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TODAY'S PAPER
Business

Government suit could ruin tobacco giants

Racketeering case seeks $280-billion (U.S.)

By BARRIE McKENNA
With files from reporter Carly Weeks
Wednesday, September 22, 2004 - Page B11

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WASHINGTON -- Seeking the largest-ever civil damage award in U.S. history, the Bush administration has opened its landmark $280-billion (U.S.) racketeering case against the tobacco industry by accusing cigarette makers of conspiring for decades to hide the dangers of smoking from Americans.

"This case is about a 50-year pattern of misrepresentation, half-truths and lies," U.S. Justice Department lawyer Frank Marine said yesterday during opening arguments in a Washington court.

Exploiting a civil fraud law normally used to pursue mobsters, federal prosecutors accused cigarette makers of spending hundreds of millions of dollars on dubious research to rebut growing evidence of smoking's lethal side effects, including cancer and respiratory disease.

"Why did the defendants pursue this course of action? Money, pure and simple," Mr. Marine, a veteran prosecutor of racketeering cases, said as he outlined 145 alleged acts of fraud.

The "massive scheme" began at a clandestine 1953 summit of industry executives and public relations consultants at New York's Plaza Hotel, Mr. Marine told the court. At the meeting, company officials agreed to jointly fund industry organizations, whose agreed mission was to push the bogus research and dupe the public, he said, citing internal industry documents.

"The problem was not that their product was killing people," he explained. "The problem to them was that the public might stop smoking because of health concerns."

If successful, the high-stakes lawsuit would dramatically alter the country's tobacco laws and push much of the industry to the brink of bankruptcy.

The defendants in the case are Philip Morris USA Inc.; its parent the Altria Group; Reynolds American Inc.'s R.J. Reynolds Tobacco Co. unit; Brown & Williamson Tobacco Corp., Loews Corp. subsidiary, Lorillard Tobacco Co.; British American Tobacco (Investments) Ltd.; the Liggett Group Inc. as well as two industry groups, Counsel for Tobacco Research-U.S.A. and the Tobacco Institute.

The defendants deny engaging in a conspiracy and blame the government for overzealously pursuing an industry that has dramatically changed its ways, particularly since a landmark $246-billion out-of-court settlement with U.S. states in 1998. As a result of that deal, the industry has limited its marketing activities and acknowledged its products are dangerous and addictive.

Philip Morris USA lawyer William Ohlemeyer said the government will have a tough time proving that the industry deliberately deceived smokers to sell them cigarettes.

"Fraud is a very high bar," he told the Associated Press.

The $280-billion sought by the government represents years of allegedly "ill-gotten" profits.

The government is attempting to show a pattern of fraud, using the Racketeer Influenced and Corrupt Organizations Act.

The start of the non-jury trial comes after nearly five years of legal sparring, including a hefty fine imposed on Philip Morris for allowing potentially important internal e-mails to be destroyed.

The suit, launched by the Clinton administration in 1999, almost never got this far because of initial reluctance on the part of U.S. President George W. Bush. U.S. Attorney-General John Ashcroft now says the case is a key part of the administration's efforts to uphold integrity in U.S. boardrooms.

"The government's case against the tobacco industry is an important effort to prevent fraudulent activity and uphold corporate integrity," he said.

The Justice Department has already spent $135-million pursuing the case, easily eclipsing the estimated $30-million to $60-million it spent on the Microsoft Corp. antitrust case.

Part of the high cost of prosecution stems from the colossal number of records involved. The Justice Department has amassed a document archive of some 80 million pages that it may use over the course of the trial, which is expected to last at least six months.

The two sides are expected to call as many as 100 witnesses as well as relying on statements or previous testimony from as many as 200 others.

One of the government's star witnesses is likely to be former Food and Drug Administration Commissioner David Kessler. He is expected to chronicle the industry's pursuit of youth smokers in the 1990s and its efforts to manipulate nicotine levels to hook smokers.

Anti-smoking activists hailed the opening of the trial as a key milestone toward making the industry more accountable.

"For years, [they] claimed publicly that cigarettes never cause disease, and now they should pay the price," said Patrick Reynolds, president of the California-based Foundation for a Smokefree America and grandson of the founder of R.J. Reynolds Tobacco.

An eventual tobacco industry defeat in the United States could embolden the Ontario government to try to recoup smoking-related health care costs via the courts, argued Garfield Mahood, executive-director of the Toronto-based Non-Smokers' Rights Association.

"This is one of the most significant lawsuits ever undertaken against the international tobacco industry," Mr. Mahood said. "It will put tremendous pressure on Ontario to act."

Industry lawyers are scheduled to make their opening statement today.







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