Tobacco Companies Linked to Criminal Organizations in Lucrative Cigarette Smuggling
When Tommy Chui failed to show up at the grand opening of his wife's new
boutique in downtown Singapore, alarm bells rang 1,600 miles away in the offices of Hong Kong's Independent Commission Against Corruption.
It was March 29, 1995, and the news that Chui was missing devastated the
commission's assistant director, Tony Godfrey. He immediately sent two
investigators to Singapore. Three days later, on April 1, his worst fears were realized. Dockworkers found Chui's bloated body floating in Singapore Harbor.
A former director of British American Tobacco's biggest distributor of
contraband cigarettes to China and Taiwan, the 38-year-old Chui had been
abducted, ritually tortured, gagged, suffocated and thrown into the harbor just weeks before he was to testify against his ex-associates.
Chui was the star prosecution witness in an international tobacco smuggling investigation launched in 1993 by Hong Kong's Independent Commission Against Corruption. He was about to blow the lid off a $1.2 billion smuggling operation to China and Taiwan and implicate three former British American Tobacco executives in a HK$100 million bribery scandal. In addition, his testimony was key to the prosecution of his two former business associates, several corrupt customs officers and various
members of Asia's most notorious criminal gang, the Triad.
The case of Chui and the massive BAT-fed smuggling network into China reveals the dark underbelly of a billion-dollar business fed by international corporations and operated by organized crime. While it is among the more sensational examples of corporate tobacco's implication in international smuggling and its links to organized crime, it is far from an isolated instance.
Tobacco manufacturers have often blamed the international smuggling of their products on organized crime. But a year-long investigation by the Center for Public Integrity shows that tobacco company officials at BAT, Philip Morris and R.J. Reynolds have worked closely with companies and individuals directly connected to organized crime in Hong Kong, Canada, Colombia, Italy and the United States.
In fact, one Italian government report obtained by the Center states that
Philip Morris' and R.J. Reynolds' licensed agents in Switzerland were
high-level criminals who ran a vast smuggling operation into Italy in the 1980s that was directly linked to the Sicilian Mafia.
Corporate documents, court records and internal government reports -- some going back to the 1970s -- also show that BAT, Philip Morris and R.J. Reynolds have orchestrated smuggling networks variously in Canada, Colombia, China, Southeast Asia, Europe, the Middle East, Africa and the United States as a major part of their marketing strategy to increase profits.
"With regard to the definition of transit, it is essentially the illegal import of brands . . . upon which no duty has been paid."
-- Internal BAT document
The corporate documents refer to this black market business as "duty not paid," "parallel" markets, "general trade" or "transit." But these same documents often clearly delineate between this aspect of the business and legal trade. For example, one BAT official, in a 1989 letter to associates in Taiwan, said, "With regard to the definition of transit, it is essentially the illegal import of brands from Hong Kong, Singapore, Japan, etc. upon which no duty has been paid."
The companies have sought to undercut rising government taxes, which studies show are the main reason most smokers quit, as well as to gain market share on their competitors or on government-controlled tobacco monopolies by offering competitively priced popular international brands on the black market.
The result has been tax evasion on a global scale that has greatly depleted government treasuries, especially in Third World countries. Cigarette smuggling has also fostered international crime and money laundering and alarmed growing numbers of law enforcement officials worldwide. Attracted by huge profits, quick turnovers, a captive market and relatively light penalties if caught, organized crime now controls large sectors of the smuggling.
"Organized criminals, who have traditionally been involved in smuggling illicit narcotics, are suddenly realizing that tobacco is a good thing to get into, as you make just as much money, and it's perhaps not quite as anti-social," Douglas Tweddle, the outgoing director for compliance and facilitation at the World Customs Organization in Brussels, told the Center. "The public generally aren't against you if you're selling smuggled cigarettes; in fact, they rather appreciate you. And if you get caught, in virtually all countries, the penalties for smuggling tobacco are a great deal less than smuggling heroin or cocaine."
In the United States, cigarette imports have risen so dramatically that
investigators are looking into whether the country is being used as a way
station in the global smuggling trade. "Profits from cigarette smuggling rival those of narcotic trafficking," then-U.S. Customs Commissioner Raymond Kelly told Congress last year. "The United States plays an important role as a source and transshipment country."
The investigation by the Center's International Consortium of Investigative Journalists is based on a review of thousands of pages of corporate and government documents and dozens of interviews with law enforcement officials, smugglers and other sources worldwide. It indicates that tobacco smuggling is increasingly dominated -- often with the knowledge and consent of the tobacco companies -- by a handful of criminal organizations that in some cases have links to organized crime.
The Italian Mafia in Western Europe, East European gangs, Triads in Asia,
drug cartels in Colombia, and motorcycle gangs and the American mafia in North America all have become entrenched in the game. Licensed distributors for the manufacturers feed these organized crime syndicates billions of cigarettes worldwide, often with corporate knowledge.
"A primary driving force behind the proliferation of cigarette smuggling in both Colombia and Europe is the need of narcotics traffickers, Colombian, Russian, and others, to launder enormous amounts of money that can no longer be laundered through banks," said one recent court filing in a cigarette smuggling case.
The Black Market Trade
It's estimated that about one in every three cigarettes exported worldwide is sold on the black market. This enormous business is operated through a web of offshore companies and banking institutions that often employ the same routes and distributors. Russian and Italian mafia use Cyprus and Montenegro. The drug cartels and U.S. mafia use Aruba and Panama. The same names turn up in smuggling networks into Colombia, Canada and Europe. In Southeast Asia, the same distributors who smuggle out of Hong Kong to China also control distribution out of the Philippines and Singapore.
The Center investigation shows that the manufacturers funnel massive amounts of their brand name cigarettes into these smuggling networks, often employing circuitous routes in an apparent attempt to shield themselves from accusations of wrongdoing. Distributors and manufacturers work hand-in-hand to feed this market. But, in some cases, the manufacturers have worked directly with organized crime figures.
In Colombia, tobacco companies are alleged to have helped launder drug money and to have worked closely with distributors who are involved in drug
trafficking. A Colombian lawsuit against Philip Morris and BAT accuses them of involvement in drug-money laundering through what is known as the "black market peso exchange," a circuitous system by which drug dollars are laundered for clean pesos through the purchase and importation of such goods as cigarettes and alcohol.
In a federal civil racketeering lawsuit launched in 2000, Colombia's
governors accused tobacco company executives of illegally entering the country to organize smuggling networks and retrieve cash payments, which were then smuggled out for deposit in offshore banks. Company employees are also alleged in the lawsuit to have bribed border guards. And their agents have been implicated in illegal cash campaign contributions to Colombia's former president Ernesto Samper.
