibly have known it then, but in the wings sat another multinational, Bain & Co, with former president Jacob Zuma and then soon-to-be-appointed Sars commissioner Tom Moyane, who were all waiting for just the right opportunity to move in and take over. It was provided. By June 2014 the rogue state security agency spooks had joined the fray with a plan to get rid of the management of Sars and the finance minister. 

Like a veritable spider web, nefarious motives and hidden agendas and self-preservation began to intertwine inextricably.  So many layers and lies followed that to this day, almost a decade later, none of those involved can afford to tell the whole truth. If just one cracked and spoke out, the dominoes would fall one by one and bring the whole house down. No-one has ever been properly held to account for what he or she did. 

I have on occasion wondered: if Batsa was so ethical, why did it not just do the right thing in 2014, owned up and confessed about the lawyer, the spies, the poacher, the prosecutor and all the duplicity? After all, the company that arguably benefited most from their lies was Batsa. It is different from, for example, multinational Steinhoff, whose demise started off with a simple valuation query by a tax auditor in Germany. 

Or Bain & Co, which misjudged the morals, ethics and determination of whistle-blower Athol Williams and advised how to identify and “eliminate” people opposed to the takeover of Sars. Or KPMG, which sold its corporate soul for R23m, only to be found out time and again, losing clients and facing a barrage of exposing questions (but never keeping its word and righting all the wrongs.) 

Batsa smiled all the way from a distance. A much-touted track-and-trace system that went out on tender was also cancelled. I agree with the explanation attributed to current Sars commissioner Edward Kieswetter that such a system on its own is pointless until such time as one has a deep sense of the entire supply chain and you’ve designed solutions to minimise and detect scams all along this chain. There is no silver bullet, contrary to what some may believe. 

A changing dynamic 

The reality for Batsa is this: for years it held a monopoly when smoking was still cool and socially acceptable. It, Philip Morris and Japan Trading International controlled the market. They had no real competition. It was easy money. Think cowboys lighting a smoke with a burning twig, tough guys in jungles chopping logs to build bridges and end the day with a puff, and beautiful people swimming in crystal clear oceans or skiing down snowy slopes before lighting a fag. 

All of this has changed. Cricket and surfing and Formula One are no longer associated with big cigarette brands. Where smoking was once cheap it isn’t any more, and it will become ever more expensive. Excise duties will continue to increase exponentially. New entrants have come into the market, and while they all have skeletons in their closets they are more nimble, cheaper and local. 

Smokers aren’t as brand conscious any more, but they are far more price conscious. Local manufacturers also don’t have to pay licence fees, agent fees, trademark fees and the like to foreign holding companies. None is listed locally. Collectively they probably pay more tax to Sars than Batsa. They’ve taken on Batsa head to head, and they’re winning. 

The chickens have come home to roost. There are proportionally fewer SA smokers now than there were in 2002. The pie has not only shrunk, it has to be shared with many others. That is a reality Batsa has not accepted. It has become too big, too cumbersome and too expensive. Its business model no longer works. It would make sense for it to consolidate its production activities in a country such as Kenya, where the game is still in its infancy and there is space to repeat what it did here. For a while. 

Heidelberg used to manufacture Batsa brands for almost the entire sub-Saharan part of the continent. BAT has shut down in other countries before. It once operated out of Zimbabwe, and when it left there the SA plant took over that load. 

Meanwhile, the e-cigarette and vape markets are booming after being marketed as a healthier alternative to cigarettes. Philip Morris is ahead of the curve, but there’s no doubt that the Vuse brand is the most popular one in SA. Vuse is owned by RJ Reynolds, which is in turn owned by BAT. 

In SA Vuse is owned by Batsa. The biggest seller of the latest fad — the tobacco pouch — is the Velo brand. Batsa owns it too. Ask where these are manufactured and you’ll see my point. 

Batsa’s tears are crocodile tears. Its spin doctors have had lifetimes of experience wriggling out of tight spots. Don’t fall for their self-generated data and woe-be-me narratives. 

• Van Loggerenberg is a former Sars executive who testified on state capture and corruption before the Zondo and Nugent commissions. He co-authored ‘Rogue: The Inside Story of Sars’s Elite Crime-busting Unit’ with former colleague Adrian Lackay.