Tobacco Manufacturers Win Smuggling Appeal
Tobacco manufacturers have won an appeal challenging lawsuits by the governments of Belize, Ecuador and Honduras that claim the companies conspired to smuggle cigarettes into their countries to boost profits and evade taxes.
The racketeering suits against Philip Morris USA Inc., R.J. Reynolds Tobacco Holdings Inc., Brown & Williamson Tobacco Corp., Lorillard and Liggett boil down to attempts to enforce foreign tax claims in U.S. courts, the U.S. 11th Circuit Court of Appeals decided, upholding an earlier ruling by a Miami federal judge throwing out the lawsuit.
The court ruled that the strategy violates 18th century English common law and cannot be pursued. The ruling Friday did not address whether the companies smuggled cigarettes.
“It shows that U.S. courts are simply not in a position to and are not going to enforce foreign governments’ tax laws,” attorney Ken Parsigian, who argued the case for the cigarette makers, said Monday. “That’s a matter of international relations.”
The countries claimed that cigarette makers created black markets for their products or engineered more complex multi-country trade to insulate themselves from taxes.
Ecuador’s government, for example, said Philip Morris rerouted cigarettes through Belgium and Panama and that a Reynolds subsidiary sold to distributors who misused free trade zones in Aruba and Panama.
Joel Perwin, attorney for the foreign countries, said an appeal was possible.
A similar appeal based on the common-law revenue rule is pending before the federal appeals court in New York in a lawsuit by the European Union.
Various countries have been trying to find ways to make U.S. cigarette makers financially responsible for cigarette smuggling.
The Canadian government is pursuing criminal and civil claims in its country’s courts against cigarette makers after losing in U.S. courts.
In May, the World Health Organization adopted a sweeping treaty in a global push to regulate tobacco.
It provides for, among other things, tougher international measures against cigarette smuggling and espouses manufacturer liability.
Meanwhile, municipal bonds backed by tobacco company payments began to fall Monday after an Illinois court on Friday again ordered Philip Morris to pay $12 billion to appeal a judgment won by smokers of “light” cigarettes.
