Canada Sues RJR, Alleging Smuggling

The government of Canada sued R.J. Reynolds Tobacco Holdings Inc. for $1 billion Tuesday, charging that it and related companies conspired to smuggle tobacco products into Canada to avoid millions of dollars in taxes.

The lawsuit, filed in U.S. District Court in Syracuse, N.Y., alleges the companies set up an elaborate network of smugglers and offshore companies to flood Canada with cheap cigarettes after the government doubled taxes and duties on tobacco in 1991.

“The tobacco companies cannot and will not be permitted to frustrate public policy in Canada, and that in large part is what this lawsuit is all about,” Canadian Health Minister Allan Rock said.

Seth Moskowitz, a spokesman for R.J. Reynolds Tobacco in Winston-Salem, N.C., said company officials could not comment until they had seen the lawsuit.

The suit alleges that R.J. Reynolds companies set up a shell company in the United States--Northern Brands International--to protect itself from charges that it sold to smugglers.

The suit also alleges that a Canadian subsidiary of Reynolds, RJR-Macdonald Inc., used the Canadian Tobacco Manufacturing Council, a trade group, to blame organized crime for the smuggling while pretending it was trying to stop the activity.

The suit was filed under the federal Racketeering Influenced and Corrupt Organizations Act, known as RICO, a law originally aimed at mobsters.

The lawsuit was filed a day after a former tobacco company executive was sentenced to nearly six years in prison for supplying a New York smuggling ring with millions of cigarettes that he knew would wind up on the Canadian black market.

Canadian officials in Ottawa allege that high-level executives were involved in encouraging and authorizing the smuggling conspiracy. No executives were identified.

From 1989 to 1992, Canada implemented tobacco tax increases to raise revenues, responding to demands by anti-tobacco and health groups.