How the arrangement between Thai tobacco officials and the Brazilian subsidiary of Universal Corporation allegedly unfolded
15/08/2010
Bangkok Post
It started with dinner in Brazil attended by Thai tobacco officials and snowballed into an avalanche of graft and corruption with large ''special commissions'' paid into a Hong Kong bank account and gifts of watches, computers and sightseeing junkets to Las Vegas and Los Angeles.
(Click on the timeline to zoom in)
The US Securities and Exchange Commission (SEC) complaints against two tobacco giants at the centre of a multi-million-baht bribery scandal threatening to engulf the Thailand Tobacco Monopoly (TTM) make for disturbing reading. Not only is a culture of ''bribes-for-business'' made clear when dealing with the Thai officials, but also near non-existent accounting methods by the US-based tobacco companies - Alliance One International and Universal Corp. The crucial roles of local ''commission agents'' to facilitate the deals are also highlighted in the SEC allegations which do not name any tobacco company or Thai officials.
The two companies recently agreed to pay nearly US$30 million to settle charges that they bribed foreign officials - with unnamed TTM officials accused of taking close to $2 million in kickbacks to secure the sale of Brazilian tobacco leaf in Thailand between 2000-2004.
From 2000-2006 the managing director of TTM was Suchon Watanapongvanich.
According to the SEC complaint against Universal, between 2000 and 2004 the company paid TTM officials US$800,000 to secure sales for its Brazilian and European subsidiaries totalling $11.5 million.
The arrangement took root in early 2000, after TTM officials had expressed concern about the high cost of US tobacco and sought to buy it from other countries. Universal chose a commission agent in Thailand to help its
Tobacco Road _ how alleged graft took root
Brazilian subsidiary, Universal Leaf Tabacos Limitada (ULTL), to help jlarrange for a TTM delegation to visit the subsidiary's headquarters in Santa Cruz do Sul, Brazil.
On March 11, 2000, a ULTL executive hosted a dinner for the delegation also attended by the company's sales directors, an account representative for TTM and the commission agent. During a private conversation between the group, the agent stated that ULTL would have to agree to pay ''special expenses'' to obtain TTM business, which were ''kickbacks'' for certain members of the Thai agency, the complaint said.
But ULTL wasn't the only company trying to sell Brazilian tobacco, as Dimon Incorporated and the Standard Commercial Corporation _ merged in 2005 to form Alliance One _ were making the same overtures.
Dimon's former senior vice-president of sales, Tommy L Williams, was charged earlier this year with authorising bribes to TTM officials via Dimon's agent in Thailand. According to the SEC, Dimon and Standard paid more than $1.2 million to TTM officials from 2000-2004 to secure $18.3 million in sales. Among those payments was $50,000 allegedly paid to a political candidate who was also Standard's tobacco sales agent in Thailand.
After the 2000 dinner, a ULTL jlaccount representative indicated the company would coordinate with other potential Brazilian tobacco suppliers for the same ''price and special expenses'' and confirmed to the agent they would pay $100,000 in special expenses.
On March 23, 2000, ULTL submitted a bid through the agent which was inflated by the ''special commission'' amount. Six days later, the agent sent an email to ULTL advising that the TTM board had met and agreed to the request to replace some of the US tobacco with Brazilian tobacco. ULTL secured a contract for just over $1.6 million.
In April, a second trip for TTM officials to Brazil was organised with ''tourist aspects'' and $3,000 in ''pocket money'' paid for by ULTL and other Brazilian suppliers.
But the next month, the commission agent sent a fax to Universal's regional headquarters in Singapore warning that another Brazilian tobacco supplier wanted to sell to TTM.
On May 17, the regional head wrote in a cover note on a fax to ULTL ''what (the agent) is saying is that if the 'special expenses' are paid prior to the next visit by the ... there should be no problem with other cheaper quotes.''
ULTL directed the payment to a Thai bank account ''which purports to be a Thai fruit export company''. The payments were made in two $50,000 lots on June 13 and July 6 and recorded by the company as ''commissions paid''.
Universal's European subsidiary struck a similar deal in 2000 to sell tobacco sourced from its Malawian subsidiary, Limbe Leaf Tobacco Company, to TTM.
Once again, an inspection visit to Malawi for a TTM delegation was jlorganised with air fares paid for and $3,000 in ''pocket money''. Special expenses payments of $100,000 were requested as well as a $78,000 commission to the agent. After the 2000 deal, Universal made no further sales of Malawian tobacco to TTM.
But the kickbacks from the Brazilian suppliers continued for the next four years in ''much the same fashion'', the SEC documents say.
''Each year, ULTL coordinated its bid price with one or more other Brazilian tobacco suppliers to the TTM.
