PHILLIP MORRIS ACCUSED IN SMUGGLING SCHEME

Lawsuit: Colombian States Say Tobacco Giant Engaged In Other Illegal
Acts, Including Wire Fraud And Money Laundering.

Philip Morris engaged in a sophisticated conspiracy to smuggle
cigarettes into Colombia for a decade, defrauding 22 Colombian states
out of billions in tax revenue, according to a lawsuit filed in
federal court in Brooklyn.

The lawsuit contends that Philip Morris, the world's largest cigarette
maker, engaged in a host of illegal acts including smuggling, wire
fraud, money laundering, and the creation of a labyrinth of
third-party payments and Swiss bank accounts in order to hide the
illegal acts. The company also maintained relations with drug dealers
as part of the smuggling operation, according to the suit. Filed on
behalf of 22 Colombian states and the city of Bogota by a New York law
firm that specializes in complex civil litigation, the suit contains
some of the most stark charges ever made about a cigarette company and
is likely to intensify concern about international cigarette smuggling.

The suit cites court records and industry documents in an attempt to
buttress the allegations. Sources said the plaintiff's lawyers also
have used private investigators to develop evidence.

"The Philip Morris defendants created a circuitous and clandestine
distribution chain for the sale of cigarettes in order to facilitate
smuggling within the departments of the Republic of Colombia,"
according to the complaint lodged May 19 and made public Wednesday by
Speiser, Krause, Nolan & Granito. "The decision to establish and
maintain the distribution chain was made at the highest executive
levels of the Philip Morris defendants," the suit alleges.

Five Philip Morris entities--including the parent company, the
international division and the company's Latin American sales
corporation--are named defendants.

Philip Morris attorney Michael York branded the suit "pretty wacky.
There really is no factual or legal basis for the claims in this lawsuit."

The suit contends that Philip Morris' goal was to increase its market
share and profit while evading taxes. In addition to losing tax
revenue, Colombian officials have expended large sums of money in
unsuccessful efforts to stop smuggling, according to the suit, which
states that a border guard station "was destroyed by smugglers using
an antitank weapon."

The new case marks the second time in six months that a U.S. cigarette
manufacturer has been accused of violating the Racketeer Influenced
and Corrupt Organizations (RICO) law in connection with smuggling.
Canada filed the first such suit last December, accusing R.J. Reynolds
Tobacco Co. in federal court in Syracuse, N.Y., of involvement in a
smuggling operation that undercut a government program to discourage
smoking through higher taxes.

In January, two public interest organizations--Britain's Action on
Smoking and Health and the Washington-based Center for Public
Integrity--released a cache of documents that suggested British
American Tobacco Corp. encouraged and relied on smuggling to boost its
sales in Latin America and Asia.

More recently, on March 30, U.S. Customs Commissioner Raymond W. Kelly
told a Senate subcommittee that "international cigarette smuggling has
grown to a multibillion-dollar-a-year illegal enterprise linked to
transnational organized crime and international terrorism. Profits
from cigarette smuggling rival those of narcotics trafficking."

The new lawsuit seeks about $3 billion in damages and an injunction to
curb Philip Morris' alleged illegal practices.

John H. Halloran Jr., a former Justice Department lawyer who is the
co-lead counsel for the plaintiffs, declined to comment on the suit.
But the 74-page complaint describes events starting in 1990 and as
recent as February 2000. It includes the names of several Philip
Morris officials who allegedly participated in these events. Meetings
at John F. Kennedy International Airport in New York and other events
in Belgium, Colombia, Ecuador, Holland, Panama, Switzerland and
Venezuela are detailed in the complaint.

Some of the most explosive charges in the lawsuit concern Philip
Morris' alleged relationship to drug dealers. The suit states that as
long ago as 1994 "court records that were available to the Philip
Morris defendants demonstrate that one of" the individuals the company
was selling cigarettes to "had actually told U.S. government
informants that he was involved in drug trafficking. Specifically, he
had told U.S. law enforcement agents that he was involved in the 'pool
system' of drug trafficking whereby he would combine his load of drugs
with those of other drug dealers into a single large shipment destined
for the United States."

The suit also states that this individual--who is not named in the
suit--told U.S. law enforcement officials about how the drug money was
laundered in the U.S. and gave the names of U.S. businesses to whom
the money was delivered, and that this information was available to
Philip Morris because it is in court records. "In spite of this fact,
the Philip Morris defendants continued to sell large volumes of
cigarettes to this individual so that he could smuggle them into
Colombia and use those sales to launder drug money," according to the
complaint.

Along the same line, the suit alleges that the Miami bank accounts of
some Philip Morris cigarette distributors were frozen in the early
1990s by U.S. law enforcement officials "because funds credited to
those accounts were laundered drug money. The freezing of these
accounts was well known to Philip Morris."

The suit also contends that Philip Morris employees "were personally
involved in the laundering of the proceeds of illicit narcotics sales.
Various employees of the Philip Morris defendants personally traveled
to Colombia and entered the country illegally, paying bribes to ensure
that their passports were not marked to reflect that they had entered
Colombia. These employees on multiple occasions received large volumes
of cash that they took into their personal possession or these
employees would be present when large volumes of cash were turned over
to the distributors with whom the Philip Morris employees were
traveling. These individuals would then smuggle the cash out of
Colombia and into Venezuela, with the cash ultimately being deposited
into the coffers of the Philip Morris defendants."

The suit also accuses Philip Morris of:

* Selling cigarettes to smugglers or distributors who are known to
sell to smugglers.

* Shipping cigarettes designated for one port realizing that they will
be diverted to another port and then smuggled.

* Creating false shipping documents to facilitate smuggling.

* Using Swiss bank accounts in an attempt to hide the proceeds of
cigarette smuggling and to protect smugglers from government
investigations.

Domestic cigarette companies in Colombia have complained for some time
that their market share was being undercut by sales of cigarettes by
international companies, such as Philip Morris and BAT, that had been
smuggled into their country.

Last June, at a U.S. Senate hearing, Fanny Kertzman, Colombia's
director general for taxes and customs, testified that 90% of the
cigarettes imported into that country was contraband.