[Intl-tobacco] Federal Prosecutors Probe U.S. Tobacco Companies For Smuggling to Iraq

[Robert Weissman]

Federal Prosecutors Probe U.S. Tobacco Companies For Smuggling to
Iraq [Item Not Online]
Europeans Make Accusation
by Colin Miner / Staff Reporter of the Sun / Weekend Edition, July
5-7, 2002
Source: New York Sun, 2002-07-05, via tobacco.org
URL: http://www.nysun.com

The federal government is probing allegations by the European Union
that tobacco giant R.J. Reynolds sent more than a billion dollars
worth of cigarettes to Iraq between 1990 and 1997, violating trade
sanctions, according to sources familiar with the investigation.

These sources said the actions of other tobacco companies will also
be scrutinized and the probe is expected to also consider
allegations of money laundering and tax evasion that emerged in
civil suits against the tobacco companies. The investigation is
being conducted by a team of prosecutors working with agents of the
United States Customs Service. Operating out of the office of the
United States attorney for the Southern District of New York, James
Comey, investigators are poring through tens of thousands of pages
of documents. 

This could be another blow to the tobacco industry, which his been
battered by cancer and heart-disease liability lawsuits, by tax
increases, and by anti-smoking sentiment so fierce that California
went so far as to ban smoking in bars. An R.J. Reynolds spokesman
said the company, based in North Carolina would defend itself
vigorously.

One federal official said the investigation is in the "very, very,
early" stages.

"We're at the gather and read phase," the official said. "This is
where we gather everything we can and read it and figure out what
the next steps, if any, are."

That official and others interviewed for this article said that
while it will he important for investigators to determine if
American cigarettes arrived in Iraq, if they determine them to be
true, it will be even more important to figure out who within the
R.J. Reynolds corporate world knew and when they knew it.

"Since the early 1990s, United States tobacco companies have
distributed their products from the United States through the
European community and into Iraq. Distribution of U.S.-brand
cigarettes into Iraq continues on virtually a daily basis" the
European Union said in papers filed by its lawyers as part of a
lawsuit against R. J. Reynolds in federal court in Brooklyn. "The
European Community has lost, and continues to lose, billions of
dollars, including the deprivation of customs duties, fees, taxes,
money and property."

A spokesman for R.J. Reynolds told The Sun that the company has
nothing to worry about because there is e clear separation between
Reynolds in America and its corporate cousins overseas.

"R.J. Reynolds Tobacco Company does not sell cigarettes in the
European Community or in any other international market," said the
spokesman, Seth Moskowitz. "We manufacture and market cigarettes in
the United States. In addition, Reynolds 'tobacco and its employees
were not involved in the day-to-day 

Please see TOBACCO, page 4.

TOBACCO continued from page '1.

operations of any of the separate companies selling 'RJR' brand
cigarettes in the international market."

News of this new investigation comes as a trade publication,
Corporate Crime Reporter, published a report that five large
American companies including Johnson & Johnson and Tyson Foods -
have recently paid cash settlements for violating trade sanctions
imposed on Iraq.

The probe stems from three civil racketeering lawsuits against
tobacco companies filed in the federal court in Brooklyn in the
past two years. All three cases - the suit by the European Union,
as well as ones filed by Canada, and 21 Colombian states along with
the city of Bogota - were dismissed by a district court judge
because of an 18th century law preventing foreign countries from
using American courts to collect back taxes. All three cases are on
appeal and none of the allegations has yet been argued in a
courtroom.

Mr. Moskowitz, the spokesman for R.J. Reynolds, told The Sun that
while the company has not been contacted by the government in
connection with the probe into cigarettes going to Iraq, it is
aware of allegations concerning smuggling.

"We are aware of allegations of smuggling, but we have not seen any
credible evidence that R.J. Reynolds Tobacco Company has been
involved in any smuggling activity in Europe or elsewhere," Mr.
Moskowitz said. "Reynolds Tobacco will defend itself vigorously
both on the facts and applicable local law concerning any
allegations of smuggling."

Cigarette smuggling is so rampant that the World Health
Organization estimates that 25% of all cigarettes exported from the
United States end up on the black market.