''Each of the Brazilian suppliers, including ULTL, inflated its bid price to account for 'special expenses' and transmitted additional funds to its respective agent who each understood would in turn direct the payments to the TTM representative.''
According to the SEC, in mid 2001 the agent instructed ULTL to pay 50% of the special payment to an account in Hong Kong held in the name of a person the tobacco company did not know. The agent directed ULTL to ''advise your bank not to mention our name in the remittance instruction''. Two payments of $110,000 were made to the account in July and August and recorded as ''commissions paid''.
In April 2002, ULTL's agent said she had learned the special expenses that year would be set at $0.45 per kilogramme of tobacco purchased ''based on the condition there are only three regular suppliers''.
The new arrangement continued, with the ''special expenses'' rising to $0.50 per kilogramme in 2003 and $0.80 in July 2004.
''I do not see any alternatives for us,'' a ULTL account representative wrote in an email to the agent.
''We have to play the game according to the rules. We are not happy about these extra 30 cents because they will affect our margins''.
The agent replied in an email ''there is nothing much one can do''.
Payments continued to be made to the Hong Kong account, with $195,040 paid in December 2004. A $61,897 payment was also requested to be paid into a German bank account for the agent.
In 2005, TTM changed to a ''blind'' electronic auction process for purchasing tobacco and the commission agent advised ULTL the system would be transparent and no special expenses would be paid.
The SEC documents on Dimon and Standard also alleged that improper payments and gifts were made tojl officials in Thailand and China.
''In 2002 and 2003, contemporaneous documents show that Standard employees provided watches, cameras, laptop computers and other gifts to Chinese and Thailand tobacco jlofficials.
''Standard also paid for dinner and sightseeing expenses during non-business related travel to Alaska, Los Angeles and Las Vegas for Chinese and Thailand government delegations''.
Alliance One, the new merged company, was also accused by the SEC of paying bribes to government officials in China, Greece, Indonesia and Kyrgyzstan.
In March 2004, the company noticed banking irregularities with certain accounts in Southern Europe and Central Asia and called in an outside law firm to conduct an investigation. The law firm said there may have been breaches of the US Foreign Corrupt Practices Act. The company reported the matter to the US Justice Department, closed the accounts and made personnel changes to try and ensure the corrupt practices were not repeated.
After the TTM introduced the blind electronic auction in 2005, ULTL was awarded a contract for just over US$3.1 million. Since then, it has not sold any tobacco to Thailand.
15/08/2010
Bangkok Post
It started with dinner in Brazil attended by Thai tobacco officials and snowballed into an avalanche of graft and corruption with large ''special commissions'' paid into a Hong Kong bank account and gifts of watches, computers and sightseeing junkets to Las Vegas and Los Angeles.
(Click on the timeline to zoom in)The US Securities and Exchange Commission (SEC) complaints against two tobacco giants at the centre of a multi-million-baht bribery scandal threatening to engulf the Thailand Tobacco Monopoly (TTM) make for disturbing reading. Not only is a culture of ''bribes-for-business'' made clear when dealing with the Thai officials, but also near non-existent accounting methods by the US-based tobacco companies - Alliance One International and Universal Corp. The crucial roles of local ''commission agents'' to facilitate the deals are also highlighted in the SEC allegations which do not name any tobacco company or Thai officials.
The two companies recently agreed to pay nearly US$30 million to settle charges that they bribed foreign officials - with unnamed TTM officials accused of taking close to $2 million in kickbacks to secure the sale of Brazilian tobacco leaf in Thailand between 2000-2004.
From 2000-2006 the managing director of TTM was Suchon Watanapongvanich.
According to the SEC complaint against Universal, between 2000 and 2004 the company paid TTM officials US$800,000 to secure sales for its Brazilian and European subsidiaries totalling $11.5 million.
The arrangement took root in early 2000, after TTM officials had expressed concern about the high cost of US tobacco and sought to buy it from other countries. Universal chose a commission agent in Thailand to help its
Tobacco Road _ how alleged graft took root
Brazilian subsidiary, Universal Leaf Tabacos Limitada (ULTL), to help jlarrange for a TTM delegation to visit the subsidiary's headquarters in Santa Cruz do Sul, Brazil.
On March 11, 2000, a ULTL executive hosted a dinner for the delegation also attended by the company's sales directors, an account representative for TTM and the commission agent. During a private conversation between the group, the agent stated that ULTL would have to agree to pay ''special expenses'' to obtain TTM business, which were ''kickbacks'' for certain members of the Thai agency, the complaint said.
But ULTL wasn't the only company trying to sell Brazilian tobacco, as Dimon Incorporated and the Standard Commercial Corporation _ merged in 2005 to form Alliance One _ were making the same overtures.
