THE CRIMINAL CASE AGAINST THE TOBACCO INDUSTRY by Lowell Bergman and Oriana Zill Bergman is the correspondent and Zill is the associate producer for FRONTLINE's report, Inside the Tobacco Deal.


Target letters have gone out from the Special Task Force on Tobacco of the Department of Justice to the attorneys representing Brown & Williamson Tobacco, the corporation, and to a number of the corporation's senior executives. Attorneys familiar with the "target letter" procedure told PBS FRONTLINE that the letters are a notification to the nation's third largest cigarette company that it could expect to be indicted by the federal grand jury, and was being afforded an opportunity to present evidence prior to the prosecutor actually asking for formal charges.

Sources close to the investigation tell PBS FRONTLINE that actual indictments are not expected for some time, "probably months." The notification of the Brown & Williamson executives and attorneys is seen by some observers as an invitation for them to cooperate with the Department of Justice before they are charged. That's exactly what DNAP, the company which worked with Brown & Williamson [B&W] to develop genetically engineered tobacco plants with an artificially high nicotine content, chose to do. In exchange for pleading to a minor charge and paying a fine, DNAP has been cooperating in the ongoing investigation of B&W, providing testimony that has in part led to the issuance of the "target letter".

The investigation of B&W and its officials is said to be focused on the company's statements to the FDA about both allegedly boosting the impact of nicotine with additives; and with statements they made in person as well as written comments to the FDA concerning the genetic engineering of tobacco plants [Y-1 Tobacco]. The individuals who have been notified are said to have participated in meetings at the FDA that were tape recorded, and, participated in preparing official B&W submissions - documents - to the FDA during the agency's comment period on its proposal to regulate the tobacco industry.

The FDA was first informed of the "impact boosting" technology and the genetic engineering project back in 1994 by a then-secret source, Dr. Jeffrey Wigand. Later Dr. Wigand -- the former V.P. of Research and Development of B&W --- repeated those charges in a deposition in the Mississippi Medicaid suit in November of 1995.


Those target letters represent a watershed in the now three-year old Washington-based federal criminal investigation of the tobacco industry. It began as a pro forma inquiry that was assigned to several Justice Department prosecutors who were between cases. Today it is a growing Special Task Force in the Fraud Section of the Criminal Division of the Department of Justice, occupying a suite of offices that includes over a dozen attorneys and an equal number of full-time senior FBI Agents. The Task Force became one of the DOJ's major criminal cases in March of 1997, when senior FBI officials offered to provide a full time squad of experienced agents. The FBI's commitment of personnel was a signal that the DOJ management believed that there was in fact criminal conduct that might be proven in court.

Initially, the investigation focused on the statements of the tobacco CEO's in April of 1994 that they did not `believe' that nicotine was addictive. While the DOJ Task Force explored the possibility of perjury charges, that option has been abandoned because of the difficulty of prosecuting anyone for their "belief".

The Task Force is now focusing on allegations of conspiracy to defraud; violations of "1001" -- false statements to the U.S. Government; tax violations related to the Council on Tobacco Research; and the degree to which the industry's lawyers conspired to deceive trial courts and the U.S. Government when it came to revealing what it knew about the health effects of tobacco.


Sources tell PBS FRONTLINE that the role of the attorneys -- both inside and outside counsel -- is a constant subject of interest to the investigators. Rulings in Minnesota's Medicaid case, and similar rulings in Florida's Medicaid case citing the "crime fraud exception" have stripped away the use of the attorney/client privilege by tobacco's lawyers. Simply, you cannot use the confidentiality granted to attorneys to shield what appears to be criminal conduct.

Millions of documents have been released as a result of these findings. In fact, it was the first such finding by a federal judge six years ago that would lead to the first serious criminal investigation of the industry.

Prosecuting lawyers for aiding and abetting a criminal conspiracy is a relatively new development. Task Force lawyers are looking at a recent ruling in Florida as they consider charges against the tobacco lawyers. In a recent CALI CARTEL CASE, the lawyers who were involved in assisting the drug lords were charged for being part of the conspiracy. They claimed their role was that of an attorney, a counselor and that they are protected by their privileges. However, the federal judge ruled that whether or not the attorney/client privilege applied was a matter that would be decided by the jury. The jury heard the case and came back deadlocked. Prosecutors in the tobacco investigation have been contemplating a similar approach.