"Cigarette smuggling is a multi-billion dollar worldwide criminal
enterprise" the former head of the' Customs Service and current
commissioner of the New York Police Department, Raymond Kelly,
said. "The money, which in some cases rivals that connected to
narcotics trafficking, flows through U.S. banks and, in some
instances, is used to finance terrorist operations."

In its lawsuit, the European Union made the same argument.

"The illegal sale of cigarettes has become one of the primary
vehicles by which drug smugglers launder their illicit profits,"
the E.U. charged. "Narcotics generated proceeds supply funds for
the movement of billions of dollars worth of smuggled U.S. and
foreign goods, including cigarettes, throughout the world. In
short, what starts out as drug currency on the streets of U.S.
cities ends up as smuggled goods, including cigarettes, on the
streets of Western Europe."

American officials are using papers filed in the three cases as a
framework for their investigation. Those three cases, in turn,
benefited in part from more than one million pages of documents
that were made public as part of the 1998 $246 million settlement
between tobacco companies and states' attorneys general. However,
several people familiar with the matter said that some allegations
- such as the one involving Iraq - were developed independently of
the settlement between the companies and the state attorneys
general

Particular attention is being paid to claims by the European Union
that cigarettes produced at an R.J. Reynolds factory in Puerto Rico
were routinely sent to Iraq by way of Spain, Cyprus, and Turkey.

Reynolds has since sold its international business to another
company, which, earlier this year, announced plans to close the
factory in Puerto Rico.

If the cigarettes ended up in Iraq, it would be a violation of' the
sanctions imposed by President. George H. W. Bush in August 1990
under the International Emergency Economic Powers act after Iraq
invaded Kuwait. That executive order not only prohibited direct
shipments to Iraq but also said no goods or shipments should go
through third countries or intermediaries.

In its lawsuit, the European Union charged that was exactly what
was going on.

To support their claim, lawyers for the European nations included
the affidavit of a man identified as a Turkish security consultant.
He claimed to have seen American cigarettes being trucked into Iraq
as recently as December 2001.

"I went to the Habur border gate of Turkey with Iraq and I
witnessed that Winston Cigarettes and Philip Morris brand
cigarettes were being shipped across the border into Iraq," said
Turqul Ozsengul. "I questioned people working and living in the
area about these shipments and learned that almost every day
lorries, mainly of the above-mentioned brands, have been shipped to
Iraq, and this situation has persisted for several years.
Additionally, I learned that some of these cigarettes were being
taken to Iran from Iraq."

Winston is a R.J. Reynolds brand. Philip Morris has always
maintained it is not involved in the black market trade of
cigarettes, adding that the company is willing to work with any
country to fight the trade.

"We will readily cooperate with all interested parties to continue
to develop sensible solutions appropriate to prevent illegal trade
in our products," a Philip Morris spokesman said in a statement
earlier this year.

Lawyers for the European nations also include statements from an
Iraqi defector who was the personal assistant to Saddam Hussein's
son, Uday, who, claims the defector, controls "all the trade of
cigarettes" in Iraq.

"Uday is the single largest beneficiary of the sanctions since he
controls many facets of smuggling in Iraq," the lawyers quote the
assistant, Abbas Al-Janabi, as having said. He controls the
smuggling of whiskey, tobacco, fertilizers, petrol arid others. His
business interests extend to Turkey, Iran and Jordan. Uday Hussein
has trading links with Iranians."

The European Union went even further, charging that tobacco
companies had been cooperating with a known terrorist group.

"The European Community has learned that the scheme to ship
cigarettes into Iraq involved the Kurdistan Workers Party known as
the PKK," wrote lawyers for the European Union, adding there is
"clear and convincing, evidence that there is a link between
cigarettes smuggling and terrorism."

The American State Department lists the PKK as a terrorist
organization.

The alleged involvement of the PKK has federal officials concerned
because it wouldn't be the first time terrorism and cigarette
smuggling have been connected.

Earlier this year, a federal jury in Charlotte, North Carolina
convicted Mohamad Hammoud of providing "material support" to
Hezbollah. He and his brother were also found guilty of cigarette
smuggling, racketeering, and money laundering.

If this new investigation by the office of the U.S. Attorney for
the Southern District, finds that sanctions have been violated,
those convicted would face' a penalty of 12 years in prison, civil
penalties of $275,000 for each violation and a fine of up to $1
million.

The U.S. attorney's office, the Customs Service, and the Iraqi
government had no official comment.