NARRATOR: From our studios in New York, Bill Moyers.
MOYERS: Welcome to NOW.
We begin with a story about law and order and politics, as practiced by Big Tobacco.
By Big Tobacco, we mean companies so huge, their revenues dwarf the gross national product of some countries; companies so powerful they can become a law unto themselves.
While our report begins with revelations about cigarette smuggling, the heart of the matter is the new global economy, and the ability of the legal system to hold US corporations accountable for accusations of wrongdoing overseas.
Tonight, a six-month investigation by THE NATION Magazine, The Center for Investigative Reporting, and NOW.
Our story is reported by Oriana Zill and Mark Schapiro.
MOYERS: A dramatic shoot-out in Italy. It looks like a terrorist attack or a bank robbery, but it's not. These Italian customs agents are chasing cigarette smugglers.
Around the world, cigarette smuggling is a growth industry, earning huge profits. Both the Mafia in Italy and drug cartels in Colombia have been linked to the smuggling.
It's very widespread. Fully one-third of all cigarettes produced in the world end up being smuggled.
And it's not only organized crime groups doing it. The trail leads right to the big cigarette companies themselves, say government investigators and lawyers.
CARLOS ACEVEDO, LAWYER FOR THE EU AND COLUMBIAN STATES: The major multinational tobacco companies invented large-scale smuggling.
MOYERS: Carlos Acevedo is one of the lawyers representing the European Union and Colombian states in lawsuits against the tobacco companies, alleging those companies are behind the smuggling.
ACEVEDO: They are the jockeys, if you will, and they usher the product through this distribution channel.
MOYERS: It's all part of a strategy, says Acevedo, to avoid taxes, which lowers the price and lets the companies compete head to head with local cigarette producers abroad.
ACEVEDO: Whatever they can do to lower the price gives them a competitive edge, and that's why it's done.
MOYERS: But the accusations go beyond smuggling; lawsuits charge the smuggled cigarettes are paid for with illegal money, in some cases drug money, and they accuse the tobacco companies of laundering that money.
Faced with these charges, the tobacco lobbyists took action. They worked the corridors of Congress to derail the federal court cases against them, according to Congressman Henry Waxman. He says the tobacco companies did this by manipulating The Patriot Act, the Congressional response to September 11.
CONGRESSMAN HENRY WAXMAN (D-CA): The tobacco companies are famous in the Congress for working behind the scenes, often without people being aware of what they are doing.
MOYERS: The story about Big Tobacco and smuggling starts in an unlikely place. Here on this remote peninsula called La Guajira, part of Colombia, South America.
The native Wayu'u people have been smugglers since colonial times, manning the vessels that brought goods into Colombia from the Caribbean islands.
During the 1990s, that cargo became millions of dollars worth of illegal cigarettes.
HUGO GONZALEZ IGUARRAN (TRANSLATED): My name is Hugo Gonzalez Iguarran, born in Nazarette. I am 68 years old. Most of my life I worked transporting cigarettes.
MOYERS: Gonzalez told us that in the early '90s, the cigarette contraband became a flood, with tens of thousands of cartons coming in every week.
GONZALEZ (TRANSLATED): Ultimately, they brought in 20,000 or 30,000 cartons in boats weekly.
MOYERS: Nessier Perez is a Wayu'u lawyer.
NESSIER PEREZ, WAYU'U LAWYER (TRANSLATED): It's true that through the peninsula of La Guajira, millions of Marlboro cigarettes were brought in. Boats full.
MOYERS: The Wayu'u say they picked up the loads of cigarettes on the Caribbean island of Aruba.
This footage, shot in 1997, shows the Wayu'u unloading smuggled Marlboros.
No Colombian import documents were ever filed, say Perez and Gonzalez.
NARRATOR (IN SPANISH): So when the boat got there, there were no authorities there. What was your job in the business?
GONZALEZ (TRANSLATED): I have my little truck. I carried loads of cigarettes from Puerto Estrella to Maicao.
MOYERS: Maicao, across the desert from the port, is the staging area for large scale smuggling of many types of goods into the interior of Colombia.
Along the town's muddy roads and low-slung stucco buildings, kiosks advertise the logos of smuggled American goods. Armed men stand in the doorways, guarding the products.
