[Intl-tobacco] White House effort to weaken anti-terrorism leg. to help tobacco co's.
Robert Weissman
rob@essential.org
Fri, 30 Nov 2001 16:38:16 -0800
http://www.public-i.org/story_01_112901.htm
White House Sought to Soften Anti-Terrorism
Legislation in Support of Tobacco Companies
Center for Public Integrity
By Maud S. Beelman
WASHINGTON, Nov. 29 ? The Bush administration
sought to use anti-terrorism legislation, rushed
through Congress in the wake of the Sept. 11
attacks, to shield U.S. tobacco companies from foreign
lawsuits alleging cigarette smuggling and money
laundering.
The White House backed a tobacco industry
proposal that would have blocked foreign governments
from using U.S. courts to go after corporate
tax cheats. Canada, the European Union and the
governors of Colombia have filed federal civil
racketeering lawsuits, seeking billions of dollars in lost
revenue and damages from the world’s largest
tobacco companies. The suits allege the companies
smuggled their cigarettes to evade taxes and
duties on their products.
Known in legislative parlance as a "rule of
construction," the administration-backed measure was
added to the Financial Anti-Terrorism Act of
2001 late on Oct. 16, on the eve of its passage in the
Republican-controlled House of Representatives.
But the rule ran into strong opposition from
Democratic senators and was not part of the USA
PATRIOT Act, which President Bush signed into
law on Oct. 26. House wording that would have
expanded existing law on money laundering crimes to
include specifically fraud against foreign
governments, however, was eliminated.
The rule of construction did not refer directly
to tobacco companies. But it was backed by the White
House, Rep. Tom DeLay, R-Tx., and lobbyists for
the tobacco industry, including the U.S. Chamber of
Commerce, congressional sources said.
"The White House wanted it there," one source
said, adding,
"The White House put pressure on us to make the
case even
stronger for the Chamber."
R. Bruce Josten, the Chamber’s executive vice
president for
government affairs, wrote to Treasury Secretary
Paul O’Neill on
Oct. 10 and Oct. 15, urging changes in the
money laundering
legislation that was proposed as part of
Congress’ sweeping
anti-terrorism act.
In the Oct. 15 letter, a copy of which was
obtained by the
Center for Public Integrity, Josten said "the
legislation
highlights the broader problem presented by
foreign states
attempting to use the civil RICO law and the
U.S. courts as a
means to collect monies allegedly due under
foreign revenue
laws." RICO stands for the Racketeer Influenced
and Corrupt
Organizations Act.
Josten asked O’Neill to support wording he
proposed for the
money laundering legislation ? wording that
appeared in
near-identical form one day later in the House
bill, which was
passed on Oct. 17.
The original version of the House’s Financial
Anti-Terrorism Act
of 2001 had expanded what constituted
"specified unlawful
activity for money laundering" to include
"fraud or any scheme
to defraud against a foreign government or
foreign government
entity, if such conduct would constitute a
violation of this title if
it were committed in interstate commerce in the
United States
…"
That passage was dropped from the House bill
under pressure
from the White House and tobacco lobbyists,
sources said. The
Chamber of Commerce and the tobacco companies
were
worried what effect such specific language
would have on
Canada’s lawsuit against R.J. Reynolds, where
the 2nd U.S.
Circuit Court of Appeals on Oct. 12 had ruled
that, in the
absence of clear congressional intent, an 18th
century
Revenue Rule prohibited Canada from using U.S.
courts to
collect unpaid taxes. [The dissenting judge in
the 2-1 appeals
court decision called the Revenue Rule "an old
and dubious
common law rule" that had nothing to do with
Canada’s suit,
which he said was based on alleged violations
of U.S. law.]
"What they wanted would have ended any chance
of Canada successfully
appealing the 2nd Circuit case," said a
congressional source. "The White
House was trying to get that nailed down for
the Chamber [of Commerce]."
One lawyer involved in the RICO lawsuits said
if the measure had passed
Congress as proposed, "the rule of construction
would have killed the cases,"
because it would have required new treaties to
pursue the claims, by which
time the statute of limitations would have
expired.
Maura Payne, a spokeswoman for RJR, said the
company "did not take a
position on the bill or lobby it."
For the exclusive benefit of tobacco companies
Canada, the EU, the governors of Colombia, and
other Latin American countries are suing the world’s
leading cigarette manufacturers ? Philip
Morris, RJR and British American Tobacco ? under civil RICO
in U.S. federal and state courts. The lawsuits
allege the companies knowingly smuggled their
cigarettes to evade national taxes and that the
smuggling became enmeshed with money laundering
operations. Two year-long investigations by the
Center for Public Integrity, based on thousands of
pages of internal company documents and
reporting worldwide by the Center’s International
Consortium of Investigative Journalists, have
shown tobacco company involvement in cigarette
smuggling and corporate ties to organized
crime. The tobacco companies have denied any
wrongdoing.
The Campaign for Tobacco-Free Kids, a tobacco
watchdog group in Washington, said it knew of no
pending lawsuits that might be affected by the
proposed legislation other than those against the
tobacco companies.
The provision "serves only as a
special-interest legislation for the exclusive benefit of the major U.S.
cigarette companies," the group said in an Oct.
