[Intl-tobacco] LAT: More Details on EU Smuggling Suit (including RJR Ties to Bank of New York scandal, drug barons and money laundering)

[Robert Weissman]

Cigarettes Portrayed as Currency of Crime
EU suit against R.J. Reynolds describes a worldwide system of money
laundering.
By Michael A. Hiltzik and Henry Weinstein
Times Staff Writers

November 5 2002

Once a month for many years, a group of travelers bribed their way into
Colombia via a remote border crossing from Venezuela, met with their
contacts and then bribed their way home, the better to leave no record of
the trip in their passports.

The illicit commodity they were trading was not cocaine, as might be
expected, but cigarettes.

So contends a lawsuit filed last week in a U.S. court by the European Union.
According to the suit, the clandestine travelers were employees of companies
affiliated with R.J. Reynolds Tobacco Co. Their goal, the EU says, was to
receive cash for their products without revealing that the source of the
money was the narcotics trade.

These and a host of similar allegations are at the heart of the EU suit,
which maintains that Reynolds, the world's second-largest tobacco company,
has been complicit for years in a worldwide money-laundering system in which
cigarettes are as important a currency as the U.S. greenback.

The notion that black-market cigarettes can cause big problems isn't new.
According to some health and law enforcement officials, as many as a third
of all cigarette exports wind up being sold on the black market, cheating
governments of tax revenue and encouraging smoking by keeping cheap
cigarettes available. U.S. states with high tobacco taxes find themselves
similarly victimized by cigarette smugglers.

But the EU suit adds a fresh twist to the concept of cigarette smuggling
that goes way beyond simple tax evasion. The allegations, say
money-laundering experts here and abroad, underscore the role that
cigarettes -- ubiquitous, easily transportable commodities usually bought
and sold for cash -- have come to play in lubricating the movement of
capital for drug traffickers, tax evaders, terrorists and others who
need to
conceal the sources of their funding.

"This complaint has described, chapter and verse, a blatant conspiracy,"
said Charles Intriago, a Miami lawyer and publisher of the newsletter Money
Laundering Alert.

The EU's lawsuit, filed last Thursday in federal court in Brooklyn, N.Y.,
links Reynolds with money-laundering networks serving not only Latin America
but also Italy, Spain, Russia, the Balkans, Britain and Iraq -- where it is
allegedly overseen by Saddam Hussein's son, Uday Hussein.

It also alleges that cigarettes were at the center of the infamous Bank of
New York money-laundering case of 2000, in which two top bank executives
have pleaded guilty to helping launder billions of dollars for organized
crime figures in Russia.

In copious detail, the suit describes stratagems RJR allegedly employed to
distance itself from criminal partners, including eradicating identification
numbers from illicit shipments, using secret bank accounts and third-party
checks and establishing intermediary companies through which to do business.

On Monday, Reynolds spokesman Seth Moskowitz reiterated the company's
position that "any allegations we were involved in, or aware of, money
laundering, conspiracy or other illegal activities is completely absurd."

Reynolds officials also have noted that the U.S.-based RJR Tobacco companies
currently have no international operations. The companies' parent, RJR
Nabisco, sold its foreign distribution business in 1999 to Japan Tobacco
Inc., which is majority-owned by the Japanese government.

What's more, RJR has pointed out that many of the allegations mirror those
in a lawsuit the EU brought against the company in 2000. That case was
dismissed by a federal judge in February on grounds that its claim of
European tax evasion by RJR lay outside the jurisdiction of U.S. courts.

Still, experts in tobacco litigation say last week's EU lawsuit -- which is
designed to supplant the one that was dismissed -- opens a new front in the
courtroom war against Big Tobacco.

In June, a federal jury in Charlotte, N.C., convicted two Lebanese brothers
of participating in an illegal multimillion-dollar operation to smuggle
low-tax cigarettes out of North Carolina and to divert some of the profits
to Hezbollah, a Lebanese terrorist group that was blamed for the 1983
bombing of the U.S. Marine barracks in Lebanon that killed 241 Americans.

But the EU case, notably, is aimed not at the smugglers but at the tobacco
industry.

"These are the most serious and far-reaching allegations ever made against
any domestic U.S. corporation," said David Vladeck, a law professor at
Georgetown University and director of the Public Citizen Litigation Group,
which has represented public health groups in lawsuits against the tobacco
industry. "According to this complaint, RJR is at the nerve center of an
enormous international operation that has far-reaching and detrimental
impacts throughout the U.S., Western Europe and South America."

Vladeck said that the stature of the plaintiffs lends credibility to the
charges. "Remember, these are not individuals making these allegations.
These are the nations of Belgium, Spain, Italy ... foreign sovereigns."

If the allegations are true, Vladeck added, they would raise serious
questions for U.S. officials. "If RJR cigarettes really are the currency of
international money-laundering rings," he asked, "how did this escape the
attention of the U.S. government?"

