TOBACCO COMPANY IS UNDER INVESTIGATION FOR SMUGGLING

OTTAWA (CP) - RJR Macdonald, one of Canada's major cigarette manufacturers,
is under RCMP investigation for complicity in cigarette smuggling, its new
parent company has confirmed.

A spokesman for JT International, the Japanese company that acquired
control of RJR Macdonald this month, promised full co-operation with the
investigation.

"This is conducted in the best possible faith and a spirit of collaboration
and we're still in that process," Axel Gitz told The Canadian Press in an
interview from Geneva.

Gitz declined comment on rumours that RJR Macdonald is negotiating a cash
settlement with the federal government to compensate for unpaid taxes on
smuggled products.

It's estimated the federal government, Ontario, Quebec and the Maritimes
lost billions of dollars in tax revenue in the early 1990s.

The problem became so acute that Ottawa and the eastern provinces slashed
tobacco taxes in February 1994 to stem the tide.

Since then, a 12-year-long decline in Canadian cigarette consumption has
ended and some studies point to increased youth smoking. Health groups
blame cheaper cigarettes.

Northern Brands International, an affiliate of RJR Macdonald, was convicted
last December of evading U.S. taxes on tobacco products and fined $15
million US.

Northern Brands brought Canadian cigarettes into the United States,
claiming they were being shipped from there to Russia and Estonia. Instead,
the product went to smugglers.

Les Thompson, a former sales representative with another Macdonald
affiliate, RJ Reynolds, has been convicted by a U.S. court in the smuggling
scheme. He was in charge of marketing cigarettes to the Akwesasne Reserve
which straddles the boundaries of Ontario, Quebec and New York State.

One of the major questions is whether Thompson was acting with the
knowledge of senior management at RJ Reynolds.

"Just because this man pleaded guilty doesn't mean he was acting on the
instruction of his superiors," said Gitz.

"Quite the contrary. It seems we have a case here where one individual did
things he should not have done and where we were maybe negligent of
supervision but certainly not of active involvement."

JT International is conducting an internal investigation while co-operating
with police in Canada and the United States, said Gitz.

Rob Cunningham of the Canadian Cancer Society welcomed Gitz's comments.

"Health groups long pointed to the contribution of manufacturers with
respect to smuggling.

"This is the first time that a Canadian (tobacco) company has acknowledged
that it is under investigation by Canadian enforcement authorities."

David Sweanor of the Non-Smoker's Rights Association said the federal
government lost $3.1 billion to smuggling from 1990 to the time of the tax
rollback - $2.6 billion in excise tax and $500 million in GST.

Since the rollback, the federal and provincial government have lost another
$11 billion, said Sweanor.

"It (the smuggling) has cost Canadian governments billions of dollars and
it's cost us even more significantly in terms of health.

"Ontario and Quebec now have cheaper prices for cigarettes than anywhere in
the United States."