"[W]e act, completely within the law, on the basis that our brands will be available alongside those of our competitors in the smuggled as well as the legitimate market."
-- Kenneth Clarke, deputy chairman of BAT
In Italy, court cases and police and government reports reveal an intricate web of Mafia families that through bribery, intimidation and murder control the smuggling of billions of Philip Morris and R.J. Reynolds cigarettes into Europe through Cyprus, Albania and Montenegro.
In Spain, at least one major distributor for RJR is allegedly a black market distributor linked to illegal drug trafficking.
In Canada, RJR sales executives dealt directly with smugglers linked to the American and Canadian mafia.
In some cases, tobacco industry executives actively played various gangs off against each other and solicited and received millions of dollars in kickbacks or bribes in return for selling to preferred criminal syndicates, according to court records and sources.
The Center investigation also shows that when senior or mid-level executives have been charged criminally with aiding and abetting smuggling, tobacco companies often don't cooperate with investigators. In a Louisiana case, for example, lawyers for one tobacco company used their connections in the administration of former President Bill Clinton to force the removal of a prosecutor pursuing a Brown & Williamson sales executive for smuggling into Canada.
The major tobacco companies all vigorously deny any involvement in the
smuggling of their products. In a statement to the Center, BAT also said it knew of no evidence "to substantiate allegations that some of our employees or distributors have worked with criminal organisations and/or organised crime."
Companies such as BAT have stated that they can't be expected to keep track of their 90,000 employees, even though in many cases those named in smuggling are senior managers. The companies also argue that they sell a legal product to wholesalers over whom they exercise no control. Kenneth Clarke, BAT's deputy chairman and the former Conservative chancellor of the exchequer, told the British House of Commons health select committee on Feb. 16, 2000, that "there is no evidence I have ever seen that BAT is a participant in this smuggling. We seek to minimize it and avoid it."
However, writing in the Feb. 3, 2000, issue of The Guardian, in
response to a Center exposé released a few days earlier, Clarke complained that high cigarette taxes caused smuggling and added: "where governments are not prepared to address the underlying causes of the problem . . . we act, completely within the law, on the basis that our brands will be available alongside those of our competitors in the smuggled as well as the legitimate market."
Top BAT executives, at a meeting last summer, considered the company's
marketing strategy in light of expanding investigations, media reports and civil lawsuits. An industry source told the Center that BAT executives discussed halting all "transit" business but worried that shareholders would be furious at the resulting drop in profits, which one government source estimated to be as high as £500 million (US$720 million) annually. BAT decided to continue the "transit" business, the industry source said, but no longer to refer to it as transit, DNP or GT. The new company term is "WDF" for "Wholesale Duty Free."
The executives also discussed taking steps to counter any civil and penal
actions that could threaten the company's survival, the source said.
Massive smuggling has sparked a growing number of lawsuits. In a 12-month
period ending last year, Canada, the governors of Colombia, Ecuador and the
European Union all filed separate racketeering suits in the United States
against the tobacco giants. Seven nations -- Germany, Spain, France, Italy,
Belgium, the Netherlands and Finland -- have since joined the EU suit. Among
the charges, the EU accuses the tobacco companies of aiding and abetting
smuggling, involvement in organized crime, defrauding state treasuries of
billions of dollars, laundering drug money and committing wire fraud and mailfraud.
In addition, criminal investigations have multiplied.
In the United States, several grand juries are examining the allegations of tobacco company involvement in cigarette smuggling, including one in Raleigh, N.C., and another in New York. A multi-agency investigation, coordinated out of Atlanta, is also looking into possible corporate involvement in cigarette smuggling and its related crimes, such as money laundering, according to federal government sources.
Canada, Italy and Britain have also launched criminal investigations.
Still, with the exception of one case in Syracuse, N.Y., where a unit of RJR called Northern Brands International pleaded guilty in 1998 to smuggling-related charges, the tobacco industry has not faced criminal prosecution.
The growing list of civil cases, however, could prove devastating. Faced with possible treble damages under the U.S. Racketeering Influenced and Corrupt Organizations (RICO) Act, the tobacco companies are vigorously fighting the lawsuits. Already, allegations have surfaced in the Colombian lawsuit that Philip Morris is corrupting the legal process through threats and the destruction of documents. BAT is alleged to have engaged in influence-peddling by putting political and government officials in Colombia on paid consultant contracts.
An affidavit sworn in September 2000 by José Manuel Arias Carrizosa, the executive director of the Colombia Federation of Departments [or states] says that Philip Morris Vice President J. Armando Sobalvarro tried to persuade Arias, in an Oct. 27, 1999, meeting, that a lawsuit against Philip Morris was "not in the Departments' best interests." Sobalvarro noted that Philip Morris was lobbying Washington for a large aid package for Colombia and concluded the visit by threatening Arias that if the lawsuit against Philip Morris proceeded, "there would be blood."
For investigators like Hong Kong's Godfrey, there is "absolutely no
doubt" that BAT knew its cigarettes were being smuggled into China and
Taiwan. "(BAT is) a very sophisticated company," he said in an
interview. "There's no reason why they shouldn't know." Godfrey
also said he believes that bribery became institutionalized at BAT-Hong Kong.
Blood, threats, bribery and corruption are no strangers to cigarette
smuggling. And tobacco companies seem to know that as well as anyone.
The Chinese consume almost one out of every three cigarettes manufactured
worldwide, or 1.6 trillion out of about 5.2 trillion cigarettes consumed
annually. And, according to industry figures, their consumption grows about 2 percent each year.
It's no wonder, then, that in the early 1990s British American Tobacco
considered China "key to BATCo's longterm success," according to an internal company document. With this in mind, the same document continued, "as long as free market sales remain dominant, alternative routes of distribution of unofficial imports need to be examined, evaluated and, if appropriate, maximised."
Despite steep import taxes -- as high as 430 percent -- and severe quotas on tobacco imports, BAT quadrupled sales in China, to just over 46 billion cigarettes in 1993, from 11 billion in 1989, according to company figures. A 1993 BAT document titled "Asia/Pacific Review" and marked "secret" states that only 5.4 percent of BAT's total China business passed through legal channels: China's National Tobacco Corp., the country's tobacco monopoly. The same document laments BAT's "dependence on continued transit trade into China."
The rest came through what BAT variously referred to as the "free
market," "general trade," or duty-free "leakage."
