Big Tobacco Smuggling

Tobacco firms used suspected drug traffickers, EU lawsuit claims

A European Union lawsuit against two major U.S. tobacco companies says RJR Nabisco had dealings with suspected narcotics traffickers in Spain and money-laundering suspects in the Caribbean, and claims that smuggling activities by Philip Morris “have enabled drug lords to launder their illicit profits.”

According to the complaint, filed Nov. 3 in U.S. District Court Eastern District of New York, both RJR and Philip Morris shipped American cigarettes to smugglers in Panama, who then re-shipped them to Europe for sale within the European Union.

In January, the Center for Public Integrity’s International Consortium of Investigative Journalists released the results of its six-month investigation into global cigarette smuggling. The investigation, which focused mostly on British American Tobacco, involved the analysis of more than 11,000 pages of internal corporate documents and later prompted the British government to launch its own formal inquiry.

The EU lawsuit accused the two companies of “involvement in organized crime in pursuit of a massive, ongoing smuggling scheme.” Philip Morris produces Marlboro, the world’s best selling cigarette brand, and RJR manufactures the popular Camel and Winston brands.

According to the suit, RJR defendants had dealings with “individuals in Spain who they knew or should have known were identified by Spanish legal authorities as being involved in narcotics trafficking.” The suit mentions one RJR customer in Spain who purchased large quantities of RJR cigarettes and smuggled them throughout the country, while at the same time being suspected by Spanish authorities of narcotics trafficking.

“Representatives of the Philip Morris Defendants are on actual notice that the source of funds used to purchase their cigarettes is drug trafficking, yet they continue to receive these funds and to sell cigarettes to these persons,” the lawsuit said.

The lawsuit includes the allegation that RJR produced a certain type of Winston cigarette presentation, called a “patanegra,” to sell in Spain to their “best smuggling customers so as to insure that they could maintain their competitive advantage over other smugglers and the RJR Defendants could increase their market share.”

The 188-page complaint alleges that Philip Morris, RJR Nabisco, Japan Tobacco (to whom RJR sold its international cigarette operations in 1999), and related subsidiaries, are guilty of violations of the Racketeer Influence and Corrupt Organizations (RICO) Act of 1970. The accusations include money laundering, wire fraud and mail fraud.

The lawsuit contends that the companies have facilitated cigarette smuggling into Europe in violation of U.S. law and customs agreements between the U.S. and the European Union, an organization of 15 Western European nations.

The complaint alleges that “billions of dollars” have been lost through the evasion of customs duties and other fees and taxes, and seeks money damages, which could be trebled under the RICO Act.

The European complaint is the latest in a string of actions against tobacco companies related to cigarette smuggling:

  • The British Department of Trade and Industry launched a formal investigation in October into alleged smuggling activities by British American Tobacco, the parent company of Brown & Williamson Tobacco.
  • The majority of Colombian governors filed a civil RICO suit against Philip Morris in May in New York, charging that the Colombian states were defrauded of billions of dollars in lost tax revenue over a 10-year period. That suit was amended in September to include British American Tobacco. 
  • Ecuador filed a civil RICO suit in June in Miami-Dade Circuit Court against Philip Morris, British American Tobacco and RJR. 
  • Canada filed a $1 billion civil RICO lawsuit against RJR and its related tobacco companies in New York state in December 1999, contending cigarette smuggling across the U.S.-Canadian border. The case was dismissed last June on the basis of an 18th-century English common law rule that prohibits courts from being used to collect another country’s revenue. Canadian officials have appealed the decision.

According to a RJR statement, the company has not seen the European lawsuit, but argues that any suggestion that the company “has been involved in smuggling activity — in Europe or elsewhere — is unsupportable and untrue.” Japan Tobacco’s New York office would not comment on the complaint. Philip Morris also stated that it had not seen the lawsuit. Philip Morris Europe’s vice president for corporate affairs, David R. Davis, said in a statement that “we will vigorously contest the [European] Commission’s unprecedented attempt to utilize American courts to impose liability on us.”

Jonathan Faull, a spokesman for the European Commission in Brussels, told the Center that the lawsuit was rightly filed in the United States. “We believe that this is the proper jurisdiction, as we are alleging there’s been a violation of U.S. law by U.S. companies,” said Faull.

Japan Tobacco continued with smuggling policies already in place, after purchasing RJR’s international tobacco business in 1999, according to the suit.

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