A councillor and his illicit tobacco trade
A significant share of Bangladesh's illegal cigarette market is controlled by two companies where Chattogram City Corporation (CCC) Councillor Abdus Sabur Liton and his brother have the majority stakes, an investigation by The Daily Star has found.
These two companies – Bijoy International Tobacco and Tara International Tobacco – may have long been placing counterfeit banderoles on their cigarette packs and distributing them in different parts of the country, an ongoing investigation by NBR's Central Intelligence Cell (CIC) indicates.
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Additionally, these two companies have been producing and selling various cigarette brands, including fake versions of foreign brands like Oris and Esse Lights in big cities such as Dhaka and Chattogram, multiple officials say on condition of anonymity to candidly discuss the ongoing probe involving powerful people.
On May 21, CIC and customs intelligence busted Bijoy International's office in Chakaria upazila in Cox's Bazar and recovered documents that point to the tobacco company's link with manufacturing cigarettes with illegally imported raw materials, according to documents and customs officials.
Earlier on May 9, customs intelligence raided another tobacco factory, Tara International Tobacco, where Liton has the majority share, documents show.
Company filings at the Registrar of Joint Stock Companies and Firms (RJSC) show that as of December 2020, Liton and his brother Abdul Mannan Khokon hold all 20,000 shares worth Tk 100 each of Bijoy.
Until December 2020, the two brothers held 60 percent of the shares and another company held 40 percent. The private investment company then transferred its share to the two brothers on December 10, 2020, although it is yet to be approved by the RJSC, documents show.
Under company law, transfer of share takes effect on the date of transfer, unless there are forgeries by the parties involved or incomplete documentation. However, the final completion of share transfer is subject to RJSC's approval, a company lawyer said.
Liton, also acting convener of a port city unit Awami League, owns 70 percent share in Tara International Tobacco, a partnership set up in March 2017 with a proposed initial capital of Tk 40 lakh. The rest 30 percent share of the company is held by Omar Faruk Siddiki, also from Chattogram, documents show.
THE TOBACCO RACKET
Analysing import and local purchase documents seized from Bijoy and Tara, CIC officials suspect both companies have been engaged in tax evasion through imports of raw materials for cigarette using non-existent and anonymous entities.
Tobacco Tax Policy 2021-2030 strictly prohibits imports of tobacco raw materials by any entity other than cigarette manufacturers.
In actuality, a number of trading companies have been importing various raw materials for cigarette, including the three essential components: acetate tow, unmanufactured tobacco, and cigarette paper.
Acetate tow is the soft, cotton-like material used to make cigarette filters.
NBR data show at least 5,906 tonnes of raw materials used for cigarette production, including these three key components, have been imported by 11 trading companies in the last two years since February 2022 alone.
None of these traders are manufacturers, and at least four of them supplied their illegal imports to Bijoy and Tara, officials say.
The raw materials they imported are enough to produce at least 295 crore cigarette sticks, CIC officials tell The Daily Star, adding that the government lost at least Tk 1,500 crore in revenue from these cigarettes, as the companies did not pay any VAT and supplementary duty.
Most of these raw materials came from China, Malaysia, Germany, India, Hong Kong and Indonesia, documents show.
These companies are SB Traders, M/s Anik Enterprise, Rapid Marketing, Rapid Pack Limited, M/s Osman Trading, RH Traders, Saad International, Alam Traders, AK Enterprise, Star Impex and CR7 Trading.
CIC investigators say most of them are phantom companies, meaning they are being used as shell companies.
The Daily Star went to the physical address of three companies in Dhaka and Chattogram, but did not find them.
Between May 9 and May 21, a large quantity of equipment and raw materials used for cigarette production were seized from the warehouses of Rapid Pack Limited in Dhaka's Keraniganj and AK Enterprise in Chattogram.
Customs officials have since shut the warehouses of both companies. During the raid, CIC and customs officials found Rapid Pack Limited had cigarette manufacturing equipment, although it has no permission to make them.
The CIC officials' raid on Bijoy and Tara was based on the analysis of the import, purchase and sales records of Rapid Pack and AK Enterprise.
Documents show both Rapid Pack and AK Enterprise supplied their imported raw materials to Bijoy and Tara, which is illegal as only direct manufacturers can import such items.
In the subsequent raid on Bijoy on May 21 by a joint team of CIC and port city customs intelligence, officials found documents related to its trade with Rapid Pack, Rapid Marketing, AK Enterprise and Alam Traders.
Currently, 7.56 tonnes of cigarette foil paper inscribed with foreign brand "Oris" imported by AK Enterprise are being held by the Chattogram Customs. AK Enterprise falsely declared them as coated paper.
During interrogation, AK Enterprise owner AKM Ziauddin told customs officials that he imported these products for Liton, who paid for the shipment in advance.
Ziauddin told The Daily Star that the false declaration was unintentional. "I imported the Oris brand foil paper from China for Tara International."
