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. Last Updated: 07/27/2016

EU: R.J. Reynolds Tied to Mob

LOS ANGELES -- The European Union accused tobacco giant R.J. Reynolds in a lawsuit Wednesday of selling black-market cigarettes to drug lords 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.

The suit filed 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 aided and abetted the criminals.

RJR officials "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.

Indeed, the suit continues the EU's legal assault on Reynolds and other tobacco companies that it claims have cheated member states of billions in taxes over the years, through collusion with smugglers.

The EU's earlier complaint against RJR and Philip Morris was dismissed in February by a federal judge in Brooklyn on the grounds 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 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 in the coming months.

The suit filed Wednesday lists bank accounts in Switzerland, Italy, Cyprus, Lichtenstein, 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 in order 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 new 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 lawsuit presents a purported marriage of convenience between tobacco officials 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 1990's 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 that 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 authorities 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."

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. The payments came from a company founded by Italian organized crime figures.

The suit also alleges that throughout the 1990s and continuing today, RJR has violated U.S. trade sanctions against Iraq by shipping billons of cigarettes into that country through intermediaries. According to the lawsuit, among those profiting from the trade is Uday Hussein, the son of Iraqi President Saddam Hussein.