The Center for Public Integrity

Tobacco Underground is a project of the International Consortium of Investigative Journalists. Working with reporters in more than a dozen countries, ICIJ is charting the frontlines of the illicit traffic in cigarettes. In coming months, look for new stories on this ever-shifting trade, from the underground factories of China and America’s Indian reservations to the lawless border lands of northwest Pakistan and southeast Paraguay.

PROJECT STAFF
Editor: David E. Kaplan
Deputy Editor: Marina Walker Guevara
Web Editor: Andrew Green
Deputy Web Editor: Cole Goins
Multimedia Editor: Ariel Olson Surowidjojo
Audio Editor: Sarah Laskow
Research Editor: Peter Newbatt Smith
Fact-Checking: Laura Cheek, Paulette Garthoff
Copy Editor: Sara Bularzik
Additional Editing: Gordon Witkin, Tom Stites
Communications: Steve Carpinelli

REPORTING TEAM
Stefan Candea (Romania), Duncan Campbell (United Kingdom), Patricia Chan (Hong Kong), Te-Ping Chen (United States), Gong Jing (China), Alain Lallemand (Belgium), Aamir Latif (Pakistan), Vlad Lavrov (Ukraine), William Marsden (Canada), Paul Christian Radu (Romania), Mabel Rehnfeldt (Paraguay), Roman Shleynov (Russia), Leo Sisti (Italy), Daniel Santoro (Argentina), Marcelo Soares (Brazil), Drew Sullivan (Bosnia-Herzegovina), Kate Willson (United States).

DESIGNERS
Interactive Map/Homepage Design: Stephen Rountree
www.rountreegraphics.com
Web Site Design: Top Dead Center Design
www.tdcdesign.com

ADDITIONAL THANKS
El Paso Inc.
Le Soir
Novye Kolesa
ABC Color

Europe is being flooded by smuggled Russian-made cigarettes worth at least $1 billion a year, an international investigation has discovered.

A network of factories and routes has been put together across Europe since 2004, following large-scale smuggling routes previously supplied by major multinational tobacco companies. The new underground smoking trade involves only one brand, Jin Ling, which is turning up in more cities and countries across Europe every month.

Jin Ling, virtually unknown to the authorities three years ago, has grown so rapidly that law enforcement officials say it now rivals Marlboro as the top smuggled brand being seized in the European Union.

The organization behind this fast expanding black market, the Baltic Tobacco Factory (BTF) of Kaliningrad, Russia, has links to two of the world’s largest tobacco companies. Its factory network in Russia and Ukraine was previously owned and run by subsidiaries of Japan Tobacco International (JTI) Group, the world’s number three producer.

The investigation has identified a network of Russian and East European companies, including 5 factories believed to play roles in manufacturing the contraband cigarettes being smuggled to the West. The Russian-run factory network now claims to be able to produce more than 24 billion cigarettes annually. This would be equivalent to 7 percent of legal EU cigarette imports.

Originally imported from China, Jin Ling features a king-size packet design that closely resembles the legal Camel brand in color, typestyle, and layout. Instead of a camel, the packs are illustrated with a mountain goat.

Jin Ling cigarettes have no legal market in any European country, according to customs officials. The brand is never advertised and cannot be bought in shops. It is only sold illegally — smuggled by gangs who hope to pocket immense profits by selling unlicensed, untaxed cigarettes on black markets across Europe.

ICIJ’s reporters went to Russia to uncover the truth about the billions of black market Jin Ling cigarettes turning up across Europe. They quickly learned that packets of Jin Ling could not be purchased even in the shops, markets, or street stalls of the Russian city where they are made, Kaliningrad. But Jin Ling was available to smugglers, in huge quantities, from its manufacturer, the Baltic Tobacco Factory.

Kaliningrad can be a dangerous place to ask questions about smuggling. The Russian territory, sandwiched between Poland and Lithuania, went into rapid and cataclysmic decline after the break up of the Soviet Union, but has since profited immensely from its close proximity and excellent transport to the European Union. It has also gained a reputation as a haven for smugglers and money launderers, and for a police force accommodating to smugglers’ interests. The city is home to a noisy night life and frontier atmosphere, with luxury limousines a frequent sight on the streets.

Russian journalists working in Kaliningrad know that to openly ask about the cigarette contraband trade is a risky business. In 2006, after criticizing the police — including the protection they give to smugglers — the local Novye Kolesa newspaper was raided and its newspapers confiscated. The paper’s co-founder, Igor Rudnikov, was then prosecuted for “beating 22 police officers.” “In Kaliningrad there were even contract killings of tobacco businessmen,” says Rudnikov, a local parliamentary deputy. “But not one of those crimes was disclosed. And it is hard to imagine that law enforcement does not know what is going on.”

