Drug-money laundromat

In addition to cultivating the dependence of the Way’uu, the tobacco companies helped lubricate corrupt political and financial empires in Colombia. "You could say that Philip Morris has been influencing the political parties in La Guajira and Colombia for decades," comments Lucho Gomez, former mayor of Riohacha, the La Guajira state capital. Gomez has been the nemesis of an entrenched political machine run by a former senator from the state, Santo Lopesierra, a veteran political boss notorious for his connection to smugglers and commonly known in Colombia as "the Marlboro Man."

The Colombian newsmagazine Semana reported that representatives of Philip Morris’s Colombian distributors, the Aruba-based Mansur family, met with Ernesto Samper during his 1994 presidential campaign and gave him more than $500,000. The Conservative Party of current president Andres Pastrana has ties to the industry too: among several top officials with links to Philip Morris is the company’s long-time lobbyist and attorney, Martha Lucia Ramirez, now minister of foreign trade.

Despite strong opposition from many in the Colombian political and economic elite, in the late 1990s the DIAN conducted an investigation and concluded that the boom in smuggling was tied to vast amounts of cash being generated by drug sales in the United States. The US Drug Enforcement Administration shared the Colombians’ concern, as did other US law-enforcement agencies. "In our undercover operations," Edward Guillen, chief of financial operations at the DEA’s Washington headquarters, told us at NOW, "we started to find that what we initially might have thought were straw corporations ... were actually involved in genuine commerce, actually buying goods, be they television sets or cigarettes ... and then those goods were ultimately smuggled into Colombia."

Carlos Ronderos was minister of foreign trade from 1994 to 1998, during Samper’s presidency. At a time when the US government was launching an offensive against the Colombian government for the smuggling northward of cocaine, Ronderos began pressuring the US government to rein in Philip Morris’s southbound-smuggling enterprise. Ronderos, interviewed in Bogota, recalled a meeting in 1998 that he arranged with then–US ambassador Myles Frechette, the US front man on the drug war: "I told him that you can’t ask Colombia to stop the flow of cocaine if you are not willing to stop the flow of cigarettes and other goods used to launder the money from the sale of that cocaine." Frechette, according to Ronderos, rejected his plea, responding that " ‘it was purely a customs problem for Colombia.’ And I felt like saying, ‘Okay, well, drugs are just a customs problem for the United States.’ "

He didn’t say that, but after Frechette’s rebuff, Ronderos went straight to Washington with his complaint. The Washington representative for the Colombian Trade Office, Carlos Acevedo — who is now working as one of the lead attorneys on the Colombian lawsuit — invited US money-laundering experts to review the government’s files in Bogota. In February 1998 — at the height of the Clinton administration’s efforts to isolate the Samper government — a five-person team, including specialists in money laundering from the Treasury Department’s Financial Crimes Enforcement unit (FinCen), the IRS, and Customs came to Bogota to investigate the allegations.

Al James, a top FinCen agent at the time in charge of money-laundering investigations and chief organizer of the US inquiry, has fond memories of that trip. "Ronderos was a real gentleman," he commented in a telephone interview. "He opened up everything to us, both the good and the bad stuff. We worked real well together." The joint investigation began to put into high relief a critical aspect of the narcotics trade: the means by which narco-dollars from the United States were channeled into the purchase of US goods such as cigarettes. Those goods were transferred through Caribbean tax havens and ultimately sold to Colombian consumers for pesos as part of a complex money-laundering chain that came to be known as the Black Market Peso Exchange. James became chair of a multi-agency task force known as the Black Market Peso Exchange Working Group. "We began to understand," says James, "that what they were calling contraband smuggling was actually the other side of narcotics-money laundering."

