[Intl-tobacco] WSJ Exposes RJR/JTI Cigarette Smuggling Into Iraq

[Robert Weissman]

From: "Ross Hammond" <margross@igc.org>

Dear Friends: This morning the Wall Street Journal published a very
important front-page article on RJR and JTI's involvement in cigarette
smuggling into Iraq in possible violation of both UN sanctions and US law.
They also published a separate article claiming that one of the prime
beneficiaries of the smuggling enterprise is Sadam Hussein's son, Uday, who
is reported to have made close to $10 milion a year in the late 1990s. Both
articles are appended below.

These revelations come on the heels of the US Administrations's refusal to
assist foreign governments and entities (principally the government of
Canada and the European Union)in their efforts to hold US-based companies
accountable for involvement in cigarette smuggling and related criminal
activity. A statement from the Campaign for Tobacco Free Kids follows the
two stories.

Cheers,

Ross


Bound for Baghdad: Despite Restraints, Iraq Gets Winstons; Who's to Blame?
--- RJR Unit, Japan Tobacco Face Scrutiny Over Distribution; Saddam's Son
Takes a Cut --- Seven Planeloads to Jordan

By Steve Stecklow and Alix M. Freedman

10/30/2002

The Wall Street Journal
A1

Immediately after the Persian Gulf War ended in 1991, billions of Winstons
and other American-brand cigarettes began turning up inside Iraq. Even now,
the flow continues.

Under U.S. trade sanctions, companies that make cigarettes in the U.S. can'=
t
knowingly sell them in the Iraqi market -- either directly or through
intermediaries -- unless they obtain a license from the U.S. government. Th=
e
company that produced many of those cigarettes for most of the past decade,
RJR Nabisco Corp.'s international tobacco unit, which was incorporated in
the U.S., never got a license. Neither did Japan Tobacco Inc., which
acquired the former RJR unit in 1999 and whose U.S. unit continued to
manufacture cigarettes in the U.S. until recently.

Now questions are mounting about whether RJR Nabisco's R.J. Reynolds Tobacc=
o
International unit and Japan Tobacco, which is majority-owned by the
Japanese government, knew that their distributors were shipping cigarettes
to Iraq. One Middle East distributor claims he built a thriving market in
Iraq with the blessing of the former RJR unit. And European regulators clai=
m
that employees connected to the tobacco companies visited Turkey as recentl=
y
as August 2001 to monitor the shipment of cigarettes from there into Iraq.
Lawyers for both companies deny any violation of U.S. law or of United
Nations economic sanctions against Iraq.

The European Union is considering filing a civil lawsuit in federal
court in
Brooklyn, N.Y., that would accuse the former RJR unit and related companies=
,
among other things, of sanctions-busting by shipping huge quantities of
American cigarettes to Iraq via Cyprus and Turkey from 1990 through this
year. Separately, federal prosecutors in the U.S. Attorney's office in
Manhattan recently opened an investigation into possible cigarette smugglin=
g
into Iraq by American companies in violation of federal laws, according
to a
person familiar with the matter.

One reason that trade of cigarettes into Iraq raises special concerns: Some
exporters say that the sales to Iraq of cigarettes indirectly enrich the
Saddam Hussein regime. Since 1995, Mr. Hussein's eldest son, Uday, has
collected on average $10 million a year in "taxes" from legal and illegal
sales of imported cigarettes, according to Abbas Al-Janabi, who served as
Uday Hussein's private secretary from 1984 to 1998.

Lawyers for the former RJR international tobacco unit and Japan Tobacco's
international unit vigorously deny any suggestion that either company
violated U.S. law or U.N. sanctions. "It is simply wrong to say that any
U.S. company must have violated U.S. and U.N. sanctions because their
products appear in Iraq," says Stanley Marcuss, a lawyer for Japan Tobacco
who formerly represented the RJR unit. "There are many, many ways, all of
which are perfectly legal, for U.S.-origin goods to be distributed in Iraq,=
"
he says. The companies also deny enriching the Iraqi regime.

A spokesman for R.J. Reynolds Tobacco Holdings Inc., the No. 2 tobacco
company in the U.S., underscores that his company was never involved in
international cigarette sales. His company is the former domestic unit of
RJR Nabisco, and was spun off as an independent company in 1999.

Apart from any questions of corporate responsibility, the Iraqi odyssey of
the Winstons and other brands sheds light on how global commerce adapts
in a
region where the normal lines of distribution are distorted by internationa=
l
politics and trade restrictions. The traffic in these American-brand
cigarettes relies on a circuitous tobacco route spanning many countries, a
complex network of distributors and traders, and has yielded an unlikely
cast of beneficiaries. In addition to Uday Hussein, they include Saddam's
murdered former son-in-law, Hussein Kamel, as well as the Kurds of Northern
Iraq -- who continue to do business with Baghdad even though thousands of
their compatriots were gassed by Saddam during the 1980s.

