[Intl-tobacco] More on the Colombian smuggling lawsuit
Robert Weissman
rob@essential.org
Wed, 24 May 2000 13:42:26 -0400 (EDT)
The URL for this story is: http://www.public-i.org/story_01_052300.htm
The web page contains links to related materials.
By Maud S. Beelman
International Consortium of Investigative
Journalists, The Center for Public Integrity
(Washington, May 23) Philip Morris, the world's
largest tobacco
multinational, has engaged in smuggling and
drug-money
laundering for years in a scheme to avoid taxes
and boost sales of its
cigarettes, according to allegations in a new
racketeering lawsuit
filed in U.S. federal court.
The civil lawsuit - filed by a majority of
Colombia's governors -
claims that Philip Morris Companies, Inc., and
its subsidiaries,
including Philip Morris International, Inc.,
defrauded the Colombian
states out of billions of dollars in lost tax
revenue over a 10-year period.
Through actions in the United States and abroad,
Philip
Morris "conceived, directed, controlled, and
implemented
an international conspiracy to defraud Plaintiffs
and deprive
them of money and property, in order to increase
their profits
and market share, enhance the value of their
tobacco
operations, and expand the worldwide market for
contraband
cigarettes," the lawsuit claims.
Employees accused of laundering
The lawsuit alleges that, in some cases, Philip
Morris employees themselves laundered drug
money as part of the smuggling operation. In
other instances, the company created a labyrinthine
network of third-party payments and Swiss bank
accounts in order to mask the illegality of their
actions, according to the lawsuit filed Friday in
U.S. District Court in New York.
The lawsuit was filed on behalf of the heads of
22 Colombian states, called "departments," as well
as the city of Bogota, rather than by the
Colombian federal government. The greatest part of
Colombia's tax revenue from cigarettes and
alcohol goes to the states.
Philip Morris and its named subsidiaries are
accused of violating the Racketeer Influenced and
Corrupt Organizations Act, as well as negligence,
fraud, unjust enrichment, public nuisance, and
"acts of conspiracy."
The Colombian governors are seeking actual and
punitive damages that could run as high as
Philip Morris' total tobacco profits for 1999.
The governors are claiming about $3 billion in
damages, which could be trebled under RICO, as
well as punitive damages on several of the
alleged violations of law, arguing that Philip Morris'
"conduct amounts to a fraud on the public."
Philip Morris reported tobacco profits of $9.8
billion in 1999 -- $4.9 billion in international tobacco
sales.
Philip Morris asserts lawfulness
Michael York, an attorney for Philip Morris, said
he had not yet seen the lawsuit, but added, "We
believe Philip Morris has acted lawfully."
According to the lawsuit, Philip Morris sent a Jan. 21
letter to the Colombian governors, attempting to
block the RICO action.
This is the second civil RICO action to be filed
against a major U.S.-headquartered tobacco
company within the last six months, but the first
to target the world's largest tobacco multinational,
whose Marlboro line is the world's most popular
brand of cigarettes.
In December, Canada filed a $1 billion civil RICO
lawsuit in U.S. District Court against R.J.
Reynolds and its related tobacco companies for
alleged smuggling across the U.S.-Canadian
border. Several people, including a former RJR
senior sales manager, have already been
convicted on U.S. criminal charges stemming from
smuggling across that same border.
Philip Morris is the third major tobacco
multinational to be implicated in alleged smuggling,
which allows cigarettes to enter a market
untaxed, be sold at a lower price and, therefore, reach a
greater number of consumers. The British
government is considering an investigation into British
American Tobacco after a report by the Center for
Public Integrity in January showed that
company's involvement in global smuggling.
U.S. Customs Commissioner Raymond Kelly told
Congress recently that "international cigarette
smuggling has grown to a
multibillion-dollar-a-year illegal enterprise linked to transnational
organized crime and international terrorism.
Profits from cigarette smuggling rival those of narcotic
trafficking."
According to the Colombian lawsuit, "the Philip
Morris defendants have actively engaged in
smuggling activities and concealed such conduct
through illegal acts, including money
laundering, wire fraud, mail fraud, and other
violations of United States law. Defendants have
collaborated with smugglers, encouraged
smugglers, and sold cigarettes to smugglers, either
directly or through intermediaries, while at the
same time supporting the smugglers' sales through
the establishment and maintenance of so-called
'umbrella operations' in the target jurisdictions."
"Umbrella operations" refer to an alleged tobacco
company practice of using the presence of a
small amount of legal imports into a country to
justify an advertising campaign that is really aimed
at promoting sales of more numerous black-market
cigarettes.
