Our troops are coming!

The U.S. anti smuggling “Task Force” joins the battle against U.S. tobacco companies

Custer's Last Battle

Custer's Last Battle

On April 26th 2005, the U.S. Supreme Court breathed new life into the European Union lawsuit that accuses U.S. tobacco companies of being actively involved for many years in smuggling contraband cigarettes into the EU.

In August 2001 the EU had tried to recover BILLIONS in tax revenue lost on smuggled cigarettes, from RJ Reynolds and Phillip Morris. However, the U.S. judge explained that, based on the “Revenue Rule”, he did not have jurisdiction over the collection of foreign taxes, in other words, the smuggling claims.

The “Revenue Rule” is a longstanding common law doctrine, which provides that a Court in America will not enforce tax claims of other sovereign States. Stated very simply, a U.S. Court could not take legal action in contraband issues involving the activities of American companies in other countries.

But on last April 26th here came the counter-order: the Supreme Court said that a provision of the U.S. common law does not prevent the use of federal courts to litigate over foreign tax matters involving commerce.

So now the European Union suit against US tobacco companies can be revived … right there, in USA!

It all began with a telephone call …

David Pasquantino and his brother Carl began smuggling cheap booze into Canada to sell on the black market when Canada hiked up the taxes on alcohol to 83 percent, as opposed to 44 percent in the United States.

The brothers and their drivers thought they could get away with it thanks to the "Revenue Rule", but on Nov. 9, 2004 they were charged in a U.S. court with violating the federal wire-fraud statute.

The government alleged that they broke this law by arranging to buy and transport cheap hooch with phone calls, therefore, their fraudulent conduct constituted “property” for purposes of the federal wire-fraud statute.

This was not a suit that recovered a foreign tax liability, but it was a criminal prosecution brought by the United States to punish domestic criminal conduct. The “Revenue Rule” obstacle, then, had been overcome and the Pasquantino brothers and their drivers were condemned.

Last April 26th the Supreme Court, in light of the Pasquantino case, decided to revive the lawsuit for the illegal activities of Big Tobacco in Europe. The decision appears to follow the same principle: American cigarette manufacturers have very probably used the American telephone network to make some phone calls …

“Modern limits”

“Big Tobacco brands have been propelled into every corner of the world … smuggling has enebled tobacco companies to compete with local brands and to estabilish internationally recognizable brands”. – World Health Organization

World Health Organization Assembly

World Health Organization Assembly

In May 2000, in a suit against RJ Reynolds for contraband in Canada, U.S. Judge Thomas McAvoy issued a 55-page ruling stating that U.S. courts have no jurisdiction in such matters. The revenue rule, he wrote in his ruling, may be outdated in this era of closely linked economies and tax treaties, but it remains a founding principle of American law.

Today, after decades of smuggling by prevalently American companies, the authorities are finally trying to define what should be the proper “modern limits” on the application of the “Revenue Rule”. Might this be the year that the Court will finally look at whether criminal law should apply to extraterritorial cases?

There are four other cases underway, but these cases have not yet produced appellate court decisions. These are lawsuits initiated by Colombia, Canada, Ecuador, Honduras and Belize, against Philip Morris, RJ Reynolds and B&W.

But actually the number of cases of market penetration by smuggling, for which there is rich documentation, are many more, and they see the same companies at work in the third world countries of Latin America, Europe and Asia; almost everywhere.

“… In accordance with longstanding principles”

In February 2002, when a federal judge dismissed lawsuits brought by Ecuador, Belize and Honduras against U.S. tobacco companies, William Ohlemeyer, Philip Morris vice president and associate general counsel said:

William Ohlemeyer

William Ohlemeyer

“We are pleased that the court dismissed these lawsuits in accordance with longstanding principles followed in this country and throughout the world”.

This was just another case of Big Tobacco's lack of far-sightedness, thinking that “longstanding principles” can persist unchanged to eternity.

What a contrast with their clever, subtle advertising campaigns!

More info

  • May 10th, 2005

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