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"RJR Complicit in Smuggling" says Accused (fwd)
Lexington Herald-Leader
26 June 1998
By Raja Mishra
KNIGHT RIDDER WASHINGTON BUREAU
MASSENA, N.Y. -- In 1992, Canadian cigarette companies exported
twice as many cigarettes to the United States as they had
the previous year.
On paper it was as if Americans suddenly decided to smoke
twice as many
exotic Canadian brands, including Players, Export A and
DuMaurier.
In fact, most of those cigarettes were shipped right back
into Canada in a
short-lived but profitable black market that started when
Canada imposed
a smoker's tax of $2 a pack. Smugglers pocketed the $2 by
buying the
cigarettes tax free in the United States and selling them
at taxed rates in
Canada, netting hundreds of millions of dollars.
The RJR tobacco company was part of this operation, said
Larry Miller, a
Las Vegas businessman accused of the smuggling and awaiting
trial on
federal conspiracy charges.
Miller says he frequently briefed two executives from RJR,
maker of the
Export A brand, on his smuggling activities. The executives
advised him
where to send the cigarettes, he said.
"They provided us with information on what type of
cigarettes were selling
in Montreal, in Vancouver, in Toronto," Miller said.
RJR refused to discuss the charges. "We do have a policy of
fully
cooperating with law enforcement," said John Singleton, a
spokesman for
RJR-Nabisco in Winston-Salem, N.C., the parent company of
both the
Canadian and U.S. cigarette manufacturers. "But we can't
comment on this
ongoing case."
What is certain is that Canada's black market in cigarettes
became so
frenzied that after five years its government drastically
scaled back its
tobacco tax even though there was evidence that it worked
to cut smoking.
The Canadian experience was among the strongest weapons
used by the
forces that defeated the sweeping tobacco bill in Congress
in early June.
Raise the cigarette tax by $1.10 a pack, as the now-dead
bill would have,
and a black market will follow, opponents warned.
The tobacco industry conducted a highly effective $40
million ad blitz,
prominently featuring police officers warning that the
black market "may
increase beyond our control" if the bill is passed.
But there are major investigations into whether U.S. and
Canadian tobacco
companies and their employees were themselves complicit in
the Canadian
black market.
Canadian anti-smoking advocates also argue that the
companies had to be
aware that the bulk of their exports to the United States
were being
smuggled back into Canada.
"Had the tobacco companies not engaged in this behavior we
would not
have had a smuggling problem in Canada," said Rob
Cunningham, an
analyst with the Canadian Cancer Society.
Two Louisiana-based managers of the Brown & Williamson tobacco
company, maker of Kool and Capri, are serving time for
running a
smuggling operation into Canada. Federal officials in the
United States
investigated the rest of the company but brought no charges.
RJR remains under investigation, said agents from the Royal
Canadian
Mounted Police. So, the agents said, does the Imperial
tobacco company,
which makes Players and DuMaurier and is owned by BAT, the same
company that owns Brown & Williamson.
Miller and 20 others face federal charges of running a
massive smuggling
ring that netted $687 million in four years. None of the
accused had entered
pleas as of this week.
Besides Miller's detailed descriptions, U.S. Customs agents
have given
sworn affidavits, filed in U.S. District Court in Syracuse,
that RJR officials
knew of the operation. At this point no charges have been
filed against
RJR, although Canadian border agents are investigating the
possibility that
company executives helped Miller.
Exports skyrocketed
Anti-smoking and cancer advocacy groups in Canada say the
industry's
knowledge of the smuggling is obvious from the numbers:
Exports of
Canadian cigarettes to the United States increased
sevenfold, from 2.6
billion cigarettes to 17.7 billion, between 1990 and 1993,
the years after
Canada raised its tobacco tax. The bulk of these were
Players, DuMaurier
and Export A, brands unfamiliar to Americans. Most were
shipped to
border states, especially New York.
By 1993, the Canadian black market had peaked, and Canadian
officials
realized it was out of control.
Smugglers had gotten so brazen they were selling cigarettes
with the U.S.
Surgeon General's warning, as opposed to the Canadian
government's
warning, on the streets of Canada.
Canadian Prime Minister Jean Chretien decided to cut the
cigarette tax by
an average of $1.17 a pack, eliminating much of the black
market profit
margin. Smugglers saw their business dry up overnight.
The next year, exports to the United States plummeted,
returning to their
1988 pre-tax increase levels. Canada's youth smoking rate,
which had
dropped by 60 percent while the tax was in effect,
increased by 27
percent. The overall smoking rate, which had dropped 38
percent,
increased 9 percent the year after the tax was cut back.
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