19 memo. "Taking action that could impede the
foreign government’s access to U.S. courts for
this purpose ? while the President is seeking greater
international cooperation among the world’s
governments to fight terrorism and shut off terrorist
funding sources ? does not make sense." It
added that the measure "could directly contradict the
purposes of the Financial Anti-Terrorism Act by
impeding the efforts of other countries to combat
cigarette smuggling, which may be serving as a
source of income for certain terrorist organizations or
their financial supporters."
The rule of construction was stripped from the
bill during talks between the House and Senate,
despite arguments on its behalf by Philippa
Malmgren, special assistant to the president for economic
policy and a staffer at the National Economic
Council, headed by Bush’s chief economic advisor,
Lawrence Lindsay. Sources said Malmgren tried
to sell an even broader version of the rule of
construction than was passed by the House, but
gave up in the face of strong opposition from Sen.
Paul Sarbanes, D-Md., who questioned its
germaneness to money laundering and the last-minute
nature of its inclusion in the bill. She also
accepted the argument, sources said, that since the
broader language on fraud against foreign
governments had been removed, the rule of construction
was no longer necessary.
"I am very proud of the results that have come
out with reference to money laundering because we
dropped the administration proposal that would
have eliminated due process safeguards that would
have prevented RICO liability for tobacco
companies," Rep. John Conyers, the ranking Democrat on
the House Judiciary Committee, later said.
Rep. Robert Wexler, a fellow committee
Democrat, agreed, saying, "If our allies are victimized by
fraud, smuggling or money laundering emanating
from U.S. soil, they should have the benefit of U.S.
laws and U.S. courts to combat those offenses."
Several sources on Capitol Hill said they were
not initially aware of the tobacco company backing for
the measure. "No one understood the extent to
which people were shilling for the tobacco industry,"
said one. The Oct. 25 Congressional Record,
however, made clear the target beneficiaries of the
proposed wording, noting the elimination of
original administration proposals, including the "carve-out
of tobacco companies from RICO liability for
foreign excise taxes."
Hooked on tobacco money
The tobacco industry’s political influence in
Washington is widespread and greased by large
campaign donations. Of the 12 most generous
soft money donors to the Republican Party, four ?
Philip Morris Companies, Inc., RJR, UST, Inc.,
and Brown & Williamson Tobacco Corp. ? are cigarette
makers, the Center reported in The Buying of
the President 2000. From January 1991 through
June 1999, the four had contributed $12.8
million to the Republican National Committee and its
affiliates. Philip Morris and RJR also
contributed $2.1 million to the Democratic National Committee
and its affiliates during the same period.
According to a recent report by the Campaign
for Tobacco-Free Kids, tobacco companies have
invested almost $4.3 million in the current
Congress ? more than $3 million of that going to
Republicans. Since 1997, Republican candidates
and committees have received 82 percent of the
more than $18 million tobacco interests have
given to federal candidates, national parties and
non-party political action committees, the
report said.
The political action committee of Rep. Michael
Oxley, the Republican chair of the committee that
sponsored the bill containing the
tobacco-backed language, has received $32,300 in tobacco money
since 1999, the report said. In July 2000,
Oxley threw a lavish party during the Republican national
convention that was paid for, in part, by
Philip Morris, The Washington Post reported at the time.
No. 3 among congressmen’s political action
committees receiving tobacco PAC contributions was
Rep. Tom DeLay’s, which took in $64,500 since
1999, the report said. Several sources singled out
DeLay, the House whip, as one of the backers of
the rule of construction and noted he had a
representative at the talks on the bill.
At least two senior Bush administration
officials are well acquainted with the challenge foreign
governments pose to the tobacco companies. In
February 2001, the U.S. Chamber of Commerce filed
an amicus brief in the Canadian case, along
with the National Association of Manufacturers, on
behalf of R.J. Reynolds and the Canadian
Tobacco Manufacturers Council. The lead attorney on that
filing was Theodore Olson, whose successful
arguments before the U.S. Supreme Court in the 2000
presidential election ended the Florida recount
and secured the presidency for George W. Bush.
Olson was appointed U.S. solicitor general in
May 2001.
The No. 2 official in the Justice Department,
Deputy
Attorney General Larry Thompson, is a former
partner in
the law firm of King & Spalding, which
represents the
Canadian Tobacco Manufacturers Council in the
Canada suit.
"We were getting tons of mixed signals about
who was
in charge of the administration’s view on
this," one
source said, adding that there was a split
between lower
level staff at the Justice Department, who
opposed the
rule-of-construction language, calling it "a
stalking horse
for the tobacco companies," and senior Justice
officials
who favored it.
Lawyers involved in the RICO suits believe
that,
ironically, the tobacco companies’ attempt at
crafting
favorable legislation may have backfired. The
appeals
court ruling in the Canadian case was based in
part on
the argument that there was no clear
congressional
intent for RICO laws to trump the old Revenue
Rule. The
European Union, which has filed an amicus brief
with
the 2nd Circuit for a rehearing, contends that
is no
longer the case. The brief, filed in light of
the new law, quoted Sen. John Kerry, D-Ma., telling his
fellow lawmakers, "we today clarify that it is
the intent of the legislature that our allies will have access
to our courts and the use of our laws if they
are the victims of smuggling, fraud, money laundering, or
terrorism."
Maud S. Beelman is director of the
International Consortium of Investigative Journalists at the Center for
Public
Integrity. Patrick Murck, an ICIJ researcher,
contributed to this report.