Wayu'u drivers brought the cigarettes here and then smuggled them to the big Colombian cities, where they were sold on the street corners by small vendors, or in large semi-legal bazaars, called San Andresitos.
Ricardo Ramirez is Chief of Customs for Colombia. He says no government taxes or import tariffs were paid during any part of this process in the 1990s.
RICARDO RAMIREZ ACUNA, DIRECTOR DE ADUANA DEL DIAN (TRANSLATED): Boats were arriving from Panama and Aruba through La Guajira, and they were coming in without any reporting to customs or any ability for us to detect them. This was open contraband.
MOYERS: By the mid 1990s, the lost tax revenues from the smuggled cigarettes were adding up to the equivalent of hundreds of millions of dollars.
And American smuggled brands were making up more than a third of the cigarette market here, seriously undercutting the local industry.
Colombia's Minister of Foreign Trade at the time, Carlos Ronderos, began to take notice.
CARLOS RONDEROS, FORMER COLOMBIAN MINISTER OF FOREIGN TRADE: We were trying to struggle against contraband, because it was basically the main competition for domestic industry.
RAMIREZ (TRANSLATED): We contacted the multinational companies and told them, "your products are being misused."
RONDEROS: They denied any involvement with that business. They said the business was so big that it was very difficult for them to trace where the cigarettes came from.
MOYERS: So in early 1998, Ronderos turned to the U.S. Government for help. Then U.S. Treasury Investigator Al James brought a team to Colombia.
AL JAMES, FORMER U.S. TREASURY INVESTIGATOR: We were able to learn that U.S. cigarettes, while slightly more expensive than the Colombian cigarettes had a very large market share.
MOYERS: And behind that large market share, James suspected, was some organizational muscle.
JAMES: I can't believe that the cigarette companies did not know how this process worked.
MOYERS: Their suspicions were confirmed by a surprising source — the files of the tobacco companies themselves. Back in the U.S., state lawsuits were forcing long secret tobacco papers out into the open.
MICHAEL MOORE, ATTORNEY GENERAL FOR MISSISSIPPI (FROM TAPE, March 20, 1997): These were documents we were never supposed to see.
MOYERS: Among the revelations — that smuggled cigarettes were regularly included in the companies' marketing strategies under the terms "transit" or "duty not paid."
The Philip Morris strategic plan for Latin America in '91-'93 lists the "tax-free" customers, including a famous Wayu'u Senator and cigarette smuggler, Santo Lopesierra, who in Colombia is dubbed, "The Marlboro Man."
This 1992 memo from one of its subsidiaries estimates British American Tobacco's share of the transit — or smuggled — market at 45%.
ACEVEDO: In the case of Colombia, we see that the multinational tobacco companies — specifically Philip Morris and BAT through Brown and Williamson — are at every step of the distribution chain into Colombia.
MOYERS: But what drove these companies to break into foreign markets? Here in America, the companies were on the run. Fewer people were smoking.
CONGRESSIONAL HEARINGS (FROM TAPE, APRIL 14, 1994): Do you swear that the testimony you are about to give is the truth, the whole truth and nothing but the truth?
MOYERS: And the public was outraged as one after another tobacco executives...
TOBACCO EXECUTIVE (FROM TAPE, APRIL 14, 1994): I believe that nicotine is not addictive.
MOYERS: ...appeared to lie under oath.
TOBACCO EXECUTIVE (FROM TAPE, APRIL 14, 1994): I believe that nicotine is not addictive.
TOBACCO EXECUTIVE (FROM TAPE, APRIL 14, 1994): I too, believe that nicotine is not addictive.
MOYERS: They needed a competitive edge abroad, but countries like Colombia had high tariffs and thriving tobacco industries of their own.
ACEVEDO: Whatever you can do to lower the price of the product that you're getting to your consumer translates into a competitive edge.
MOYERS: Avoiding taxes lowered prices, and ad campaigns encouraged people to buy.
Advertising was something Big Tobacco knew how to do. Polished campaigns started showing up in a country unaccustomed to such marketing.
In the United States, the tobacco settlement required companies to reduce their advertising, but there was no such requirement overseas. So in Colombia during the 1990s, the Marlboro Man was everywhere.
JAMES: One of the U.S. companies advised us that they, on the one hand, lost several million dollars a year in this market, and on the other hand, spent several million dollars a year in advertising.
