Taking It to Court

US law enforcement has little leverage over US corporations overseas, and no legal action was taken against the cigarette companies. In May 2000, frustrated by the continuing flow of smuggled cigarettes into the country, twenty-two Colombian states and the city of Bogotá filed a lawsuit against Philip Morris and BAT in New York federal court, alleging various violations of US law, including fraud, smuggling, money laundering and contraventions of the RICO act. The suit accuses the companies of "orchestrating and profiting from" the smuggling of cigarettes on a massive scale. It alleges that the companies were involved in shipping and distributing cigarettes that evaded customs duties and other taxes; that they disguised and moved the ill-gotten profits back to the United States, which constituted money laundering; and that cigarette smuggling was used in the laundering of Colombian drug profits. It was, says José Manuel Arias and other Colombian officials, the publicity from the lawsuit that prompted the cigarette companies to strike the deal with DIAN and stanch the flow of cigarettes passing illegally into Maicao. (Putting further pressure on the companies, last year the Colombian Congress passed a law mandating that their advertising expenditures cannot exceed the amount of their legal imports.)

According to Arias, Philip Morris lobbied every Colombian governor against signing on to the lawsuit, to little avail. But the company's lobbying of the national government did bear fruit: President Pastrana refused to sign on the national government, even though millions of dollars yearly in customs duties were allegedly diverted from the national treasury. (As it happened, back in Washington, Philip Morris emerged as one of the few nonmilitary companies to lobby heavily on behalf of Plan Colombia when it was winding its way through Congress.)

Six months after the Colombian filing, the European Union and ten European governments sued Philip Morris and RJ Reynolds on essentially the same grounds. Last August, after a federal court judge ruled that the EU was an inappropriate body to bring the suit, it was refiled by the ten European countries, including France, Germany, Spain, Belgium, the Netherlands, Greece and Italy.

While technically distinct, the Colombian and European cases are being argued in parallel. The cases are the first in which a phalanx of foreign governments are pitted against a trio of corporate powerhouses, and will be a significant test of whether US corporations can be held accountable when they run afoul of US and foreign law in their overseas operations. At a time when the fates of national economies are ever more intertwined, the cases promise to establish important precedents in the realm of international law governing corporations. "We are looking," says attorney Carlos Acevedo, "for the legal system to embrace the challenges of the modern globalized economy, in which production and distribution facilities have been flung far and wide across the globe."

In the long run, the companies could face repercussions from this legal offensive that are even more severe than the historic $200 billion-plus settlement with the US states of four years ago. That legal crusade hinged on the companies' knowledge of the harmful effects of cigarettes. This time, the companies could face not only hundreds of millions in damages but criminal charges for smuggling and money laundering.

Thus far, the plaintiffs have suffered some setbacks. On February 19 a district court judge found in favor of the companies' argument that a common-law precedent dating from the eighteenth century, known as the "revenue rule," prevents US courts from adjudicating disputes over uncollected foreign taxes. On March 25 the Europeans and Colombians announced their intention to appeal that decision. The judge didn't block them from pursuing the case on the money-laundering allegations, which they intend to do in a separate filing. But the plaintiffs' prospects would now be considerably brighter if the tobacco companies had not engineered an audacious reshaping of the USA Patriot Act to prevent them from acquiring a potent new legal tool.

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