EU sues U.S. tobacco firms over smuggling
BRUSSELS, Nov 6 (Reuters) - The European Union said on Monday it was suing U.S. tobacco giants Philip Morris and RJ Reynolds for their alleged involvement in smuggling cigarettes into the bloc.
The move by the EU's executive Commission adds to the legal woes faced by big tobacco companies which have been hit with huge punitive damages awards in the United States over smoking-related diseases.
Philip Morris, the maker of Marlboro, the world's best-selling cigarette, was not immediately available for comment.
RJ Reynolds, best known for its brands such as Camel and Winston, declined to comment on the lawsuit and said it was not involved in any smuggling activity.
The Commission said it had filed a civil lawsuit in a U.S. court on Friday evening under the U.S. Racketeering Influenced and Corrupt Organisation Act (RICO), a law originally enacted to fight organised crime.
``The Commission seeks compensation for financial losses the EU has suffered and injunctive relief in order to prevent further smuggling,'' EU Budget Commissioner Michaele Schreyer said in a statement.
The Commission declined to give details of the basis of its case, in what way the the companies were alleged to have been involved in smuggling or the level of damages it is seeking.
However, its choice of RICO is interesting. The law allows for triple damages if a defendant is shown to have engaged in a pattern of wrongdoing.
A number of tobacco firms already face a suit from the government of Ontario under the same law, alleging they hid the dangers of smoking in a widespread racketeering scheme.
Schreyer's spokesman confirmed the Commission was seeking both compensation for lost customs duties and VAT and injunctive relief from the judge at the U.S. District Court for the Eastern District of New York.
BILLIONS OF DOLLARS LOST?
Hinting at the size of damages the Commission would be seeking, the spokesman said the duty paid on each container of cigarettes imported into the EU was worth around one million euros ($866,600), adding up potential lost revenue of billions of dollars over the years.
The Commission said in July it planned to sue a number of U.S. tobacco companies in U.S. courts over alleged smuggling on the grounds that the bloc was losing tax revenues as a result.
It said cigarette smuggling was the biggest single fraud against the $95 billion EU budget. In some countries, contraband cigarettes account for 10 percent of sales.
Schreyer said that since July, she and Commission President Romano Prodi had been working with the Commission's legal experts on the case. ``The time has come to proceed,'' she said.
``The protection of the financial interests of the European Union is a high priority of the European Commission. The present case is a new step in our strategy to fight against fraud and financial irregularities,'' Schreyer added.
Italy's finance ministry said in a statement it would support the Commission's lawsuit, and Schreyer's spokesman Luc Veron said it was likely that other EU governments could lodge similar actions in the ``very near future''.
Britain said last week it had launched an official investigation into claims that British American Tobacco Plc was implicated in cigarette smuggling in Asia and Latin America in the early 1990s.
BAT said it was disappointed about the investigation and that it would cooperate fully with the investigators but would make no further comment during the investigation.
The group has said smuggling may have taken place but insisted that it would have happened without its permission and backing.