EU Alleges Mob Ties to Tobacco
The European Union accused tobacco giant R.J. Reynolds in a lawsuit Wednesday of selling black-market cigarettes to drug traffickers and mobsters, helping them launder profits from their illegal activities.
The 149-page complaint describes in detail Reynolds’ allegedly corrupt business 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.
RJR executives “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 Wednesday, and RJR spokesman Seth Moskowitz said the company could not fully respond before reviewing it. “However, at first glance it appears that this complaint is related” to a case “which has been dismissed,” Moskowitz said.
The suit continues the EU’s legal assault on Reynolds and other tobacco companies that it claims have cheated member states of billions of taxes over the years through collusion with smugglers.
The EU’s earlier complaint against RJR and Philip Morris Cos. was dismissed in February by a federal judge in Brooklyn, N.Y., on grounds that it was barred by the “revenue rule,” a centuries-old common-law doctrine that generally prohibits foreign governments from collecting tax defaults through U.S. courts. The EU has appealed the dismissal.
In dismissing the case, U.S. District Judge Nicholas G. 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 file a similar suit against Philip Morris and Japan Tobacco Inc. in the coming months.
The suit filed Wednesday 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 allegedly aided and abetted the criminals.
The lawsuit 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 the company was going to receive payments from illicit sales to escape detection by U.S. law enforcement. “This process was known within RJR as ‘musical banks,’ ” according to the suit.
In contrast to the earlier suit, the complaint does not seek recovery of lost tax revenue or customs duties, because the judge found such claims were barred. Instead, it seeks 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 executives seeking to expand their markets 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 asserts.
Similarly, the suit contends that RJR cigarettes are used as a money-laundering vehicle for heroin sales in the European Community.
The allegations are unusually stark and detailed, in contrast to many civil lawsuits that lay out charges in a general form with few specifics.
The suit was filed by three U.S. law firms, but they drew upon information gathered by law enforcement 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,” the suit states.
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 Montenegro, Milo Djukanovic, and the deceased former head of the Montenegro’s Foreign Investment Agency, Milutin Lalic.
The suit says payments 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 says RJR executives 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 to this day, 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, the 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.
For most of this time the cigarettes followed a circuitous route from an RJR plant in Puerto Rico to European ports, and on through Cyprus to Turkey, where they were trucked across the border into Iraq, the suit states.
Although Japan Tobacco acquired RJR’s international business for $8 billion in 1999, the lawsuit says RJR remained involved in this trade at least through May 2001 under a “transitional services agreement” with Japan Tobacco.
The allegations of illegal trade with Iraq also are the subject of a criminal investigation by U.S. authorities. As The Times reported in May, the probe is being conducted by the U.S. Customs Service and the U.S. attorney for the Southern District of New York.
One of the most stunning allegations in the suit was that RJR entities participated in and “received the proceeds of a massive money-laundering scheme through the Bank of New York.” That bank was at the center of a federal investigation of Russian money laundering in the U.S. in the 1990s, which led to indictments and guilty pleas of a bank vice president and her husband. But until this suit was filed, there never had been any public allegation that RJR was connected to this scandal.
According to the new suit, the money-laundering scheme was created by Russian organized crime, including narcotics traffickers. In the scheme, a group of bank entities, some legitimate and some fabricated, opened correspondent accounts with the Bank of New York. Through the correspondent banks and the Bank of New York, the suit alleges, Russian criminals were able to launder hundreds of millions of dollars.
“The RJR defendants were the prime beneficiaries of this money-laundering enterprise,” receiving millions of dollars per month in payments through the Bank of New York that constituted the proceeds of Russian organized crime, including narcotics trafficking, the suit alleges. EU lawyers contend that RJR executives “knew or should have known” that the money RJR was receiving through the bank was the fruit of illicit enterprises and was being illegally laundered.
“In spite of this fact,” RJR continued for years to sell cigarettes to these customers and received criminal proceeds in New York, the suit alleges.
The suit contends that RJR executives at all times “were well aware that they were laundering the proceeds of criminal activities” and that they went to great lengths to conduct these activities in a surreptitious manner.
