Magazine article Newsweek

Big Tobacco's Next Legal War: Cigarette Makers Are Coming under Fire as Governments Attack Global Smuggling

Magazine article Newsweek

Big Tobacco's Next Legal War: Cigarette Makers Are Coming under Fire as Governments Attack Global Smuggling

Article excerpt

For cigarette salesman Leslie Thompson, 1993 was an especially good year. A star employee with Northern Brands International (NBI), a tiny, four-person export outfit owned by the tobacco giant RJR Nabisco, Thompson sold an astonishing 8 billion cigarettes that year, reaping about $60 million in profits. Walking the company's halls, Thompson received a standing ovation from executives who'd gotten hefty bonuses as a result of his work. On his wrist he flashed a Rolex, a gift from grateful wholesalers.

These days, Thompson's name is no longer greeted with applause in the tobacco industry. He and other former executives are soon to be quizzed by federal prosecutors about the shady side of the cigarette business. NEWSWEEK has learned that a federal grand jury in North Carolina is investigating explosive allegations about links between major cigarette makers and global smuggling operations that move vast quantities of cigarettes across borders without paying any taxes. It's a multibillion-dollar-a-year enterprise.

The grand-jury deliberations spotlight a new round of legal troubles for Big Tobacco. (The proceedings are secret and it could not be learned which companies are under scrutiny. The U.S. attorney in Raleigh, N.C., declined to comment.) Cigarette makers are under attack from governments around the world that seek to hold them responsible for the costs of smuggling: billions in lost taxes, soaring violence and weakened efforts to prevent kids from smoking. Last week the European Union announced that it plans to launch a civil suit against U.S. cigarette makers for their alleged involvement in smuggling. In the last eight months, Canada, Colombia and Ecuador have all filed smuggling suits against American tobacco companies using U.S. antiracketeering laws. (The Canadian suit was recently dismissed on jurisdictional grounds, but Canada is considering an appeal.) Britain, Italy and China have also mounted intensive investigations. The Canadian and European investigators are cooperating closely with their U.S. counterparts to build a case against the industry. The Feds have even set up a cigarette-smuggling "war room" in the U.S. Federal Building in Raleigh, N.C., which is now ground zero in the latest battle against Big Tobacco. In addition, NEWSWEEK has learned that next week the World Bank and World Health Organization plan to release the results of a three-year investigation claiming the tobacco industry has deliberately thwarted international efforts to control the tobacco trade.

Cigarette makers can ill afford a new volley of legal problems. The industry was just hit with a $145 billion judgment, which it plans to appeal, in a Florida smoking case. Though tobacco executives acknowledge that cigarette smuggling is a problem, they vehemently deny any involvement in the illegal shipment or sale of their products. R.J. Reynolds executives say their company has been completely reorganized and bears no responsibility for the now-defunct NBI. They also insist they knew nothing about Thompson's illegal operation. He was a rogue smuggler, they say, who fooled them all and brought shame on the industry. Philip Morris also strongly denies any involvement with smugglers. "Our policy is clear and unambiguous," says spokesman Donald Harris. "Philip Morris does not condone, facilitate or support the smuggling of cigarettes and readily cooperates with governments in their efforts to prevent illegal trade in the products we manufacture." The tobacco companies say they shouldn't be held responsible for what happens to their product after they sell it any more than the maker of a television or a hair dryer would be. They argue that cigarette smuggling is such big business because of the high taxes imposed on them, which inevitably lead to a black market. "I don't think it's our responsibility to act as a policeman," Martin Broughton, chairman of British American Tobacco, said in an interview with NEWSWEEK. "High duties create the conditions for smuggling, not tobacco companies. …

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