Essentially, it was smuggling by distributors working out of Hong Kong, the
Philippines and Singapore.
Court documents in Hong Kong, reviewed by the Center, show that between 1987 and 1993 BAT sold at least HK$8.5 billion (US $1.2 billion) worth of cigarettes (about 50 billion cigarettes) to a Hong Kong-based network, smuggling into China and Taiwan. The network was backed by the Triad, Asia's most notorious criminal organization. Hong Kong authorities calculate that pipeline profits multiplied sevenfold, with the smugglers and street retail vendors earning total gross profits of about HK$60 billion (US $8.3 billion).
It was this smuggling operation that led, on March 29, 1995, to the savage killing of Tommy Chui in Singapore harbor. Experts testified that Chui's murder had all the hallmarks of a Triad killing. The three diving belts with their four, five and six lead weights, plus the pattern in which his car keys had been placed next to the abduction car, were Triad warnings to anyone who might consider talking to police about cigarette smuggling.
In 1996, a Hong Kong court sentenced a Triad soldier to 27 years for Tommy Chui's murder. An appeal is pending. Three others are still at large. In October 1996, Henfrey Tin Sau-kwong, who is described by Hong Kong's Independent Commission Against Corruption as a Triad enforcer, was jailed for five years for trying to intimidate Chui from giving evidence. The sentence was later increased to six years.
The major role played by Triad societies in smuggling BAT cigarettes into
China had become clear to authorities a year before Chui's murder.
In 1994, Chui gave police three lengthy, sworn statements chronicling
cigarette smuggling and high-level corruption at BAT. Most of his sworn
statements later were admitted into the court record. Even in death,
Chui's words lived on.
At the center of the BAT smuggling conspiracy was a Hong Kong distribution company called Giant Island Ltd. (known as GIL), which was founded in the mid-1980s to export cigarettes. Chui had been a director until 1993, when he resigned after a disagreement with the company's founder and majority owner Hung Wing-wah. Chui cashed in his multimillion-dollar profits and moved to Singapore. A third director, Chong Tsoi-jun, ran the daily accounts.
Bank statements plus documents seized at Giant Island's office largely
substantiate Chui's testimony. They show that until March 14, 1994, when Hong Kong authorities raided Giant Island offices, Giant Island had been BAT's major distributor into China and Taiwan, organizing the smuggling of billions of cigarettes.
To assure that Giant Island remained a favored distributor, Chui said the
company greased the network by bribing three successive directors responsible for exports at BAT-Hong Kong.
According to Chui, the first was Wai Pong. Between 1986 and February
1990, a total of about HK$45 million (US$6.2 million) was paid to Wai, Chui
said. Pong quit in mid-1989 and emigrated to Canada.
His successor was his assistant Leo Chan King-wai. Chui said Giant Island
paid Leo Chan a kickback of HK$50 on every box [50 cartons, or 10,000
cigarettes] of the best-selling State Express 555, and HK$30 a box for the
poorer-selling Hilton brand.
Leo Chan was shot in the face while he walked through the garage of his
apartment building because, according to Chui's statement, he was steering
business away from Giant Island and into another Triad-backed company. Leo
Chan recovered, later retired from BAT and followed Pong as an immigrant to
The next man to assume the top export job at BAT-Hong Kong was Jerry Lui Kin-hong.
The Chinese-born Lui had a master of business administration degree from a Canadian university and worked for the international accounting firm Peat
Marwick and for Philip Morris before joining BAT's U.S. subsidiary, Brown
In June 1990, Lui was transferred to BAT's Hong Kong office with the task
of increasing his company's sales into China. In the tradition of BAT export
executives out of Hong Kong, Lui immediately climbed on Giant Island's gravy
Chui said that Lui solicited and was paid HK$2 million (US $277,200) by Giant Island for continued favorable treatment. Lui also persuaded Giant Island to pay him another HK$3 million (US $415,800) immediately after his promotion in January 1992 to export director at BAT Hong Kong. It was a sort of signing bonus. Lui also continued the practice of taking HK $50 for each box of BAT's State Express 555 sold to Giant Island.
Chui explained in his statement that he opened an account for Lui with the Union Bank of Switzerland's Hong Kong branch, where he paid the bribes.
He told investigators for the Independent Commission Against Corruption:
"At that time, GIL ordered about 45,000 boxes of '555' from BAT every month. Taking $50 per box, the monthly bribe payments due to Lui amounted to approximately HK$2 million. This is in addition to the $5 million he had obtained initially."
As export director, Lui sold BAT cigarettes to four authorized export groups. Giant Island was by far the favored agent.
"Should the cooperation of such a key person be obtained, problems on the supplies of export cigarettes would be solved," Chui said in one of his statements to ICAC.
"Lui had been the commercial director with BAT during the period of late 1991 to April 1993 and the bribes paid into this account with cheques through me totalled in excess of HK$25 million (US $3.5 million)," Chui said. Over the same period, BAT paid him only HK$2.5 million (US $346,500). Lui was making more money in bribes than in salary.
Giant Island also bribed customs officers for expediting export documents and favoring its deliveries at bonded warehouses, where duty-free cigarettes were stored awaiting export.
The Wo On Lok Triad Society protected Giant Island and its smuggling routes, Chui said. Giant Island bought two M-16 machine guns and other firearms to guard its cargo from pirates in the South China Sea.
Chui said Giant Island had shares in five vessels on the route from Hong Kong to Kaohsiung, Taiwan. Each carried up to 4,000 boxes of cigarettes to meeting points on the high seas, where they off-loaded the cargo to fishing boats destined for China or Taiwan. The Taiwan-bound cigarettes were wrapped in plastic bags so they could be hidden under ice on the fishing boats.
BAT pumped a phenomenal amount of cigarettes through Giant Island. On
average, Giant Island smuggled 132,000 boxes -- the equivalent of about 132
40-foot shipping containers -- to China and Taiwan each month, just on the
Kaohsiung-Hong Kong route, according to court records.
Giant Island also had seven freighters transporting BAT cigarettes from
Singapore (and, more recently, Subic Bay in the Philippines) to fishing boats in the South China Sea. Once identities were confirmed using torn bank notes with the same serial numbers, the cigarettes were loaded onto the fishing boats for Taiwan or mainland China. This business, averaging 100,000 boxes a month, earned Giant Island about HK$6.5 million a month in freight charges alone.
An analysis of BAT's own figures shows that it steered a majority of its
Hong Kong export business to Giant Island. In 1992 alone, the tobacco company sold 16.98 billion cigarettes to Giant Island. This exceeded the amount sold to BAT's other export agents, who received a combined total of only 16.74 billion cigarettes.