Talking to this newspaper, Liton admitted paying for the shipment.
He denied that his factories make illegal products, but admitted buying Oris cigarette papers from AK Enterprise. He added that all related VAT and duties were paid during the production phase.
Based on the information provided by Ziauddin, customs officials in a raid on Tara International on May 9 confiscated a significant amount of counterfeit Oris brand cigarettes made in Tara's factory in Bhairab of Kishoreganj.
"At least four of these 11 trading companies have illegally imported raw materials of cigarettes for Bijoy International Tobacco and Tara International Tobacco," a top CIC official said.
Import data obtained from NBR show these four companies imported about 61 percent or 3,583 tonnes of the 5,906 tonnes of raw materials illegally shipped into the country in the last two years.
Given the gravity of the matter, NBR Chairman Abu Hena Md Rahmatul Muneem on May 16 directed the Customs Intelligence and Investigation Directorate (CIID) and VAT Intelligence to collaborate with the CIC to track down the ultimate beneficiaries of the illegal imports.
Subsequently on May 19, NBR issued letters to all registered banks, asking them to provide all relevant bank documents and account information of the 11 entities as well as any associated individuals or entities.
NBR officials say none of the 11 trading companies submitted their tax and VAT returns in the last two years, which is mandatory.
ILLEGAL MARKETING
In December last year, local businessmen from different regions sent multiple letters to NBR, saying two cigarette brands named "Express" by Bijoy and "Peacock" by Tara were being distributed in rural areas of Chattogram, Khagracchari, Rangamati, Kurigram, Feni, Kushtia and Lalmonirhat with fake banderoles.
The letters, seen by this newspaper, said 10-stick packs of Express and Peacock cigarettes were being sold for Tk 15-25, much lower than the government-set retail price of Tk 45 for a 10-stick pack. Many of these packs had no banderoles, while others had fake banderoles.
Banderoles are the instrument used for controlling illicit tobacco trade and collecting tax revenue around the world. In Bangladesh, they are printed at the Government Security Printing Press in Dhaka.
Liton admitted to selling his brands at low prices sometimes.
An intelligence report sent to NBR in 2022 mentioned Bijoy, Tara and Liton by name, saying, "There are allegations against Tara International Tobacco used fake banderoles in the past."
'EXACTLY THE SAME'
Port city's Riazuddin Bazar is a prominent wholesale market for cigarettes, including illegal ones.
Three wholesale traders told The Daily Star that they have both the original and fake cigarettes of foreign brands, including Oris, Petron and Esse Lights. They said the demand for the fake ones is higher as they are cheaper.
One trader gave a demonstration on how to spot the fake ones, saying almost no one can spot the difference.
"They look exactly the same, but the quality is different…. Once you open the pack, you get a foul smell that you do not get from the original ones," he said.
Supply of some so-called foreign brands at Riazuddin Bazar drastically fell over the last two weeks after the raids at various suspicious tobacco factories, including the two owned by Liton.
About buying cigarette raw materials from trading companies, Liton said, "I don't have detailed
information about their origins. I simply provide work orders, and they supply the raw materials."
The Oris brand cigarettes that the customs officials seized are of regular size, and not the slim ones like the original foreign brand, he said.
"The cigarettes produced under the brand name of Oris are popular, but I will stop producing them if the original Oris company raises any objections. The allegations of manufacturing Esse Lights, Oris and other slim cigarettes are baseless. I do not even have the equipment to make them," he said.
But CIC officials say the quality of the Oris paper seized at his factory and those used in some slim Oris cigarettes that they collected from the market is similar.
ILLICIT CIGARETTE TRADE IN BANGLADESH
Bangladesh is a fairly small player in illicit tobacco trade, but the trend is rising.
Globally, illicit tobacco trade is estimated at about 10 percent of the total market size.
Latest data on counterfeit cigarettes are not available, but a 2019 study by the World Bank Group shows Bangladesh's illicit cigarette trade in 2016-17 was roughly 2% of the total cigarettes sold in the market, or about 1.5 billion sticks.
It was 50 percent for Latvia, 38 percent for Pakistan, 36 percent for Malaysia and 17 percent for India that year.
In case of Bangladesh, the 2 percent illicit tobacco market share in 2016-17 was more than a three-fold growth from 2014-15, when the illicit tobacco market share was only 0.6%, the WB report said.
About 92% of this illicit trade is in cigarettes that escape the tax net. The remaining 8% of contraband cigarettes are divided between smuggling and counterfeit products. The country loses about $100 million in revenue from the illicit cigarette trade annually, almost 4% of total tobacco revenues, the study found.
However, NBR officials say that currently 8-10 percent of the cigarettes available on the market are illegal.
And the racket involving Bijoy, Tara and some of the 11 trading companies under investigation controls a big chunk of this illegal tobacco market, they add.
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