RONDEROS: Over $5 million in publicity, hardly any sales. And a huge loss. Then we asked them, "Why is that?" And they say, "We love Colombia. So we don't mind losing money here." So we didn't quite believe that story.
MOYERS: British American Tobacco's own reports show, in fact, that the advertising was paying off in sales of smuggled cigarettes.
In 1994, while all legal imports were making less than 2% of the total Colombian cigarette market, smuggled cigarettes were 36%.
And as we learned in the secret tobacco papers, British American Tobacco was aware of the duplicity.
(QUOTE FROM DOCUMENT): Can we pursue the approach...i.e., continuing with duty paid and duty not paid in parallel...and be seen as a clean and ethical company?"
Brown and Williamson and their parent company, British American Tobacco, declined to comment on any of these allegations, citing a British government investigation now underway.
Philip Morris sent us this memo denying any control over the smuggling problem.
ACEVEDO: If a tobacco company says that they can't control where their product is going, that would be believable if we're talking about 1,000 cases or 2,000 cases of cigarettes.
But if we're talking about literally hundreds of 40-foot containers that are each worth hundreds of thousands of dollars, it is part of a regular business operation to know where your containers are going.
MOYERS: Here's where they were going: the free trade zone of Aruba. This Caribbean island, just off Venezuela, was the perfect transit point, according to U.S. and Colombian customs officials. Cigarettes could be shipped from the U.S. through Aruba without paying any taxes.
In Aruba, two family-owned businesses controlled the cigarette trade. The Mansurs were distributors for Philip Morris from the 1920s until late 1998.
The Harms family and their company, Romar, worked primarily for British American Tobacco and their U.S. subsidiary, Brown and Williamson.
Both the Mansur and Harms families refused to speak with us, but we learned a lot from a former employee named Alex Solognier.
ALEX SOLOGNIER: My issue was that British American Tobacco misused the facilities we have here in Aruba to organize and control a smuggling route, knowingly and willingly. Romar started in this building.
MOYERS: Solognier worked with the Harms family as an accountant and financial director.
MOYERS: He showed us where the containers of cigarettes were broken down and loaded onto freighters bound for Colombia.
Romar was the intermediary, Solognier says, but it was British American Tobacco that controlled the smuggling aimed at winning those markets.
SOLOGNIER: I firsthand got instructions from British American Tobacco officials telling me, "Look, this client, your client, sell him this because I need him to get this product into Santa Marta."
MOYERS: Colombian government investigators and Solognier say that Philip Morris operated the same way.
SOLOGNIER: As a competitor, we knew they were doing the same.
MOYERS: Solognier is speaking out about these charges, he says, because he complained internally about the activity and was then accused of stealing from the company. An Aruban court eventually cleared Solognier of the allegations.
SOLOGNIER: I don't want to get even. I lost everything, but I'm not going to lose my honor. What I am telling is the truth.
MOYERS: Romar denies any involvement in smuggling and told us their "Involvement ends at delivery at the docks in Aruba, where the goods are delivered to, and received by the Colombian traders."
British American Tobacco and its subsidiary Brown and Williamson e-mailed us that: "Sales to Romar for resale in the freezone are completely legal sales."
RONDEROS: If all the people in Aruba smoked all the cigarettes they import, every man, woman and baby would have to have at least 20 packs a day. So that, definitely, you must know that that's not for their market.
JAMES: No other U.S. manufacturer that I know of stops evaluating their market at the... At the distribution point.
They all go right down to the retail level because that's how they increase their market share, that's how they know what they're doing.
MOYERS: British American Tobacco's own documents show they knew what they were doing- trying to increase their market share in Colombia with the smuggled product in the 1990s.
Former Trade Minister Ronderos says he repeatedly tried to convince the companies to stop the smuggling.
RONDEROS: That it was not something that happened behind their backs, like they claimed.
MOYERS: But it did no good. So in the year 2000, Colombian state governors filed suit in Federal Court in New York, claiming the companies were involved in a "massive ongoing smuggling scheme." Lawsuits by ten European countries and Canada were also filed.
The suits stirred up so much media attention, the cigarette companies were forced into an agreement with the Colombian government. Without admitting any wrongdoing, they promised to help stop the smuggling.
