A THREE-YEAR legal battle fought by Gallaher, the British maker of Silk Cut and Benson & Hedges cigarettes, has exposed its own connections with tobacco smuggling, sanctions busting and product dumping in the developing world.

Gallaher won its case in the High Court this month against a distributor when Mr Justice Christopher Clarke ruled that the tobacco company had lawfully terminated its contract with Cyprus-based Tlais Enterprises Limited (TEL) because of concerns over smuggling.

More than 20,000 internal documents were disclosed in the course of litigation. And an investigation by The Sunday Times reveals that many of these “cigarette papers” raise serious questions about Gallaher’s own complicity in facilitating worldwide smuggling, sanctions busting in Iraq and the dumping of sub-standard cigarettes in Africa and Afghanistan.

A former Gallaher director at the centre of these allegations has blown the whistle despite attempts by the company to gag and discredit him. His witness statements contradict claims by Gallaher to the court that it “deplores smuggling”.

Norman Jack alleges Gallaher’s board operated a policy of “wilful blindness” while instructing him to sell billions of cigarettes, a substantial proportion of which ended up being illegally diverted back into the European Union.

Other documents disclosed to the court expose serious failings in the regulatory approach of the government’s tobacco strategy. The smuggling of Gallaher cigarettes into the UK is officially estimated to have cost the Treasury more than £1 billion in lost revenue since 2000.

Correspondence seen by this newspaper shows that Gallaher’s new owner, Japan Tobacco (JT), which bought the company last year for £7.5 billion, was concerned about the Iraq matter and further allegations. It wanted to settle the case before the ruling was made public. No deal was possible and Mr Justice Clarke’s 300-page judgment makes uncomfortable reading for all parties.

Jack was the director Gallaher appointed to implement a new and undeclared “trading policy”. It was laid out in a memo written by then chief executive Peter Wilson to his senior managers in May 1999.

It said: “As a consequence of the disruption to our business in Russia we should be seeking alternative sources of business in the short term in order to provide some compensation and to maintain throughput in our factories.”

From then on, Gallaher’s factory in Northern Ireland pumped out billions of Sovereign and Dorchester cigarettes with English health warnings for Jack to sell outside the European Union at low margins and without attempting to build any brand identity.

In his ruling, Mr Justice Clarke described Gallaher’s approach as irresponsible and done “in the knowledge that a substantial proportion [of its cigarettes] would end up being smuggled” back into the high-duty UK market.

The judge cited the example of Andorra where billions of Sovereign cigarettes were shipped by Gallaher.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts