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- If figures from a UCT study are correct, Adriano Mazzotti's Carnilinx has quintupled its share of the South African cigarette market.
- BAT and FITA – of which Mazzotti and Carnilinx are members – are heading to court to challenge Minister Nkosazana Dlamini-Zuma's cigarette ban. He has used this challenge as proof he is not in cahoots with the minister.
- Big tobacco controls 80% of the world market. Around a third of the cigarettes they export, goes missing somewhere along the supply line.
The tobacco trade has forever been dirty, so much so that it has bred an industry that has criminality and incestuous political links embedded in its DNA. Most cigarette companies are virtuosos in pushing illicit ciggies, side-stepping taxes and sidling up to government officials and politicians.
So shows tobacco expert Telita Snyckers in her new book, Dirty Tobacco. A former state prosecutor, state law advisor and SA Revenue Service (SARS) executive, Snyckers is an illicit trade specialist who has worked in 25 countries around the world.
She asks: how is it possible for local tobacco manufacturers, like Carnilinx, to sell its value brand for R17, while British American Tobacco (BAT) flogs a packet of Peter Stuyvesant for around R44? Especially since SARS taxes a packet of cigarettes with R17.40.
Yet, Carnilinx and the others swear they have always paid their taxes. Carnilinx has repeatedly stated after years of battling SARS, it is now tax compliant. In February last year, the sheriff raided the upmarket villa of Carnilinx founder and director Adriano Mazzotti in Hyde Park in Johannesburg.
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The tax collector had obtained a high court warrant of execution to attach movable property to the value of R33 955 228.22. SARS claimed Mazzotti owed it R72 million in VAT, excise duty and other taxes in this specific case.
SARS said Mazzotti imported cigarettes from Botswana and claimed he exported the cargo to the Democratic Republic of the Congo. Except that it was never exported. The exportation forms at the Beit Bridge Border Post were falsified.
Ghost smuggling
Known as "ghost smuggling", this is one of the most common schemes of smuggling and evading excise tax on cigarettes. It allows smugglers to evade taxes and push their product into the local market at an extremely low price.
SARS attached, among others, a Mercedes-AMG G63 and a BMW 760Li. Both cars come with a price tag of about R3 million each – not bad for a man who manufactures cigarettes at a "loss".
Until late 2014, South Africans had no idea how major players like BAT and the smaller "independents" like Carnilinx, ATM and Gold Leaf Tobacco were playing state intelligence and law enforcement agencies, the public, regulators and journalists. They spied on one another, employed intelligence agents, utilised dirty tricks and were in cahoots with the State Security Agency (SSA) to destroy SARS.
Many have mistakenly blamed the "independents" like Carnilinx, Gold Leaf Tobacco and ATM for most of the crimes in the industry.
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Snyckers shows a completely different perspective. According to the Tobacco Institute of South Africa (TISA), the biggies – BAT, Japan Tobacco International and Philip Morris – manufactured 19 billion cigarettes in SA in 2017-18. Tax was paid on only 15.3 billion cigarettes.
What happened to the other almost four billion cigarettes? Make the sums. It is enough for 185 million packets of twenty. The tax on that? R4.625 billion.
Project Honey Badger
Big tobacco controls 80% of the world market. Around a third of the cigarettes they export, goes missing somewhere along the supply line.
By 2011, tax evasion in the tobacco industry was costing SARS around R3 billion a year. The revenue service launched Project Honey Badger, targeting various tobacco industry players, including BAT.
Honey Badger made enormous inroads in the tobacco smuggling industry. They raided plants, closed illicit factories and targeted corrupt manufacturers. Contraband tobacco dropped from around 26% of the total market in 2013 to 17% in 2014.
SARS' focus on criminality in the tobacco industry had by then also resulted in a 25% increase in excise and VAT payments. In 2012, SARS had seized 54 million illicit cigarettes – by 2014 this had increased to 270 million cigarettes. And all of it attributable to a single project: Honey Badger.
The tobacco industry and many other enemies of SARS hit back. What happened next could have come from the pages of a spy novel. Within months, the taxman was captured, Honey Badger stopped and SARS' five investigation units were disbanded.
Major players in the tobacco industry teamed up with agents of the SSA's Special Operations Unit (SOU) and Economic Intelligence Unit (EIU) and eviscerated SARS.
SSA agent number 5332
The story is convoluted and the cast wide. Just to mention one major player, Pretoria attorney Belinda Walter. She was the founding chairperson of the Fair Trade Independent Tobacco Association (FITA) that represents the "independents".
Little did they know that she was SSA agent number 5332. More than that, she was also paid in pounds by BAT to spy on FITA members. She represented Mazzotti's Carnilinx and spied on them. Walter later stated under oath that FITA was formed "in conjunction with the state".