Dr. Gary Huber, for example, has been interviewed extensively by FBI agents and federal prosecutors. Dr. Huber, for many years a favorite scientist of the tobacco defense firm of Shook, Hardy & Bacon, maintains in an interview with FRONTLINE that he was told by David Hardy, the late senior partner and architect of the tobacco industry's defense strategy, that the purpose of their sponsorship of medical research was to delay regulation.


Initially [see Blakey below] some of the Justice Department personnel -- especially the FBI --- recommended using the RICO, or racketeering, statutes. This was rejected in part because the Fraud Section of the Criminal Division of the Justice Department rarely uses the RICO Act as opposed to the Drug or Organized Crime Sections. The failure to use RICO limits some aspects of the case that could be made against the industry both in terms of the extent of the conspiracy and the severity of the charges.


With the exception of parts of the B&W investigation, much of the tobacco industry case is a document case. Investigators regularly peruse the Internet for documents that have emerged from cases around the country, especially Minnesota. "Minnesota saved us a lot of time. They litigated all the issues raised by the industry to block discovery, and we are benefiting as a result," explained one Task Force member.

One veteran investigator remarked that it has to be a document case because, "...we get more informants from the Mafia then we do from inside tobacco".

The FBI even established a web site inviting individuals with knowledge of the industry to contact them. There is no indication that it has been a great success. One source says that the lack of witness/informants, and the extensive lawyering "especially by Phillip Morris makes this a very difficult case."


The Task Force is operating under a deadline of April of 1999 due to the five-year statute of limitations. Charges could be brought based on a starting point of April, 1994 -- the appearance of the CEO's of the industry before Congressman Waxman's Committee, and the Meehan Memorandum. Professor Robert Blakey and others believe that a move by the prosecutors to consider RICO charges - Blakey wrote the law - would relax that deadline, and would allow them to include the historic roots of the tobacco industry's strategy to keep information from the Surgeon General as well as other government entities involved in protecting the public health.


On the roster of the prosecutors involved in the Task Force is a Ms. Elisa Liang. While she has an office in Washington at 1500 New York Avenue with the rest of the Justice Department Tobacco Task Force, her real home is in the Eastern District of New York [Brooklyn]. Ms. Liang has inherited, and is passing on the results of the first serious criminal investigation of the tobacco industry. Her particular focus is the Council on Tobacco Research, the non-profit tax-exempt entity established by the industry [see below] to fund and find answers to the questions surrounding tobacco and health.

The initial probe in Brooklyn started some six years ago when a federal judge wrote a scathing opinion about the conduct of the industry. In February 1992, U.S. District Judge H. Lee Sarokin wrote these words in the case of Susan Haines against the tobacco industry:

" wonders when all industries will recognize their obligation to voluntarily disclose risk from the use of their products. All too often in the choice between the physical health of consumers and the financial well-being of business, concealment is chosen over disclosure, sales over safety, and money over morality. Who are these persons who knowingly and secretly decide to put the buying public at risk solely for the purpose of making profits and who believe that illness and death of consumers is an appropriate cost of their own prosperity! As the following facts disclose, despite some rising pretenders the tobacco industry may be the king of concealment and disinformation."

U.S. District Judge H. Lee Sarokin
Newark, N.J. 1992

Judge Sarokin's opinion was the result of years of tobacco and health litigation that he presided over including the famous Cipollone case. He was ruling in this matter on a motion by the same lawyers involved in that case. The idea was to unseal and reveal the documents which the industry had claimed were protected by the attorney/client privilege. Sarokin's conclusion, given his opening remarks, was a given:

"The court concludes that the evidence overwhelmingly favors applying the crime/fraud exception in this case..."

Sarokin ruled that the documents had to be handed over. But his scathing, emotional opinion gave the industry an opening, and they applied to the Third Circuit Court of Appeals and Sarokin eventually was removed from the case for bias. Some who agreed with him lamented his outburst because it removed a strong, knowledgeable jurist from the case.


