NABISCO UNIT PLEADS GUILTY IN TOBACCO SMUGGLING SCAM

Courts: It is the first time a cigarette company has been convicted in
connection with the crime,experts say.

A unit of RJR Nabisco Holdings Corp. pleaded guilty Tuesday to federal
criminal charges stemming from a scheme to smuggle cigarettes into Canada
through an Indian reservation in upstate New York, and agreed to pay $15
million in penalties.

The authorities said the guilty plea, filed in U.S. District Court in
Binghamton, N.Y., marked the first time that a tobacco company world of
international cigarette smuggling.

Experts estimate that nearly one-fourth of the billions of U.S. cigarettes
sold overseas pass through smuggling rings set up to evade taxes and sell
major brands at a discount. Critics have long contended that this trade
could not go on without the industry's knowledge and support.

But while previous criminal investigations have led to charges against
several midlevel managers, top executives at the large, multinational
tobacco companies have always denied allegations that they encouraged or
condoned any dealings with the contraband rings.

In entering the guilty plea, the RJR Nabisco subsidiary, Northern Brands
International Inc., admitted that it helped distributors evade $2.5 million
in U.S. excise taxes on shipments that, the authorities said, were
ultimately smuggled into Canada to avoid high taxes on cigarettes there.

But the company's plea also could have sweeping repercussions in Washington,
where Congress has debated whether to raise the taxes on domestic cigarette
sales to discourage smoking.

Industry executives have argued that any significant increase in the taxes
would immediately in the United States, much as it did in Canada.

But the guilty plea "shows that the emperor doesn't have any clothes in
making that argument," said Gregory N. Connoly, the director of the
Massachusetts Tobacco Control Program.

"The companies have always said that they are not directly involved, and
they have used the threat of smuggling to dissuade Congress from raising the
taxes. But now we have evidence that the industry is complicit with organize
criminals when it comes to smuggling."

Thomas J. Maroney, the U.S. attorney in Syracuse, N.Y., said the 4-year-old
investigation was continuing. But he declined to say whether any high-level
officials at RJR Nabisco's main tobacco operation, R.J. Reynolds Tobacco
Co., or other tobacco companies were under scrutiny.

Top executives and spokesmen at R.J. Reynolds, based in Winston-Salem, N.C.,
could not be reached for comment Tuesday night. But Maroney said the company
had agreed to cooperate with investigators and had taken steps to ensure
that similar violations do not happen again.

Bloomberg News quoted an R.J. Reynolds lawyer, C. Stephen Heard Jr., as
saying the company "regrets this episode." According to the news service,
Heard said Northern Brands' actions were "inconsistent with the way Reynolds
does business" and the Reynolds had closed Northern Brands.

The charges against Northern Brands arose from an investigation that has led
to guilty pleas by more than 20 people involved in smuggling hundreds of
millions of dollars' worth of alcohol and cigarettes into Canada.

Court documents released during the investigation showed that R.J. Reynolds,
the second-largest U.S. cigarette maker next to the Philip Morris Cos.,
sponsored trips to a luxury Canadian fishing resort for several distributors
who lived in upstate New York and smuggled cigarettes into Canada.

The smuggling took off after Canada raised taxes in the 1980s and the early
1990s to discourage cigarette consumption, one of the first countries to try
this approach. The taxes did not apply to exports, and affiliates of the
three biggest companies - Philip Morris, R.J. Reynoldss and BAT Industries
PLC - started shipping large amount of Canadian brands, like Players and
Export A, to the United States even though few Americans smoke them.

Maroney said that without paying either the Canadian or the American taxes,
distributors then moved the cigarettes back into Canada through the St.
Regis Mohawk Indian Reservation in upstate New York, with the help of some
Indian leaders who also have been convicted.

Checked-by: Don Beck