Where There's Smoke, There Could Be Fire

The headquarters of German tobacco company Reemtsma in the well-to-do Hamburg suburb of Othmarschen have been turned upside down this week. German police and customs officials have seized at least two truckloads of materials in search of evidence linking the company to alleged foreign trade and tax violations.

According to customs investigator Leonhard Bierl, the chief allegation against Reemtsma involves aiding and abetting cigarette smuggling. "Cigarettes are manufactured here and exported to eastern Europe, for example," said Bierl. "But from the very start, they are designed for the black market here."

He said that Reemtsma's clients are then smuggling these cigarettes back to Germany by a third party. "That is a lucrative business. By avoiding the high tobacco taxes and import duties that are levied here, an awful lot of money can be made with the cigarettes sold on the black market here in Germany."

Reemtsma, a subsidiary of Britain's Imperial Tobacco and Germany's third largest cigarette company, is also being accused of supplying cigarettes to Iraq, in violation of the U.N. trade embargo.

"Excessive" measures

The Reemtsma group has denied all allegations. Speaker of the board, Manfred Häussler, said in a statement that the company had supported authorities for years in fighting cigarette smuggling. It was thus "completely surprised" by the customs raid, said Häussler, who is also alleged to be involved.

"We consider the confiscation measures by customs in this operation to be completely excessive," he said. "Reemtsma has no interest in promoting cigarette smuggling, nor in violating U.N. sanctions."

The company said it is now screening its clients for their legitimacy. Reemtsma would no longer supply those found to be violating the law, it said.

It added that it was in the company's own interest to battle illegal smuggling, as this paved the way for counterfeit cigarette brands and, thus, less profits.

Sifting through the evidence

The authorities now have to prove that Reemtsma exported the cigarettes with the deliberate intention of smuggling them back into the country. Simply exporting the goods themselves is not punishable by law.

But with the many crates of documents, diskettes and hard drives confiscated since Tuesday, officials have their work cut out for them.

"Several months will be needed to analyze the contents," said Hamburg's chief prosecutor Rüdiger Bagger.

A European problem

The decisive tip about Reemtsma came from the European anti-fraud office OLAF in Brussels. For years, the European Union has been concerned about the economic losses caused by smuggled cigarettes.

"Cigarette smuggling is taking place on a large scale throughout Europe," said EU Budget Commissioner Michaele Schreyer. All European countries with high tobacco taxes suffer from this problem.

Cigarettes are crossing borders in coffins or in food tins. The cartons are hidden in furniture or in the hollowed-out doors of trucks. Germany is often just a transit country for transporting the smuggled goods.

But OLAF is continuously seeking ways to stop these practices and to take legal action against the perpetrators, Schreyer said. It organizes close and regular co-operation between the competent authorities of the EU member states, as well as helping them in their anti-fraud activities.