EU sues tobacco giants

Michaele Schreyer: heading the EU's case against the tobacco giants

The European Commission is suing US tobacco giants Philip Morris and RJ Reynolds over alleged cigarette smuggling into the European Union.

"This civil action alleges breaches by these corporations of the US Racketeer Influenced & Corrupt Organisation act," EU Budget Commissioner Michaele Schreyer said on Monday.

"The Commission seeks compensation for financial losses the EU has suffered and injunctive relief in order to prevent further smuggling," she said.

"The protection of the financial interest of the European Union is a high priority of the European Commission."

The EC has filed lawsuits against the firms - makers of Marlboro and Camel cigarettes respectively - in a New York court.

The two companies have been at risk of the action since July, when the EU warned it would sue top US cigarette makers to recover billions of euros in lost tax revenues.

Biggest single fraud

The EU claimed that cigarette smuggling is the biggest single fraud against its budget and said it was pursuing its claim in a civil, rather than criminal, court because it wanted financial compensation not punishment.

It said the smuggling operations involved shipping illegal cigarettes into every EU country each year from unidentified third countries.

Several thousand container loads were being imported, without duty of about 1m euros per container of cigarettes being paid, it said.

Announcement of the start of legal action against Philip Morris and RJ Reynolds comes shortly after the UK government said it was launching an investigation into a third tobacco giant, British American Tobacco, over allegations of complicity in cigarette smuggling.

BAT, which owns the Benson & Hedges and Rothmans brands, recently stepped up its defence against the allegations, accusing the government of harassment and saying it represented the "responsible part of the business".

Compensation clause

The law on which the EU case is built was introduced in 1970 to combat organised crime.

It entitles successful plaintiffs to recover in compensation up to three times the amount of money lost through proven criminal activity.