R.J. Reynolds' Smoking Gun
Once a month for many years, a group of travelers bribed their way into Colombia via a remote border crossing from Venezuela, met with their contacts and then bribed their way home, the better to leave no record of the trip in their passports.
The illicit commodity they were trading was not cocaine, as might be expected, but cigarettes.
So contends a lawsuit filed last month in a U.S. court by the European Union. According to the suit, the clandestine travelers were employees of companies affiliated with R.J. Reynolds Tobacco Co. Their goal, the EU says, was to receive cash for their products without revealing that the source of the money was the narcotics trade.
These and a host of similar allegations are at the heart of the EU suit, which maintains that Reynolds, the world's second-largest tobacco company, has been complicit for years in a worldwide money-laundering system in which cigarettes are as important a currency as the U.S. greenback.
The notion that black-market cigarettes can cause big problems isn't new. According to some health and law enforcement officials, as many as a third of all cigarette exports wind up being sold on the black market, cheating governments of tax revenue and encouraging smoking by keeping cheap cigarettes available. U.S. states with high tobacco taxes find themselves similarly victimized by cigarette smugglers.
But the EU suit adds a fresh twist to the concept of cigarette smuggling that goes way beyond simple tax evasion. The allegations, say money-laundering experts here and abroad, underscore the role that cigarettes -- ubiquitous, easily transportable commodities usually bought and sold for cash -- have come to play in lubricating the movement of capital for drug traffickers, tax evaders, terrorists and others who need to conceal the sources of their funding.
"This complaint has described, chapter and verse, a blatant conspiracy," said Charles Intriago, a Miami lawyer and publisher of the newsletter Money Laundering Alert.
The EU's lawsuit, filed Oct. 31 in federal court in Brooklyn, New York, links Reynolds with money-laundering networks serving not only Latin America but also Italy, Spain, Russia, the Balkans, Britain and Iraq -- where it is allegedly overseen by Saddam Hussein's son, Uday Hussein.
It also alleges that cigarettes were at the center of the infamous Bank of New York money-laundering case of 2000, in which two top bank executives have pleaded guilty to helping launder billions of dollars for organized crime figures in Russia.
Secret Bank Accounts
Bebeto Matthews / AP
The suit contends that billions of dollars were funneled through the Bank of New York by the Russian mafia.
In copious detail, the suit describes stratagems RJR allegedly employed to distance itself from criminal partners, including eradicating identification numbers from illicit shipments, using secret bank accounts and third-party checks and establishing intermediary companies through which to do business.
Reynolds spokesman Seth Moskowitz recently reiterated the company's position that "any allegations we were involved in, or aware of, money laundering, conspiracy or other illegal activities is completely absurd."
Reynolds officials also have noted that the U.S.-based RJR Tobacco companies currently have no international operations. The companies' parent, RJR Nabisco, sold its foreign distribution business in 1999 to Japan Tobacco Inc., which is majority-owned by the Japanese government.
What's more, RJR has pointed out that many of the allegations mirror those in a lawsuit the EU brought against the company in 2000. That case was dismissed by a federal judge in February on grounds that its claim of European tax evasion by RJR lay outside the jurisdiction of U.S. courts.
Still, experts in tobacco litigation say last month's EU lawsuit -- which is designed to supplant the one that was dismissed -- opens a new front in the courtroom war against Big Tobacco.
In June, a federal jury in Charlotte, North Carolina, convicted two Lebanese brothers of participating in an illegal multimillion-dollar operation to smuggle low-tax cigarettes out of North Carolina and to divert some of the profits to Hezbollah, a Lebanese terrorist group that was blamed for the 1983 bombing of the U.S. Marine barracks in Lebanon that killed 241 Americans.
But the EU case, notably, is aimed not at the smugglers but at the tobacco industry.
"These are the most serious and far-reaching allegations ever made against any domestic U.S. corporation," said David Vladeck, a law professor at Georgetown University and director of the Public Citizen Litigation Group, which has represented public health groups in lawsuits against the tobacco industry. "According to this complaint, RJR is at the nerve center of an enormous international operation that has far-reaching and detrimental impacts throughout the U.S., Western Europe and South America."
Vladeck said that the stature of the plaintiffs lends credibility to the charges. "Remember, these are not individuals making these allegations. These are the nations of Belgium, Spain, Italy ... foreign sovereigns."
If the allegations are true, Vladeck added, they would raise serious questions for U.S. officials. "If RJR cigarettes really are the currency of international money-laundering rings," he asked, "how did this escape the attention of the U.S. government?"
