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The Chinese consume almost one out of every three cigarettes manufactured worldwide, or 1.6 trillion out of about 5.2 trillion cigarettes consumed annually. And, according to industry figures, their consumption grows about 2 percent each year. It's no wonder, then, that in the early 1990s British American Tobacco considered China "key to BATCo's longterm success," according to an internal company document. With this in mind, the same document continued, "as long as free market sales remain dominant, alternative routes of distribution of unofficial imports need to be examined, evaluated, and, if appropriate, maximised."

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Despite steep import taxes as high as 430 percent and severe quotas on tobacco imports, BAT quadrupled sales in China, to just over 46 billion cigarettes in 1993, from 11 billion in 1989, according to company figures. A 1993 BAT document titled "Asia/Pacific Review" and marked "secret" states that only 5.4 percent of BAT's total China business passed through legal channels: China's National Tobacco Corp., the country's tobacco monopoly. The same document laments BAT's "dependence on continued transit trade into China." The rest came through what BAT variously referred to as the "free market," "general trade," or duty-free "leakage." Essentially, it was smuggling by distributors working out of Hong Kong, the Philippines, and Singapore. Court documents in Hong Kong, reviewed by the Center, show that between 1987 and 1993 BAT sold at least HK$8.5 billion (US $1.2 billion) worth of cigarettes (about 50 billion cigarettes) to a Hong Kong-based network, smuggling into China and Taiwan. The network was backed by the Triad, Asia's most notorious criminal organization. Hong Kong authorities calculate that pipeline profits multiplied sevenfold, with the smugglers and street retail vendors earning total gross profits of about HK$60 billion (US $8.3 billion).

It was this smuggling operation that led, on March 29, 1995, to the savage killing of Tommy Chui in Singapore harbor. Experts testified that Chui's murder had all the hallmarks of a Triad killing. The three diving belts with their four, five, and six lead weights, plus the pattern in which his car keys had been placed next to the abduction car, were Triad warnings to anyone who might consider talking to police about cigarette smuggling. In 1996, a Hong Kong court sentenced a Triad soldier to 27 years for Tommy Chui's murder. An appeal is pending. Three others are still at large. In October 1996, Henfrey Tin Sau-kwong, who is described by Hong Kong's Independent Commission Against Corruption as a Triad enforcer, was jailed for five years for trying to intimidate Chui from giving evidence. The sentence was later increased to six years. The major role played by Triad societies in smuggling BAT cigarettes into China had become clear to authorities a year before Chui's murder. In 1994, Chui gave police three lengthy, sworn statements chronicling cigarette smuggling and high-level corruption at BAT. Most of his sworn statements later were admitted into the court record. Even in death, Chui's words lived on.

At the center of the BAT smuggling conspiracy was a Hong Kong distribution company called Giant Island Ltd. (known as GIL), which was founded in the mid-1980s to export cigarettes. Chui had been a director until 1993, when he resigned after a disagreement with the company's founder and majority owner Hung Wing-wah. Chui cashed in his multimillion-dollar profits and moved to Singapore. A third director, Chong Tsoi-jun, ran the daily accounts. Bank statements plus documents seized at Giant Island's office largely substantiate Chui's testimony. They show that until March 14, 1994, when Hong Kong authorities raided Giant Island offices, Giant Island had been BAT's major distributor into China and Taiwan, organizing the smuggling of billions of cigarettes. To assure that Giant Island remained a favored distributor, Chui said the company greased the network by bribing three successive directors responsible for exports at BAT-Hong Kong.

According to Chui, the first was Wai Pong. Between 1986 and February 1990, a total of about HK$45 million (US $6.2 million) was paid to Wai, Chui said. Pong quit in mid-1989 and immigrated to Canada. His successor was his assistant Leo Chan King-wai. Chui said Giant Island paid Leo Chan a kickback of HK$50 on every box (50 cartons, or 10,000 cigarettes) of the best-selling State Express 555, and HK$30 a box for the poorer-selling Hilton brand. Leo Chan was shot in the face while he walked through the garage of his apartment building because, according to Chui's statement, he was steering business away from Giant Island and into another Triad-backed company. Leo Chan recovered, later retired from BAT and followed Pong as an immigrant to Canada.

