[Intl-tobacco] EU accuses R.J. Reynolds of abetting mobsters

[Robert Weissman]

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Thursday, October 31, 2002, 12:00 a.m. Pacific

EU accuses R.J. Reynolds of abetting mobsters

By Henry Weinstein and Myron Levin
Los Angeles Times

The European Union accused tobacco giant R.J. Reynolds in a lawsuit
yesterday of selling black-market cigarettes to drug lords and mobsters,
helping them launder profits from
illegal activities.

The 149-page complaint describes in detail Reynolds' allegedly corrupt
dealings in Europe and Latin America, including with members of the
Italian Mafia and Russian organized
crime, Colombian drug cartels and high government officials in the
Balkans.

The suit filed in U.S. District Court in Brooklyn paints a world in
which contraband cigarettes have become the currency of choice in Europe
for money laundering, and where one
of the world's major tobacco companies aided and abetted the criminals.

RJR officials "at the highest corporate level" made it "part of their
operating business plan to sell cigarettes to and through criminal
organizations and to accept criminal proceeds in
payments for cigarettes by secret and surreptitious means," the suit
alleges.

The complaint was filed late yesterday, and RJR spokesman Seth Moskowitz
said the company could not fully respond before reviewing it. "It
appears that this complaint is
related" to a case "which has been dismissed," Moskowitz said. Indeed,
the suit continues the EU's legal assault on RJR and other tobacco firms
it claims have cheated member
states of billions in taxes over the years, through collusion with
smugglers.

The EU's earlier complaint against RJR and Philip Morris was dismissed
in February by a federal judge on grounds it was barred by the "revenue
rule," a centuries-old doctrine
that prohibits foreign governments from collecting tax defaults through
U.S. courts. The EU has appealed.

In dismissing the case, U.S. district Judge Nicholas Garaufis said he
would consider a suit based on money-laundering violations, rather than
tax recovery. In response, the EU
filed this suit and is expected to sue Philip Morris and Japan Tobacco.

The suit filed yesterday lists bank accounts in Switzerland, Italy,
Cyprus, Liechtenstein, the Isle of Jersey and the Netherlands and
identifies wire transfers used as part of
money-laundering schemes.

The suit also asserts that RJR entities frequently changed banks where
it was going to receive payments from illicit sales in order to escape
detection. "This process was known
within RJR as 'musical banks,' " according to the suit.

In contrast to the earlier suit, the new complaint does not seek
recovery of lost tax revenue or customs duties because the judge found
such claims were barred. Instead, it seeks to
recover alleged losses resulting from money laundering, including
law-enforcement expenditures and other costs. The complaint does not ask
for a specific amount of damages, but
it says the EU's losses are in the hundreds of millions.

The lawsuit presents a purported marriage of convenience between tobacco
officials seeking to expand in Europe, and criminal gangs needing to
launder profits from narcotics and
weapons trafficking and extortion, and accomplishing this through the
purchase and sale of RJR brands.

"Throughout the European community, cigarettes and narcotics are
routinely part of the same criminal transactions, and the incidence of
such violence associated with such trade is
rising rapidly around the world," the suit alleges.

"Throughout the 1990s and continuing to the present day, a primary means
by which ... cocaine proceeds are laundered is through the purchase and
sale of cigarettes, including
those manufactured by the RJR defendants. Cocaine sales in the European
community are facilitated through money-laundering operations in
Colombia, Panama, Switzerland, and
elsewhere which utilize RJR cigarettes as the money-laundering vehicle,"
the suit says.

Similarly, the suit contends RJR cigarettes are used as a
money-laundering vehicle for heroin sales in Europe.

The allegations are unusually stark and detailed, in contrast to many
civil lawsuits that lay out charges in a general form with few
specifics. It was filed by three U.S. law firms, but
they drew upon information gathered by law-enforcement authorities in
Italy and other countries.

The suit asserts that RJR's motivation for dealing with criminal
organizations was to increase its market share. RJR has benefited from
these illicit relations by increasing sales and
profit margins "because they require the criminals to pay a premium for
their cigarettes and/or subject the criminals to sales and credit terms
that are more favorable to (RJR) than
those granted to legitimate customers."

Among the other allegations in the lawsuit, RJR moved its cigarettes
through the Balkans in the 1990s by means of illicit payments to corrupt
government officials, including the
current president of the Yugoslav Republic of Montenegro, Milo
Djukanovic, and the deceased former head of Montenegro's Foreign
Investment Agency, Milutin Lilic.

The payments allegedly came from a company founded by Italian
organized-crime figures that had the official sanction of the investment
agency, and operated under the protection
of Djukanovic. The company, Montenegrin Tabak Transit, was granted
exclusive rights to move cigarettes through the Port of Montenegro, and
over time made millions of dollars
in payments to members of the Yugoslav federal government and
Montenegrin regional governments, including Djukanovic and Lilic, the
lawsuit states.

It said RJR officials and distributors were well aware that such
"licensing fees" were being paid to facilitate the movement of their
brands. They "traveled to Montenegro on a
regular basis to inspect their cigarettes and service their customers
and, as such, were well aware of these practices," the lawsuit states.

According to European press reports, Italian authorities have opened a
criminal investigation into alleged involvement by Djukanovic with
Mafia-run smuggling operations.
Djukanovic has denied any involvement with the contraband trade.

The suit also alleges that throughout the 1990s and continuing today,
RJR has violated U.S. trade sanctions against Iraq by shipping billions
of cigarettes into that country through
intermediaries. According to the lawsuit, those profiting from the trade
include Uday Hussein, a son of Iraqi leader Saddam Hussein, and the PKK,
a Kurdish independence group
based in northern Iraq that the U.S. has classified as a terrorist
organization.

The allegations of illegal trade with Iraq are also the subject of a
criminal investigation by U.S. authorities.

                                                      Copyright =A9 2002
The Seattle Times Company