SUSPECT ACCUSES TOBACCO FIRMS OF SMUGGLING

MASSENA, N.Y. - In 1992, Canadian cigarette companies exported twice as many
cigarettes to the United States as they had the previous year. On paper, it
was as if Americans suddenly decided to smoke twice as many exotic Canadian
brands such as Players, Export A and DuMaurier.

In fact, most of those cigarettes were shipped right back into Canada in a
short-lived but profitable black market that started when Canada imposed a
smoker's tax of $2 per pack. Smugglers pocketed the $2 by buying the
cigarettes tax-free in the United States and selling them at taxed rates in
Canada, netting hundreds of millions of dollars.

A major smuggling point was here in Massena, just a few miles from the
Canadian border. Millions of the tax-free cigarettes ended up in the hands
of a Las Vegas businessman named Larry Miller, now 52. Miller and his
associates loaded the cigarettes into tractor-trailers and, using a
little-patrolled Native American reservation, smuggled them back into
Canada, according to an indictment on file in U.S. District Court in
Syracuse.

The RJR tobacco company was part of this operation, said Miller, who is
awaiting trial on federal conspiracy charges. He said he frequently briefed
two executives from RJR, maker of the Export A brand, on his smuggling
activities. The executives advised him where to send the cigarettes, he
said.

"They provided us with information on what type of cigarettes were selling
in Montreal, in Vancouver, in Toronto," Miller said.

RJR refused to discuss the charges. "We do have a policy of fully
cooperating with law enforcement," said John Singleton, a spokesman for
RJR-Nabisco in Winston-Salem, N.C., the parent company of both the Canadian
and U.S. cigarette manufacturers. "But we can't comment on this ongoing
case."

What is certain is that Canada's black market in cigarettes became so
frenzied that after five years its government drastically scaled back its
tobacco tax, even though there was evidence that it cut smoking.

The Canadian experience was among the strongest weapons used by the forces
that defeated the sweeping tobacco bill in Congress in early June. Raise the
cigarette tax by $1.10 per pack, as the now-dead bill would have done, and a
black market will follow, opponents warned.

The tobacco industry conducted a highly effective, $40 million ad blitz,
prominently featuring police officers warning that the black market "may
increase beyond our control" if the bill were passed.

But there are major investigations into whether U.S. and Canadian tobacco
companies and their employees were themselves complicit in the Canadian
black market. Canadian anti-smoking advocates also argue - with ample data -
that the companies had to be aware that the bulk of their exports to the
U.S. were being smuggled back into Canada.

"Had the tobacco companies not engaged in this behavior, we would not have
had a smuggling problem in Canada," said Rob Cunningham, an analyst with the
Canadian Cancer Society.

2 managers serving time

Two Louisiana-based managers of Brown & Williamson, the tobacco company that
makes Kool and Capri, are serving time for running a smuggling operation
into Canada. Federal officials in the United States investigated the rest of
the company but brought no charges.

RJR remains under investigation, said agents from the Royal Canadian Mounted
Police (RCMP). So, the agents said, does Imperial, the tobacco company that
makes Players and DuMaurier cigarettes and is owned by B.A.T, the same
company that also owns Brown & Williamson.

Miller and 20 others face federal charges of running a massive smuggling
ring that netted $687 million in four years. None of the accused had entered
pleas as of last week.

In addition to Miller's detailed descriptions, U.S. Customs agents have
given sworn affidavits, filed in U.S. District Court in Syracuse, that RJR
officials knew of the operation. At this point no charges have been filed
against RJR, although Canadian border agents are investigating the
possibility that company executives aided Miller.

"Why do they figure the buck stops with me? Someone has got to sell the
cigarettes to me in the first place," Miller said in an interview here.
"There are so many more people they could indict."

