The Center for Public Integrity

The illicit trafficking of tobacco is a multibillion-dollar business today, fueling organized crime and corruption, robbing governments of needed tax money, and spurring addiction to a deadly product. So profitable is the trade that tobacco is the world’s most widely smuggled legal substance. This booming business now stretches from counterfeiters in China and renegade factories in Russia to Indian reservations in New York and warlords in Pakistan and North Africa.

It began with a basic mathematical equation: In 1995 two scholars in Europe found that almost one-third of the world’s cigarette exports had simply vanished. Somehow, billions of cigarettes, once exported, had mysteriously gotten lost in transit.

Only it wasn’t that mysterious. Starting in 1999, a team of reporters from the International Consortium of Investigative Journalists pored over thousands of internal industry documents and uncovered how leading tobacco companies were colluding with criminal networks to divert cigarettes to the world’s black markets. Big Tobacco was doing it for profit — to boost sales and gain market share — as it avoided billions of dollars in taxes while recruiting growing numbers of smokers around the globe. The tobacco industry, as it turned out, did not merely turn a blind eye to the smuggling — it managed the trade at the highest corporate levels.

Since a series of press exposés in 2000-2001 documented the tobacco industry’s extensive history of smuggling, the industry has seemingly retreated from the practice. Yet for Britain’s largest cigarette manufacturer, Gallaher Tobacco, the smuggling may have continued. According to lawsuits brought by former Gallaher distributor Ptolomeos Tlais, the company used companies like his to funnel large quantities of cigarettes to developing countries with no real market — and then smuggle them back into the European Union.

Here are some of the key documents related to the lawsuits:

The Affidavit — Former Gallaher executive Norman Jack reveals how the company set up its smuggling strategy.

The Verdict — A British judge rejected Tlais’s breach of contract suit against Gallaher, but found the company’s practices “gave rise to a risk of smuggling.”

The Dirty Deal — Gallaher arranged with Tlais to dump tons of moldy cigarettes overseas, while U.K. customs officials signed off on the deal.

The Moratorium — When Japan Tobacco International bought Gallaher in 2007, it also got a two-year moratorium on European Union enforcement of smuggling laws against Gallaher.

Read the full story.

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.

Washington's largest lobby, the pharmaceutical industry, racked up another banner year on Capitol Hill in 2007, backed by a record $168 million lobbying effort, according to a Center for Public Integrity analysis of federal lobbying data. Among the industry's successes: getting two controversial laws extended and thwarting congressional efforts to restrict media ads for prescription drugs.

The spending represents a 32 percent jump over 2006. Driven in part by a busy legislative calendar dominated by issues critical to the industry, the effort raised the amount spent by drug interests on federal lobbying in the past decade to more than $1 billion. Pharmaceutical, medical device, and other health product manufacturers, together, spent more than $189 million on lobbying last year, another record and nearly three times the $67 million they spent in 1998, the first full year for which complete records and totals are available.

Manufacturers of pharmaceuticals, medical devices and other health products spent nearly $182 million on federal lobbying from January 2005 through June 2006, a Center for Public Integrity study of disclosure records shows.

Of that total, drug companies and their trade groups spent most of it, or $155 million, lobbying on a variety of issues ranging from protecting lucrative drug patents to keeping lower-priced Canadian drugs from being imported to the United States Drug interests employed about 1,100 lobbyists to do their bidding in each of the past two years.

Many of the bills targeted by lobbyists for drug interests last year were largely the result of public concerns over high drug prices and safety issues. Drug companies "have been facing an increasingly furious Congress and an increasingly disgruntled public," said Amy Allina, program director at the National Women's Health Network, a women's health advocacy group.

The drug industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA) spent more than $18 million on lobbying last year, more than any single drug company and the most the group spent in one year since 1998, the earliest year of this analysis. In all, PhRMA has spent $104 million since 1998.

Among drug manufacturers, Pfizer, the world's largest drug firm, spent the most on lobbying last year — $12 million — bringing its total to more than $62 million since 1998. Merck spent about $48 million and Eli Lilly, Bristol-Myers and GlaxoSmithKline each spent around $40 million in the same period.

Cooperative for Assistance and Relief Everywhere Inc. (CARE) debuted in the international humanitarian arena in 1945 to aid survivors of World War II. Over two decades, more than 100 million food parcels, the legendary "CARE packages," were delivered in Europe.

In 1966, CARE started phasing out the food packages as the core of its mission while moving on to other projects. Health, children and poverty are now at the center of its work. But the organization also focuses on education, combating HIV/AIDS and emergency disaster relief. Across the board, CARE strives to give poor women resources because, the organization's literature says, "women have the power to help whole families and entire communities escape poverty."

Among the world's largest private international humanitarian organizations, CARE spent more than $514 million in 2005 on its programs around the world. Its tax returns filed with the Internal Revenue Service between the 2000 and 2004 tax years show that, historically, CARE has obtained the bulk of its funds from governmental agencies such as the U.S. Agency for International Development (USAID). For example, 70 percent of its funds in 2003 and 57 percent for fiscal 2004 (the most recent fiscal-year records available) came from the government.

Care for HIV/AIDS

The relief group started addressing HIV/AIDS in 1987 in Thailand. Today, CARE has more than 150 programs tackling the causes and consequences of the virus in nearly 40 countries and reaching more than 7 million people, according to agency spokeswoman Alina Labrada.

The announcement of the U.S. President's Emergency Plan for AIDS Relief (PEPFAR), a five-year, $15 billion initiative launched in 2003 to fight HIV/AIDS abroad, again infused CARE programs with federal funds.

When George W. Bush proposed his five-year, $15 billion initiative to "turn the tide against AIDS" in the developing world in 2003, he said the availability of low-cost drugs to fight the disease "places a tremendous possibility within our grasp."

Bush told Americans in his State of the Union address that the per-patient cost of antiretroviral drugs (ARVs), which improve the health and extend the lives of people who have HIV/AIDS, had dropped "from $12,000 a year to under $300 a year."

That significant decrease was a result of the competition from generic drug manufacturers. Yet Bush's initiative, the President's Emergency Plan for AIDS Relief (PEPFAR), funded by Congress a few months after that speech, has been slow to embrace funding cheaper generic ARVs.

ARV treatment is a major focus of PEPFAR and similar international programs. In addition to providing the drugs, it typically includes things such as HIV testing, counseling, monitoring for side-effects, lab tests and hospitalization.

Estimates released by PEPFAR reveal that in 2004 and 2005, its first two fully funded years, the plan allocated only about 5 percent of its overall ARV drug budget — less than $15 million — for generic drugs. A key reason for that lies in PEPFAR's own rules: only ARVs approved by the U.S. Food and Drug Administration (or given tentative FDA approval through an expedited review process set up in May 2004) can be procured with the program's funds.

While the president's AIDS initiative was still on the drawing board, that proposed stipulation drew fire from some, including Rep. Henry Waxman of California.

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.