RAMIREZ (TRANSLATED): We told them, "either cooperate or there will be a big scandal about this. They cooperated.
MOYERS: And the smuggling of cigarettes through La Guajira has now slowed to a trickle. Even so, the story's not over. To understand it, we have to follow the money.
ACEVEDO: They develop these routes and they invent, if you will, not only how to get the product into the market, but they also invent how to get the money out of the market.
MOYERS: That money is the key. The lawsuits against the companies actually charge them with money laundering because illegal funds were being used to buy the cigarettes.
Furthermore, government investigators told us some of these companies knew that the illegal funds were drug money.
ACEVEDO: Simply put, large-scale cigarette smuggling could not occur without large-scale money laundering.
In Colombia, narcotics proceeds are made available and used by the smugglers to pay for the smuggled cigarettes.
MOYERS: These checks have been introduced as evidence in the lawsuits against the tobacco companies.
Acevedo says they show that distributors in Aruba accepted drug money for cigarettes and deposited it into bank accounts,
ACEVEDO: From those bank accounts, this narcotics money is then wire transferred to Philip Morris accounts in the United States or in Switzerland.
MOYERS: Al James learned how the process worked when he came to Colombia as an investigator for the U.S. Treasury Department.
JAMES: We began to understand that what they were calling contraband smuggling, was actually the other side of the narcotics money laundering that we were seeing.
MOYERS: During the 1990s, Bogota Colombia was awash in drug money from a flourishing narcotics business. Then Minister of Foreign Trade saw a link between a sharp rise in cigarette smuggling and widespread money laundering.
RONDEROS: More and more so we began to be aware that behind this contraband there was a money laundering operation through a system later to be known as the peso broker.
MOYERS: their name for it is the "Black Market Peso Exchange." It's a complex system, aimed at hiding the fact that the source of the money for the cigarettes and other products is drug sales.
We'll follow the money and see where it goes.
Colombian drug lords smuggle drugs into the United States and sell them for U.S. dollars.
Those dollars are sold to a peso broker, who has offices in both the U.S. and Colombia.
The broker gets rid of those dollars in America by offering them to Colombian importers to pay for U.S. goods, like cigarettes.
The peso broker sends the dollars directly to U.S. companies to pay for the goods, which are shipped off to Colombia, sometimes smuggled in.
The importers sell the goods in Colombia for pesos.
The peso broker takes his profit and places the rest of the money into the bank accounts of the Colombian drug lords.
Everyone in this system makes a profit. The drug lords want to collect their profits as pesos in Colombia, while the Colombian importers need dollars in the United States to pay for goods. And when those goods are smuggled American cigarettes, the tobacco companies increase foreign sales.
"RAUL", PESO BROKER: If you were buying a black market dollars during this time, in Colombia, you were buying drug money.
MOYERS: Raul is not his real name; if his identify were known, he could be killed. He worked as a peso broker during the 1980s and '90s. Part of his job was to take drug cash off the streets and put it into banks as a first step in turning it into legitimate money.
RAUL: You would give somebody a $100,000 in cash and they would give you $100,000 in checks.
MOYERS: Raul used banks to turn large amounts of cash into paper — personal checks, money orders and bank checks — all in amounts under $10,000 to avoid currency reports. Raul used these checks to pay for goods.
RAUL: We would also pay directly to some manufacturers.
MOYERS: Raul says he sent dozens of small personal checks to distribution companies to pay for goods. And even though this is a strange way of doing business, Raul says, the distribution companies always accepted them.
RAUL: The companies don't ask, "Are these drug dollars?" When you send them a check. They never ask.
MOYERS: Cigarettes were one of the most popular U.S. goods to buy with this money in the 1990s, says Raul. And Aruba was where they bought them.
RAUL: Cigarettes is a big part of the smuggling business in Colombia because they pay a lot of duty. They smuggle them in from Aruba, they're always buying black market dollars.
MOYERS: Because the Aruba free trade zone in the '90s was the staging area for so much cigarette smuggling into Colombia, investigators say it also became the collecting point for the drug dollars.
And those two companies involved in the smuggling- companies run by the Harms and Mansur families — well, investigators said, they received the payments.
SOLOGNIER: In the beginning, everything was cash. Small packages, wrapped in cellophane and duct tape.
