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USA: Big Tobacco Busted Again

by James Cruickshank and Fran AbramsThe Independent (U.K.)
March 25th, 2001

Two of the world's biggest tobacco manufacturers knowingly sold cigarettes worth billions of pounds to Latin American drug barons and to a smuggling ring based in Britain, according to documents seen by the Independent on Sunday.

Court papers lodged in New York, claim that Philip Morris and RJ Reynolds had "a scheme to smuggle cigarettes on a worldwide basis". By controlling the smuggling they increased their sales and profited from the illicit activities, say the documents, and executives of RJ Reynolds did deals with smugglers to help them win multi-million dollar sales bonuses.

The companies are facing legal action brought by the European Commission for an estimated 3bn lost in taxes over 10 years. If they lose they could be forced to pay damages and fines totalling 12bn.

But although nine other EU states have signed up to the action, lodged in New York, Britain has not. Officials at the Department of Health have signalled they want to take part, and some at Customs and Excise are against the idea.

The two tobacco corporations had also set up lobbying groups to further maximise their profits by demanding tax cuts because the smuggling was the result of unreasonably high cigarette duties.

The two companies "control, direct, encourage, support, promote and facilitate the smuggling of cigarettes into the European Community", the papers say. They make arrangements for smugglers to pay for their purchases through Swiss bank accounts so the money cannot be traced.

Executives of RJ Reynolds were offered performance bonuses of up to 2m that led to them "dramatically increasing sales" through smuggling, say the papers. One employee, Richard Larocca, developed business relationships with Colombian narcotics traffickers who had used US bank accounts to launder drug money. Many of the cigarettes were later smuggled into the European Community.

The documents even claim RJ Reynolds developed a special kind of Winston cigarette for its best smuggling customers to help them compete with "unauthorised" gangs who were shipping contraband Winstons from other sources.

The company also agreed to strengthen its packaging after the smugglers complained the cardboard cases were too weak for the rough handling methods they were forced to use.

The activities of Philip Morris, which makes Marlboro, enabled drug barons in South America to "legitimise" their business. "In short, what starts out as drug currency on the streets of the US ends up as smuggled goods, including cigarettes, on the streets of Western Europe," the papers show. Between 1995 and 1997, both companies knowingly supplied large volumes of cigarettes to a network of UK-based front companies known to be a cover for smugglers who shipped them out illegally to Spain and Portugal.

In RJ Reynolds' case, the cigarettes were sold to "distributors" in Panama with the full knowledge that the real purchasers were the UK-based smugglers. This was done to prevent law-enforcement authorities from uncovering the deal. The smugglers created false documents suggesting the cigarettes were being shipped to non-EC countries such as Morocco. In fact, they were taken illegally to Spain.

The full list of defendants in the case, which will not come to court for some months, includes Philip Morris USA and six of its subsidiaries, RJR Nabisco, RJ Reynolds Tobacco Company, Nabisco Group Holdings and Japan Tobacco, which bought out RJ Reynolds Tobacco International in 1999. All say they will vigorously defend the action. No one from Philip Morris was available for comment, but a spokesman for RJ Reynolds said the suggestion that the company had been involved with smuggling was "unsupportable and untrue."

He added: "It is important to note that Reynolds Tobacco and its employees were not involved in managing or operating any international tobacco businesses. Those businesses were operated by RJ Reynolds International. RJ Reynolds Tobacco Company is confident it will prevail in this case."

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