Europeans Sue U.S. Tobacco

The European Union has filed a civil suit in a New York court against U.S. tobacco companies Philip Morris and R.J. Reynolds alleging they are involved in smuggling cigarettes into the 15-nation EU.

"This civil action alleges breaches by these corporations of the U.S. Racketeering Influenced and Corrupt Organization Act," EU Budget Commissioner Michaele Schreyer said in a statement Monday.

She said the European Commission, the EU's executive body, is seeking compensation for financial losses suffered by the EU and an injunction to prevent further smuggling.

EU officials would not say how much compensation the Commission is seeking, but they allege that losses from cigarette smuggling run into the billions of dollars.

"The present case is a new step in our strategy to fight against fraud and financial irregularities," Schreyer said.

He said the company would be willing to assist in combating illegal trade in cigarettes, however.

R.J. Reynolds, based in Winston-Salem, N.C., said it also had not seen the lawsuit and said it did not know what legal and factual claims were made.

But it said it was "unsupportable and untrue" that Reynolds Tobacco had been involved in smuggling activity. Last year, Reynolds's parent, RJR Nabisco, sold its Reynolds international tobacco operations to Japan Tobacco and spun off the domestic tobacco operations as a separate company.

Japan Tobacco said it had not yet seen the complaint. "We do not know any particulars and therefore cannot comment," Axel Gietz, a spokesman for Japan Tobacco International, said in a statement from Geneva.

Schreyer's spokesman, Luc Veron, said the EU is seeking compensation for losses from unpaid customs duties and the Value Added Tax.

The suit, filed in Brooklyn, alleges the plaintiffs have "lost, and continue to lose, billions of dollars, including he deprivation of customs, duties, fees, taxes, money and property by reason of the defendants' schemes to smuggle vast shipments of contraband cigarettes and other tobacco products" from the late 1970s to present.

The plaintiffs claim western European countries "experienced a massive surge in smuggling" of R.J. Reynolds products in 1996 after the company starting giving executives multimillion dollar bonuses for boosting sales.

According to the suit, tobacco executives conspired with corrupt Caribbean and Central American exporters to smuggle cigarettes into Europe, where they were distributed on the black market. The defendants allegedly sought to evade authorities by secretly depositing payments in the smugglers' Swiss bank account - a decision "made at the executive level."

Philip Morris, the world's largest publicly traded tobacco company, is best known for its Marlboro brand. R.J. Reynolds' brands include Camel and Winston.

The European Commission announced in July it was planning to sue unnamed U.S. tobacco companies. At the time, Veron said the smuggling operation has cost the EU and its member countries billions of dollars in lost revenue and was the single biggest fraud on the EU budget.

Last week, the British government announced it would investigate smuggling allegations against British American Tobacco, the world's second-largest tobacco company.

According to the British anti-smoking group Action on Smoking and Health, some 350 billion cigarettes are smuggled every year, about a third of all internationally traded cigarettes.

"The evidence suggests tobacco companies have played a controlling and orchestrating role in the global tobacco smuggling racket," said ASH director Clive Bates, in a statement from London. "It is important that the authorities use whatever legal routes that are available to stop them in their tracks."

By Paul Ames
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