According to an Ernst & Young tax investigation of Giant Island, plus
sales figures presented in court, Giant Island and its related companies earned profits of between HK$555 million (US $77 million) and HK$749 million (US $104 million) on sales of BAT cigarettes between 1987 and 1994.
In September 1994, six months after the raid on Giant Island, its founder
Hung fled Hong Kong. He cleaned out his Luxembourg bank account of about US$140 million and emigrated to Canada, where he bought a large home in Vancouver. He is still wanted by Hong Kong's Independent Commission Against Corruption on corruption charges and is believed to be living in both Canada and the Philippines, where ICAC believes he still exports BAT cigarettes into China.
Hong Kong authorities charged Hung's partner Chong in December 1994 with
conspiring to offer bribes to BAT officers and civil servants. He was later
charged with a HK$60 million tax fraud. In September 1996, he leaped to his
death from the 26th floor of his luxury Hong Kong apartment building.
Jerry Lui left BAT in April 1993. According to a letter found in the BAT
archives and dated Sept. 29, 1992, BAT wanted to "get rid" of Lui
because of concerns over an "issue of trust," which was not explained. BAT had planned to transfer him back to Brown & Williamson.
Instead, Lui left the company altogether and, in partnership with Hung and others, established a warehousing operation in the bunkers and storage sheds of the former U.S. naval base at Subic Bay in the Philippines. British American Tobacco cigarettes were stored there and distributed to the black market in China and elsewhere.
At the request of Hong Kong authorities, the FBI arrested Lui in 1995 in
Boston, where he was visiting a friend. Lui's advisers -- legal and public relations -- launched a vigorous media and political campaign that went all the way to former Secretary of State Madeleine Albright, but ultimately failed to stop his extradition.
While awaiting the outcome, Lui granted an interview to a BBC television
journalist, during which he conceded that billions of BAT cigarettes were
smuggled into China.
"I think ICAC is interested in me because they allege these duty-free cigarettes ultimately are being smuggled into China. And they were, yes. The problem here is that my job is to sell to the agents, appointed agents of BAT cigarettes; in turn, the agents sell to what we call the runners. Now if the runners try to smuggle into China, it's the runners' problem. It's not BAT's problem. Because the title has changed."
But Lui acknowledged on camera that BAT knew the cigarettes would be smuggled into China, that Subic Bay had become a center for supplying the Chinese black market, and that BAT monitored sales in China.
"The problem here is that my job is to sell to the agents, appointed agents of BAT cigarettes; in turn, the agents sell to what we call the runners. Now if the runners try to smuggle into China, it's the runners' problem. It's not BAT's problem."
-- Jerry Lui, BAT's former export director in Hong Kong
After a battle that ended in the U.S. Supreme Court, Lui was extradited to Hong Kong in May 1997. In June 1998, after a 25-day trial, he was found guilty of conspiracy to accept bribes of HK$23.25 million ($3.2 million) and a HK$10 million ($1.3 million) unsecured loan. He was sentenced to three years and eight months in prison, fined HK$500,000 ($69,300), and ordered to pay HK$10 million ($1.3 million) restitution and prosecution costs of HK$11 million ($1.5 million).
Lui, who refused a request for an interview, is out on HK$1 million bail,
pending an appeal hearing set for March 20.
BAT, in a statement to the Center, said "we are not aware of any
evidence to substantiate allegations that some of our employees or distributors have worked with criminal organisations and/or organised crime."
But Judge Wally Yeung Chun-kuen, who sentenced Lui, said it appeared that Lui was carrying out company policy, and he put most of the blame directly on BAT.
"A leading international tobacco company sold large quantities of
duty-not-paid cigarettes, worth billions and billions of dollars, with the
knowledge those cigarettes would be smuggled into China and other parts of the world," the judge said at the time. "Apparently the company turned a blind eye to the problem. They took the attitude that as long as they did not directly involve themselves in smuggling, what distributors did with the cigarettes was none of their concern."
Hung Wing-wah still operates his tobacco distribution business out of the
Philippines and, although he is wanted on smuggling-related charges in Hong
Kong, BAT continues to do business with him, Godfrey of the corruption
"BAT are still selling cigarettes to a company run by a man who they
know is wanted by the Independent Commission Against Corruption," he said. "We can't take any action against British American Tobacco. They commit no offence, not in Hong Kong."
"BAT has in the past and probably now still deals with criminal organized crime," Godfrey said.
Dino Bravo, a former World Wrestling Federation wrestler and mob enforcer, was sitting in his leather recliner, programming his new VCR on March 12, 1993, when two men walked into his luxury home just north of Montreal and shot him seven times in the head.
Police later found in his home stacks of cash and documents related to the cigarette smuggling business.
One investigator, who wished to remain anonymous, said in an interview that Bravo was murdered because he was skimming from a mob smuggling network for which he collected the money.
A Canadian smuggler, in an interview with the Center for Public Integrity, said the same thing. He added that Bravo had purchased a cigarette relabeling operation in Champlain, N.Y., that repackaged and relabeled cigarettes, which Canadian-based manufacturers sent to the United States. The cigarettes were then smuggled back into Canada.
In the end, however, Bravo was a bit player in a much bigger game largely
controlled and regulated by the major tobacco companies. He was killed at the peak of tobacco smuggling in Canada. Federal and provincial governments had more than doubled their tobacco taxes, driving the cost of a carton of 200 cigarettes to as high as Can$50 ($38). While the manufacturers vigorously lobbied the government to reduce taxes, they fed the smuggling networks through elaborate U.S. and Caribbean routes.
Each of the three major Canadian manufacturers -- RJR-Macdonald, BAT's
Imperial Tobacco Ltd. (working with Philip Morris) and Rothmans Benson &
Hedges -- exported billions of cigarettes into the United States, from where
they were smuggled back into Canada.
In a June 3, 1993, letter to BAT senior executive Ulrich Herter, Imperial Tobacco president and CEO Don Brown stated that smuggling represented 30 percent of total sales in Canada, and "until the smuggling issue is resolved, an increasing volume of our domestic sales in Canada will be exported, then smuggled back for sale here."
Noting that Imperial had to pay a royalty to Peter Jackson (Overseas) Ltd. for every du Maurier brand cigarette sold outside Canada, Brown complained that Imperial should not have to pay the royalty for exports to the United States since they were being smuggled back to Canada.
"Paying royalty on volume actually sold in Canada . . . not only impacts on earnings but also renders us less competitive," he wrote. He added that the company can "fairly accurately estimate those volumes sold outside Canada and those returning from the total."