Over the years, cigarettes from other multinational tobacco companies also
have been available inside Iraq. But until the activities of the RJR unit
and Japan Tobacco started coming to light, little has been known about this
secretive trade.

The influx of American brands into Saddam Hussein's Iraq began shortly
before the outbreak of the Persian Gulf War, when the Baghdad government
lifted restrictions on the private importing of cigarettes. Before that, Mr=
.
Hussein's regime held a monopoly on the cigarette business, and imports of
Western brands were limited. Back then, in the late 1980s, there were no
sanctions prohibiting the sale of cigarettes to Iraq, and the former RJR
unit was looking to build its business in the Middle East. Abdel Hamid
Damirji, a cigarette exporter then based in Baghdad, says he seized the
opportunity.

At that time, "there was accordingly no real market for RJR products in Ira=
q
and certainly no marketing of them," Mr. Damirji says in a sworn affidavit
he provided in a civil case filed in Cyprus in 1997. The lawsuit, which is
still pending, was filed by Mr. Damirji against R.J. Reynolds Tobacco
International and its Cyprus-based Middle East distributor. It alleges that
the two companies cut him out of an exclusive arrangement to supply its
cigarettes in Iraq. The former RJR unit and the Cypriot distributor denied
the allegations in court filings. The former RJR unit said it didn't even
know its cigarettes were going into Iraq.

The U.N.'s sweeping economic sanctions, which were designed to punish the
Iraqi regime for its invasion of Kuwait, exempt certain items deemed to be
essential civilian needs. Cigarettes are among the exemptions. However, bot=
h
the U.N. and the U.S. government still impose restrictions on the sale of
cigarettes for the purpose of controlling the flow of commerce into a paria=
h
regime. All cigarette exporters must request formal U.N. authorization to
ship cigarettes to Iraq. Enforcement of these rules is uneven. "Huge amount=
s
went in without anyone asking for permission," says Paul Conlon, a former
deputy secretary of the U.N. Iraq sanctions committee.

In addition, the U.S. Treasury Department's Office of Foreign Assets
Control, which enforces the U.S. embargo, stipulates that U.S.-based
companies obtain a license if they are knowingly selling cigarettes to Iraq=
.
Companies can't deliberately evade this requirement simply by selling
through foreign distributors or subsidiaries -- unless these intermediaries
decided on their own to sell into Iraq, without anyone at the U.S. company
being aware of it. A senior U.S. Treasury official said the department has
no evidence that RJR violated sanctions.

In his affidavit in the Cyprus case, Mr. Damirji says that with the full
knowledge of R.J. Reynolds Tobacco International, he set up a distribution
network for the company's products in Baghdad in 1990. Business went well,
Mr. Damirji says, and in August of that year, when Iraq invaded Kuwait, Mr.
Damirji relocated his operations to Jordan. From there, he says in the
affidavit, he continued to supply the Iraqi market "with stocks of RJR
products obtained from RJR direct and sources to which RJR directed" him.
Mr. Damirji declined to comment for this story.

According to Mr. Damirji, a number of RJR executives, including some at the
company's headquarters in Winston-Salem, N.C., were aware of his activities
and met with him in the U.S. and abroad. "What there's no question about is
this: R.J. Reynolds in the U.S. was well aware of Damirji's operations. So
if they wish to say, `We have no idea what was going on,' that horse will
not run," says Anthony D. Kerman, Mr. Damirji's lawyer in London.

Mr. Marcuss, the tobacco lawyer, declines to comment about Mr. Damirji's
activities. However, he says generally that RJR's international unit and
Japan Tobacco simply sold to a distributor who determined where to resell
the company's goods. Mr. Marcuss says: "The nature of the cigarette busines=
s
is such that distributors typically act independently. They are independent
businessmen." In his view, only the last distributor in the chain selling
into Iraq would need to get official permission.

Mr. Damirji, who grew up in Iraq as a member of a prominent family, says in
his affidavit that his shipments to Iraq quickly grew after he moved to
Jordan. He says that in June 1991 alone, he ordered 50,000 "master
cases" of
products from RJR's international unit for Iraq -- half-a-billion
cigarettes. Because his supplier in Cyprus couldn't fulfill such a large
order, he says, the RJR unit directly transported 17,000 cases to him,
filling seven airplanes. In a court filing, RJR's international unit doesn'=
t
dispute shipping such a huge quantity of cigarettes to Mr. Damirji in
Jordan, but the company claims not to know what happened thereafter.