The removal of the Judge did nothing to stop the impact of his decision. Rarely, if ever, has a federal judge suggested that the mountains of documents should be made public because they were really part of a massive fraud, and that the lawyers were guilty of a potentially criminal cover-up.

In Brooklyn, back at the headquarters of the U.S. Attorney for the Eastern District, prosecutors and investigators read about Sarokin's blast, and reacted. One told FRONTLINE:

"If a Federal Judge is saying the [tobacco] attorneys could not have documents held privileged because of the crime/fraud exception, you assume there is a crime or a fraud there."

And so an investigation, a criminal investigation, of possible fraud by the industry was initiated. The Brooklyn federal probe approved by US Attorney Andrew Maloney and supervised by one of his deputies, Matthew Fishbein, immediately set off a cascade of memos from inside the industry as subpoenas for documents arrived.

The investigation focused on areas already prepared by the plaintiffs in Cipollone and Haines, and memorialized by Judge Sarokin: That the tobacco industry had created an institution, the Council on Tobacco Research, that promoted allegedly objective scientific research into the health effects of tobacco. In reality, that research was controlled to make sure it either disproved any causation between tobacco and disease, or the research was stopped before it could reach a conclusion.


There were other criminal investigations of the tobacco industry popping up around the country. Cigarette smuggling on a massive scale from low tax tobacco states to high tax states like New York had long been a favorite activity of organized crime. And smuggling cigarettes into countries in Europe and Asia to avoid taxes or undermine a national tobacco monopoly was a big business that could only go on if U.S. tobacco manufacturers were supplying the cigarettes that are then smuggled. While the FBI launched a number of preliminary inquiries, none bore fruit.

In New Orleans, a U.S. Customs undercover operation picked up a massive smuggling operation involving Brown & Williamson Tobacco. The New Orleans case revealed a conspiracy to transport untaxed cigarettes into Canada, which had recently jacked up its tobacco tax. While that case would result in arrests and at least one guilty plea (by a regional manager for the tobacco company), B&W successfully employed well-financed, hardball legal maneuvers and got the Justice Department to remove the lead prosecutor in the case and filed lawsuits (later dropped) against individual officers of U.S. Customs.

Meanwhile, the U.S. Attorney for the Southern District of New York was examining the failure of Phillip Morris to disclose its potential liabilities to stockholders in its SEC filings. And in Washington, the Anti-Trust Division of the Justice Department was beginning to look at an industry-wide conspiracy to keep a "fire safe" cigarette off the market. Both probes appear to have concluded without resolution.


The Eastern District [Brooklyn] investigation had the advantage of all the work done by the Cipollone lawyers, and the fact that the industry had claimed a reported $500 million in charitable contributions to its Council on Tobacco Research. Those contributions were tax deductible, and so the theory became that if it could be shown that the contributions were not for real research, but in essence public relations material designed to defeat lawsuits and regulation, then there might be tax fraud.

In fact, documents now available from the tobacco companies' files -- many concealed from the public and the government by the use of the attorney/client privilege -- state that the CTR was in fact a "public relations front" whose research grants were guided by attorneys. But, according to one senior investigator in the Eastern District of New York case, the investigation got bogged down in document production. "We didn't get to the heart of the case fast enough, since there are so many documents that we were trying to go through."

But the theory that attracted the Eastern District is still active today in the current investigation, and in many of the Medicaid suits brought by the State Attorneys General. It is based on the industry's public relations response to the first health scare over tobacco nearly forty-five years ago.


In 1954, when the first allegations emerged about smoking and cancer, the industry responded by issuing an advertisement in hundreds of national newspapers, a "Frank Statement to Cigarette Smokers." In it, the industry promised to be honest with the public. "We accept an interest in people's health as a basic responsibility, paramount to every other consideration in our business."

They also founded a new "independent" research organization, called the "Tobacco Industry Research Committee." The name was later changed to the Council on Tobacco Research. They pledged that this group would be independent and staffed with scientists of "unimpeachable integrity and national repute."

In addition, the industry and its lawyers sponsored what were called "Special Projects," that were supervised by a coordinating Committee of Counsel. The Haines lawyers alleged that the "Special Projects" were aimed at obfuscating the debate on smoking and health and hiding evidence that smoking was addictive and caused diseases.

