Pubdate: Tue, 21 Dec 1999 Source: Associated Press Copyright: 1999 Associated Press Author: John Kekis, Associated Press Writer CANADA CLAIMS TOBACCO CO. SMUGGLING SYRACUSE, N.Y. (AP) - The Canadian government sued R.J. Reynolds Tobacco Holdings Inc (NYSE:RJR - news). today, charging it and related companies conspired to smuggle tobacco products into Canada to avoid paying millions of dollars in taxes. The lawsuit, filed here in U.S. District Court, alleges the companies set up an elaborate network of smugglers and offshore companies to ensure an abundant supply of cheap cigarettes in Canada, which doubled taxes and duties on tobacco in 1991. The lawsuit, which seeks damages of $1 billion, also names the Canadian Tobacco Manufacturing Council. It alleges that RJR-MacDonald Inc., a Canadian subsidiary of Reynolds, tried to blame organized crime for the smuggling while pretending it was trying to stop the activity. It also alleges that RJR-MacDonald set up a shell company in the United States to deceive investigators. The suit was filed under the U.S. Racketeer Influenced and Corrupt Organizations Act. Many of the defendants are U.S.-based. R.J. Reynolds officials in Winston Salem, N.C., were in a meeting and did not immediately return calls for comment. Canadian officials in Ottawa allege that high-level executives were involved in encouraging and authorizing the smuggling conspiracy. ``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,'' said Canadian Health Minister Allan Rock. He expects to institute tougher cigarette labeling requirements and wants to increase taxes even more. The lawsuit was filed a day after a former tobacco company executive was sentenced to nearly six years in prison for supplying a northern New York smuggling ring with millions of cigarettes that he knew would wind up on the black market in Canada. Leslie Thompson of Tecumseh, Ontario, was sentenced Monday, in Binghamton, N.Y., to 70 months in prison. Thompson, a top official with R.J. Reynolds subsidiary Northern Brands International, was the first tobacco executive to be sentenced to prison in the United States for his conduct in marketing cigarettes, court officials said. Authorities said that ring, based in Messina, N.Y., smuggled $687 million worth of cigarettes and alcohol onto the Canadian black market from 1991 to 1997 through the St. Regis Mohawk Reservation that straddles the U.S.-Canada border. - --- MAP posted-by: Richard Lake