MOYERS: When Alex Solognier was financial manager for the Harms family company, Romar, he says he personally processed massive quantities of black market dollars in cash, money orders and personal checks.
SOLOGNIER: We had clients paying us with personal checks, bank checks, U.S. checks, for $5,000, $9,000 dollars.
MOYERS: And these checks from the early 1990s show that Mansur trading, was also accepting money this way. These third-party checks, investigators told us, point right at the Black Market Peso Exchange.
Mike Wald is a former FBI agent now working as a government investigator into money laundering in southern Florida.
MIKE WALD, GOVERNMENT INVESTIGATOR: If I were a business in Aruba or Panama or even Miami — those locations are big shopping areas, if you will, for Colombian businessmen — and then I would receive 100 checks, from every subway stop in Queens, New York.
That is a pretty awkward form of payment, is it not? Why is a Colombian businessman paying me with a whole bunch of small checks from different bank accounts?
That means they're being paid through the black market dollar peso exchange and I would bet the ranch it's drug money. In fact, I know it's drug money.
MOYERS: While it was the distributors in Aruba receiving the drug money directly, investigators say the money trail finally led to Philip Morris and British American Tobacco.
JAMES: U.S. Anti-money laundering laws basically state that if you knowingly enter into a transaction where you know that the money is from an illegal activity, and in fact it is from an illegal activity, then you're guilty of money laundering. So it's knowledge that makes the distinction.
MOYERS: We requested interviews with Philip Morris and British American Tobacco so that we could ask them about the money laundering charges facing them.
BAT Refused citing an ongoing British investigation.
Philip Morris sent us this memo, saying they "do not condone money laundering, nor do our business practices facilitate it."
But in Aruba Alex Solognier insists the company he dealt with British American Tobacco, knew that they were accepting drug money for cigarettes.
SOLOGNIER: I can remember one time we had three British American Tobacco officials in '91. We just had a collection coming in of cash, more than $500,000 in cash on the table. And we opened the door and we showed them. And they knew exactly what was happening.
MOYERS: This secret, internal British American Tobacco memo from 1991, released in a U.S. lawsuit, supports Solognier.
The company's Latin American regional director discusses a trip to Aruba when Harms- that's Solognier's boss — told him about a "murky business, being whether drugs money could be being used."
WALD: I think they would like not to know that it's drug money. But I think that, being rational human beings, being businessmen, understanding the markets, understanding who was buying the cigarettes, and why they were being paid that way, and why they were so awkward, that yes, indeed, it was probably drug money.
MOYERS: And Al James, the former U.S. Treasury investigator, says that both Philip Morris and British American Tobacco knew about the drug money because in February 1998, he warned them.
JAMES: I warned them when we were in Colombia. I explained this process to them. I explained our concerns, and I've told you what their reaction was. It was kind of, "What can we do?"
MOYERS: Philip Morris told us that they did "enhance their policies" to prevent their distributors from accepting third party checks or any other form of payment associated with the Black Market Peso Exchange.
But the Colombian states' lawsuits allege that during the 1990s, the Aruban tobacco distributors — the Mansurs and the Harms families — were following instructions from above.
ACEVEDO: The real group that controlled the activity and gave them instructions were the multinational tobacco corporations themselves. The distributor in Aruba was just a pawn, if you will, in the smuggling chess match.
MOYERS: The companies in Aruba also provided a convenient scapegoat when law enforcement began to investigate.
JAMES: I talked to Philip Morris directly. Their reaction was that, "Hey we sell cigarettes to distributors. What they do with them is not our problem."
MOYERS: But why would a multinational company continue to sell to distributors who they knew were accepting money in these unbusinesslike ways? The answer is simple — sales.
The Black Market Peso Exchange, U.S. Customs estimates, launders approximately $5 billion a year. And it's not only cigarettes.
RAUL: It was very widespread. Cars, dishwashers, refrigerators, all kinds of products were bought with black market dollars.
WALD: Colombian Black Market Peso Exchange, money laundering, may not be a good thing, but it certainly has not hurt the U.S. economy.
It keeps dollars in circulation, it keeps U.S. goods moving, it keeps the entire economy moving. It may not be a good thing, but economically, it may not be a bad thing.
MOYERS: Government officials told us money laundering is a tough nut to crack, because U.S. law isn't clear enough for them to prosecute, even where the company is ignoring all the warning signs.