Jorge Abraham sits in his parents’ living room in a single-story rental on a rutted street in El Paso, Texas. His soft, sloping shoulders twitch involuntarily. His head and contorted right hand are the only parts of Abraham’s morbidly obese frame that move by volition — the result of a 1988 motorcycle accident that left him quadriplegic.

Behind him, the living room is stacked nearly to the ceiling with belongings — including three horse saddles — that once decorated Abraham’s former home, an expansive custom-built mansion.

Abraham, now 38, lived a luxurious life until 2004, with an ever-present entourage of bodyguards and personal assistants, and at one point owning four late-model vehicles. Not everyone believed he made his fortune legally operating his import-export businesses in El Paso and across the border in Juarez. Drug dealers in Mexico and FBI agents in Texas suspected he made his millions smuggling narcotics. But Abraham had a deal that was sweeter than dope.

Abraham was the unlikely kingpin of one of America’s biggest ever cigarette smuggling rings — a racket that spanned three continents and six states and moved as many as a half-billion contraband cigarettes across the United States. As lucrative as narcotics, but with far less onerous penalties, tobacco smuggling is booming around the country — and around the world. Abraham, released from federal custody in June, recently talked for the first time publicly about his operation, the cheap, illegal smokes that Americans increasingly crave, and the bungled case against him that led from Chinese counterfeiters and American Indian smoke shops to a chilling Mexican house of death.

“This was an extremely important case,” said John W. Colledge III, former program manager for international tobacco smuggling at U.S. Customs Service. “Very sophisticated… probably one of the two most significant [federal cigarette] cases.”

In 2004, Cyprus-based tobacco distributor Tlais Enterprises Limited (TEL) was told it had received a “red card” from British customs, a warning that the company was suspected of cigarette smuggling.

TEL’s owner, Ptolomeos Tlais, was surprised. Born in Lebanon to a wealthy trading family, Tlais was doing, he said, exactly what his supplier, Gallaher Tobacco, had told him to do: quickly dumping large amounts of cigarettes onto developing countries. Everyone involved, he insists, knew that some of these smokes — especially their low-end Sovereign brand — would find their way back to the U.K., where avoidance of high tobacco taxes guaranteed smugglers a windfall.

In fact, Tlais had even signed a unique deal with both Gallaher — the U.K.’s largest cigarette manufacturer — and the U.K. customs service, giving them unprecedented access to his shipping records. In the deal, Tlais agreed to unload tens of millions of moldy cigarettes by mixing them with new cigarettes and selling them overseas. If anyone deserved a red card, Tlais felt, it was Gallaher for coming up with the plan.

Yet just a few months later, in January 2005, Gallaher told Tlais that it could no longer send his company cigarettes because he was involved in smuggling. Each sued the other in the U.K. for breach of contract, with Gallaher claiming it was still owed $3.2 million for cigarettes purchased and Tlais seeking $675 million in lost profits and other damages. Tlais is also pursuing Gallaher — now owned by Japan Tobacco International — in his native Lebanon, where a criminal court case is about to begin against three Gallaher managers and Gallaher itself for fraud. In addition, Tlais has sued U.K. customs in Cyprus for allegedly assisting in smuggling, misrepresentation, and damaging his reputation, a case that started this month.

The investigations had gone on for so long that most Canadians probably wrote them off as another victory for big corporations.

Then suddenly on July 31, after a year of secret negotiations, Canada’s two largest tobacco companies — Imperial Tobacco Canada and Rothmans Inc. — pleaded guilty to aiding and abetting tobacco smuggling from 1989 to 1994, defrauding Canadian governments of more than a billion dollars in unpaid taxes.

The two companies agreed to pay an unprecedented C$1.15 billion (US$1.12 billion) to Canadian governments and to plead to one count of “aiding persons to sell or be in possession of tobacco products manufactured in Canada that were not packaged and were not stamped in conformity with the Excise Act and its amendments and the ministerial regulations.”

Imperial Tobacco, maker of 16 cigarette brands including Canada’s top sellers Players and du Maurier, agreed to pay US$582 million. Rothmans, parent of Rothmans, Benson & Hedges Inc. and maker of 16 cigarette brands, agreed to US$534 million.

