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EU Alleges Mob Ties to Tobacco

October 31, 2002|Henry Weinstein and Myron Levin | Times Staff Writers

The European Union accused tobacco giant R.J. Reynolds in a lawsuit Wednesday of selling black-market cigarettes to drug traffickers and mobsters, helping them launder profits from their illegal activities.

The 149-page complaint describes in detail Reynolds' allegedly corrupt business dealings in Europe and Latin America, including with members of the Italian Mafia and Russian organized crime, Colombian drug cartels and high government officials in the Balkans.

RJR executives "at the highest corporate level" made it "part of their operating business plan to sell cigarettes to and through criminal organizations and to accept criminal proceeds in payments for cigarettes by secret and surreptitious means," the suit alleges.

The complaint was filed late Wednesday, and RJR spokesman Seth Moskowitz said the company could not fully respond before reviewing it. "However, at first glance it appears that this complaint is related" to a case "which has been dismissed," Moskowitz said.

The suit continues the EU's legal assault on Reynolds and other tobacco companies that it claims have cheated member states of billions of taxes over the years through collusion with smugglers.

The EU's earlier complaint against RJR and Philip Morris Cos. was dismissed in February by a federal judge in Brooklyn, N.Y., on grounds that it was barred by the "revenue rule," a centuries-old common-law doctrine that generally prohibits foreign governments from collecting tax defaults through U.S. courts. The EU has appealed the dismissal.

In dismissing the case, U.S. District Judge Nicholas G. Garaufis said he would consider a suit based on money-laundering violations, rather than tax recovery. In response, the EU filed this suit and is expected to file a similar suit against Philip Morris and Japan Tobacco Inc. in the coming months.

The suit filed Wednesday in U.S. District Court in Brooklyn paints a world in which contraband cigarettes have become the currency of choice in Europe for money laundering -- and where one of the world's major tobacco companies allegedly aided and abetted the criminals.

The lawsuit lists bank accounts in Switzerland, Italy, Cyprus, Liechtenstein, the Isle of Jersey and the Netherlands and identifies wire transfers used as part of money-laundering schemes.

The suit also asserts that RJR entities frequently changed banks where the company was going to receive payments from illicit sales to escape detection by U.S. law enforcement. "This process was known within RJR as 'musical banks,' " according to the suit.

In contrast to the earlier suit, the complaint does not seek recovery of lost tax revenue or customs duties, because the judge found such claims were barred. Instead, it seeks alleged losses resulting from money laundering, including law enforcement expenditures and other costs. The complaint does not ask for a specific amount of damages, but it says the EU's losses are in the hundreds of millions.

The lawsuit presents a purported marriage of convenience between tobacco executives seeking to expand their markets in Europe and criminal gangs needing to launder profits from narcotics and weapons trafficking and extortion, and accomplishing this through the purchase and sale of RJR brands.

"Throughout the European community, cigarettes and narcotics are routinely part of the same criminal transactions, and the incidence of such violence associated with such trade is rising rapidly around the world," the suit alleges.

"Throughout the 1990s and continuing to the present day, a primary means by which ... cocaine proceeds are laundered is through the purchase and sale of cigarettes, including those manufactured by the RJR defendants. Cocaine sales in the European community are facilitated through money-laundering operations in Colombia, Panama, Switzerland and elsewhere, which utilize RJR cigarettes as the money-laundering vehicle," the suit asserts.

Similarly, the suit contends that RJR cigarettes are used as a money-laundering vehicle for heroin sales in the European Community.

The allegations are unusually stark and detailed, in contrast to many civil lawsuits that lay out charges in a general form with few specifics.

The suit was filed by three U.S. law firms, but they drew upon information gathered by law enforcement in Italy and other countries.

The suit asserts that RJR's motivation for dealing with criminal organizations was to increase its market share. RJR has benefited from these illicit relations by increasing sales and profit margins "because they require the criminals to pay a premium for their cigarettes and/or subject the criminals to sales and credit terms that are more favorable to [RJR] than those granted to legitimate customers," the suit states.

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