OPINION

LOOK WHO'S SMUGGLING CIGARETTES NOW

How earnest and public-minded it sounded when tobacco company executives
warned early this year that the attempt to jack up cigarette prices through
the pending national tobacco bill would inevitably lead to smuggling and a
black market. No less than Steven Goldstone, the chairman of RJR Nabisco,
warned that it was virtually impossible to stop a determined batch of
smugglers, given that 14 million cigarettes can fit into a single truck.
Goldstone called it "irresponsible" to ignore the smuggling that
neighboring countries had experienced when they raised cigarette taxes.

Well, now it turns out that Goldstone assuredly was right about the dangers
of smuggling. The only problem was, he pointed his finger in the wrong
direction. This week a marketing subsidiary of his own company pleaded
guilty to criminal charges and paid a $15 million fine for actions that
enabled others to smuggle cigarettes into Canada.

The scheme was hatched after the Canadian government raised tobacco taxes
in an effort to cut smoking. Those taxes applied only to cigarettes sold in
the Canadian market, not to exports. So cigarettes were shipped from a
Reynolds plant in Canada to the United States where the guilty Reynolds
subsidiary aided the filing of false statements that they were to be
shipped on to Russia and Estonia, a maneuver that exempted them from taxes
in both Canada and the United States. In reality, the cigarettes were sold
to distributors in New York.

The subsidiary has admitted only to customs violations, not smuggling. But
in truth, says U.S. Attorney Thomas J. Maroney, the subsidiary knew that
the cigarettes were destined to be smuggled back into Canada, in this case
through an Indian reservation in upstate New York.

RJR Nabisco says it "very much regrets" the episode and calls its
subsidiary's actions "inconsistent with the way Reynolds does business." It
has closed the subsidiary and is taking steps to prevent a recurrence. But
the apologies seem a bit late. The tobacco industry has long been accused
of looking the other way when it comes to smuggling. Now we know it is even
worse. The shame of this episode is that a subsidiary of America's
second-largest tobacco company actually joined the criminals.

Checked-by: Richard Lake