Brown admitted in an interview that in 1993 the company exported 6 billion Canadian brand cigarettes into the United States, where nobody smokes Canadian cigarettes.
BAT subsidiary Brown & Williamson marketed Imperial's du Maurier brand in the United States. In 1996, U.S. Customs agents arrested Michael Bernstein, a B&W regional sales manager, Richard Wingate, B&W's sales account manager for the New Orleans area, and six others and charged them with trafficking in cigarette contraband into Canada. All defendants pleaded guilty.
"It's an easy sale. It's only a slap on the wrist if you get caught."
-- Former B&W regional sales manager Michael Bernstein
An undercover agent posing as a smuggler recorded a conversation in which
Bernstein said that he received permission from Imperial Tobacco to sell to the agent.
Bernstein said that Imperial Tobacco threatened to cut off the sales "if and when we get snagged with the packet of stuff anywhere in Canada." Bernstein said Imperial was ready to continue to sell small orders "as long as we don't get snagged."
Federal agents also searched B&W's headquarters in Louisville, Ky., in January 1995 but found nothing that would connect the company to conspiracy to smuggle into Canada. Agents claimed in the search warrant affidavit that evidence existed that the company had been smuggling
The affidavit also states that Wingate told agents that a B&W corporate supervisor told him he had ordered an employee "to destroy the paperwork evidencing recent potentially illegal sales of cigarettes into Mexico."
The affidavit states that Wingate and Bernstein said "that the company's organizational structure necessitated new marketing strategies. According to them, these strategies included selling cigarettes to smugglers."
During the undercover investigation, which started in 1993, agents taped
Bernstein and Wingate discussing the smuggling and what would happen if they got caught in the Canadian operation, in which the cigarettes were said to be bound for tax-free fishing vessels off the Louisiana coast.
"As far as Brown & Williamson is concerned, that product was brought in for consumption on those Vietnamese fishing boats," Bernstein says. He later adds, "Were we personally any part of this? No, we were not. Did anyone ever call you up and say 'I need a hundred cases for Canada'? No."
He then related to Wingate a similar case in Boston where he was selling to Portuguese fishing vessels. "It was all being flushed into the Boston market and whatnot. Wherever it can be, wherever anybody can make a buck, I promise you, Dick, they're going to make a buck. Especially on cigarettes."
He added: "It's an easy sale. It's only a slap on the wrist if you get caught."
In fact, he was right. Bernstein, who initially agreed to cooperate with
authorities, later refused to help after meeting with his B&W-paid lawyers, Reid H. Weingarten and Mark J. Hulkower, both former Justice Department employees. Weingarten once said he was "very, very close at the [Justice] Department" to former Deputy Attorney General Eric Holder.
Weingarten and Hulkower wrote a 42-page letter to then-Attorney General Janet Reno on Feb. 9, 1996, arguing that the prosecutor in the case, Peter Strasser, should be removed for prosecutorial misconduct and grand jury abuse. Reno didn't buy their argument but still removed Strasser from the Bernstein case "to be safe," according to a court document filed by the U.S. Attorney's office. Bernstein was later fined $1,000 and sentenced to two years' probation.
Wingate, who cooperated with authorities in their investigation and refused B&W's offer of legal assistance, was sentenced in 1997 to six months in a halfway house, followed by three years' probation, and fined $8,250.
'Tobacco Companies Knew It All'
Richard Ward directed international sales at Imperial's head office in
Montreal and was responsible for sales into the United States. He was the
contact with B&W.
One Canadian smuggler, who wished to remain anonymous, told the Center that he met Ward in his offices at Imperial's headquarters at least four times to negotiate cigarette shipments into the United States.
Did Ward know that he was dealing with a smuggler?
"Yes," said the smuggler. "I have spent 30 years hiding my
activities from society. Yet Richard Ward knew more about my activities than any policeman ever found out. So I guess what I am telling you is that tobacco companies knew it all. They know where the product is. When they ship from their warehouse (in Montreal) to Miami, they know that it's shipped to Miami but it's actually going to end up on the streets of Montreal and Toronto."
The smuggler continued: "In my discussion with Richard Ward it's very clear to me that tobacco companies knew more about smuggling and how it worked and how to improve it than any smugglers on Earth. And to show just how good they were and just how intimate their knowledge was, when the business moved from interprovincial to international, the tobacco companies ended up with more of the provincial and federal taxes than the smugglers did, and they took it not with willful blindness. They were participants without being in the room."
In answer to written questions to Imperial Tobacco, Ward, speaking through the company's public relations department, denied he ever met with smugglers.
Imperial also shipped to the United States billions of Players, the most
popular brand in Canada. Because Philip Morris has the U.S. rights to Players, Imperial signed a royalty and marketing deal with the company in 1992. They agreed to maintain the Canadian packaging. But health labels had to meet U.S. regulations. So, labels were changed in the United States at places such as Bravo's Champlain relabeling and warehousing operation.
The operation had been originally set up by Michel Sylvestre, a convicted
cocaine dealer with connections to the Hells Angels. Sylvestre and John Gareau, a local ship chandler currently under indictment in Canada for tobacco smuggling, had guidance from Imperial in locating labeling machines from Britain, the smuggler told the Center.
However, it was RJR-Macdonald, RJR's Canadian subsidiary, which set up the most aggressive smuggling network.
In 1992, company president Ed Lang and vice president Stan Smith ordered
sales executive Les Thompson to meet with Larry Miller and brothers Lewis and Bob Tavano. Miller and Bob Tavano both had criminal records: Miller for armed robbery in Chicago and Tavano for fraud and bribery. Lewis Tavano was charged in the 1970s with bookmaking. The charges were dropped and he moved to Las Vegas, where he ran a sports bookmaking and loan operation. Police in Buffalo, N.Y., say the Tavanos were linked to the late Stefano Magaddino, a Buffalo crime boss.
Thompson later said in an interview that his bosses at RJR told him to sell as many cigarettes as he could to Pine Partnership, the company set up by Miller and the Tavanos.
Thompson met with the two men at a restaurant in Niagara Falls, N.Y., where a plan was laid out to sell them millions of Export 'A' -- RJR's best-selling brand in Canada.
The company then set up a corporate structure designed to take the
operational aspect of the smuggling business out of Canada. RJR created Northern Brands International, located at RJR's head office in Winston-Salem, N.C. The company had only two employees, Peter McGregor, who was in charge of finance, and Les Thompson, who was responsible for sales. Their sole job was to sell into the Canadian black market, according to Thompson and confidential documents from a 1993 RJR executive meeting in Winston-Salem.
