[Intl-tobacco] How Big Tobacco Subverted Anti-Terror Act

[Robert Weissman]

http://www.msnbc.com/news/759566.asp

June 13, 2002
How Big Tobacco nicked terror act
Firms accused of smuggling cigarettes feared language on laundering
Mark Shaprio
MSNBC

NEW YORK, June 13 — On the one-month anniversary of the Sept. 11 terrorist
attacks, the tobacco industry took aim at Congress’ first effort to respond
to the crisis with a major piece of new legislation — the Patriot Act. Why
would America’s largest tobacco companies take an interest in a bill
designed to go after America’s terrorist adversaries?

THE ANSWER: legal liability. Not that the tobacco companies are terrorists,
but some of their marketing and distribution strategies look awfully similar
to the illegal financing systems used by terrorists. At least they do from
the U.S. Department of Justice perspective.

To get to the bottom of this story, we need to return to those traumatized
days last fall, in which our lives were filled with fears of another
terrorist attack, the retaliation of U.S. forces in Afghanistan, and shock
and horror at the revelation that anthrax had contaminated the halls of
Congress.

On the morning of Oct. 11, GOP Rep. Michael Oxley of Ohio, chairman of the
House Financial Services Committee, brought what was then called the
“Financial Anti-Terrorist Act” before his committee (and would later be
called the USA Patriot Act when it was passed by the Senate).

The bill was intended to strengthen the hand of U.S. law enforcement in
going after what the Bush administration called “the financial sources of
terrorism.” Among the dozens of new laws, the act imposed tighter
restrictions on money laundering, demanded greater transparency in U.S.
financial institutions and provided new levers for law enforcement to track
international money trails used by terrorist and criminal organizations.

Here is where the tobacco industry comes in. It has to do with what was
taken out of the bill between Oct. 3, when it was introduced in the House,
and Oct. 11, when Oxley presented it to his committee for a hearing. What
the bill that Oxley presented for a hearing on Oct. 11 did not contain was
Section 107(B), which would have expanded the definition of 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 provision had been specifically requested by the Justice
Department to aid in its ability to crack down on money laundering
operations overseas, one of the means that terrorists use to finance their
illicit networks.

A LEGAL VULNERABILITY

Why did Oxley remove Section 107(B) from the bill? The answer: Big Tobacco.
The section, had it been included in the final Patriot Act, would have
rendered major tobacco companies accused of smuggling cigarettes overseas
extremely vulnerable to legal challenge, and they wanted it out.

Here’s why: At the time, the tobacco companies were facing legal
assaults on
several fronts. On the docket at the U.S. federal appeals court in New York
City was a lawsuit filed by the government of Canada against RJReynolds; the
Canadians were appealing a lower court dismissal of their claim against
RJReynolds, which they alleged had engaged in cigarette smuggling and money
laundering that cost the government more than a billion dollars in lost tax
revenues. Also on the docket at a federal district court in New York were
two cases being argued in parallel: 22 Colombian states and the city of
Bogotá, and 10 European governments — including France, Germany, Italy,
Spain and Greece — had accused Philip Morris, RJReynolds and Brown &
Williamson, the U.S. subsidiary of British American Tobacco, of defrauding
their governments of hundreds of millions of dollars in tax revenues and of
taking the illicit profits back to the United States, which would constitute
money laundering. In Colombia, as in Europe and Canada, the bulk of
cigarette taxes are used to fund education and health programs, many of
which deal with the health effects of smoking.

In Colombia, which I visited last winter, both Philip Morris and Brown &
Williamson developed a system for smuggling their Marlboros, Kools and other
brands into the country without paying customs tariffs or any import taxes
whatsoever. For more than a decade, this enabled them to compete head to
head with Colombia’s domestic manufacturers: While legal imports of foreign
cigarettes should cost from four to five dollars a pack, with all duties
paid, they were sold throughout Colombia at just over a buck a pack.

70 PERCENT OF THE MARKET

By the mid-1990s, foreign imports — most of them American, and most of them
smuggled illegally into the country — had 70 percent of the market share.
Over a decade, this translated into hundreds of millions of dollars in
profits for the tobacco companies, while many of Colombia’s own tobacco
farmers were forced out of business, and shifted into producing that country
’s other famous crop: coca. Nor is that the only link between the drug trade
and the cigarette trade: U.S. and Colombian law enforcement officials told
me that the cigarette smugglers with whom the tobacco companies did business
were actually engaged in the laundering of profits from drug sales in the
United States. And that, assert the Colombians and Europeans in their
lawsuit, also constitutes money laundering. Which brings us back to the
Patriot Act.