During his trip to Bogota, James met with top Philip Morris executives to express his concerns about money laundering. "I warned them when we were in Colombia," he says. The officials told him that they had nothing to do with the cigarettes once they reached Colombian shores. James had similar meetings with other companies back in the States, informing them of the potential use of their products for drug-money-laundering purposes. Most, he says, responded by taking precautionary measures and instituting tighter surveillance of their sales operations. But not, says James, Philip Morris: "The evidence [of smuggling] started to seem pretty clear to me. Philip Morris had a ‘legitimate’ sales office in Bogota. But they were losing millions of dollars if you looked at their legal sales. They spent more on advertising than they were making out of legitimate cigarette sales. They told me they were spending the ad money to sustain the legitimate sales. Bullshit!" Phillip Morris refused to respond to these allegations directly, but in an e-mailed statement the company declared, "Philip Morris does not condone money laundering; nor do our business practices facilitate it." The company states that it has instituted "know your customer" policies suggested by US law enforcement and has stopped accepting cash or third-party-check payments, which could be used for laundering drug money.

Taking it to court

US law enforcement has little leverage over US corporations overseas, and no legal action was taken against the cigarette companies. In May 2000, frustrated by the continuing flow of smuggled cigarettes into the country, 22 Colombian states and the City of Bogota filed a lawsuit against Philip Morris and BAT in New York federal court, alleging various violations of US law, including fraud, smuggling, money laundering, and contraventions of RICO. The suit accuses the companies of "orchestrating and profiting from" the smuggling of cigarettes on a massive scale. It alleges that the companies were involved in shipping and distributing cigarettes that evaded customs duties and other taxes; that they disguised and moved the ill-gotten profits back to the United States, which constituted money laundering; and that cigarette smuggling was used in the laundering of Colombian drug profits. It was, says JosŽ Manuel Arias and other Colombian officials, the publicity from the lawsuit that prompted the cigarette companies to strike the deal with DIAN and stanch the flow of cigarettes passing illegally into Maicao. (Putting further pressure on the companies, last year the Colombian Congress passed a law mandating that their advertising expenditures cannot exceed the amount earned from their legal imports.)

According to Arias, Philip Morris lobbied every Colombian governor against signing on to the lawsuit, to little avail. But the company’s lobbying of the national government did bear fruit: President Pastrana refused to sign on the national government, even though millions of dollars yearly in customs duties were allegedly diverted from the national treasury. (As it happened, back in Washington, Philip Morris emerged as one of the few nonmilitary companies to lobby heavily on behalf of Plan Colombia when it was winding its way through Congress.)

Six months after the Colombian filing, the European Union and 10 European governments sued Philip Morris and RJ Reynolds on essentially the same grounds. Last August, after a federal-court judge ruled that the EU was an inappropriate body to bring the suit, it was re-filed by the 10 European countries, including France, Germany, Spain, Belgium, the Netherlands, Greece, and Italy.

While technically distinct, the Colombian and European cases are being argued in parallel. The cases are the first in which a phalanx of foreign governments are pitted against a trio of corporate powerhouses, and will be a significant test of whether US corporations can be held accountable when they run afoul of US and foreign law in their overseas operations. At a time when the fates of national economies are ever more intertwined, the cases promise to establish important precedents in the realm of international law governing corporations. "We are looking," says attorney Carlos Acevedo, "for the legal system to embrace the challenges of the modern globalized economy, in which production and distribution facilities have been flung far and wide across the globe."

In the long run, the companies could face repercussions from this legal offensive that are even more severe than the historic $200 billion–plus settlement with the US states of four years ago. That legal crusade hinged on the companies’ knowledge of the harmful effects of cigarettes. This time, the companies could face not only hundreds of millions in damages but criminal charges for smuggling and money laundering.

Thus far, the plaintiffs have suffered some setbacks. On February 19, a district-court judge found in favor of the companies’ argument that a common-law precedent dating from the 18th century, known as the "revenue rule," prevents US courts from adjudicating disputes over uncollected foreign taxes. On March 25, the Europeans and Colombians announced their intention to appeal that decision. The judge didn’t block them from pursuing the case on the money-laundering allegations, which they intend to do in a separate filing. But the plaintiffs’ prospects would now be considerably brighter if the tobacco companies had not engineered an audacious reshaping of the USA Patriot Act to prevent their adversaries from acquiring a potent new legal tool.