The next man to assume the top export job at BAT-Hong Kong was Jerry Lui Kin-hong. The Chinese-born Lui had a master of business administration degree from a Canadian university and worked for the international accounting firm Peat Marwick and for Philip Morris before joining BAT's U.S. subsidiary, Brown & Williamson. In June 1990, Lui was transferred to BAT's Hong Kong office with the task of increasing his company's sales into China. In the tradition of BAT export executives out of Hong Kong, Lui immediately climbed on Giant Island's gravy train. Chui said that Lui solicited and was paid HK$2 million (US $277,200) by Giant Island for continued favorable treatment. Lui also persuaded Giant Island to pay him another HK$3 million (US $415,800) immediately after his promotion in January 1992 to export director at BAT Hong Kong. It was a sort of signing bonus. Lui also continued the practice of taking HK$50 for each box of BAT's State Express 555 sold to Giant Island. Chui explained in his statement that he opened an account for Lui with the Union Bank of Switzerland's Hong Kong branch, where he paid the bribes. He told investigators for the Independent Commission Against Corruption: "At that time, GIL ordered about 45,000 boxes of '555' from BAT every month. Taking $50 per box, the monthly bribe payments due to Lui amounted to approximately HK$2 million. This is in addition to the $5 million he had obtained initially." As export director, Lui sold BAT cigarettes to four authorized export groups. Giant Island was by far the favored agent. "Should the cooperation of such a key person be obtained, problems on the supplies of export cigarettes would be solved," Chui said in one of his statements to ICAC. "Lui had been the commercial director with BAT during the period of late 1991 to April 1993 and the bribes paid into this account with cheques through me totalled in excess of HK$25 million (US $3.5 million)," Chui said. Over the same period, BAT paid him only HK$2.5 million (US $346,500). Lui was making more money in bribes than in salary.

Giant Island also bribed customs officers for expediting export documents and favoring its deliveries at bonded warehouses, where duty-free cigarettes were stored awaiting export. The Wo On Lok Triad Society protected Giant Island and its smuggling routes, Chui said. Giant Island bought two M-16 machine guns and other firearms to guard its cargo from pirates in the South China Sea. Chui said Giant Island had shares in five vessels on the route from Hong Kong to Kaohsiung, Taiwan. Each carried up to 4,000 boxes of cigarettes to meeting points on the high seas, where they off-loaded the cargo to fishing boats destined for China or Taiwan. The Taiwan-bound cigarettes were wrapped in plastic bags so they could be hidden under ice on the fishing boats.

BAT pumped a phenomenal amount of cigarettes through Giant Island. On average, Giant Island smuggled 132,000 boxes — the equivalent of about 132 40-foot shipping containers — to China and Taiwan each month, just on the Kaohsiung-Hong Kong route, according to court records. Giant Island also had seven freighters transporting BAT cigarettes from Singapore (and, more recently, Subic Bay in the Philippines) to fishing boats in the South China Sea. Once identities were confirmed using torn bank notes with the same serial numbers, the cigarettes were loaded onto the fishing boats for Taiwan or mainland China. This business, averaging 100,000 boxes a month, earned Giant Island about HK$6.5 million a month in freight charges alone. An analysis of BAT's own figures shows that it steered a majority of its Hong Kong export business to Giant Island. In 1992 alone, the tobacco company sold 16.98 billion cigarettes to Giant Island. This exceeded the amount sold to BAT's other export agents, who received a combined total of only 16.74 billion cigarettes. According to an Ernst & Young tax investigation of Giant Island, plus sales figures presented in court, Giant Island and its related companies earned profits of between HK$555 million (US $77 million) and HK$749 million (US $104 million) on sales of BAT cigarettes between 1987 and 1994.