RJR-Macdonald also set up separate offices in a building opposite its
downtown Toronto headquarters to manage any communications with Northern Brands. The company had its offices swept for bugs, Thompson said.
To further distance itself from the operation, RJR-Macdonald transferred
equipment from Canada to Puerto Rico, where it began large-scale manufacturing of its Canadian brand cigarettes. The entire output of the plant was sold to smugglers, primarily Pine Partnership. The sales arrangements were made through Northern Brands International, Thompson said.
Before entering the United States, the Puerto Rico cigarettes were
"washed" through offshore tax havens, such as Aruba. R.J. Reynolds
International Special Markets in Winston-Salem, run by an Italian-Canadian named Franco Gabriele, signed a deal in March 1992 with International Duty-Free Trading N.V. and its managing partner Bryan Harms, a shipping agent based in Aruba whose family would later be linked to a smuggling operation involving another tobacco multinational.
In 1992 and 1993, RJR shipped about US $65 million worth of cigarettes
through Harms' company. The shipments, however, were only book entries. According to Harms, the money never actually went through his company accounts. Nor did he have to handle the cigarettes. For his services, Harms charged RJR a total $3 million, he said.
The cigarettes were then shipped to U.S. warehouses located in free trade
zones close to the border in Buffalo and Champlain, N.Y. From there, they were shipped into the Ackwesasne American Indian reserve, which straddles the U.S.-Canada border. Indians smuggled the cigarettes across the St. Lawrence River on small boats and into Canada. Other shipments were smuggled through border stations in Quebec, Ontario and in British Colombia, court records show.
RJR-Macdonald also shipped directly into the United States from its Montreal plant. The shipments went to free trade zones, where ownership was transferred to companies like Pine Partnership. From there, they were trucked to the Indian reserve or smuggled back across the border through customs stations.
RJR's Thompson said that at the time, RJR-Macdonald was pouring a little
more than 60 percent of its production into the black market and earning more than US $60 million in net profits annually from the smuggling.
RJR cemented its relationship with Miller and the Tavanos by wining and
dining them at Grand Prix races, professional golf tournaments, baseball games and at the exclusive Sonora Lodge, a fishing club in British Colombia. It was also a favorite resting place for Hells Angels who, according to Thompson, often shared the fun with the Tavanos and Millers as they schmoozed with RJR executives.
Rogue or Company Man?
After his arrest, company officials portrayed Thompson as a rogue operator. But when he ran his one-man, direct-to-smugglers sales department at Northern Brands International, it was another story. During those years, his bosses repeatedly commended him for his excellence. They threw a party for him and gave him an Indian headdress in joking recognition of his sales to American Indian smugglers. On June 23, 1993, RJR-Macdonald president Pierre Brunelle wrote to Thompson that his "hard work and dedication to the company have made significant contribution to the success we have realized over the years especially in recent months." Thompson's 1993 performance evaluation applauded him for hitting "every target and objective assigned to him." As one former RJR senior executive told the Center, NBI and Les Thompson saved RJR-Macdonald from possible bankruptcy.
By 1993, Canadian manufacturers were shipping slightly more than 17 billion Canadian brand cigarettes a year to the United States, where, as one police officer later testified, there is "almost absolutely no market for Canadian tobacco products."
By 1994, about 35 percent of cigarettes sold in Canada was contraband, with the figure going as high as 75 percent in areas of Quebec. Faced with mounting crime and depleted tax revenues, the Canadian government in 1994 rolled back cigarette taxes. The smuggling slowed but did not stop.
"This is a case of legitimate business that hooked up with organized crime."
-- Canadian government lawyer Fred Bartlit
Manufacturers still kept the networks running and, according to court testimony last year from RCMP Sgt. Raymond Blair Lutz, large-scale smuggling continued until 1998. Lutz told a pretrial hearing in Montreal in February 2000 that manufacturers were still sending millions of cigarettes to the J. Stanley Company in New Jersey. In what police call "around the flagpole" smuggling, J. Stanley shipped the cigarettes in bond back to Canada, where they were sold to smugglers, who reshipped them back to the U.S. still in bond. They were then smuggled back into Canada. The process was designed to distance the tobacco companies and J. Stanley from the smuggling.
"Millions to billions" of dollars worth of cigarettes were smuggled into Canada from 1995 to 1998 using this process, Lutz said.
After Canadian taxes came down, Thompson said he was put in charge of
marketing cigarettes to ship chandlers along the U.S. eastern seaboard for
smuggling to Europe. His boss was Richard La Rocca.
Thompson said he helped organize huge duty-free shipments from East Coast
ports funneled through ship chandlers such as J. Stanley. RJR sent regular
container loads of cigarettes on ships bound for Europe, claiming tax-free
status by pretending the cigarettes were for on-board crew consumption only, he said. Each container holds about 10 million cigarettes and carries a wholesale value of as much as US $350,000.
(J. Stanley, in a plea agreement last year, pleaded guilty in Canada to
tobacco smuggling charges and paid Can$150,000 in fines and forfeitures. Charges were dropped against its owner, George Mannina. Canadian police have testified that U.S. Customs tried to persuade the RCMP not to charge Mannina because he was cooperating with one of their investigations. Mannina also owns Lamco International, a California warehouse and chandling operation.)
Thompson said that in 1998, La Rocca, who was general manager of RJR's
Latin American office in Miami, told him to curtail shipments because of the
increased numbers of seizures and negative media reports in Europe about tobacco smuggling.
"He (La Rocca) said it's important that we back off from the noise
that's happening in Western Europe," Thompson said. "Dick was very
clear to me: 'Do not totally stop selling to ... the ship chandlers. Reduce
the volume. Instead of giving them a load every week, give them a load once a month or so. Just to keep the distribution channels alive.' Dick said:
'I've got experience with that.' Dick worked in Spain, the Canaries. He
was the general manager there."
Thompson said La Rocca once told him he knew Michael Haenggi, who bragged to the press in 1998 that he sold millions of RJR's Winstons to smugglers who smuggled them into Spain. Thompson said that La Rocca had been instructed to warn Haenggi that if he didn't "zip his lips," he would be cut off by RJR. "I understood from Dick that that statement was coming to him indirectly from (CEO of RJR Nabisco) Steven Goldstone," Thompson said.
A lawsuit filed last November by the European Union against R.J. Reynolds and Philip Morris alleges that RJR specifically recruited La Rocca because of his knowledge of the Spanish market. The lawsuit says RJR urged La Rocca to help set up a network "by which RJR cigarettes ... were smuggled into the European Community and, more particularly, into Spain."
