EUROPE INQUIRY ON SMUGGLED CIGARETTES SEEKS U.S. AID

European governments, increasingly frustrated by the rising volume of
American cigarettes smuggled into Europe, have decided to turn to Washington
for help in investigating the suspected involvement of American tobacco
companies, starting with R.J. Reynolds Tobacco Co., a senior European Union
official said Thursday.

It will be the first time for the European Union to formally request help
from the U.S. government in combating the illicit cigarette trade, and
arises out of a conviction that the American companies are in complicity,
European officials said. Prosecutors in Europe say that American tobacco
companies have consistently resisted their efforts to obtain the names of
international customers in cases under investigation. Now they are asking
the U.S. government for assistance.

Authorities say they believe that the manufacturers routinely sell American
cigarettes to traders and dealers who immediately resell them into black
markets set up to evade foreign taxes and offer leading brands at a
discount. "We are always puzzled how the cigarette manufacturers are paid
and the only way we can obtain this information is from them," Per Brix
Knudsen, director of the European Union's anti-fraud unit, which is based in
Brussels, said Thursday. "As Reynolds has previously refused any cooperation
whatsoever we intend to take up this issue with the U.S. authorities." A
spokesman for R.J. Reynolds International in Geneva, Axel Gietz, said that
the company does not generally identify its customers but added that it has
"always cooperated with authorities." In an interview Thursday, Gietz also
said that the company was continuing to sell to a trader who told The New
York Times last year that his clients were smugglers. Cigarette smuggling
cost European governments $1.5 billion in lost taxes last year, according to
a report by the European Union's anti-fraud unit released on Wednesday.
Adding to the concern among European governments, the report says that
organized-crime syndicates are running the smuggling operations.

Around the world, the largest tobacco companies are selling billions of
dollars of cigarettes each year into contraband pipelines, say
law-enforcement officials. In the last decade, the volume of smuggling has
nearly tripled, reflecting a general surge in cigarette smoking abroad,
especially of American brands. Experts have estimated that about one-fourth
of the cigarettes sold overseas now pass through smuggling rings. In
Washington, a spokeswoman for the Treasury Department said that the
government had "responded to similar requests from countries in the past"
and that in this case, "we anticipate trying to be as helpful as possible."
The federal Bureau of Alcohol, Tobacco and Firearms is part of the Treasury
Department.

Two recent seizures of smuggled American cigarettes highlight the problem in
Europe. In one case, more than 80 million cigarettes, primarily Winstons
worth more than $3 million, were loaded by Reynolds, the second-largest
tobacco company in the United states, onto ships in Charleston, S.C. and
Savannah, Ga., and sent to Greece. There they were immediately loaded onto a
single ship belonging to a smuggling operation that took the contraband to
Barcelona, Spain. Spanish customs authorities intercepted the haul last
January. In the other case, Spanish authorities last October seized a ship,
the Sea Princess, carrying more than 120 million Winston cigarettes bound
for the contraband market.

The mastermind of the Sea Princess operation, Spanish and Belgium
investigators said, was Michael Haenggi, one of Europe's biggest cigarette
traders, who says he has been a Reynolds customer for 15 years and has
frequently been a supplier to smugglers who bring Reynolds cigarettes into
Spain. The Reynolds spokesman denied Thursday that the company knowingly
sold to smugglers, but he said that Reynolds had decided to keep Haenggi as
a customer even after Haenggi told The New York Times last summer that he
sold to clients he knew to be smugglers.

The seizure in Barcelona last January now occupies investigators at the
European Union's anti-fraud unit, as well as in Spain and Greece. The huge
cargo ship was stuffed with seven long-haul trucks loaded with American
cigarettes. It was one of the most sophisticated and well-organized
smuggling operations the European authorities have encountered. The shipment
began when two boatloads of Winstons left the United States last November,
aboard the Zim Asia and the Dagmar Maersk. The bills of lading show they
were consigned to a Greek company, in the port city of Piraes, Greece, near
Athens.

Once they arrived in Greece, the seven truck trailers were loaded onto a
single ship bound for Spain. When it reached the east coast of Spain in the
early morning hours of Jan. 2, it lowered its loading ramp, and the trucks
drove off into the dark. The drivers were arrested immediately. "The key to
this case lies with the American authorities," said a Greek official. "They
have to find out who paid Reynolds." Investigators are convinced that
Reynolds knew the cigarettes were destined for the black markets in Spain.
"We intend to prove that," said Carlos Ramos Rubio, chief of the
anti-corruption office in Barcelona, and the prosecutor in the case. He
knows it will not be easy.

"Reynolds is very powerful," he said. "It's not easy to take them on.
Reynolds will say they sold the tobacco legitimately, and it is not their
responsibility to follow what happened to it."

Indeed, Gietz, the Reynolds spokesman, said that Reynolds had sold the
cigarettes to a company with which it had "a longstanding relationship." He
said that company policy did not allow him to reveal the customer's name.
Officials at the European Union find it hard to believe that a company would
sell more than 80 million cigarettes without knowing where they were going.
Gietz said that the company checked on customers before selling to them.
That included Haenggi, he said.

Last August, in an interview published in The Times, Haenggi told of one
instance in which he sold 160 million cigarettes, to a Panamanian company,
which then smuggled them into Spain by ship. Another time, he said, he
supplied 220 million cigarettes, to a company registered in Aruba, which
then smuggled them into Spain aboard planes leased in Ukraine. Gietz said
that after article appeared, Haenggi had been closely questioned by
Reynolds, and that the company had decided to continue its relationship with
him.

Checked-by: "Rolf Ernst"