TOBACCO FIRM FINED MILLIONS FOR SMUGGLING

Canadian Smokes Smuggled Back Tax-Free Through Border Reserve

Syracuse, N.Y. An affiliate of R.J. Reynolds Tobacco International agreed
to pay $15 million U.S. in fines and forfeitures yesterday for helping
smugglers bring exported tax-free Canadian cigarettes back into Canada,
still tax-free.

U.S. Attorney Thomas Maroney said the affiliate, Northern Brands
International, was set up by RJR specifically for smuggling.

Northern Brands, based in Winston-Salem, N.C., admitted to taking part in a
scheme to divert Export `A' and Vantage brand cigarettes back into Canada
without paying U.S. taxes.

``I think it was established with an understanding that there was a market
- - there was money to be made by smuggling,'' Maroney said during a
teleconference with U.S. officials in Washington.

It is the first time an affiliate of a major tobacco company has been
convicted of a federal crime in the U.S., he said.

Maroney, however, declined to comment about whether any RJR officials were
involved in the illicit activities, or whether RJR was a target of the
four-year ongoing investigation.

Reynolds International issued a statement yesterday calling NBI's
activities ``inconsistent with the way Reynolds does business,'' adding
that the ``company very much regrets this episode . . .''

Northern Brands was established in 1992 and is now ``essentially defunct,''
Maroney said.

The cigarettes were manufactured in Canada and Puerto Rico by RJR-MacDonald
Inc., a subsidiary of R.J. Reynolds-Nabisco, and then transported into the
United States, where they were kept in ``in-bond'' warehouses purportedly
for shipment overseas. Instead, they were smuggled back into Canada through
the St. Regis Mohawk Reserve, which straddles the U.S.-Canadian border in
northern New York state.

The company admitted misrepresenting to U.S. Customs Service officials that
the cigarettes were being transported in the United States solely for
exportation to Estonia and Russia, the plea agreement said.

The illegal operation took place from August, 1994, to June, 1995, and
involved at least 26 tractor-trailer loads of cigarettes, Maroney said.

As a result of Northern Brands' ``wilful blindness and conscious
disregard,'' the smugglers were able to avoid paying more than $2.5 million
in U.S. excise taxes, the government charged.

David Sweanor, the senior legal counsel for the Non-Smokers' Rights
Association, an Ottawa lobby group, said the Canadian government can take
action after the decision.

``I think one of the options that's available to our government is, if for
any reason they don't believe there's recourse against tobacco companies
for what they have done, they can certainly change the laws to ensure
tobacco companies don't do this again.''

Checked-by: derek rea