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Cigarettes Portrayed as Currency of Crime

EU suit against R.J. Reynolds describes a worldwide system of money laundering.

November 05, 2002|Michael A. Hiltzik and Henry Weinstein | Times Staff Writers

Once a month for many years, a group of travelers bribed their way into Colombia via a remote border crossing from Venezuela, met with their contacts and then bribed their way home, the better to leave no record of the trip in their passports.

The illicit commodity they were trading was not cocaine, as might be expected, but cigarettes.

So contends a lawsuit filed last week in a U.S. court by the European Union. According to the suit, the clandestine travelers were employees of companies affiliated with R.J. Reynolds Tobacco Co. Their goal, the EU says, was to receive cash for their products without revealing that the source of the money was the narcotics trade.

These and a host of similar allegations are at the heart of the EU suit, which maintains that Reynolds, the world's second-largest tobacco company, has been complicit for years in a worldwide money-laundering system in which cigarettes are as important a currency as the U.S. greenback.

The notion that black-market cigarettes can cause big problems isn't new. According to some health and law enforcement officials, as many as a third of all cigarette exports wind up being sold on the black market, cheating governments of tax revenue and encouraging smoking by keeping cheap cigarettes available. U.S. states with high tobacco taxes find themselves similarly victimized by cigarette smugglers.

For The Record
Los Angeles Times Wednesday November 06, 2002 Home Edition Main News Part A Page 2 National Desk 16 inches; 589 words Type of Material: Correction
Cigarette smuggling -- A story in Section A on Tuesday incorrectly said R.J. Reynolds is the world's second-largest tobacco company. It is the second largest in the United States. In a related story in the Business section Tuesday, the revenue rule, a common law doctrine that originated in the 1700s, was incorrectly described as dating to the 17th century.

But the EU suit adds a fresh twist to the concept of cigarette smuggling that goes way beyond simple tax evasion. The allegations, say money-laundering experts here and abroad, underscore the role that cigarettes -- ubiquitous, easily transportable commodities usually bought and sold for cash -- have come to play in lubricating the movement of capital for drug traffickers, tax evaders, terrorists and others who need to conceal the sources of their funding.

"This complaint has described, chapter and verse, a blatant conspiracy," said Charles Intriago, a Miami lawyer and publisher of the newsletter Money Laundering Alert.

The EU's lawsuit, filed last Thursday in federal court in Brooklyn, N.Y., links Reynolds with money-laundering networks serving not only Latin America but also Italy, Spain, Russia, the Balkans, Britain and Iraq -- where it is allegedly overseen by Saddam Hussein's son, Uday Hussein.

It also alleges that cigarettes were at the center of the infamous Bank of New York money-laundering case of 2000, in which two top bank executives have pleaded guilty to helping launder billions of dollars for organized crime figures in Russia.

In copious detail, the suit describes stratagems RJR allegedly employed to distance itself from criminal partners, including eradicating identification numbers from illicit shipments, using secret bank accounts and third-party checks and establishing intermediary companies through which to do business.

On Monday, Reynolds spokesman Seth Moskowitz reiterated the company's position that "any allegations we were involved in, or aware of, money laundering, conspiracy or other illegal activities is completely absurd."

Reynolds officials also have noted that the U.S.-based RJR Tobacco companies currently have no international operations. The companies' parent, RJR Nabisco, sold its foreign distribution business in 1999 to Japan Tobacco Inc., which is majority-owned by the Japanese government.

What's more, RJR has pointed out that many of the allegations mirror those in a lawsuit the EU brought against the company in 2000. That case was dismissed by a federal judge in February on grounds that its claim of European tax evasion by RJR lay outside the jurisdiction of U.S. courts.

Still, experts in tobacco litigation say last week's EU lawsuit -- which is designed to supplant the one that was dismissed -- opens a new front in the courtroom war against Big Tobacco.

In June, a federal jury in Charlotte, N.C., convicted two Lebanese brothers of participating in an illegal multimillion-dollar operation to smuggle low-tax cigarettes out of North Carolina and to divert some of the profits to Hezbollah, a Lebanese terrorist group that was blamed for the 1983 bombing of the U.S. Marine barracks in Lebanon that killed 241 Americans.

But the EU case, notably, is aimed not at the smugglers but at the tobacco industry.

"These are the most serious and far-reaching allegations ever made against any domestic U.S. corporation," said David Vladeck, a law professor at Georgetown University and director of the Public Citizen Litigation Group, which has represented public health groups in lawsuits against the tobacco industry. "According to this complaint, RJR is at the nerve center of an enormous international operation that has far-reaching and detrimental impacts throughout the U.S., Western Europe and South America."

Vladeck said that the stature of the plaintiffs lends credibility to the charges. "Remember, these are not individuals making these allegations. These are the nations of Belgium, Spain, Italy ... foreign sovereigns."

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