La Rocca has been working for Japan Tobacco, Inc., since it bought RJR's
international operations in March 1999. He remains general manager of the
company's Latin American operations and works out of the same Miami office.
Contacted by telephone at his Miami office, La Rocca hung up as soon as a
reporter mentioned he was researching a story on tobacco smuggling.
The EU lawsuit also alleges that RJR dealt with a distributor in Spain who the company knew, or should have known, was involved in drug trafficking. The suit does not name the distributor but states that he has had "several publicized bouts with the law enforcement agencies in Spain in regard to his alleged narcotics trafficking."
On June 10, 1998, an agent at the U.S. Bureau of Alcohol, Tobacco and
Firearms informed Thompson that he was the target of a smuggling investigation and advised him to get a lawyer. At the same time, a grand jury in Syracuse, N.Y., charged Miller, the Tavano brothers, Northern Brands International and 16 other people with money laundering, smuggling and fraud. They all pleaded guilty. Miller was sentenced to 17½ years, and Bob Tavano got four years plus a $1 million fine. Lewis Tavano is dying of cancer and is to be sentenced in early March.
"Dick was very clear to me: 'Do not totally stop selling to... the ship chandlers. Reduce the volume. Instead of giving them a load every week, give them a load once a month or so. Just to keep the distribution channels alive.'"
-- Les Thomson, former RJR sales executive
When RJR learned that Thompson was a target of a criminal investigation, it immediately set up meetings between Thompson and Steven Heard, the company's New York lawyer, and Washington D.C. lawyers Weingarten and Hulkower, the same former Justice Department lawyers Brown & Williamson used in the New Orleans smuggling case.
Heard, a gruff, gravelly voiced veteran of tobacco court battles, traveled to RJR-Macdonald's headquarters in Toronto and started interviewing employees and senior executives. Thompson said documents dealing with Ed Lang and pre-NBI days suddenly went missing. Top executives were transferred to Switzerland and Asia. Stan Smith, who was second in command of the company, left RJR and later moved to England. Former RJR employee Franco Gabriele agreed to testify before the Syracuse grand jury in return for immunity.
When Heard learned that Gabriele had made a deal with the government, he
threatened to "publicly destroy his reputation." Thompson said he
asked Hulkower, the RJR-hired attorney, if that was also a warning to him.
Hulkower said it was.
In a deal negotiated by Heard, NBI pleaded guilty in December 1998 to a
customs violation and agreed to pay $16 million in fines and forfeitures --
only a fraction of the money it earned from smuggling into Canada. As part of the plea bargain, the U.S. government agreed not to pursue RJR any further in the Northern District of New York.
Thompson said the company lawyers told him "the government is just saber rattling, stand tall, don't get scared with this thing. We'll get through it."
But standing tall didn't help Thompson. Three months after the NBI deal,
Customs agents arrested Thompson at the Detroit border with Canada and charged him with fraud and laundering the proceeds of crime. Hulkower told Thompson that RJR would not back him and advised him to plead guilty. Facing a possible 20 years in prison, Thompson pleaded guilty to laundering $72 million and got six years in prison and a $100,000 fine. He also pleaded guilty in Canada to conspiracy to defraud the Canadian government and got a three-year suspended sentence and agreed to cooperate in ongoing investigations. Upon his arrest, RJR publicly stated that Thompson was a rogue operator in the company. No other RJR executive was ever charged in the case.
The Canadian government sued RJR and Northern Brands International in 1999 in U.S. federal court for racketeering and fraud. The government's lawyer, Fred Bartlit, told a U.S. federal court judge in Syracuse last year: ''This is a case of legitimate business that hooked up with organized crime.''
The international smuggling world is small, and the names of Harms, Gabriele and Aruba would surface again in other smuggling investigations. One of them is in Italy.
On the night of Feb. 23, 2000, as a full moon drifted in and out of scattered clouds, revenue agents with Italy's Guardia di Finanza drove along a highway near the Adriatic port of Brindisi. They were hunting tobacco smugglers. Suddenly, out of the darkness, a Range Rover with reinforced front bumpers and its headlights off swung across the highway and deliberately crashed into the agents' tiny Fiat Punto. Alberto De Falco, 33, and Antonio Sottile, 29, were killed. Two others sitting in the back seat were seriously injured.
Driving in the Range Rover, which was crammed full of contraband Marlboro and Merit cigarettes, were Giuseppe Contestabile and Adolfo Bungaro, two soldiers of local crime boss Bruno Rillo. Rillo, who was not in the Range Rover, was arrested and convicted of smuggling. Contestabile and Bungaro were convicted of smuggling and still face murder charges.
The killing of the two agents in Brindisi reflects the powerful underworld interests involved in tobacco smuggling into Italy. Like many other countries in the European Union, Italy's tobacco taxes are high. The country also has a state monopoly over manufacture and distribution, which keeps prices high and, therefore, makes smuggling that much more lucrative.
Italian authorities have compiled several recent intelligence reports gleaned from investigations and court trials dating to the early 1980s. According to one of these reports, obtained by the Center, tobacco smuggling was transformed in the early 1980s from a cottage industry into "an incredible commerce of thousands of cases" worth "hundreds of millions" of lira per shipload, transacted through Swiss bank accounts.
The July 16, 1999, report by an Italian parliamentary commission
investigating the Mafia and other criminal organizations said smuggling
international-brand cigarettes was "one of the most important sources of illicit gain" for organized crime and one that was facilitated by
international links with tobacco manufacturers, especially Philip Morris.
Beginning in the early 1980s, Philip Morris and RJR, from offices in Basel, Switzerland, ran a cigarette export operation through three Swiss companies that had close ties to Italian organized crime, the 53-page report said. These licensed distributors were identified as Balmex AG, owned by Patrick Laurent; Basilio AG, owned by George Kastl; and Algrado AG, owned by Werner Denz. "This circuit . . . constituted the supply channel for the tobacco smugglers," the report said.
"A 1997 report by the Italian tax and customs police said cigarette smuggling into Europe was divided among various crime families connected to the Sicilian, Camorra and Sacra Corona Unita organized crime syndicates.
A senior Italian magistrate said the report incorrectly named Patrick Laurent when it should have named Patrick Monnier of Vaud, Switzerland, who is wanted along with several other key figures on charges of cigarette smuggling and membership in a mafia-like organization.