Anti-smoking and cancer-patient advocacy groups in Canada say the industry's
knowledge of the smuggling is obvious if you look at the numbers: Exports of
Canadian cigarettes to the United States increased sevenfold, from 2.6
billion cigarettes to 17.7 billion, between 1990 and 1993, the years after
Canada raised its tobacco tax. The bulk of these were Players, DuMaurier and
Export A, brands unfamiliar to Americans. Most were shipped to border
states, especially New York.

How the scheme began

In addition to commuting between his home in Las Vegas and his operation in
Massena, a border town of about 11,000 people, Miller could frequently be
found in Moscow, according to a detailed 140-page affidavit filed by the
RCMP in a Hamilton, Ontario, court. He used cigarette profits to help buy a
$22 million casino just off Red Square in the center of Russia's capital.

Miller also made about $35 million from smuggling alcohol into Mexico and
used some of the money to buy and operate a Lear jet, according to the RCMP
affidavit and confirmed by Miller.

A portrait of Miller's cigarette-smuggling cartel emerges in indictments,
affidavits and interviews with Miller and government investigators.

Robert Tavano, 59, and Louis Tavano, 56, hooked up Miller and RJR. Robert is
a former Niagara Falls Republican Party chairman, and Louis, according to
the RCMP affidavit, was an associate of late mafia crime boss Stefano
Magaddino.

The Tavano Boys, as they are known in upstate New York, knew Miller from an
ongoing partnership in slot-machine sales in northern New York. Both Tavanos
are awaiting trial and refused to comment. They have not yet entered a plea.

Miller says the Tavanos introduced him to two RJR executives: Stan Smith,
executive vice president of RJR-Nabisco's Canadian company, RJR-MacDonald of
Toronto; and Les Thompson, a marketing executive with R.J. Reynolds, the
U.S. tobacco arm of RJR-Nabisco.

The three met in upstate New York, Miller said, just after Canada enacted a
tobacco tax that almost doubled the price of a pack of cigarettes sold
domestically, from an average of $2.94 in U.S. dollars, to $4.83. Exports to
the United States were not taxed, however, creating an opportunity for
high-profit smuggling.

RJR, with the guidance of Smith and Thompson, began selling Canadian
cigarettes to Miller. This was all done above board, and the exports were
duly recorded in RJR's books.

The three would meet often, Miller said. Federal investigators back up his
account. According to a sworn statement filed in federal court in Syracuse
by U.S. Customs agent Gil Schmelzinger, Thompson met with Miller at the
Sonora Island Lodge near Vancouver to discuss black-market operations.

"Les and Stan obviously knew what was going on. We talked about it on
several occasions," Miller said. "Everything was always first class, whether
we met in Vegas, Palm Springs or Toronto. We would go to the best
restaurants, but we always talked business. We used the word `smuggling' all
the time."

Both Thompson and Smith, who have not been charged, refused to comment.

By 1993, the Canadian black market had peaked. Miller's business was
booming, and the entire operation seemed untouchable.

"You could stand on the river and watch them load the boat with cigarettes
stacked up above their head, right out in the daylight," Miller said.

Miller's operation was killed in February 1994, but not by deft police work.
Canadian officials realized the black market was out of control.

Smugglers had gotten so brazen they were selling cigarettes with the U.S.
Surgeon General's warning, as opposed to the Canadian government's warning,
on the streets of Canada. Canadian Prime Minister Jean Chretien decided to
cut the cigarette tax by an average of $1.17 a pack, eliminating much of the
black-market profit margin. Miller's business dried up overnight.

The next year, exports to the United States plummeted, returning to the
level they were at before the tax increase. Canada's youth smoking rate,
which had dropped 60 percent while the tax was in effect, increased by 27
percent. The overall smoking rate, which had dropped 38 percent, increased 9
percent the year after the tax was cut.

Although Miller's operation was humming along, he needed to recruit
additional truck drivers to help keep up with the increasing flow of
cigarettes. One driver from a trucking company based in Bulgaria offered his
services and dutifully hauled black-market cigarettes for several months.
The company was fictitious and the driver was an undercover agent for the
RCMP.

Checked-by: "Rolf Ernst"