"We started looking at the Council on Tobacco Research, the Committee of Counsel and the Tobacco Institute because these were the only places where the industry crossed paths, and the natural place where they would set industry-wide policy," said a source familiar with the New York case. The investigation became overwhelmed with documents. This source reveals that while the Brooklyn case hit all the major points being made today, they simply lacked focus: "The bottom line is that we should have been looking smaller, to prove that specific things are crimes, rather than trying to go through one million documents and get the big picture."


While the Brooklyn case eventually landed on the back burner, a seminal event in April, 1994, would result in setting off the current special tobacco investigation. That event was the testimony of the seven tobacco executives before Henry Waxman's Congressional Committee. Among the witnesses were William Campbell of Philip Morris, James Johnston of RJR, Andrew Tisch of Lorillard and Thomas Sandefur of Brown & Williamson. All the executives, along with their colleagues from Liggett, US Tobacco and others, would testify that they did not believe nicotine to be addictive. Those statements, combined with an avalanche of publicity around an ABC News broadcast about nicotine manipulation, created a controversy that still plagues Big Tobacco today.

That day, the tobacco executives also testified that they do not manipulate the levels of nicotine in their products in order to addict smokers. Several months earlier, the FDA had announced plans to consider regulation of nicotine as a drug. The tobacco executives vehemently opposed the regulation of nicotine. They claimed nicotine levels were simply linked to tar levels, and that nicotine was merely one component of the "taste" experience in smoking. 'DAY ONE' STORY

The testimony that they "believe that nicotine was not addictive," combined with the roiling public controversy over an ABC News "Day One' story that described the alleged manipulation of nicotine, focused the public on the issue and the industry's willingness to dissemble. But this broadcast and other events were taking place during a period when Big Tobacco -- the major companies -- only played hardball. They sued ABC News eventually intimidating its corporate management into forcing a settlement and retraction onto the News Division. But the suit against ABC was a short-lived victory for Big Tobacco.

Many Americans were shocked by the tobacco executives' statements and their confrontational attitude. Congressman Marty Meehan, [D-MA], a former federal prosecutor, was especially offended and began drafting a letter to Attorney General Janet Reno. Meehan and his staff researched and wrote what is known as a prosecution memo - a document that outlines the law and the instances of alleged crime.

Meehan focused on several main legal issues - Perjury, or lying to Congress; 1001, or Deception of Federal Officers or Agencies; Fraud, a scheme to lie or mislead, especially through the mail or wires; and Criminal Conspiracy or RICO, a conspiracy to commit criminal acts.

He outlined some of the evidence and encouraged the Justice Department to seek out more from the mountains of secret industry documents they could subpoena. According to FRONTLINE sources, the Justice Department was not enthusiastic about the case at this point. But Janet Reno was obliged under Justice Department procedure to conduct a preliminary inquiry when a Member of Congress requests an investigation. The letter and the memo wound up on the desks of two experienced prosecutors, Ms. Jimmye Warren and Mr. Richard Wiedis, who began to investigate.


In the spring of 1994, another event took place that would invigorate the criminal case, and give the DOJ prosecutors a lot of reading material. Merrell Williams had been a paralegal for a law firm working with Brown & Williamson Tobacco. His job was to sort through industry documents. While reading documents, Williams began to understand the depth of industry deception and began secretly copying documents and taking them out of the building. By the time he was fired, he had copied 4,000 pages of internal documents.

Among the documents was a memorandum by Brown & Williamson general counsel, Addison Yeaman, which states that "we are in the business of selling nicotine, an addictive drug." That document remains today one of the most damaging ever to emerge from inside the industry.

The Merrell Williams documents were crucial to the developing criminal investigation. They contain evidence that the industry had known about the dangers of cigarettes and kept it hidden from the public. Justice Department officials got copies of the documents and added them to the growing pile of evidence which included another cache of memorandums from inside Phillip Morris that were leaked to the press, as were the B&W files.


Around this time, a whistleblower emerged named Jeffrey Wigand. Wigand had been a Vice President of Research for Brown & Williamson until he was fired in March of 1993. He provided the invaluable resource of an insider's knowledge of a major tobacco company. It was Wigand who could bring to life and bring up to date the documents that Williams had liberated.

