Burning question of how to do business overseas

I interviewed Alejandro Dominguez Wilson-Smith in the publisher’s office at the newspaper he runs, La Nacion. We sat at an enormous boardroom table on cream leather-covered chairs. Along the office wall was the largest safe I have ever seen. The luxurious surroundings presented a marked contrast to the shabbiness of the rest of the building, in a scruffy suburb of the Paraguayan capital, Asuncion.

Also sitting at the table were two of Dominguez Wilson-Smith’s employees: the journalist who’d written a series of “investigative” articles for the paper about British American Tobacco, and the presenter of an afternoon show on the radio station Dominguez also owns, whose presence at our meeting had been demanded by the boss even though he was supposed to be on-air at the time.

Alejandro is a member of one of the most powerful families in Paraguay. Although he tried to persuade me that the Dominguez’s were outsiders in the days of the dictator Alfredo Stroessner, who ran the country for 40 years until his downfall in 1989, a member of the family was married to Stroessner’s daughter.

Today Alejandro’s brother Julio is a senator for the governing Colorado Party and their father, Osvaldo Dominguez Dibb, owns not just La Nacion and its associated radio stations, but Paraguay’s top football club and a tobacco company.

Indeed Osvaldo might now be president of Paraguay had it not emerged during his campaign for the Colorado Party nomination that he had faked his birth certificate: he was born in Argentina, and so was ineligible to stand.

The Dominguez family has a long-running feud with BAT. The UK multinational charges the family with stealing its brands – registering BAT trademarks as its own in Paraguay. (The Dominguez’s have also been criticised for trying to register as one of their trademarks a near-copy of the official seal that Brazilian customs officials fix to legally imported cigarette packets.)

Alejandro paints his family as victims of a rapacious foreign multinational. Yes, they registered BAT brand names as their own – but that was because BAT had neglected to register them in Paraguay itself and what the Dominguez’s did was common practice across South America.

The Dominguez family use their newspaper as a weapon in their war. While I was in Paraguay, the series of investigative articles about BAT included one saying the British Parliament had condemned the company for being actively involved in cigarette smuggling.

I checked – and found that the British Parliament had done no such thing. The closest it got was in 2000, when the Commons Select Committee on Health published a report on the tobacco industry which acknowledged that serious allegations had been levelled at BAT and called for an inquiry by the Department of Trade and Industry.

BAT has always denied the allegations; the DTI inquiry was set up, but three years on has yet to report.

Parts of the committee’s report published by La Nacion, and which the newspaper claimed were the MPs’ damning conclusions about BAT’s misbehaviour, turned out to be extracts from evidence submitted by the anti-smoking group ASH, outlining the charges against the company. ASH itself was described as a government health agency.

Incompetence on the part of La Nacion’s journalists or deliberate distortion? I don’t know. Either way the article was a disgraceful piece of journalism and serves as a shocking reminder of just how far media proprietors with powerful outside interests can result in distorted news coverage in any country.

The affair is also a reminder of the pitfalls many multinationals encounter when doing business in the developing world.

According to the New York Times, every year Paraguay produces 45 billion cigarettes. Official figures put the number exported at some 300 million. That leaves 44.7 billion cigarettes a year to be smoked by a population of fewer than 6 million people – a pack a day for every man, woman and child in the country.

Impossible? Of course. Most of the cigarettes produced in Paraguay end up in neighbouring countries like Argentina and Brazil, smuggled across the borders and sold in competition with legitimate products. Many of them carry the same brand names, but sell at a discount because no duty has been paid on them, to the advantage of smokers and smugglers alike and to the disadvantage of governments.

The big tobacco companies acknowledge this kind of thing happens – not just in Paraguay but in much of Latin America, North America, Asia, Africa and Europe. Often the smuggled cigarettes undercutting their own product are ones they manufactured themselves and exported duty free, only to find them diverted into the illegitimate market.

Critics allege that the tobacco majors actually connive at this trade, which is said to account for up to a third of all cigarettes sold worldwide. The majors deny it.

But the reality is that in countries where weak law enforcement combines with a culture of corruption and criminality, Western companies face a dilemma. They can play by local rules, as the Dominguez family does, and risk prosecution and the wrath of regulators and stakeholders back home. Or they can play it straight and risk losing business – not to mention vilification in their rivals’ newspapers.

Nick Higham reported on Paraguay for Global Business on the BBC World Service