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Last Updated: Monday, 20 September, 2004, 23:04 GMT 00:04 UK
The $280bn question: is tobacco a racket?

By Stephen Evans
BBC North America business correspondent

Cigarette smoker

It may seem odd to bracket some of America's best known corporate names with mafia dons and underworld mobsters but that's precisely what the government of the United States is doing.

In a court in Washington this week, Philip Morris and other tobacco companies are being accused of conspiring and running "Racketeer Influenced and Corrupt Organisations".

Under the Rico legislation which was designed to break organised crime rings, the august companies are accused of conspiring to defraud the public for 50 years.

The Department of Justice is seeking the "disgorgement" of the profits from this alleged fraud, a cool $280bn.

Plaza plot

The conspiracy, the government says, started on 15 December, 1953 at a grand room in the Plaza Hotel on the south-east corner of Central Park in New York.

There's no doubt that executives from the major tobacco companies met there and discussed the state of the industry, including the scientific research on the effects of smoking.

It's the government's contention that they then agreed to present a unified strategy denying the harmful effects - and that added up to fraud. Scientific evidence was mounting that (1) tobacco was addictive and (2) that it was harmful.

Despite that evidence, the industry devised a scheme to, according to the charges, "preserve and enhance the tobacco industry's profits by maximizing the number of smokers "and to avoid adverse liability judgements" linked to the adverse affects of nicotine.

'In good faith'

This meant, for example, denying that nicotine was addictive. Clearly, choosing to harm oneself of one's own free will is one thing, but being hooked on a drug against one's will is a different legal thing.

Ten years ago, there was a moment of true drama at a Congressional hearing when the presidents of the big tobacco companies sat in a line in a Congressional hearing and were asked whether they thought nicotine was addictive.

In the space of 30 seconds, each of them, one by one, denied their product's addictive quality. That, the government alleges, was part of the conspiracy.

The companies have changed their stance over the years.

Today, Philip Morris, part of Altria, accepts that nicotine is harmful. Altria's General Counsel, William Ohlemeyer, told the BBC that statements made in the past may have been wrong but they weren't dishonest.

When the executives said that nicotine was not addictive, they were stating what they believed, and not behaving like mobsters defrauding the public.

Up in smoke

The government will present a mountain of internal industry documents that its lawyers believe indicate beyond doubt that scientists within the companies knew exactly what the true nature of tobacco was, even as the view presented to the public was much more benign.

There doesn't seem much doubt that the tobacco companies deceived the public - they've already lost a string of cases. The real question will be for how long the deceit lasted.

William Ohlemeyer said that to get the full "disgorgement" of profits under the Rico legislation, the government would have to prove that the conspiracy is still going on and that it will continue.

Since the tobacco industry now accepts that nicotine is harmful, it's hard to argue that it continues to deceive the public, and that will probably limit the financial damage.

The full "disgorgement" of past profits would bankrupt the industry but few expect that to happen.

All the same, an avalanche of bad publicity is about to hit the tobacco industry. And a lot of people have died from cancer that they never expected to get - and nothing will undo that.


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