'Sophisticated and clandestine smuggling
enterprise'
The 74-page lawsuit charges that Philip Morris
"created and exploited a sophisticated and
clandestine smuggling enterprise that operates
throughout the world and within the Departments of
the Republic of Colombia. This international
scheme has harmed, and continues to harm, the
economic interests of many governments, including
the Departments of the Republic of
Colombia."
Suspicions about industry involvement in
cigarette smuggling have grown since 1997, when
researchers demonstrated, by comparing annual
global exports with global imports, that about
one-third of all cigarettes entering
international commerce each year could not be accounted for.
But proof remained elusive until last year, when
millions of pages of corporate documents,
unearthed during numerous health-related
lawsuits, became publicly available as part of the
tobacco industry's November 1998 settlement with
the U.S. states.
An investigation by the Center's International
Consortium of Investigative Journalists showed that
British American Tobacco, the world's
second-largest multinational tobacco company, had been
involved in cigarette smuggling and tax evasion
for years in a global effort to secure market share
and lure generations of new smokers. The report
was based on an analysis of more than 11,000
pages of internal corporate documents.
That report also cited documents showing that
senior executives of BAT and Philip Morris had
met on at least two occasions, in New York and in
England, to discuss fixing prices on legal and
smuggled cigarettes - an allegation repeated in
the Colombian RICO filing.
Top tobacco executives said to be involved
"The Philip Morris defendants created a
circuitous and clandestine distribution chain for the sale
of cigarettes in order to facilitate smuggling
within the Departments of the Republic of Colombia,"
the lawsuit says. "The decision to establish and
maintain this distribution chain was made at the
highest executive levels of the Philip Morris
defendants."
As part of what they termed the "PM Smuggling
Enterprise," the Colombian governors accused
Philip Morris of earning hundreds of millions of
dollars in illegal profits through:
Selling cigarettes directly to smugglers or
to distributors known to sell to smugglers;
Labeling, mislabeling, or failing to label
their cigarettes in such a way so as to facilitate
the activities of smugglers;
Providing marketing information to
distributors and smugglers in order to have the most
in-demand cigarettes in the market;
Generating false or misleading invoices,
bills of lading, shipping documents, and other
documents that expedite the smuggling
process;
Shipping cigarettes designated for one port
knowing that the cigarettes will be diverted to
another port and then smuggled;
Making arrangements for the cigarettes to
be paid for in a virtually untraceable way,
including using Swiss corporations and/or
Swiss bank accounts "in an attempt to
improperly utilize Swiss banking and
privacy laws as a shield to protect the smugglers from
government investigations."
The Colombian lawsuit also contends that Philip
Morris "knew that the currency provided to them
represented the proceeds of unlawful activity,
including trafficking in narcotics and controlled
substances and that, by accepting such payments,
aided the efforts of the drug traffickers to
launder their ill-gotten gains."
In some instances, "employees of the Philip
Morris defendants were personally involved in the
laundering of the proceeds of illicit narcotics
sales," the lawsuit alleges, claiming that Philip Morris
employees would bribe Colombian officials not to
stamp their passports, so there would be no
record of them entering or leaving the country.
"These employees on multiple occasions received
large volumes of cash that they took into their
personal possession or these employees would be
present when large volumes of cash were turned
over to the distributors with whom the Philip
Morris employees were traveling. These individuals
would then smuggle the cash out of Colombia and
into Venezuela, with the cash ultimately being
deposited in banks and transferred into the
coffers of the Philip Morris defendants," according to
the lawsuit.
'Laundered drug money'
The suit also contends that Miami bank accounts
of various Philip Morris cigarette distributors were
frozen in the early 1990s by U.S. law-enforcement
officials "because funds credited to those
accounts were laundered drug money. The freezing
of these accounts was well known to Philip
Morris."
The lawsuit - plans for which were first reported
by the Center in January - accuses Philip Morris of
furthering criminality in Colombia through its
business practices. A Colombian border-guard
station, erected in a main smuggling area in an
attempt to halt the contraband, was destroyed by
smugglers firing an anti-tank weapon, and several
of the station's personnel were killed in the
attack, the lawsuit says.
The Colombian governors also accuse Philip Morris
of having "falsely denied their complicity in
smuggling activities," citing a company response
to the Center for Public Integrity in January.
Additionally, the lawsuit alleges that Philip
Morris used the existence of smuggling to successfully
argue against higher government taxes, on the
grounds that would encourage more smuggling.
"The Defendants conduct this public relations and
lobbying campaign without disclosing to the
public or Plaintiffs their continuing complicity
in smuggling."
Maud Beelman is director of the International
Consortium of Investigative Journalists at the Center for Public
Integrity, in Washington, D.C. Senior Research
Associate Erik Schelzig contributed to this report.