Two channels were established to smuggle into Italy, according to the report. Cigarettes manufactured under license in Switzerland were shipped directly to Albania. Cigarettes manufactured in the United States were shipped to warehouses in Antwerp, Belgium, and then to Albania. From Albania, the cigarettes were smuggled into Italy or the Middle East.
"The contraband moved . . . across predetermined commercial
channels," the report said.
These channels were also used for drug trafficking and money laundering under the supervision of Kastl and Denz, who, the report said, had smuggling
backgrounds and "notable criminal stature in these two specific
Kastl and Denz were also identified in the report as having direct
connections to the Sicilian Mafia in Palermo. In 1984, a Florence court
sentenced Kastl to 26 years in prison for trafficking 82 kilograms of heroin.
Other Italian intelligence reports obtained by the Center show that in the 1990s the main route for tobacco smuggling into Europe was changed to go through Montenegro's Adriatic ports and then by speedboat to Italy, where the Puglia coast from Gargano to Brindisi is ground zero in the tobacco battles.
In fact, by the early 1990s Brindisi had become criminalized by cigarette
smuggling, according to Italian authorities.
Italian police and revenue officials charge that the Mafia runs the smuggling and that Montenegrin government officials, who receive millions of dollars in kickbacks, sanction it. Once again, the main suppliers, Italian police and government officials say, are Philip Morris and R.J. Reynolds distributors.
A 240-page internal report on international cigarette smuggling compiled in 1997 by Italy's tax and customs police, the Guardia di Finanza, describes the smuggling hierarchy as it existed during the 1990s. The report, obtained by the Center for Public Integrity, states that smuggling into Europe is divided among various crime families connected to the Sicilian, Camorra and Sacra Corona Unita organized crime syndicates. They operate the smuggling through a "pyramid" of 19 people living in Italy, France, Switzerland and Greece. These traders hide their activities behind numerous front companies located in tax havens such as Switzerland, Liechtenstein, Panama, British Virgin Islands, Gibraltar, Cyprus, Belize, Netherlands Antilles and the Channel Islands.
The report claimed that tobacco smuggling in Europe caused an estimated $700 million annually in losses to governments and legitimate merchants.
Again, throughout the 1990s, Mafia bosses struggled for control of this
lucrative business. According to Italian court records, Neapolitan Camorra boss, Ciro Mazzarella, nicknamed "the prince," "the engineer," or "the uncle," attempted in 1993 to monopolize smuggling and duty free businesses in Montenegro. He conspired to gain control of Montenegrin government warehouses, which he would hold through a Panamanian company called Gisto, based in Lugano, Switzerland. At least 50 containers a month -- primarily Marlboros -- would be sent to warehouses in Montenegrin ports of Zelenika, Bar and Katar. The cigarette cases would then be transferred to speed boats and shipped at night across the Adriatic to Italy's Puglia region, about 100 miles away.
According to documents obtained by the Center, Mazzarella, seeking support for his venture, contacted individuals close to Milo Djukanovic, Montenegro's then-prime minister and current president. This was quickly granted and Mazzarella received a license from the government-owned company ZetaTrans to be the exclusive cigarette trader through Montenegro. But Italian investigators uncovered the conspiracy and, on Sept. 27, 1993, Mazzarella was arrested in Lugano. The case is still before the courts.
Meanwhile, billions of contraband cigarettes are still run out of Montenegro, Italian police say.
Last December, Italian police arrested Francesco Prudentino, 52, while he was Christmas shopping in Greece. Prudentino, who operated out of Montenegro, is named in a 1999 report by Italian investigators as a key mob-connected international tobacco smuggler and was on Italy's list of the 30 most-wanted fugitives. Prudentino was charged with smuggling, being a member of a mafia-like organization and murder. He was extradited to Italy in February.
Italian Finance Minister Ottaviano Del Turco has said publicly that he
expects Prudentino to be a key figure in Italy's cigarette smuggling
investigation and might provide information about possible links to the
multinational tobacco companies.
A principal player in the smuggling through Montenegro is Gerardo Cuomo, a Neapolitan with Mafia connections. The 1999 parliamentary report refers briefly to a March 21, 1985, meeting in Puglia between Cuomo and Filippo Messina, who was identified as a Mafia member, tobacco smuggler and heroin dealer.
Other Italian investigative reports have identified Cuomo as one of the top players in Italy's Mafia-run cigarette smuggling operation.
Cuomo was arrested on May 10, 2000, in Zurich on an Italian warrant for
cigarette smuggling out of Montenegro and for being a member of a mafia-like
organization. The investigation implicates more than 80 people, including
Italian Mafiosi and Swiss bankers. Cuomo, 54, is in a Swiss jail, fighting
Court records show that, for years, Cuomo has acted as a business
representative for the Italian mob. A senior Italian investigator, citing an
internal federal police memo from the 1980s, said Cuomo was linked to Mafia boss Giuseppe "Pino" Savoca, who was connected through his Palermo-based family to Totò Riina, the "boss of bosses" of the powerful Corleone Mafia family. Riina is serving a life sentence for the murder of the anti-mafia judges Giovanni Falcone and Paolo Borsellino.
Cuomo has a long history of tobacco smuggling. In the 1980s, he was sentenced to a total of nine years for cigarette smuggling and drug trafficking. His co-defendant was Pietro Vernengo, a loyal Riina lieutenant.
A 146-page classified report, prepared in 2000 for the Guardia di Finanza by the head of its organized crime unit, identified Cuomo as "fiduciario," or trustee, of Philp Morris. The report, which examined the key figures in Italy's cigarette smuggling operation, did not elaborate on that relationship.
The current warrant for Cuomo's arrest, signed by Judge Daniela Rinaldi on Oct. 21, 1999, claims that Cuomo is the "owner" of one of four tobacco licenses issued by Montenegro and that he smuggled cigarettes from Montenegro to Italy through a criminal organization.
However, Cuomo told Italian prosecutor Giuseppe Scelsi on July 26, 2000, that only one company -- a Panama-registered company called Santa Monica owned by Franco della Torre -- was licensed by Montenegrin authorities to trade cigarettes. Cuomo said he, in turn, was one of four subcontractors to Santa Monica and that he had to pay della Torre's company $55 to $70 a case [10,000 cigarettes] as a sort of licensing fee and was required to purchase at least 25,000 cases a month.
Della Torre of Lugano, Switzerland, is well known to Swiss and Italian
police. He was a defendant in the "Pizza Connection" trials in the
1980s involving Mafia heroin traffickers and was sentenced by a Swiss court to 18 months in jail for drug trafficking. In late Februa
- 109 Tobacco