Wigand testified in November 1995 in a sealed deposition in Pascagoula, Mississippi. He had already been contacted by the Justice Department prosecutors and at least one of them attended his deposition. Wigand's testimony would provide a road map that would later reach fruition in the target letters that were sent recently to B&W.


Wigand testified that Brown & Williamson edited out sections of documents that might prove damaging in future litigation. He told of shipping documents out of the country so they would be unavailable for examination in the United States if subpoenaed.

He described the process of treating nicotine with ammonia in order to boost its impact on the brain. "The primary method of managing or manipulating nicotine delivery," said Wigand, "is by use of the ammonia compound." He testified that his boss Thomas Sandefur had lied under oath to the United States Congress when he stated that "I believe that nicotine is not addictive."

Finally, he described how Brown and Williamson had genetically engineered a special tobacco plant named Y-1, which was twice as high in nicotine as regular tobacco. They then illegally exported the tobacco seeds to Brazil to grow and imported the tobacco back to the United States for use in B&W cigarettes.

Wigand's testimony would jump-start the Justice Department's investigation. They now had someone to explain the documents and bring them to life. Wigand soon became a federal witness and one of the most important sources for Main Justice. Wigand's importance was underscored by a ruling by federal judge in Washington, D.C. one month after his deposition. Reacting to attempts by Brown & Williamson to question Wigand as part of their lawsuit against him, the judge put a protective shield around him for the next six months as the DOJ proceeded to debrief him.


B&W was suing Wigand in part for his public disclosures, but also because they no doubt suspected that he was behind the trouble they were having with the FDA. More than a year earlier, Wigand had begun secret meetings with the FDA to help in their attempts to prove that nicotine is an addictive drug that should be regulated. During these meetings, Wigand explained in detail the Y-1 tobacco story, including the fact that Brown & Williamson Tobacco had hired a genetic engineering firm called DNA Plant Technology to develop the high nicotine plants. He also told them to look for the patent for Y-1 in Portuguese in Brazil.

Armed with this information, ten FDA investigators, including Special Investigator Jack Mitchell, traveled to the Brown & Williamson offices in Louisville, KY, to question the company. Without letting on that he knew about Y-1, Mitchell questioned the Brown & Williamson officials and asked them about genetic engineering and plant breeding.

"One of our party of ten FDA people asked the question to whether Brown & Williamson engaged in any genetic engineering or genetic changing of the nicotine in the plants," said Mitchell during his interview with FRONTLINE. "And, at first, the answer we got was no. But then [they], as I recall, clarified that answer by saying Brown & Williamson indeed did fund some research on that project at private universities, but they did not do the genetic engineering research themselves."

Mitchell also asked them many questions about manipulating nicotine, and the answers to his questions were not straightforward. "I think there were executives at the companies who have been, to be kind, less than candid about some of these key issues," Mitchell told FRONTLINE. This is important because producing Y-1 is not, itself, a crime under United States law. However, as Mitchell pointed out, "You have an affirmative obligation as a company to provide accurate and honest information to the government, even if you're not a regulated industry."

After this session with the FDA, B&W appeared to realize their mistake. Representatives from DNAP, the company that conducted their genetic research, and B&W descended on the FDA as the Administrator, David Kessler, was preparing to testify. According to sources, those meetings with Kessler's Chief Deputy -- Mitch Zeller --- now provide some of the statements that are part of the grand jury investigation. Those statements, combined with statements made in B&W's filings with the FDA by their executives, have also triggered some of the target letters that make up the first substantive criminal prosecution of the industry.


In the midst of the state attorneys general Medicaid cases, a Florida judge suggested that given the massive nature of the fraud he was learning about in the courtroom, that the RICO statute might apply to the industry. That hint led the Florida Attorney General, Bob Butterworth, and the lead plaintiff's attorney, Ron Motley, to go in search of an expert in the racketeering law and its use. They recruited the former federal prosecutor G. Robert Blakey, who had written the RICO law.

After initial skepticism, Blakey developed an analysis of the tobacco industry based on RICO. Central to his argument is his allegation that the industry conspired to destroy evidence that would be damaging to it in court. While this theory has not been adopted by the Department of Justice, it has been the subject of internal discussions.

