Pleads Guilty To Cigarette Smuggling
By CHRISTOPHER DREW
A unit of the RJR Nabisco Holdings Corp. pleaded guilty on Tuesday to federal
criminal charges stemming from a scheme to smuggle cigarettes into Canada
through an Indian reservation in upstate New York and agreed to pay $15
million in penalties.
The authorities said the guilty plea, filed in Federal District Court in
Binghamton, N.Y., marked the first time that a tobacco company has been
convicted of complicity in the shadowy and growing world of international
Experts estimate that nearly one-fourth of the billions of American cigarettes
sold overseas pass through smuggling rings set up to evade taxes and sell
major brands at a discount. Critics have long contended that this trade could
not go on without the industry's knowledge and support.
But while previous criminal investigations have led to charges against several
mid-level managers, top executives at the large, multinational tobacco
companies have always denied allegations that they encouraged or condoned any
dealings with the contraband rings.
In entering the guilty plea, the RJR Nabisco subsidiary, Northern Brands
International Inc., admitted that it helped distributors evade $2.5 million in
U.S. excise taxes on shipments that, the authorities said, were ultimately
smuggled into Canada to avoid high taxes on cigarettes there.
But the company's plea also could have sweeping repercussions in Washington,
where Congress has debated whether to raise the taxes on domestic cigarette
sales to discourage smoking.
Industry executives have argued that any significant increase in the taxes
would immediately create a black market for cigarettes in the United States,
much as it did in Canada.
But the guilty plea "shows that the emperor doesn't have any clothes in making
that argument," said Gregory N. Connoly, the director of the Commonwealth of
Massachusetts' Tobacco Control Program.
"The companies have always said that they are not directly involved, and they
have used the threat of smuggling to dissuade Congress from raising the
taxes," he said. "But now we have evidence that the industry is complicit with
organized criminals when it comes to smuggling."
Thomas J. Maroney, the U.S. attorney in Syracuse, N.Y., said the four-year-old
investigation was continuing. But he declined to say whether any high-level
officials at RJR Nabisco's main tobacco operation, R.J. Reynolds Tobacco Co.,
or other tobacco companies were under scrutiny.
Top executives and spokesmen at R.J. Reynolds, based in Winston-Salem, N.C.,
could not be reached for comment on Tuesday night. But Maroney said that the
company had agreed to cooperate with investigators and had taken steps to
insure that similar violations do not happen again.
Bloomberg News quoted a R.J. Reynolds lawyer, C. Stephen Heard Jr., as saying
that the company "regrets this episode." According to the news service, Heard
said that Northern Brands' actions were "inconsistent with the way Reynolds
does business" and that Reynolds had closed Northern Brands.
The charges against Northern Brands arose from an investigation that has led
to guilty pleas by more than 20 people involved in smuggling hundreds of
millions of dollars worth of alcohol and cigarettes into Canada.
Court documents released during the investigation showed that R.J. Reynolds,
the second-largest American cigarette maker next to the Philip Morris Cos.,
sponsored trips to a luxury Canadian fishing resort for several distributors
who lived in upstate New York and smuggled cigarettes into Canada. One R.J.
Reynolds sales manager even joked with the dealers about the smuggling, the
The smuggling took off after Canada raised taxes in the 1980s and the early
1990s to discourage cigarette consumption, one of the first countries to try
this approach. The taxes did not apply to exports, and affiliates of the three
biggest companies -- Philip Morris, R.J. Reynolds and BAT Industries PLC --
started shipping large amounts of Canadian brands, like Players and Export A,
to the United States even though few Americans smoke them.
Maroney said that without paying either the Canadian or the American taxes,
distributors then moved the cigarettes back into Canada through the St. Regis
Mohawk Indian Reservation in upstate New York, with the help of some Indian
leaders who also have been convicted in the case.
In Tuesday's guilty plea, R.J. Reynolds' Northern Brands unit admitted to
participating in one crucial part of the scheme.
NEW YORK TIMES, (12/23/98)"RJR Subsidiary Pleads Guilty To Smuggling",
Christopher Drew, p. A1
1998 -- All Rights Reserved|