In October 1992, Mr. Damirji's affidavit says, the border between Iraq and
Jordan closed to cigarette traffic, and he had to move his inventory and
operations to Mersin, Turkey, a port city on the Mediterranean. Mr. Damirji
says that a consultant to R.J. Reynolds International named Issa Audeh, who
was also a former executive of the unit, orally offered to make Mr. Damirji
the "sole and exclusive supplier and distributor of RJR products in
Iraq" if
Mr. Damirji would establish secure warehousing facilities in Mersin.
Mr. Damirji says he built two warehouses in Mersin, at a total cost of
$976,000, and began purchasing RJR cigarettes through a company that Mr.
Audeh set up in Cyprus in early 1993 called IBCS Trading and Distribution
Co. Until then, Mr. Damirji says, Mr. Audeh had arranged for him to purchas=
e
RJR products through another Cypriot distributor. In court filings, RJR's
international unit denies knowing anything about Mr. Damirji's exclusive
agreement. In his court filings, Mr. Audeh's company denies that there was
any exclusive agreement.

At this point, Mr. Damirji says, his business got even better. Between Marc=
h
1993 and December 1996, he says, he purchased RJR cigarettes valued at more
than $213 million. They were shipped to Iraq via a dangerous route across
the Turkish border into northern Iraq. "During the period, Aspen was
established as the premier brand in Iraq" through his sales efforts, Mr.
Damirji says, referring to a RJR brand.

Mr. Damirji says RJR executives in Europe and the U.S. were fully aware of
his activities. He says Edward Touma, then a R.J. Reynolds Tobacco
International vice president, visited him twice in Mersin and also met him
in Baghdad, Amsterdam, Geneva and Cannes. Mr. Damirji says he met with seve=
n
other RJR executives at various times. In 1994, he says, RJR paid for
him to
attend a meeting of Middle East distributors in New York and at RJR's
headquarters in Winston-Salem. The court file contains a copy of a 1995 RJR
International magazine, called "RJR News," with photographs taken at that
meeting that include Mr. Damirji, and with an accompanying article written
by Mr. Touma. Mr. Touma now works for Japan Tobacco in Geneva; the company
declined to make him available to comment.

C. Stephen Heard Jr., a New York attorney for R.J. Reynolds Tobacco
International and Japan Tobacco, says that Mr. Audeh, the former RJR
international executive, invited Mr. Damirji to the meeting but adds that
"technically you could say he was RJR's guest."

In 1997, Mr. Damirji sued RJR's international unit and Mr. Audeh's
distributorship, IBCS, claiming that they were selling to Mr. Damirji's
competitors. Mr. Audeh's response to this claim provides an intriguing
glimpse into how in some corners, at least, the fierce hatred between the
Iraqis and the Kurds appears to have been set aside so both can reap the
spoils of the tobacco trade.

Specifically, Mr. Audeh, in a series of interviews, claimed that he couldn'=
t
continue selling cigarettes to Mr. Damirji because of demands imposed on Mr=
.
Audeh by the Kurdish Democratic Party, or KDP, which controls the northern
part of Iraq that borders Turkey. This is a crucial artery through which
foreign cigarettes flow into Kurdish-controlled Northern Iraq. From there,
local traders re-export the cigarettes to Iran and even to parts of Iraq
controlled by Saddam Hussein.

In early 1997, the KDP set up a company called Kani, which was given a
monopoly on all cigarette exports to the Kurdish-controlled area. The
company collects a tax imposed by the KDP of $20 to $25 for every master
case, or 10,000 cigarettes. Mr. Audeh says Kani directed him to sell to a
company that competes with Mr. Damirji's. A KDP spokesman says Kani
officials couldn't be reached for comment.

Asked why Kurdish traders would do business with a regime that in the 1980s
had killed thousands of Kurds with chemical weapons, the spokesman said:
"Business is business. Unfortunately, when people are interested in making
money I think they are less interested in what the regime or what the
government of Baghdad has done to them."

RJR-brand cigarette sales into Iraq dramatically increased from 1997 to
2001, with many of the cigarettes manufactured in Puerto Rico, according to
people familiar with the EU's investigation. The paperwork accompanying som=
e
of those shipments states: "United States law prohibits distribution of
these commodities to North Korea, Vietnam, Iraq or Cuba unless otherwise
authorized by the United States."

In recent months, Japan Tobacco for the first time sought and received U.N.
permission to sell cigarettes in Iraq. These sales aren't subject to U.S.
law, because the company closed its only plant on U.S. soil, which was
located in Puerto Rico; Japan Tobacco's cigarettes bound for Iraq are now
made in Europe.

These cigarettes still flow to Kurdish-controlled Northern Iraq.
However, at
this point their final destination is murky. It now appears that many of
them are smuggled to Iran, which some traders consider a more lucrative
market than Baghdad. Every day, young Kurds bearing large canvas backpacks
stuffed with cartons of cigarettes make daily climbs along the mountainous
routes into Iran. "It is constant, nonstop," says one Kurdish businessman
who witnessed waves of backpackers smuggling Winstons last month, adding
that they're paid about $10 per trip.

