Patriot Games

Roused into action by the terrorist attacks on September 11, Congress rushed to tighten US laws governing money laundering and smuggling and to require transparency among financial institutions in order to strike at the means by which terrorists generate funds through illicit financial enterprises. In the original House version of the Patriot Act, introduced on October 3, and then known as the Financial Anti-Terrorism Act, Section 107(b) expanded the definition of money laundering to include "fraud or any scheme to defraud against a foreign government or foreign government entity, if such conduct would constitute a violation of this title if it were committed in interstate commerce in the United States." The Justice Department had asked for that section to strengthen its hand in pursuing legal prosecutions for money laundering--but the section would also have established the jurisdiction of US courts over precisely the sort of activity of which the tobacco companies now stand accused.

At the time, the tobacco companies were facing legal assaults on several fronts. The government of Canada was preparing to appeal a lower-court decision that threw out its case accusing RJ Reynolds of evading $1 billion in taxes by smuggling cigarettes into Canada. And the Colombian and European RICO cases were on the docket at federal district court in New York. The provision would have provided clear legal standing to the plaintiffs in those lawsuits. But on October 11, with the country still reeling from the attacks one month before, GOP Representative Michael Oxley of Ohio, chairman of the House Financial Services Committee, undermined the Justice Department's original request and removed the provision before the committee hearing. He undertook that maneuver at the behest of the White House, according to a Congressional source close to the negotiations.

"The tobacco companies didn't care that in striking that provision they might have opened the American people to greater risk of a terrorist attack and funding terrorist groups that might attack our own people," comments Congressman Henry Waxman, a leading antagonist of the tobacco industry in Congress. "They wanted to make sure that that provision would not have been interpreted to give standing to these foreign countries." Philip Morris does not dispute the latter point, but in a letter insisted the changes were supported by "the business community at large," which has long been concerned with such matters of foreign liability, and vigorously denied that the change would hamper "the government's ability to bring suits to combat terrorism."

According to one Waxman staffer, in Congress the tobacco companies took a "belt and suspender" approach to the Patriot Act in an effort to insulate their international operations from legal challenges in US courts. The "belt"--Section 107(b)--was what Oxley removed from the act. The "suspenders" came late at night on October 16, when Chairman Oxley inserted a provision in the bill after it had been debated and approved by the full committee. Oxley's addendum specifically blocked any expansion of jurisdiction for US courts to hear civil claims for damages from foreign nations seeking compensation for violations by US corporations of foreign tax laws. The measure had the support of the White House and the top Republican leadership, including House majority leader Tom DeLay, according to a report by the Center for Public Integrity's International Consortium of Investigative Journalists. On the morning of the 17th--an infamous day, as the anthrax scare jumped from the Senate to the House, where members prepared to evacuate--the Financial Anti-Terrorist Act passed overwhelmingly in the House, including the new provision that would get the companies off the hook.

But staff aides to Waxman and Massachusetts Democrat Martin Meehan caught wind of the change. They alerted the Campaign for Tobacco Free Kids, which concluded in a memo that the only relevance of the provision was to "the...currently pending lawsuits...brought by Canada, the European Union and several Latin American countries...against major U.S. cigarette companies.... And the only future lawsuits likely to be affected would be similar lawsuits directed at the U.S. cigarette companies' involvement with international cigarette smuggling."

When the bill reached the Senate, there was outrage at what Senator Patrick Leahy described as the attempted "carve-out of tobacco companies from RICO liability for foreign excise taxes." Senator Paul Sarbanes, chairman of the Banking Committee, removed the offending passage from the bill. On the day it passed the Senate, Massachusetts Senator John Kerry, a longtime advocate of tighter money-laundering laws, introduced a statement into the Congressional Record clarifying that the law could be used to pursue the sort of legal challenges now faced by the tobacco companies: "It is the intent of the legislature that our allies will have unimpeded access to our courts and the use of our laws if they are the victims of smuggling, fraud, money laundering or terrorism." On October 26, the Patriot Act was signed by President Bush without Oxley's language.

While the "suspenders" in the tobacco industry's offensive were gone, however, the "belt" remained--a narrowed definition of money laundering that denied future and current plaintiffs against the tobacco industry an important legal instrument. "What was left out," says an infuriated Waxman aide, "was far more important than what was not put in." As Richard Daynard, director of the Tobacco Litigation Center at Northeastern University, says, "The bill as originally drafted would have made the tobacco companies a lot more vulnerable to the [money laundering] charges."

As in Colombia, those who argued on behalf of the tobacco industry were also major recipients of the industry's largesse: A report by the Campaign for Tobacco Free Kids reveals that Republicans received 82 percent of the more than $18 million that the tobacco industry has poured into political campaigns since 1997. Oxley himself has received $34,300 from the tobacco industry since 1999, both for his political campaigns and his PAC, Leadership 2000, and he held a party at the 2000 Republican convention that was paid for partly by Philip Morris.

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