Walter befriended SARS investigations executive Johann van Loggerenberg in October 2013. They had a brief and stormy love affair after which she accused him of unlawfully divulging taxpayers' information to her.
By this time, while SARS had been digging into the tobacco trade, they were also looking at then-president Jacob Zuma's taxes and found evidence of smuggling profits going to Nkandla and Zuma family members.
Soon after, Zuma appointed an old friend and former prisons boss Tom Moyane as SARS commissioner. Moyane was a tax delinquent but it did not matter. He was appointed to get rid of "sensitive" cases and rid the taxman of the pesky individuals threatening the State Capture project.
'The thin end of the wedge'
Days after his appointment, the Sunday Times began to advance multiple articles of a mythical "rogue unit" at SARS and in the days that followed, Van Loggerenberg left, followed by acting commissioner Ivan Pillay and a host a top executives and managers. SARS was captured.
At the time of its demise, Honey Badger had 15 different criminal cases against tobacco manufacturers and importers ready to be prosecuted. Their licences would also have been revoked. The fiscus should have netted an extra R3 billion.
As Snyckers said: "Honey Badger had come too close to the truth, and people like tax detective Johann van Loggerenberg and others had to go. Tobacco was the thin end of the wedge that pried open the door for their departure."
With the disbandment of the investigation units by Moyane, the illicit cigarette trade spiked again. Snyckers says that by 2017 – the last year for which sound estimates are available – illicit cigarettes held a market share of between 30 to 35%, and in the space of only two years there was a steep drop of 26% in the quantities of cigarettes declared to the taxman.
She says this relates to unpaid taxes of R7 billion a year – the equivalent of 74 000 new homes that government could have subsidised; 66 500 new policemen that could have been appointed; 277 777 pension grants that could have been paid out; or 400 000 electrical connections that could have been installed.
No way to track where the packs go
Snyckers says that South Africa, like many other countries, has virtually no insight into production volumes, and must effectively take cigarette manufacturers at their word. It is easy not to declare a batch or to set up a covert factory the taxman knows nothing about.
South Africa does not monitor the tobacco supply chain. They don't compare how many filters or cigarette papers a company buys against the number of cigarettes declared; there is no way to track where the packs go once they are sold, or to trace packs found on the market back to where they came from.
Big tobacco exports significant volumes of their products. BAT South Africa alone ships its produce to at least 22 countries. South Africa's borders are porous, which provide opportunities for under-declaration, ghost exports, round-tripping and smuggling.
Large volumes of packs of cigarettes are being smuggled across the border from Zimbabwe into South Africa. At some point, fuel tankers and trucks would deliver an unrelated consignment of fuel and goods to Zimbabwe, and ostensibly return to South Africa empty. Instead, they were stuffed with cigarettes.
When Zimbabwe introduced vehicle scanners at Beitbridge Border Post, using trucks became more dangerous. Much of the produce is now couriered across the border. Bigger smugglers are forced to pay for political protection or grease customs palms at the border posts.
Multinational BAT reported at one point that more than 1 400 of its trucks are hijacked annually and accounted for one fifth of all vehicle hijackings in Gauteng. That is a lot of contraband cigarettes that will not be taxed.
Easy to smuggle, easy to buy
Dealing in illicit cigarettes is lucrative and relatively safe. Cigarettes are easy to smuggle, easy to buy, drug dogs cannot sniff out the difference between a licit or illicit pack, and penalties and sentences are relatively low.
It only costs around R2 to produce a packet of twenty cigarettes. By avoiding tax, one makes a fortune – more so than smuggling cocaine. If you are caught with illicit tobacco, you get a fine. If you smuggle hard drugs, you go to prison.
Tobacco and political patronage are nothing new. When KZN tobacco manufacturer Yusuf Kajee had problems with SARS, he roped in Edward Zuma – JZ's son – and made him a director.
It was Edward Zuma who put together a dossier about how SARS unfairly targeted the first "black-owned" tobacco company in the country.
Through a company called Royal Sonic, they allegedly made payments that were used to upgrade Jacob Zuma's Nkandla homestead and fund Edward's living expenses. Where did Royal Sonic get the money from? Reportedly from smuggling tobacco.
In a recording, Kajee says: "I'm meeting the old man [Jacob Zuma] this weekend. I'm going to tell him this fucking Dutchman [Van Loggerenberg] is getting clever, he affects everybody… Because if they going to fuck us up, we can't do the project."
The "project" he was talking about was setting up an illicit tobacco manufacturing project in conjunction with SSA agents.
