Export sales by RJR probed
A federal grand jury in Raleigh is investigating the export sales practices of R.J. Reynolds Tobacco Co.'s former international business, the company said in a filing with the Securities and Exchange Commission.
International smuggling operations are at the heart of the investigation to figure out whether tobacco companies broke federal laws to avoid paying taxes on cigarette exports, Newsweek magazine has reported.
The grand jury has begun issuing subpoenas for documents, RJR said in its filing. Company spokesman Carole Crosslin said yesterday that the company has a long-standing policy on not commenting on grand jury investigations. The U.S. attorney's office in Raleigh declined to comment as well.
The federal government began investigating international cigarette smuggling involving an RJR subsidiary, Northern Brands International, more than four years ago.
So far, the investigation has led to the conviction of one former executive, Les Thompson, who managed Northern Brands out of the company's North Main Street headquarters in Winston-Salem.
Before his arrest, Thompson was an RJR employee for 20 years.
After Thompson and Northern Brands pleaded guilty to charges related to smuggling cigarettes into Canada, Justice Department officials said they would continue investigating any possible role of RJR's leadership in cigarette-smuggling operations.
'It's safe to say that it (Northern Brands) did not come out of thin air,'' said James Robinson, an assistant attorney general in the Justice Department's criminal division at the time of the guilty plea.
Neither the U.S. government nor the Canadian government, which brought a $1 billion suit against RJR that was dismissed last month, have been able to prove that any of RJR's senior managers engaged in illegal conduct.
''No one in this company has ever been implicated or investigated in any way, shape or form in allegations of smuggling,'' said Andrew Schindler, the company's chief executive, at RJR's annual shareholders meeting in April of this year. RJR has suggested that Thompson acted alone in his smuggling activity. The company's international operations have been sold off to Japan Tobacco Inc.
In March 1999, Thompson pleaded guilty in U.S. District Court in Syracuse, N.Y., to defrauding the Canadian government out of $72 million in taxes.
He admitted he helped smugglers sell $700 million in cigarettes through the St. Regis Mohawk Reservation on the Canadian border in northern New York.
Thompson is serving a six-year sentence in federal prison.
Four months earlier, Northern Brands admitted helping the smugglers and paid $15 million in fines and forfeitures.
In an interview that aired in January on 60 Minutes II, Thompson said that RJR management created Northern Brands strictly to smuggle cigarettes.
''RJR makes a conscious decision to enter the illegal cross-border business,'' Thompson said in the interview. There is ''no question'' it was a corporate decision, he said. In 1993, Northern Brands averaged $1.3 million a week in profits, Thompson said, and it was the single-most profitable business unit in RJR Nabisco. He said that RJR made $100 million from the defunct subsidiary.
In addition to Canada, other countries have filed lawsuits against U.S. cigarette-makers, including Colombia and Ecuador.
In July, the European Union said it would file a civil suit seeking damages caused by U.S. tobacco companies' involvement in smuggling.
Canada said it would appeal a U.S. District Court's dismissal of its suit alleging that RJR smuggled cigarettes into Canada through an Indian reservation to avoid paying taxes.
In the dismissal, Judge Thomas McAvoy of U.S. District Court ruled that American courts have no jurisdiction, citing U.S. common law that prohibits using federal courts to collect another country's revenue.