According to U.N. records, Japan Tobacco got approval to sell 401,000 maste=
r
cases of Winston, Magna and Winchester -- more than five billion cigarettes
-- to Kani, the Kurdish tobacco monopoly, via Mr. Audeh and a Turkish
distributor. The KDP spokesman called the amount requested by Japan Tobacco
"huge" and far more than the 3.7 million Kurds possibly could smoke. "You'd
have to find babies in their cradles smoking," he says.

Asked for his view of where the cigarettes might be ending up, Guy Cote,
Japan Tobacco's spokesman in Geneva, says: "I don't have a clue."
---
Gordon Fairclough and Jerry Markon contributed to this article.

When Cigarettes Reach Iraq, Uday Hussein Collects a Fee
By Steve Stecklow
10/30/2002
The Wall Street Journal
A13
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Middle East tobacco exporters say it's not possible to export cigarettes
into the parts of Iraq controlled by Saddam Hussein without paying off
members of his family.

In an interview, Abbas Al-Janabi, who served as a private secretary to Uday
Hussein, Saddam's eldest son, from 1984 to 1998, describes the scheme. Mr.
Al-Janabi says that until 1995, Hussein Kamel, Saddam's son-in-law and a
government minister, collected taxes on every imported "master case" of
10,000 cigarettes.

After Mr. Kamel was murdered in Baghdad in 1995, Mr. Al-Janabi says, the
profits from this trade went to Uday Hussein, who dramatically increased th=
e
flow of imports. A key way Uday did this was by reselling Iraq's imported
cigarettes to smugglers who took them to Iran. "He enlarged the quantities
[of cigarettes], he enlarged the business," Mr. Al-Janabi says. He adds tha=
t
many of the cigarettes flowed from Cyprus into Iraq via Jordan, the United
Arab Emirates and Turkey.

In the late 1990s, Uday Hussein's annual take from imported cigarettes
averaged about $10 million a year from legal and illegal sales, says Mr.
Al-Janabi, who was involved in collecting these revenues until 1998 when he
defected from Iraq. "The truth is, he keeps all of it for himself. He never
shares anything."

In Jordan, the fees are sometimes paid through an informal "tax collection
office" run in Amman by a representative of Uday, exporters say. At other
times, the fees are paid by cigarette importers inside Iraq. The payments
are sometimes described by those who levy them as a mandatory contribution
to youth sports organizations or to the Iraqi Olympic Committee. Uday
Hussein serves as president of the committee. "They are in fact not a real
part of the Olympic Committee, but they use it as a cover," Mr. Al-Janabi
says.

One Middle East exporter says Uday Hussein's fees now range from $5 to $25
per case, depending on the value of the cigarettes. This exporter also says
Saddam's younger son, Qusai, who controls Iraq's Mukhabarat, or security
service, lately also has been collecting cigarette taxes, causing confusion
among exporters about whom they're supposed to pay.

FOR IMMEDIATE RELEASE=09=09=09CONTACT:=09Joel Spivak
October 30, 2002=09=09=09=09=09=09=09202-296-5469

Statement of Matthew L. Myers, President
Campaign for Tobacco-Free Kids

U.S. Should Support Efforts to Crack Down On Cigarette Smuggling, Including
in Iraq

WASHINGTON, DC (October 30, 2002) =96 Stories in today=92s issue of The Wal=
l
Street Journal detail powerful evidence that R.J. Reynolds Tobacco and Japa=
n
Tobacco knew that their distributors were shipping cigarettes to Iraq in
violation of U.S. law and United Nations sanctions, thereby financially
benefiting Saddam Hussein=92s family.  The tobacco companies=92 denials tha=
t
they knew their cigarettes were being smuggled into Iraq appear no more
credible than their denials that they knew smoking caused lung cancer.  If
the tobacco companies are the responsible corporate citizens that they now
claim to be, they would be showing far greater concern for where their
cigarettes end up, especially when the beneficiaries may be repressive
regimes and terrorists.

The U.S. government should aggressively investigate and prosecute any
violations of U.S. law and support the efforts of the European Union and
other countries to hold U.S. tobacco companies accountable in U.S. courts
for their involvement in cigarette smuggling.  It is unfortunate that the
Bush Administration earlier this month filed a legal brief in a case before
the U.S. Supreme Court opposing Canada=92s efforts to pursue a smuggling ca=
se
against R.J. Reynolds in U.S. courts.  The Administration has rightly made
it a priority to cut off sources of funding for terrorists and the
governments that support them.  This effort should include cooperating with
other countries in cracking down on cigarette smuggling.

The Administration should also support strengthening U.S. law to combat
cigarette smuggling and to include strong anti-smuggling provisions in the
proposed international tobacco treaty, the Framework Convention on Tobacco
Control.