Behind the $110 million fine – the “compliance bill” of British American Tobacco and more international companies

Behind the $110 million fine – the “compliance bill” of British American Tobacco and more international companies

At the end of December 2023, as the new year is approaching, one of the last big news in tobacco regulation was left to British American Tobacco (BAT): Nigeria’s local antitrust supervisory organization (FCCPC) issued an announcement stating that starting from August 28, 2020, the company The Commission has conducted an investigation into British American Tobacco Nigeria (BATN) and its affiliates, and has collected a large amount of evidence from forensic analysis of electronic communications and other information/data. The relevant parties of British American Tobacco should pay a fine of US$110 million.

It is reported that BATN and at least one of its employees attempted to obstruct the investigation, for which the organization filed criminal charges, which were dropped after settlement.

On the 28th, British American Tobacco Nigeria (BATN) issued a statement stating that it had paid a government fine of US$110 million. It “acknowledges the monitoring and promotional activities mentioned” and “has fully cooperated with the FCCPC designated service providers” and is “committed to complying with Nigerian law.”

The investigation ruling is partly as follows: Pursuant to Section 155, Article 11, of the Federal Competition and Consumer Protection Commission’s Administrative Penalty Regulations 2020 on “Infringement of Consumer Rights” of the FCCPA 2020, and Article 11 of the Federal Competition and Consumer Protection Commission’s Investigation Cooperation/Assistance Rules and Procedures, 2021 Article 4.2 “Consideration of these rules/procedures, where applicable, shall exceed the provisions and restrictions under the Commission’s Administrative Penalties Regulations (2020)”, and the relevant parties of British American Tobacco should pay a fine of US$110 million.

The cost of compliance doesn’t end there. In response to investigations by DOJ and OFAC, British American Tobacco will spend 450 million pounds in 2022 and 66 million pounds in the first six months of 2023; as of December 2022, the company has spent 450 million pounds for the whole year, including the Engle successor case. The case cost £170 million. In the report, BAT said such payments "will not have a material impact on the company's cash flow."

2FIRSTS asked the company and British American Tobacco about this matter. As of press time, the local antitrust supervision organization in Nigeria has not responded; British American Tobacco provided 2FIRSTS with its 2023 semi-annual report, saying that all disputes in Nigeria have been properly handled; when 2FIRSTS asked about the details of attempts to hinder the investigation based on the contents of the annual report, Italy When former employees were suspected of taking bribes and paying fines about the impact on the group's cash flow, the other party said they had nothing to add except what was written in the report.

British American Tobacco’s APMEA territory

In the map, Anglo-American companies refer to the Asia-Pacific region, the Middle East and Africa as the "APMEA market". In addition to Nigeria involved in this matter, the main markets include: Algeria, Australia, Bangladesh, Egypt, Gulf Cooperation Council (including the Kingdom of Saudi Arabia), Japan, Kazakhstan, Malaysia, Morocco, New Zealand, Pakistan, South Africa, South Korea, Taiwan and Vietnam. In the first six months of 2023, the group's operating profit in this market increased by 171% compared with the same period in 2022, reaching 1 billion pounds, nearly one-third of its US market profit.

British American Tobacco has always had a larger market share in Africa. At certain times, the company's market share exceeded 90% in 11 sub-Saharan countries and about 15% across the continent. The company publicly stated that it “does not tolerate smuggling.” However, an internal document that leaked once showed that smuggling has always been the core of BAT’s corporate strategy throughout Africa, and it attempted to quickly seize the market by using “both black and white” methods. British American Tobacco's involvement in cigarette smuggling in Africa and Lebanon has also been documented. In recent years, cigarette manufacturers have flooded the South African market, supplying approximately 12 billion illegal cigarettes each year.

A new battlefield for siege of cities and territories

Over the past year, several controversial incidents have occurred in the Egyptian cigarette market. That includes issuing new licenses decades after Eastern became the only government-owned producer and selling a 30% stake in Eastern to Global Investment Holdings for $625 million. This series of actions shows the pull experienced by local tobacco companies in Africa in resisting the invasion of international companies.

When it comes to "Africa" and "tobacco", in addition to the continuous transfer of tobacco production from China, India, Brazil and other traditional tobacco-producing countries to Africa in recent years, its market also serves as a relative "blue ocean", attracting the attention of international companies with overseas ambitions. . It is estimated that the African tobacco products market will generate revenue of US$45.1 billion in 2024 and record a compound annual growth rate of 7.46% from 2024 to 2028. From "factory" to "market", in order to take the lead in the competition on this continent, it is foreseeable that frictions between enterprises regarding industry competition and monopoly will continue to exist.

It is predicted that by 2025, there will be 84 million smokers in Africa, an increase of 61.5% from 2000. The region's youth population is expected to double by 2050, making Africa an attractive destination for the tobacco industry. As the market expands, tobacco use will also become an increasingly serious economic burden for African countries. This includes the cost of treating tobacco-related illnesses and lost productivity due to premature illness and death, and local governments are bound to tighten and improve regulations in response. If tobacco companies want to enter the African market, supporting tobacco control policies and planning efforts, raising awareness of new tobacco control policies, generating returns on investment, and working closely with local regulators will be the prerequisites for establishing a local presence. .

Foreign companies as “foreigners”

When companies go overseas, their local performance needs to be coordinated with local regulatory authorities to the greatest extent. Once there is a disagreement with local compliance regulations, you need to act in accordance with the requirements of the other party. There are many cases of large companies violating local antitrust/competition regulations. Penalties of varying degrees, such as settlement funds and supervision periods, are imposed on the company individually or in combination and become part of the cost of operating in the local area. In addition to British American Tobacco, many international tobacco giants are also facing similar problems when entering the world market.

In 2022, the Belgian Competition Authority fined four major tobacco companies, including British American Tobacco Belgium, Ricoh Loikfels AG, Japan Tobacco International Netherlands and Philip Morris Belgium, for a total of nearly 36 million euros. The giants negotiate future product prices through wholesalers. Previously, the Dutch Competition Authority had fined three manufacturers for the same reason 18 months ago; in early 2023, the Antitrust Commission of Ukraine (AMCU) filed a lawsuit against Philip Morris International, accusing it of spreading information about "the use of IQOS products and "Compared with cigarettes, the health risks are lower than cigarettes", thereby violating Article 151 of the "Unfair Competition Protection Act"; in 2023, Japan Tobacco will cooperate with 12 music festivals in the UK to vigorously promote its nicotine bag brand Nordic Spirit. These marketing activities have caused concern among health experts and activists. After receiving the report, the British Advertising Standards Authority said that they would review the advertisements involved to see if they complied with the regulations.

There are also examples of people who do the opposite, and there are also those who complain about the lack of "sportsmanlike spirit" of "local snakes" companies in order to squeeze into the market. In January 2022, JTI accused British American Tobacco Bangladesh of anti-competitive behavior. The Bangladesh Competition Commission (BCC) is investigating the complaint; in November 2023, also Japan Tobacco International, the company submitted a complaint to the Egyptian Competition Authority (ECA), alleging that Egypt's largest tobacco manufacturer Oriental Company has a monopoly in the market status. The complaint allegedly concerns JTI's "Gold Coast" brand, which competes with Oriental's low-priced cigarettes in the Egyptian market. JTI used to produce the brand in factories in Turkey and then imported and sold it in Egypt; however, a recent tax amendment imposed value-added tax on low-priced cigarettes, preventing the import and sale of "Gold Coast" in Egypt.
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