Dimon's former senior vice-president of sales, Tommy L Williams, was charged earlier this year with authorising bribes to TTM officials via Dimon's agent in Thailand. According to the SEC, Dimon and Standard paid more than $1.2 million to TTM officials from 2000-2004 to secure $18.3 million in sales. Among those payments was $50,000 allegedly paid to a political candidate who was also Standard's tobacco sales agent in Thailand.
After the 2000 dinner, a ULTL jlaccount representative indicated the company would coordinate with other potential Brazilian tobacco suppliers for the same ''price and special expenses'' and confirmed to the agent they would pay $100,000 in special expenses.
On March 23, 2000, ULTL submitted a bid through the agent which was inflated by the ''special commission'' amount. Six days later, the agent sent an email to ULTL advising that the TTM board had met and agreed to the request to replace some of the US tobacco with Brazilian tobacco. ULTL secured a contract for just over $1.6 million.
In April, a second trip for TTM officials to Brazil was organised with ''tourist aspects'' and $3,000 in ''pocket money'' paid for by ULTL and other Brazilian suppliers.
But the next month, the commission agent sent a fax to Universal's regional headquarters in Singapore warning that another Brazilian tobacco supplier wanted to sell to TTM.
On May 17, the regional head wrote in a cover note on a fax to ULTL ''what (the agent) is saying is that if the 'special expenses' are paid prior to the next visit by the ... there should be no problem with other cheaper quotes.''
ULTL directed the payment to a Thai bank account ''which purports to be a Thai fruit export company''. The payments were made in two $50,000 lots on June 13 and July 6 and recorded by the company as ''commissions paid''.
Universal's European subsidiary struck a similar deal in 2000 to sell tobacco sourced from its Malawian subsidiary, Limbe Leaf Tobacco Company, to TTM.
Once again, an inspection visit to Malawi for a TTM delegation was jlorganised with air fares paid for and $3,000 in ''pocket money''. Special expenses payments of $100,000 were requested as well as a $78,000 commission to the agent. After the 2000 deal, Universal made no further sales of Malawian tobacco to TTM.
But the kickbacks from the Brazilian suppliers continued for the next four years in ''much the same fashion'', the SEC documents say.
''Each year, ULTL coordinated its bid price with one or more other Brazilian tobacco suppliers to the TTM.
''Each of the Brazilian suppliers, including ULTL, inflated its bid price to account for 'special expenses' and transmitted additional funds to its respective agent who each understood would in turn direct the payments to the TTM representative.''
According to the SEC, in mid 2001 the agent instructed ULTL to pay 50% of the special payment to an account in Hong Kong held in the name of a person the tobacco company did not know. The agent directed ULTL to ''advise your bank not to mention our name in the remittance instruction''. Two payments of $110,000 were made to the account in July and August and recorded as ''commissions paid''.
In April 2002, ULTL's agent said she had learned the special expenses that year would be set at $0.45 per kilogramme of tobacco purchased ''based on the condition there are only three regular suppliers''.
The new arrangement continued, with the ''special expenses'' rising to $0.50 per kilogramme in 2003 and $0.80 in July 2004.
''I do not see any alternatives for us,'' a ULTL account representative wrote in an email to the agent.
''We have to play the game according to the rules. We are not happy about these extra 30 cents because they will affect our margins''.
The agent replied in an email ''there is nothing much one can do''.
Payments continued to be made to the Hong Kong account, with $195,040 paid in December 2004. A $61,897 payment was also requested to be paid into a German bank account for the agent.
In 2005, TTM changed to a ''blind'' electronic auction process for purchasing tobacco and the commission agent advised ULTL the system would be transparent and no special expenses would be paid.
The SEC documents on Dimon and Standard also alleged that improper payments and gifts were made tojl officials in Thailand and China.
''In 2002 and 2003, contemporaneous documents show that Standard employees provided watches, cameras, laptop computers and other gifts to Chinese and Thailand tobacco jlofficials.
''Standard also paid for dinner and sightseeing expenses during non-business related travel to Alaska, Los Angeles and Las Vegas for Chinese and Thailand government delegations''.
Alliance One, the new merged company, was also accused by the SEC of paying bribes to government officials in China, Greece, Indonesia and Kyrgyzstan.
In March 2004, the company noticed banking irregularities with certain accounts in Southern Europe and Central Asia and called in an outside law firm to conduct an investigation. The law firm said there may have been breaches of the US Foreign Corrupt Practices Act. The company reported the matter to the US Justice Department, closed the accounts and made personnel changes to try and ensure the corrupt practices were not repeated.
After the TTM introduced the blind electronic auction in 2005, ULTL was awarded a contract for just over US$3.1 million. Since then, it has not sold any tobacco to Thailand.
