ONE of Britain’s biggest tobacco firms, Gallaher, has been accused by a key distributor of “permitting” the illegal smuggling of its cigarettes.

The distributor, Ptolomeous Tlais, who sold Gallaher’s products throughout the Middle East, Africa, Latin America and Asia, claims the company set up a trading “environment” conducive to illegal activity. The Cypriot-based businessman also alleges in papers lodged at the High Court that a senior Gallaher executive encouraged him to smuggle products.

Gallaher strongly denies the claims and states Tlais is responsible for the massive smuggling of its products which has deprived the British exchequer of hundreds of millions in lost duties over the past few years.

The sale of smuggled cigarettes is estimated to lose the exchequer £1.9 billion a year and Gallaher products account for almost three-quarters of smuggled branded cigarettes seized by British customs.

Several international tobacco firms are already the subject of official probes into their involvement in the trade.

Gallaher and Tlais fell out last year after concerns were officially raised about the level of cigarette smuggling from the Middle East. Gallaher, whose chief executive is Nigel Northridge, stopped supplying Tlais in June 2004. The contract was terminated this year after negotiations with British customs.

The tobacco firm issued court proceedings last March to establish that the contract had been legally terminated. Tlais retaliated with a counter-claim and the case is now expected to be heard in early 2007.

Gallaher, which makes Benson & Hedges and Mayfair cigarettes, is accused by Tlais of deliberately flooding Middle Eastern markets with unsuitable cigarettes in the knowledge that many would be smuggled back to the British black market.

He alleges Gallaher acted inappropriately by permitting “an environment to be created wherein smuggling became common”. In its legal pleas, Gallaher denies permitting or tolerating smuggling and says the firm had serious concerns about Tlais’s business controls, which led it to terminate his contract.

Tlais refers to an alleged secret meeting in 2001 between a senior Gallaher executive and Uday Hussein, Saddam’s son. He claims it was to arrange to supply cigarettes to Iraq despite United Nations sanctions.

This weekend Charles Hadkinson, the former chief executive of another Gallaher distributor involved in the alleged Iraqi deal, said he recalled a meeting. He claimed his firm used a Jordanian agent, a Mr Karam, to ship Gallaher products across the border. They were allegedly sold in Iraq for more than a year at a rate of 30,000-40,000 cases a month, 300m-400m cigarettes.

Gallaher said in a statement that any “imports were made without the knowledge or consent of Gallaher” and it had “no convincing evidence” that its executives were involved.

In Iraq at the time, the cigarette trade was controlled by Uday Hussein, who insisted on an illegal “levy” for cigarettes shipped into the country of between $5 and $40 a case, according to an informed source. Tobacco firms have denied being complicit in this arrangement.

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