Brussels Sues Us Tobacco Giant for Money Laundering

The fight against cigarette smuggling took a new twist yesterday after the European commission accused RJ Reynolds, the world's second largest tobacco company, of selling black-market cigarettes to drug barons and mafiosi and of knowingly accepting the proceeds of crime.

In a civil lawsuit, filed in New York, the commission, together with ten EU member states (although not Britain) , claimed Reynolds was guilty of money laundering "at the highest corporate level" and said it had lost "hundreds of millions of euros" due to the practice which dates back a decade.

Reynolds, now owned by Japan Tobacco, said: "We operate our business in a legal and responsible manner. Any allegations that we were involved in, or aware of, money laundering, conspiracy or any other illegal activities are completely absurd. We believe this suit should be dismissed as were the two other EU cases filed in a US court."

However, detailed commission claims allege that Reynolds worked hand in glove with the criminal underworld in central and eastern Europe, accepting "dirty money" knowing full well that many of the cigarettes it sold would be smuggled into the EU. Some of the cigarettes also allegedly ended up in Iraq, through in termediaries in Panama, Switzerland, Cyprus, Turkey, Montenegro and other countries, it added. Reynolds' brands include Camel and Winston.

The suit, details of which are available on the internet, alleges that Reynolds made it "part of their operating business to sell cigarettes to and through criminal organisations and accept criminal proceeds in payment for cigarettes by secret and surreptitious means".

The complaint goes on to detail Reynold's allegedly corrupt business practices in Europe and Latin America, including with members of the Italian and Russian mafias, Columbian drug cartels and senior govern ment figures in the Balkans.

It says its proof comes from "shipping papers, witness statements and customs documents", and argues that Reynolds officials knew exactly what they were doing.

In Brussels the commission said it had little choice but to bring the lawsuit."Protecting the financial interests of the European community and fighting money laundering and fraud remain a top priority for the European commission," said Michaele Schreyer, the EU budget commissioner.

He also hinted that similar action against Philip Morris and Japan Tobacco was in the pipeline. In August of last year the commission opened a case against those two companies and Reynolds, complaining they were complicit in cigarette smuggling and demanding compensation for lost tax revenues. However, that case was thrown out of a US court which said that the recovery of such funds was out of its jurisdiction but is under appeal.

The allegation then was that the trio were boosting their profits by deliberately oversupplying some countries so that their product could be smuggled into the EU.

Cigarette smuggling constitutes the biggest single fraud against the EU budget, with a single container of cigarettes costing the EU almost €1m (£610,000) in lost tax. The commission's latest attempt to crack down on cigarette smuggling is supported by Italy, Germany, France, Spain, Portugal, Greece, Belgium, the Netherlands, Finland and Luxembourg.