And that's unfortunate, they say, because when any of America's largest companies get involved in money laundering, there are disturbing implications for efforts to stop international crime.
JAMES: Money is the driver here, and as long as criminal enterprise can get their money and can move it back into the legitimate financial systems, they're going to continue to exist.
MOYERS: In the meantime, the tobacco companies have increasingly moved their international distribution business abroad.
Recently, Philip Morris, for one, transferred its entire overseas branch from New York to Switzerland, where financial records are protected by strict secrecy laws.
In the U.S., the tobacco companies moved quickly to defend themselves. Last fall in Washington, Big Tobacco went straight to one of its most potent allies, the United States Congress, to try to protect itself from those smuggling and money laundering lawsuits.
It happened four weeks after the September 11 attacks. Congress was in chaos. A letter tainted with anthrax had been found, offices were evacuated, staffers tested for infection.
In the midst of the confusion, Congress was debating The Patriot Act, legislation designed to meet the threat of terrorism.
SENATOR DASCHLE (FROM TAPE): It addresses money laundering, it addresses all the needs that have been brought to our attention by the Attorney General and this administration.
MOYERS: Among other things, The Patriot Act expanded law enforcement's ability to go after the money for terrorism, drug trafficking, and other organized crime.
REP. HENRY WAXMAN (D-CA): The bill had a provision that would expand the definition of money laundering to include those kinds of strategies like cigarette smuggling that would have defrauded foreign governments. It defrauds them because they're not able to collect their taxes.
MOYERS: Those exact charges were made in the lawsuits the tobacco industry was facing in Federal Court in New York — those cases, remember, brought by the states of Colombia, the European Union and Canada.
WAXMAN: The governments of Canada and the European Union and in Colombia are suing the tobacco companies, and they want to sue them in the United States. The issue, however, is whether they have standing to sue. And so far, the courts have said that they don't have standing to sue in the United States.
MOYERS: The companies argued in court those lawsuits should be thrown out because of an 18th century law called the Revenue Rule, which said foreign countries cannot use United States courts to collect their taxes.
The Patriot Act would have changed that. It would have given those countries the legal basis to sue Big Tobacco and other companies in U.S. Courts.
So the tobacco lobby turned to the White House and the U.S. Chamber of Commerce for help, and they asked Congress for changes in The Patriot Act.
WAXMAN: Now the strange thing was that when The Patriot's Bill, the omnibus anti-terrorist legislation, reached the House floor, that provision was dropped from the bill.
CONGRESSIONAL HEARING FROM TAPE: Gentlemen from Ohio, Mr. Oxley is recognized for three minutes.
MOYERS: It was eliminated, Waxman told us, by Michael Oxley, the Ohio Congressman who chairs the Financial Services Committee. On his side was the powerful Majority Whip, Tom Delay, one of the biggest supporters of big tobacco and one of the biggest recipients of big tobacco's money.
The Congressmen were acting at the request of the Bush administration, which has also received large donations from the tobacco companies.
WAXMAN: The tobacco companies outside of the view of the public and even members of Congress, struck the provision that would have expanded the definition of money laundering to protect themselves from being sued.
MOYERS: It happened behind closed doors, and it went unnoticed, says Waxman, in all the consternation surrounding the anthrax and terrorism attacks.
WAXMAN: It was the perfect time with all the distractions that would keep anybody who might have caught this change from taking place from even knowing what was going on with that particular provision.
The tobacco companies are famous in the Congress for taking care of themselves even though it might be against the public interest and in the case of The Patriot Act, I believe against the national interest.
MOYERS: Four months later, in February of this year, the suits against the tobacco companies were dismissed on grounds that those countries could not sue in U.S. Courts to collect their taxes. Big Tobacco had won.
The legal battles go on. Canada, the European Union, and Colombia are appealing those lawsuits that were dismissed, and there may be a new suit filed against tobacco companies on separate money laundering charges.
The plaintiff's difficulty in establishing jurisdiction is a key issue here, and it goes beyond tobacco. If it's not possible to assure an honest and ethical playing field among foreign trading partners, the very idea of globalized free trade is dead on arrival.
For more on this, and on Big Tobacco's campaign contributions, read Mark Schapiro's full report in THE NATION magazine, and go to pbs.org.
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