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Last Updated: Monday, 8 November, 2004, 11:45 GMT
Laundering suit for spirits firms
Bottles of Smirnoff Vodka
Diageo strongly denies charges of involvement with laundering
Colombia is suing some of the world's biggest spirits firms, such as the UK's Diageo and France's Pernod Ricard, for allegedly selling to drug traffickers.

The suit, lodged in New York, uses the US's powerful racketeering laws.

It suggests the firms bypassed state alcohol distribution networks to work directly with drug dealers - thus helping to launder drug money.

The firms have denied the charges, and Diageo said it worked with authorities to help curb "informal trade".

"Diageo is very proud to responsibly market and sell its brands in Colombia... and adheres to the laws and regulations in the countries where our brands are sold," the firm said in a statement.

Pernod Ricard denies the allegations and will vigorously defend itself
Pernod Ricard statement

It had yet to see a copy of the suit filed both by Colombia's government and by several local authorities in New York, it said.

According to Pernod Ricard, the suit alleged that it and other firms had "competed unfairly with government-owned businesses" by "selling their products into illegal channels and receiving payments from companies who deal in laundered funds".

"Pernod Ricard denies the allegations and will vigorously defend itself," the firm said.

Also included in the suit is Seagram - whose spirits business was bought jointly by Diageo and Pernod early in 2002 - and United Distillers.

Laundering scheme

Diageo contends that the suit is old news, and that it has warned investors for some years about the risk of legal action.

Its 2003 annual report said that in August 2000, the firm found out about possible lawsuits over unpaid excise duties owed on products "smuggled into Colombia by third parties".

Colombia's suit alleges that from 1990 onwards the companies accused were bypassing official - and heavily-taxed - channels for importing alcohol.

Their business partners, the suit says, included drug traffickers and terrorist groups.

Shipments of goods such as cigarettes, machinery and spirits are widely used to launder criminal profits.

Goods are smuggled into Colombia, having been paid for in dollars earned by drug sales in the US.

The recipients then reimburse drug networks in Colombian pesos, thus avoiding both excise duties and currency and exchange controls.

In the process, the drug bosses have repatriated their profits without any money crossing a border or entering the international financial system.

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04 Sep 03 |  Business

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