The proliferation of tobacco smuggling is so widespread that it is sometimes hard to distinguish between criminal organizations, which do the actual smuggling, and the manufacturers who feed it and often oversee it. RJR executives meeting with criminals in Niagara Falls to discuss smuggling into Canada, or BAT executives in Hong Kong taking bribes to feed a Triad-backed smuggling ring, or Mafia bosses in Italy with a seemingly endless supply of Marlboros via Cyprus and Montenegro, all raise serious questions about international corporate participation in a conspiracy to defraud governments. Have BAT, Philip Morris, RJR, and Japan Tobacco become mafia-like organizations involved in massive illegal operations? This is the fundamental question posed by the Racketeering Influenced Corrupt Organizations (RICO) actions launched last year in the United States against the major manufacturers by countries including Canada, Colombia, Ecuador, the European Union, and several of its member states.
The allegations against some of the world’s largest multinational corporations are astonishing fraud, racketeering, money laundering, and conspiracy. But victory in court will not be easy, as witnesses and documents become harder to subpoena. Before selling its international operations to Japan Tobacco in 1999, RJR moved that division in 1992 to Switzerland. The RJR executives who masterminded the Canadian smuggling now work in Europe or Asia. BAT moved its transit business, under BAT International, to Zug, Switzerland, in 1997. And Philip Morris recently announced it would transfer top executives of its international tobacco operations to Lausanne, Switzerland. It already manages its European, African, and Middle East business out of the Alpine tax haven.
For now, all eyes are on the Canadian lawsuit. A U.S. federal judge dismissed it last year, ruling that it was basically about tax law and an 18th century rule that prevents U.S. courts from enforcing the tax laws of foreign countries. Canada has appealed, and the European Union has filed a supporting brief. Hearings will likely be held within the next three months. But the countries are facing a powerful adversary with huge financial resources and political clout. U.S. President George W. Bush is considered a friend of big tobacco as is his attorney general John Ashcroft. Deputy attorney general-nominee, Larry D. Thompson, comes from the Atlanta law firm of King and Spalding, which represented the Canadian Tobacco Manufacturers Council, a defendant in Canada’s racketeering lawsuit against RJR.
Members of Bush’s Cabinet and inner circle are also considered pro-tobacco. Karl Rove, a longtime Bush friend who now holds the title of senior adviser to the president, was a paid political consultant for Philip Morris for five years. Lawyers and law enforcement officials privately wonder whether the new U.S. administration will continue to invest resources into investigating tobacco smuggling despite its magnitude and its criminalization of corporate entities.
“What you have is one big smuggling conspiracy from the standpoint of the cigarette manufacturers, their distributors, the money launderers; it’s the same people doing the exact same thing,” Kevin Malone, the attorney representing the European Union and Colombia’s governors, said in court last November. “It’s only when the cigarettes branch out to the individual smugglers that there’s any diversity in the scheme at all. Just to give you an example,” Malone continued, “If a smuggler in Colombia wants to buy cigarettes, or a smuggler in Italy wants to buy cigarettes, they both order them from the same company, they get delivery from the same distributor, and they are all shipped from the same warehouse in Antwerp, Belgium. So in fact they are in essence one and the same; it’s a consolidated scheme.”