Notorious as a haven for smugglers and money launderers, Kaliningrad, Russia, is not a place where it’s safe to ask many questions. In 2006, troops raided a local newspaper office that criticized the police for, among other things, protecting cigarette smugglers. In April 2008, ICIJ reporters went undercover to investigate the source of Europe’s “most disturbing” new development in contraband tobacco: Jin Ling cigarettes. Made in Kaliningrad by the Baltic Tobacco Factory, Jin Lings are flooding the black market across the European Union.

ICIJ reporters, carrying concealed video gear, posed as smugglers and set out to follow the Jin Ling trail.

Sociologist Luk Joossens is one of the world’s top experts on tobacco smuggling. In 1995, he co-authored a paper that alerted the world about a striking disparity between cigarette exports and imports — that billions of cigarettes were missing and likely diverted to black markets in dozens of countries. Today, Joossens is one of six experts advising the World Health Organization’s Framework Convention on Tobacco Control — a global treaty to reduce tobacco use — on how to crack down on the booming underground trade in cigarettes.

In this video interview, conducted by veteran ICIJ reporters Duncan Campbell and Alain Lallemand in Belgium, Joossens talks about some of the most pressing issues in tobacco smuggling, from Russian-made cigarettes pouring into Europe’s black markets to China’s massive cigarette counterfeiting industry.

Thanks to Le Soir in Brussels for this video.
© Pierre-Yves Thienpont/Le Soir

JHPIEGO (its name is not an acronym), a nonprofit health organization affiliated with The Johns Hopkins University, works worldwide to "train trainers" — whether they are hospital employees or African village laymen.

JHPIEGO draws on resources from Johns Hopkins' schools of Public Health, Medicine and Nursing, but doesn't offer medical treatment or family services. The organization trains people overseas to do that instead, and mainly uses local medical practitioners and trainers to run its programs.

"Our focus is on establishing the system," said Sam Dowding, acting director of JHPIEGO's Center of Excellence on HIV/AIDS. "We work in institutions where we train the trainers, so in 5 years, 10 years, it continues to be self-sustained."

The organization's funding largely comes from the federal government, which has backed the organization since its first day in operation.

In 2005, the Presidents Emergency Plan for AIDS Relief, a five-year, $15 billion initiative to fight AIDS abroad, granted the organization $8.2 million for its efforts in Côte d'Ivoire, Ethiopia, Mozambique, South Africa, Tanzania and Zambia. The funding accounted for more than a fifth of JHPIEGO's $37.5 million program expenditures and built on its work in more than 90 countries worldwide.

But at least one of JHPIEGO's programs has been debated in international circles and was not supported by PEPFAR.

Working history with U.S. government

For more than 30 years, JHPIEGO has been working with the U.S. Agency for International Development to improve health care services for women and families in developing countries.

It was founded in 1973 to implement a five-year USAID grant to train obstetricians and gynecologists. After the grant's extension, JHPIEGO expanded its global presence through partnerships with USAID, then with private foundations and other international health organizations.

Although its name suggests a scholarly focus, the Academy for Educational Development's reach extends far beyond the classroom. AED is organized into 27 "centers of excellence" and has programs in 167 countries, making it one of the world's largest nonprofits addressing human and social development.

AED has forged partnerships with governments, companies and communities around the world, but perhaps none has been more crucial than its relationship with the U.S. government. In fiscal 2004, AED's federal, state and local grants, combined with its program-related revenues (including government contracts) amounted to nearly 80 percent of the organization's quarter-billion-dollar budget.

Government support is vital to the academy's HIV/AIDS efforts. According to Michael Kaplan, vice president and deputy director of AED's Center on AIDS and Community Health, the U.S. government historically has been AED's largest funder for its HIV/AIDS efforts. In 1987, for example, AED was awarded one of the U.S. Agency for International Development's first global HIV/AIDS relief contracts.

AED's work has carried over into participating in the President's Emergency Plan for AIDS Relief (PEPFAR), a five-year, $15 billion initiative to fight AIDS in 15 focus countries (Vietnam, as well as 14 in Africa and the Caribbean) and more than 100 other nations. Through PEPFAR, AED was allocated $11 million in 2005 for its programs in Botswana, Haiti, Kenya, Namibia, Nigeria, South Africa, Tanzania, Vietnam and Zambia.

Background and PEPFAR programs

AED was founded in 1961 as an initiative to study the higher education system in Kansas. Over the next 40 years the organization expanded domestically and internationally to help build local sustainability. AED now also focuses on environment and energy policy, health, youth initiatives, leadership and democracy and HIV/AIDS relief.