Europe smuggling case up in smoke

Europe claimed it was losing huge revenue on cigarettes

The European Commission has lost a legal battle against two US tobacco giants which it had accused of helping smuggle cigarettes into Europe.

The case against Philip Morris and RJ Reynolds - makers of Marlboro and Camel cigarettes respectively - was thrown out by a federal district court in the US.

The European Commission launched the action after claiming that the firms were involved in selling contraband cigarettes, costing it millions of dollars in lost tax. It wanted financial compensation and action to force a change of policy.

The EC's budget cannot, as a matter of law, be diminished as a result of the smuggling activities alleged in the EC complaint

Court ruling

But the court in Brooklyn, New York, ruled that the European Commission's budget could not be diminished by any such smuggling activities - and so the case could not stand in law.

Judge Nicholas Garaufis said the European Commission "cannot show that it has suffered any injury as a result of defendants' illegal acts".

"The EC's budget cannot, as a matter of law, be diminished as a result of the smuggling activities alleged in the EC complaint," the ruling said.

Budget 'fraud'

"For this reason, the EC lacks standing to bring suit... and the EC complaint must be dismissed."

Europe launched the case last November, four months after it had warned the firms that it was considering suing to recover billions of euros in lost tax revenues.

The commissions claims that cigarette smuggling is the biggest single fraud against the European Union's budget.

The issues of contraband cigarette smuggling and counterfeit cigarettes are as great a concern to Philip Morris as they are to governments

Philip Morris vice-president

It says thousands of container loads of illegal cigarettes are shipped into the EU from unidentified third countries. Officials estimate that each load represents around 1m euros ($858,000) in lost revenue.

Philip Morris said after the US ruling that it wanted to discuss the issue with European officials.

"The issues of contraband cigarette smuggling and counterfeit cigarettes are as great a concern to Philip Morris as they are to governments," said William S. Ohlemeyer, Philip Morris vice-president.

"However, this is a problem that should be addressed through co-operation rather than litigation.

The EU had attempted to build its case on a law introduced in the US in 1970, the Racketeering Influenced and Corrupt Organisations Act, which was designed 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.