Since the Colombian and European cases were filed against the tobacco
industry in 2000, and the Canadian case was filed in 1999, the industry’s
lawyers have argued that the plaintiffs have no right to bring such a case
in a U.S. court. The suits should be dismissed, they argued, on the grounds
of a legal precedent known as the “revenue rule,” which dates back to the
18th century and states that U.S. courts have no jurisdiction over matters
related to the collection of foreign taxes. The Patriot Act provision would
have trumped the revenue rule and provided clear legal standing to the
plaintiffs in those lawsuits. But it was not to be. According to a
congressional source close to the House-Senate negotiations, Oxley removed
the provision from the bill at the behest of the White House and GOP whip
Tom DeLay, under pressure from Big Tobacco.

COMPANIES RESPOND

“The tobacco companies didn’t care that in striking that provision they
might have opened the American people to greater risk of a terrorist attack
and funding terrorist groups that might attack our own people,” Rep. Henry
Waxman, who has been a leading antagonist of the tobacco industry in
Congress, commented in an interview. “They wanted to make sure that that
provision would not have been interpreted to give standing to these foreign
countries.”

In a letter sent to me by Philip Morris’ director of public communications,
John Sorrells, the company did not dispute the latter point, but insisted
that the change in the Patriot Act was supported by the “business community
at large,” which has long been concerned with issues of foreign liability.
It vigorously denied that the change would hamper “the government’s ability
to bring suits to combat terrorism.”

The tobacco companies got what they were looking for. Shortly after the
Patriot Act passed the House without Section 107(B), Canada’s lawsuit was
dismissed by the appeals court, which based its decision substantially on
the revenue rule; and on Feb. 19, the Colombian and European cases were
likewise dismissed by a federal district judge who also cited the revenue
rule. The dismissals, according to Richard Daynard, director of the Tobacco
Litigation Center at Northeastern University, would likely not have happened
if Section 107(B), with its expanded definition of money laundering, had
been included in the final Patriot Act. “The [Patriot Act] bill as
originally drafted would have made the tobacco companies a lot more
vulnerable to the charges in those lawsuits,” says Daynard. The Colombians,
Europeans and Canadians are each appealing the dismissals.

CAMPAIGN GIFTS

Meanwhile, those who supported the tobacco industry’s effort in Congress
were also major recipients of the industry’s largesse: A report by the
Campaign for Tobacco Free Kids reveals that Republicans received 82 percent
of the more than $18 million that the tobacco industry has poured into
political campaigns since 1997. DeLay, along with committees with which he’s
associated, is one of the largest recipients of tobacco industry donations
in the House; Oxley himself has received $34,300 from the tobacco industry
since 1999, both for his political campaigns and his PAC, Leadership 2000.
And, the Washington Post reported at the time, he held a party at the 2000
Republican convention that was paid for partly by Philip Morris.

In mid-May, the Justice Department itself only narrowly averted its own
potential conflict of interest with Big Tobacco. On May 17, the Supreme
Court invited Solicitor General Theodore Olson to file a brief expressing
the government’s view of the Canadian lawsuit — and, specifically, its view
of the revenue rule, which has thus far barred Canada’s entry into the U.S.
courts. This request by the Supreme Court indicates their consideration of
accepting the Canadian appeal — an appeal that would be the first true test
of the revenue rule.

Within days of the Supreme Court’s invitation, the Campaign for Tobacco Free
Kids revealed that Olson himself had, as a private attorney, just last year
(in February, before his confirmation as Solicitor General) filed a
brief to
the appeals court on behalf of the U.S. Chamber of Commerce and the National
Association of Manufacturers in support of RJReynolds’ request to have the
Canadian case dismissed on the grounds of the revenue rule. The campaign
demanded that Olson recuse himself from involvement in the opinion,
which he
agreed to do.

AN ANTIQUATED RULE

In putting the revenue rule on the table, the Supreme Court has offered the
U.S. government an unprecedented opportunity to go forcefully on the record
that U.S. companies do not have the right to violate foreign country’s laws.
The revenue rule is an antiquated relic of an earlier era; its roots are in
English common law, before the birth of the American republic. And the
sleight of hand over the Patriot Act, intended to reinforce the revenue
rule, illustrated just how far the U.S. legal system has to go to catch up
with the reality of a globalized economy. The cases being pursued by the
Canadians, the Europeans and the Colombians are a test of how much
accountability there is in this country for U.S. corporations accused of
wrongdoing in foreign countries. This is a particularly potent question as
the administration pushes for the reduction of trade barriers; in the
post-Enron age, it is the behavior of U.S. corporations abroad that will
tarnish or enhance U.S. credibility on this issue.

The Bush Administration has a chance to pre-empt such problems in the
future.

The solicitor general’s office now has the opportunity to stress its
commitment to U.S. corporations abiding by foreign laws, and thus fighting
the criminality that goes along with smuggling and money laundering, rather
than supporting their efforts to evade them.

Mark Schapiro, an associate of the Center for Investigative Reporting,
writes frequently on international affairs. This piece is based on his
article, “Big Tobacco: Uncovering the Industry’s Multibillion-Dollar Global
Smuggling Network,” which appeared in The Nation, May 6, 2002. Schapiro also
co-produced a version of this story for the PBS newsmagazine NOW With Bill
Moyers (which aired April 19).