The Russian Connection
Perhaps most striking are the allegations the EU makes about RJR's relationship with a Russian money-laundering network that funneled billions of dollars in illicit transfers through the Bank of New York in the 1990s.
Those transfers sparked one of the largest money-laundering investigations in history and in February 2000 led to guilty pleas to federal charges by Lucy Edwards, a Russian-born Bank of New York executive, and her husband, Peter Berlin. (Neither has been sentenced and both are said to be cooperating with authorities.)
But that investigation was premised on the assumption that the transfers were principally aimed at evading Russian taxes and spiriting capital out of the foundering country. Before the EU's suit, the transactions were never before tied to cigarette smuggling or to any other aspects of the tobacco trade, experts familiar with the case said.
"Cigarettes did not form a basis to the charges to which Berlin and Edwards pleaded and were not part of the charges by the government," said T. Barry Kingham, the couple's New York attorney. But he said he has not been privy to the couple's subsequent debriefings by federal officials.
The European Union, however, labels RJR subsidiaries the "prime beneficiaries" of the money-laundering system set up by Russian mobsters through the Bank of New York.
The lawsuit cites, for example, a string of transfers to R.J. Reynolds Tobacco International totaling more than $4 million from May through July of 1997. The transfers were ordered by Sinex Bank, which was incorporated the previous year in the Pacific Island of Nauru, then a known money haven, by Russian traders eager to spirit their capital out of Russia. They were then routed through the Bank of New York via another correspondent bank and ultimately to RJR, the EU contends.
The European Union maintains that this method of payment should have raised RJR's suspicions that its buyers were not legitimate businessmen.
"No legitimate purchaser of cigarettes would be ordering payment ... through Sinex Bank," the complaint states. Further, it alleges, the invoices received for the cigarettes named Sinex, a tiny bank operating offshore, as the "ordering customer" -- a scenario so unlikely that it should have alerted RJR that Sinex was masking the identity of the true customers.
The EU suit alleges other, more immediate, contacts between RJR officials and drug traffickers.
In October 1992, it says, John Dyson, whom the complaint identifies as RJR Tobacco International's Miami-based Latin America sales manager, "traveled to Aruba to establish direct contacts between RJR distributors and Colombian narcotics money-laundering organizations."
Dyson, the EU says, arranged for RJR's Aruba distributor to sell cigarettes to a Spanish company that would pay with the proceeds of narcotics sales collected in Medellin, Colombia, the base of one of the most notorious cocaine cartels. The arrangement was so delicate, the complaint alleges, that the Aruba distributor warned Dyson that RJR would be charged for the "additional costs" of handling drug money.
The RJR spokesman declined to comment on the allegation or to confirm whether Dyson was now or ever had been employed by the company. Dyson could not be reached for comment.
In any event, the EU complaint does not make clear whether Dyson knew that the ultimate source of payment to RJR was drug money. Legal experts say making that final connection may be the European Union's hardest task.
"The Achilles' heel of the complaint, if there is one, is that the plaintiffs have to prove that RJR was doing more than selling cigarettes to anyone who would buy them," said Georgetown University's Vladeck. "The one thing that is crucial here -- and will be highly contested by the corporation and may prove difficult to establish in court -- is that RJR knew its cigarettes were being used as the currency for international drug trafficking and money laundering."
The EU complaint does argue, however, that RJR's distribution deals with illicit partners differed materially from those with legitimate distributors, an indication that the company may have made the distinction.
Shipping companies hired by RJR in Belgium and elsewhere, the complaint alleges, were given special handling instructions for customers that RJR knew were "involved in criminal activities." These allegedly included special fax numbers for invoices and specific RJR employees permitted to handle shipment documents, as well as the use of numbered bank accounts that could not easily be traced to RJR.
In some cases, the suit alleges, RJR repeatedly changed the banks through which it received payment to evade detection by the U.S. government -- a process the EU says was known within the company as "musical banks."
Other instructions included orders that the master cases -- containers of 10,000 cigarettes each -- should be "neutralized and decoded," meaning that marks and numbers allowing the containers to be traced and tracked should be removed, the suit alleges.
The suit also contends that RJR and its co-conspirators used "an organized group of money couriers whose function was to receive criminal proceeds in Italy and other parts of the European Union and to illegally ferry those proceeds out of Italy and the European Community to Switzerland, where the couriers would hand the cash proceeds" to Swiss money-laundering organizations.
In addition, the suit alleges that throughout the 1990s, RJR employees traveled to the warehouses of criminal organizations to inspect cigarettes, "ensure freshness, replace damaged goods, and provide other services for these criminal organizations just as they would any other customer."
RJR, the European Union maintains, "knew, or but for their willful blindness would have known, that their customers were organized criminal organizations."