Pubdate: Wed, 22 December 1999 Source: Post-Standard, The (NY) Copyright: 1999, Syracuse Post-Standard Contact: P.O. Box 4915, Syracuse, N.Y. 13221-4915 Website: http://www.syracuse.com/ Forum: http://www.syracuse.com/forums/ Author: John Kekis of the Associated Press CANADA SAYS RJR SMUGGLES TOBACCO SYRACUSE, N.Y. - The government accuses the company of conspiring to avoid millions in taxes. The Canadian government sued R.J. Reynolds Tobacco Holdings Inc. for $1 billion Tuesday, charging that it and related companies conspired to smuggle tobacco products into Canada to avoid millions of dollars in taxes. The lawsuit, filed in U.S. District Court in Syracuse, alleges the companies set up an elaborate network of smugglers and offshore companies to flood Canada with cheap cigarettes after the government doubled taxes and duties on tobacco in 1991. ``The tobacco companies cannot and will not be permitted to frustrate public policy in Canada, and that in large part is what this lawsuit is all about,'' Canadian Health Minister Allan Rock said. The suit alleges that R.J. Reynolds companies set up a shell company in the United States - Northern Brands International - to protect itself from charges that it sold to smugglers. The suit also alleges that a Canadian subsidiary of Reynolds, RJR-Macdonald Inc., used the Canadian Tobacco Manufacturing Council, a trade group, to blame organized crime for the smuggling while pretending it was trying to stop the activity. The suit was filed under the federal Racketeering Influenced and Corrupt Organizations Act, known as RICO, a law originally aimed at mobsters. Seth Moskowitz, a spokesman for R.J. Reynolds Tobacco in Winston-Salem, N.C., said company officials could not comment until they had seen the lawsuit. The lawsuit was filed a day after a former tobacco company executive was sentenced to nearly six years in prison for supplying a New York smuggling ring with millions of cigarettes that he knew would wind up on the Canadian black market. Leslie Thompson of Tecumseh, Ontario, was sentenced Monday in Binghamton, N.Y., to nearly six years in prison. RJR officials have denied that the company played any role in encouraging the smuggling ring, based in Massena, N.Y. Authorities said the ring smuggled $687 million worth of cigarettes and alcohol into Canada from 1991 to 1997 through the St. Regis Mohawk Reservation that straddles the border in northern New York state. A top official with Northern Brands, Thompson is the only tobacco executive to be sentenced to prison in the United States for his conduct in marketing cigarettes, court officials said. Canadian government officials allege that high-level executives were involved in encouraging and authorizing the smuggling conspiracy. No executives were identified. Between 1989 and 1992, Canada implemented major tobacco tax increases to raise revenues, respond to demands by antitobacco and health groups and encourage Canadians to reduce tobacco con sumption. By 1993, taxes on a pack of cigarettes in Canada accounted for almost 75 percent of the retail price. They have since been lowered. - --- MAP posted-by: allan wilkinson