Perhaps most striking are the allegations the EU makes about RJR's
relationship with a Russian money-laundering network that funneled billions
of dollars in illicit transfers through the Bank of New York in the 1990s.

Those transfers sparked one of the largest money-laundering investigations
in history and in February 2000 led to guilty pleas to federal charges by
Lucy Edwards, a Russian-born Bank of New York executive, and her husband,
Peter Berlin. (Neither has been sentenced and both are said to be
cooperating with authorities.)

But that investigation was premised on the assumption that the transfers
were principally aimed at evading Russian taxes and spiriting capital
out of
the foundering country. Before the EU's suit, the transactions were never
before tied to cigarette smuggling or to any other aspects of the tobacco
trade, experts familiar with the case said.

"Cigarettes did not form a basis to the charges to which Berlin and Edwards
pleaded and were not part of the charges by the government," said T. Barry
Kingham, the couple's New York attorney. He said, however, he has not been
privy to the couple's subsequent debriefings by federal officials.

The European Union, however, labels RJR subsidiaries the "prime
beneficiaries" of the money-laundering system set up by Russian mobsters
through the Bank of New York.

The lawsuit cites, for example, a string of transfers to R.J. Reynolds
Tobacco International totaling more than $4 million from May through
July of
1997. The transfers were ordered by Sinex Bank, which was incorporated the
previous year in the Pacific Island of Nauru, then a known money haven, by
Russian traders eager to spirit their capital out of Russia. They were then
routed through the Bank of New York via another correspondent bank and
ultimately to RJR, the EU contends.

The European Union maintains that this method of payment should have raised
RJR's suspicions that its buyers were not legitimate businessmen.

"No legitimate purchaser of cigarettes would be ordering payment ... through
Sinex Bank," the complaint states. Further, it alleges, the invoices
received for the cigarettes named Sinex, a tiny bank operating offshore, as
the "ordering customer" -- a scenario so unlikely that it should have
alerted RJR that Sinex was masking the identity of the true customers.

The EU suit alleges other, more immediate, contacts between RJR officials
and drug traffickers.

In October 1992, it says, John Dyson, whom the complaint identifies as RJR
Tobacco International's Miami-based Latin America sales manager, "traveled
to Aruba to establish direct contacts between RJR distributors and Colombian
narcotics money-laundering organizations."

Dyson, the EU says, arranged for RJR's Aruba distributor to sell cigarettes
to a Spanish company that would pay with the proceeds of narcotics sales
collected in Medellin, Colombia, the base of one of the era's most notorious
cocaine cartels.

The arrangement was so delicate, the complaint alleges, that the Aruba
distributor warned Dyson that RJR would be charged for the "additional
costs" of handling drug money.

The RJR spokesman declined to comment on the allegation or to confirm
whether Dyson was now or ever had been employed by the company. Dyson could
not be reached for comment.

In any event, the EU complaint does not make clear whether Dyson knew that
the ultimate source of payment to RJR was drug money. Legal experts say
making that final connection may be the European Union's hardest task.

"The Achilles' heel of the complaint, if there is one, is that the
plaintiffs have to prove that RJR was doing more than selling cigarettes to
anyone who would buy them," said Georgetown University's Vladeck. "The one
thing that is crucial here -- and will be highly contested by the
corporation and may prove difficult to establish in court -- is that RJR
knew its cigarettes were being used as the currency for international drug
trafficking and money laundering."

The EU complaint does argue, however, that RJR's distribution deals with
illicit partners differed materially from those with legitimate
distributors, an indication that the company may have made the distinction.

Shipping companies hired by RJR in Belgium and elsewhere, the complaint
alleges, were given special handling instructions for customers that RJR
knew were "involved in criminal activities." These allegedly included
special fax numbers for invoices and specific RJR employees permitted to
handle shipment documents, as well as the use of numbered bank accounts that
could not easily be traced to RJR. In some cases, the suit alleges, RJR
repeatedly changed the banks through which it received payment to evade
detection by the U.S. government -- a process the EU says was known within
the company as "musical banks."

Other instructions included orders that the master cases -- containers of
10,000 cigarettes each -- should be "neutralized and decoded," meaning that
marks and numbers allowing the containers to be traced and tracked
should be
removed, the suit alleges.

The suit also contends that RJR and its co-conspirators used "an organized
group of money couriers whose function was to receive criminal proceeds in
Italy and other parts of the European Union and to illegally ferry those
proceeds out of Italy and the European Community to Switzerland, where the
couriers would hand the cash proceeds" to Swiss money-laundering
organizations.

In addition, the suit alleges that throughout the 1990s, RJR employees
traveled to the warehouses of criminal organizations to inspect cigarettes,
"ensure freshness, replace damaged goods, and provide other services for
these criminal organizations just as they would any other customer."

RJR, the European Union maintains, "knew, or but for their willful blindness
would have known, that their customers were organized criminal
organizations."