- guardian.co.uk, Sunday July 15 2001 00.50 BST
Former Chancellor Clarke will now come under increasing pressure to quit his £100,000-a-year senior post on the board of British American Tobacco. The company is currently being investigated by the DTI for alleged collusion in international smuggling.
Clarke's office last night refused to comment on the disclosures but revealed that he intends to sever all links with BAT if he wins the Tory leadership.
It has emerged that BAT cut a deal to build a £50 million cigarette factory in former Yugoslavia with multi-millionaire Serbian businessman Stanko Subotic.
An investigation by the Croatian magazine Nacional into the alleged criminal activities of Subotic detailed his cigarette-smuggling operations. It also claimed his money helped to hide former Bosnian Serb president Radovan Karadzic and Ratko Mladic, the commander in charge at the time of the Srebrenica massacre which killed up to 8,000 people. Both men are wanted in The Hague for crimes against humanity.
Nacional accused Subotic of having been a key figure in the Balkan criminal underworld, a claim he has consistently denied.
It has also emerged that, until 1999, BAT was working with Subotic's former business partner Srecko Kestner, who has admitted to being a smuggler.
In an interview with Nacional , Kestner gave an extraordinary account of the business activities of Subotic, who is estimated to be worth more than £100m.
Balkan experts believe that throughout the last decade cigarette-smuggling was a key instrument of the Yugoslav secret service, which used it to help finance the Balkan wars.
The revelation of links between BAT and Kestner has already forced one senior European politician to resign from the company's board. In May Peter Hess, the speaker of the Swiss parliament, quit his job with BAT.
At the time Hess said: 'The crucial thing for me was that no doubt should remain that... I fully support the fight against tobacco-smuggling and the money-laundering behind it.'
Hess's decision will put pressure on Clarke to follow suit.
Clive Bates of anti-smoking group Ash said: 'If a senior politician in Switzerland has resigned from the BAT board over dealings with a suspected criminal then perhaps it's time for Ken Clarke to do the same. He should launch an investigation on how his company became involved... and take action against directors involved.'
Subotic could not be contacted by The Observer but denies all the allegations made by Nacional . His lawyer, Maurice Turretini, said: 'All business of my client is legal.'
After disclosures in the Balkan media about Subotic, BAT held two secret meetings in Budapest this May with the businessman, and the factory deal was called off.
The deal would have been very lucrative for BAT's directors and shareholders. While the company would have to invest £25m in the factory, with Subotic the other half, BAT would have been given a two-year monopoly on all cigarettes sold in Serbia.
In addition, all cigarettes manufactured by BAT throughout Western Europe would be treated as domestic and thereby escape taxes. Campaigners call this a 'smugglers' charter' as it would allow gangs to buy cigarettes cheap in Serbia and sell them to countries including the UK.
BAT claim Subotic approached the company about the building of a cigarette factory as a representative of the Serbian government, although the company admits it had business dealings with Subotic previously through an offshore company called Dulwich.
A spokesman for BAT said: 'Early discussions involved representatives of D-Trade, of which Subotic is an investor. D-Trade contributed to the development of BAT's investment proposal [but] we were unable to agree on a basis for working together in future.'
The spokesman said that while BAT had business dealings with Kestner, it was principally through Rothmans, which was only bought by BAT in 1999. 'We've not had dealings with Kestner since October 1999,' he said.
Clarke refused to comment on these revelations about BAT's activities.
Additional reporting: Paul Mills
