Behind $110M Fine: "Compliance Bills" for BAT, among Other Conglomerates

One of the last major news stories in the tobacco regulation sector before the end of December 2023 revolves around British American Tobacco (BAT). The Nigerian local anti-monopoly watchdog, the Federal Competition and Consumer Protection Commission (FCCPC), has announced that it has been investigating BAT Nigeria (BATN) and its affiliated companies since August 28, 2020. The watchdog has gathered substantial evidence from digital communications and other information/data analysis, leading to a fine of $110 million for the parties involved in BAT.

According to reports, BAT Nigeria and at least one of its employees were found to have attempted to obstruct the investigation. As a result, criminal charges were initially filed against the organization, but they were dropped after a settlement was reached.

Following this, BATN issued a statement on the 28th stating that they have paid a fine of $110 million to the government. They also acknowledged the mentioned monitoring and promotional activities and stated that "they have fully cooperated with the service provider designated by FCCPC and they further committed to complying with Nigerian laws".

Investigation findings concluded that in accordance with Section 155, Article 11 of the Federal Competition and Consumer Protection Commission Administrative Fines Regulations under the FCCPA in 2020, which addresses "Consumer Rights Violation," and Rule 4.2 of the Federal Competition and Consumer Protection Commission Investigation Cooperation/Assistance Rules and Procedures in 2021, stating that "Consideration should go beyond the provisions and limitations under the Commission's Administrative Penalties Regulations (2020) where applicable," tobacco entities associated with BAT are required to pay a fine of $110 million.

The costs associated with compliance go beyond this. In order to address investigations from the DOJ and OFAC, BAT spent £450 million throughout 2022 and an additional £66 million in the first six months of 2023. As of December 2022, the company has spent a total of £170 million for various cases, including the Engle progeny litigation, throughout the year. BAT stated in its report that these payments "will not have a significant impact on the company's cash flow."

2FIRSTS has sent inquiries to both the Nigerian local antitrust watchdog and BAT regarding this matter. As of the time of writing, there has been no response from the Nigerian antitrust monitoring organization. BAT provided 2FIRSTS with its semi-annual report for 2023, stating that all disputes related to Nigeria have been resolved satisfactorily. However, when 2FIRSTS asked for further details regarding attempts to obstruct the investigation, alleged bribery of former Italian employees, and the impact of fine payments on the group's cash flow, the company stated that there were no additional comments beyond what was already included in the report.

APMEA Footprint of BAT

In its jurisdiction, BAT refers to the Asia-Pacific, Middle East, and Africa regions as the "APMEA market." Apart from Nigeria, the main markets involved in this matter 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 operational profit in this market increased by 171% compared to the same period in 2022, reaching £1 billion, close to one-third of its profit in the American market.

BAT has maintained a significant market share in Africa. At certain times, the company's market share in 11 countries south of the Sahara has exceeded 90%, while its overall market share on the entire continent is approximately 15%. The company publicly claims to "tolerate no smuggling", however, leaked internal document has revealed that smuggling has been a central part of BAT's business strategy throughout Africa, employing a dual-track approach to rapidly seize market share. BAT's involvement in cigarette smuggling in Africa and Lebanon has also been documented. In recent years, there has been a surge of cigarette manufacturers flooding the South African market, supplying an estimated 12 billion illegal cigarettes per year.

New Battlefield 

The Egyptian cigarette market has witnessed a number of controversial events over the past year. This includes the issuance of new licenses to Eastern Company, the sole government-owned producer for decades, as well as the sale of 30% of Eastern Company's shares to a global investment holding company for $625 million. This series of actions highlights the tug-of-war experienced by local tobacco companies in Africa resisting the invasion of international enterprises.

Mentioning "Africa" and "tobacco," not only has tobacco production gradually shifted from traditional tobacco-producing countries such as China, India, and Brazil to Africa in recent years, but its market has also become a relatively untapped "blue ocean," attracting the attention of internationally ambitious companies. It is estimated that the African tobacco product market will generate $45.1 billion in revenue by 2024 and experience a compound annual growth rate of 7.46% from 2024 to 2028. As the focus shifts from "factories" to "markets," it is foreseeable that competition and monopolistic disputes among companies in this continent will persist in order to gain a competitive edge.

According to projections, Africa is expected to have 84 million smokers by 2025, representing a 61.5% increase since 2000. By 2050, it is estimated that the continent's young population will double, making Africa an attractive destination for the tobacco industry. However, as the market expands, tobacco use also poses a growing economic burden on African countries. This includes the cost of treating tobacco-related diseases and the loss of productivity resulting from premature illness and death. Consequently, local governments are likely to tighten and enhance regulation as a response. In order for tobacco companies to enter the African market and establish a strong presence, it will be imperative to support tobacco control policies and initiatives, increase awareness of new tobacco control policies, create investment returns, and closely collaborate with local regulatory agencies.

Foreign Enterprises as "Outsiders"

During the process of companies expanding overseas, it is crucial for them to cooperate extensively with local regulatory authorities. If they find themselves in a situation where they do not comply with local regulations, they must act in accordance with the requirements of the host country. There have been numerous cases of large companies violating local antitrust/competition laws. As a result, these companies are subjected to various degrees of penalties such as fines and regulatory periods, either individually or cumulatively, which become part of the cost of doing business in the local market. In addition to BAT, many international tobacco giants also face similar challenges as they enter the global market.

In 2022, the Belgian Competition Authority fined four major tobacco companies in Belgium, including BAT Belgium, Reemtsma Cigarettenfabriken GmbH, Nederlandsche Sigaretten- en Tabakfabrieken NV, and PMI Belgium, a total of nearly 36 million euros for collusion through wholesale agreements on future product prices. Previously, the Dutch Competition Authority had fined three manufacturers for the same reason 18 months ago. In early 2023, the Antimonopoly Committee of Ukraine (AMCU) filed a lawsuit against Philip Morris International (PMI), accusing the company of disseminating misleading information regarding the lower health risks of using IQOS products compared to cigarettes, thereby violating Article 151 of the "Protection of Economic Competition Act" on unfair competition. In the same year, Japan Tobacco and 12 music festivals in the UK collaborated to promote their nicotine pouch brand, Nordic Spirit. These marketing activities have raised concerns among health experts and activists. After receiving reports, the UK Advertising Standards Authority said they would review the advertisements involved to determine compliance with regulations.

Examples of going against the norm also exist, where companies engage in anti-competitive behavior in order to squeeze into the market or complain about dominant local businesses lacking "sportsmanship". In January 2022, Japan Tobacco International accused the British-American Tobacco Bangladesh Company of engaging in anti-competitive practices. The complaint is currently under investigation by the Bangladesh Competition Commission (BCC). In November 2023, Japan Tobacco International once again submitted a complaint, this time to the Egyptian Competition Authority (ECA), alleging that Egypt's largest tobacco producer, Oriental Company, holds a monopolistic position in the market. The complaint reportedly involves Japan Tobacco International's "Golden Shores" brand, which competes with Oriental Company's low-priced cigarettes in the Egyptian market. Previously, Japan Tobacco International produced this brand in its factories in Turkey and then imported and sold it in Egypt. However, a recent tax amendment imposes value-added tax on low-priced cigarettes, restricting the import and sale of "Golden Shores" in Egypt.