Snyckers says that BAT have secured for itself the grand prize: the support of the SSA and other key law enforcement agencies. She says more than one source has commented on the closeness of the relationship between the two. And with a country's spooks and law enforcement on your side, you need little else.
In a WhatsApp message from Van Loggerenberg that has since been made public he says: "ATM/Kajee – Edward Zuma and Deputy Minister Justice John Jeffery; Phoebus Apollo / Delport – Deputy Communication Minister Stella Ndabeni; Carnilinx/Mazzotti & Wingate-Pearce – EFF and Julius Malema; BAT – SSA and Gibson Njenje/Ferdi Fryer. Can you see the trend?"
Well-known links
There were reports a few years ago that when SARS stood ready to raid BAT, the president's office was ordered to stand down and settle the matter amicably. No wonder, because the government employees' pension fund holds 42 million shares in BAT. At a current share price of around R560, that is a stake of R23 billion. If BAT goes bust, pensioners lose a fortune.
The links of Carnilinx's Mazzotti to prominent politicians are well-known. He gave money to the EFF to register for the 2014 elections, and one of Carnilinx's directors has claimed to have given firebrand politician Julius Malema a R1 million loan to pay his SARS tax debt.
The lockdown has yet again hoisted Mazzotti and Carnilinx into the limelight, and not just because its brands like Atlantic, CTC, Morrison and F1 are illegally purchased and smoked across the country, but because of Mazzotti's links to Cooperative Governance and Traditional Affairs Minister and National Coronavirus Command Council supremo Nkosazana Dlamini-Zuma.
In The President's Keepers, published towards the end of 2017, Mazzotti is exposed as a benefactor of the ANC presidential campaign of Dlamini-Zuma. He apparently financed campaign clothing like caps and T-shirts for her campaign.
Says the book: "It is too early to say if Dlamini-Zuma is going to follow the Zuma kinfolk on the dirty road to sleaze but associating with Mazzotti is a bad and ill-fated decision. He is a self-confessed tobacco smuggler, money launderer, tax evader, attempted briber, racketeer and fraudster."
The book published a photograph of the two together. Mazzotti then said that he had met her only once, briefly and by accident. A week later, however, the Sunday Times published another photograph of the two.
Dlamini-Zuma then said, through her spokesperson, that they had met in London but denied that she had any "direct or substantive" relationship with the tobacco man.
Said Dlamini-Zuma's spokesperson: "She has never approached him for any assistance, nor has he approached her and offered assistance with her campaign. The two occasions she met him were chance meetings, where there were other persons at the same event."
The relationship between the two is confirmed in tax sleuth Van Loggerenberg's 2019 book, Tobacco Wars. Says Van Loggerenberg: "He claimed too much was made of the story. The meetings were not that significant, he told me. Through his contacts in the clothing industry, he admitted he had assisted the NDZ campaign in obtaining T-shirts and caps... he didn't have to pay for them."
Dlamini-Zuma has again reiterated this week that she is not Mazzotti's "friend", while Mazzotti has reportedly said: "I have stated on record on numerous occasions that there is no relationship between myself and Minister Dlamini-Zuma and I did not fund her presidential campaign as has been maliciously alleged."
Dlamini-Zuma continues to claim that the ban on smoking is associated with health concerns and has nothing to do with her relationship with Mazzotti.
An old foe of smoking, Dlamini-Zuma has refused to countenance evidence of how the ban has not stopped smokers but has instead created a contraband industry.
A recent University of Cape Town (UCT) study revealed that of just over 12 000 smokers surveyed, 90% said they were still buying cigarettes despite the ban.
The cigarette ban is costing the fiscus around R35 million in taxes every day. Tax Justice South Africa (TJSA) has warned that prohibiting people from buying tobacco products alongside essentials in shops encourage the spread of the virus as smokers travelled and met others to purchase it illegally.
BAT and FITA – of which Mazzotti and Carnilinx are members – are heading to court to challenge Dlamini-Zuma's cigarette ban. He has used this challenge as proof that he is not in cahoots with the minister.
According to the UCT study, the largest seller of cigarettes during the lockdown period is Gold Leaf Tobacco, with a 30% market share, followed by British American Tobacco with a 24% market share, Carnilinx with 10% and Best Tobacco Company with 9%.
If the figures are correct, Carnilinx and Mazzotti have quintupled its South African market share, from 2% to 10%.
UPDATE: The article has been amended after receipt of a letter from Mr Mazzotti’s attorneys. The warrant of execution obtained by SARS for the attachment of Mr Mazzotti’s assets was not for “property to the value of R35 million”, as was originally claimed. As we have been informed, the amount in question was R33 955 228.22. News24 regrets the error.
