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Is Reynolds Helping Cigarette Smuggling Across Europe?

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Reynolds American Inc. recently made headlines, however, for the wrong reasons. Per media reports, the U.S. Supreme Court is debating whether the European Union (EU) should be allowed to pursue the lawsuit against R.J. Reynolds (a subsidiary of Reynolds American) for running a global money-laundering scheme involving drug and cigarette smuggling.

The dispute dates back to 2002 when the 10 member governments of the EU accused R.J. Reynolds of operating a decade-long scheme of smuggling illegal narcotics into Europe from the U.S. via Colombian and Russian crime groups.

The lawsuit was filed under the Racketeer Influenced and Corrupt Organizations Act, (“RICO”), which targets illegal activities including organized crime. According to the EU, such illegal activities hurt its economies and legitimate markets and deprive member nations of tax revenues.

Illicit trade of cigarettes has been on the rise over the past few years. Strict governmental actions in the form of higher excise taxes prompt tobacco players to increase the prices. This, in turn, boosts smuggling of counterfeit cigarettes available at much lower prices. As a result, tobacco players’ margins are negatively impacted. Moreover, these cigarettes are far more injurious to health than their real counterparts, which again mar the reputation of tobacco majors like Reynolds, Philip Morris International Inc. (PM - Free Report) , Vector Group Limited (VGR - Free Report) and Altria Group Inc. (MO - Free Report) .

Ironically, however, Reynolds, which is now being accused of smuggling, set up a website, way back in 2014 showing how cigarettes are smuggled from lower-tax states to higher-tax ones in the Northeast via I-95. The initiative was part of its effort to raise awareness about cigarette smuggling in the east coast along Interstate 95 – the New Tobacco Road – which has turned into a key transit route for illegal activities.

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