In September 1994, six months after the raid on Giant Island, its founder Hung fled Hong Kong. He cleaned out his Luxembourg bank account of about US $140 million and immigrated to Canada, where he bought a large home in Vancouver. He is still wanted by Hong Kong's Independent Commission Against Corruption on corruption charges and is believed to be living in both Canada and the Philippines, where ICAC believes he still exports BAT cigarettes into China. Hong Kong authorities charged Hung's partner Chong in December 1994 with conspiring to offer bribes to BAT officers and civil servants. He was later charged with a HK$60 million tax fraud. In September 1996, he leaped to his death from the 26th floor of his luxury Hong Kong apartment building.

Jerry Lui left BAT in April 1993. According to a letter found in the BAT archives and dated Sept. 29, 1992, BAT wanted to "get rid" of Lui because of concerns over an "issue of trust," which was not explained. BAT had planned to transfer him back to Brown & Williamson. Instead, Lui left the company altogether and, in partnership with Hung and others, established a warehousing operation in the bunkers and storage sheds of the former U.S. naval base at Subic Bay in the Philippines. British American Tobacco cigarettes were stored there and distributed to the black market in China and elsewhere. At the request of Hong Kong authorities, the FBI arrested Lui in 1995 in Boston, where he was visiting a friend. Lui's advisers, legal and public relations, launched a vigorous media and political campaign that went all the way to former Secretary of State Madeleine Albright, but ultimately failed to stop his extradition.

While awaiting the outcome, Lui granted an interview to a BBC television journalist, during which he conceded that billions of BAT cigarettes were smuggled into China. "I think ICAC is interested in me because they allege these duty-free cigarettes ultimately are being smuggled into China. And they were, yes. The problem here is that my job is to sell to the agents, appointed agents of BAT cigarettes; in turn, the agents sell to what we call the runners. Now if the runners try to smuggle into China, it's the runners' problem. It's not BAT's problem. Because the title has changed." But Lui acknowledged on camera that BAT knew the cigarettes would be smuggled into China, that Subic Bay had become a center for supplying the Chinese black market, and that BAT monitored sales in China.

After a battle that ended in the U.S. Supreme Court, Lui was extradited to Hong Kong in May 1997. In June 1998, after a 25-day trial, he was found guilty of conspiracy to accept bribes of HK$23.25 million (US $3.2 million) and a HK$10 million (US $1.3 million) unsecured loan. He was sentenced to three years and eight months in prison, fined HK$500,000 (US $69,300), and ordered to pay HK$10 million (US $1.3 million) restitution and prosecution costs of HK$11 million (US $1.5 million). Lui, who refused a request for an interview, is out on HK$1 million bail, pending an appeal hearing set for March 20.

BAT, in a statement to the Center, said, "we are not aware of any evidence to substantiate allegations that some of our employees or distributors have worked with criminal organisations and/or organised crime." But Judge Wally Yeung Chun-kuen, who sentenced Lui, said it appeared that Lui was carrying out company policy, and he put most of the blame directly on BAT. "A leading international tobacco company sold large quantities of duty-not-paid cigarettes, worth billions and billions of dollars, with the knowledge those cigarettes would be smuggled into China and other parts of the world," the judge said at the time. "Apparently the company turned a blind eye to the problem. They took the attitude that as long as they did not directly involve themselves in smuggling, what distributors did with the cigarettes was none of their concern." Hung Wing-wah still operates his tobacco distribution business out of the Philippines and, although he is wanted on smuggling-related charges in Hong Kong, BAT continues to do business with him, Godfrey of the corruption commission said. "BAT are still selling cigarettes to a company run by a man who they know is wanted by the Independent Commission Against Corruption," he said. "We can't take any action against British American Tobacco. They commit no offence, not in Hong Kong. BAT has in the past and probably now still deals with criminal organized crime," Godfrey said.