FRONTLINE has received various documents from lawyers involved in the RICO litigation in the Florida and Texas Medicaid cases. These documents support Blakey's theories and would have been part of the court cases had those states not settled their suits. Two of those documents are especially on point. In a 1977 Philip Morris memo from a Mr. Dunn to Dr. Thomas Osdene (PM Director of Research), Dunn says:

"I have given Carolyn approval to proceed with this study. If she is able to demonstrate, as she anticipates, no withdrawal effects of nicotine, we will want to pursue this avenue with some vigor. If however, the results with nicotine are similar to those gotten with morphine and caffeine, we will want to bury it. Accordingly, there are only two copies of this memo..."

Another document, a 1972 Committee of Counsel memo from Fred Panzer to Horace Kornegay, outlines the basic strategy of the industry:

"For nearly twenty years, this industry has employed a single strategy to defend itself on three major fronts - litigation, politics and public opinion. While the strategy was brilliantly conceived and executed over the years helping us win important battles, it is only fair to say that it is not, nor was it intended to be - a vehicle for victory. On the contrary, it has always been a holding strategy, consisting of:

- creating doubt about the health charge without actually denying it

- advocating the public's right to smoke, without actually urging them to take up the practice

- encouraging objective scientific research as the only way to resolve the question of the health hazard."

The document goes on to discuss setting up more projects and releasing the results in book form only if favorable, especially directing the "favorable" research to their allies in Congress.

The RICO argument has continued to be used in other third party cases against the tobacco industry. In fact, there was a recent decision in a New York District Court to accept the RICO argument in the Taft-Hartley Act Funds case against the tobacco companies.


Ron Motley developed a witness who would be invaluable to his RICO argument, which had been accepted by the federal court in Texas as well as Forida's state court. The witness emerged because internal industry documents revealed that one of the many projects they supported was in fact a sham. It was called "The Havard Project," and it was run by a scientist named Dr. Gary Huber. Motley contacted Dr. Huber and showed him many of the documents, eventually convincing Huber to become a whistleblower for the state Medicaid cases.

FRONTLINE interviewed Dr. Huber in March 1998 to hear his story. Huber described to us, from an insider's perspective, how the industry had used him, manipulated his research and wasted his career. "Every scientist that the industry had any contact with had a keeper, within the industry, a lawyer." Huber was visited repeatedly by tobacco executives and he briefed them on his research. But he was never left alone with the executives, there was always a lawyer present, to protect any conversation under attorney/client privilege.

Huber's entire research program had been centered on the attempt to create emphysema in animals, to study whether there were links between smoking and emphysema. Huber worked for years in the lab, exposing rats and pigeons to cigarette smoke. Then, when he finally achieved some results and produced emphysema in animals, his research was cut off by the industry and his lab shut down.

When Motley contacted Huber, he showed him a document, which FRONTLINE also has, which indicates the industry had created emphysema in animals as early as 1969. But they never shared this research with Huber. "We worked night and day for years and we did develop emphysema in animals," Huber says. "And then I learned, 25 years later that they had already done this within the industry. And done it before the Harvard Project started and didn't tell us about it."

When asked why the industry would do this, Huber is clear in his opinion. "From all I've seen it was to buy time. To buy time to pass the liability from the manufacturer to the consumer with the labels, to buy time to avoid regulation for greater profit. To buy time to diversify their markets overseas. To buy time to diversify their enormous profits into other industries. To buy time."

Huber discovered that his career had been squandered to a grand design and he decided to come forward. He has been interviewed extensively by the Justice Department as part of their case.


The recent Department of Justice agreement with Liggett and its owner, Bennett LeBow is unlikely to provide new revelations. The negotiations had been going on for months as to whether LeBow and Liggett should be given any special consideration. It is expected that Liggett's waiver of the attorney/client privilege will force its attorneys and others to provide evidence to the Task Force.

It is not clear how pending legislation in Congress will affect the criminal investigations. The attorneys for Big Tobacco have already tried to get clauses in the McCain bill that would limit their exposure. Any decision to actually bring conspiracy charges against the companies and their executives could influence whether or not the industry will get any protection from catastrophic civil damages.


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