R.J. Reynolds accused of smuggling cigarettes

NEW YORK -- Tobacco giant R.J. Reynolds smuggled cigarettes into Iraq in a scheme that violated U.S. sanctions and enriched both Saddam Hussein's regime and a Kurdish separatist group accused of terrorism, the European Union alleges in a lawsuit.

The lawsuit, filed Wednesday in federal court in New York, accuses the tobacco company of working with organized crime and terror organizations and laundering the profits through New York banks. It said the scheme cheated the EU out of billions of dollars in tax revenue.

R.J. Reynolds called the lawsuit "completely absurd."

The EU made similar accusations in a lawsuit that accused R.J. Reynolds of evading taxes through cigarette smuggling. That case was dismissed on Feb. 19 by a federal judge, who ruled that the U.S. courts have no jurisdiction over foreign tax issues.

In addition to operating in Iraq, R.J. Reynolds used Italian, Russian and Colombian organized crime groups to smuggle cigarettes.

, often from poor Eastern European countries into the more lucrative Western European market, the lawsuit alleges.

In Iraq, the lawsuit claims, R.J. Reynolds supplied more than 100 containers -- each holding 10 million cigarettes -- to an Iraqi distributor. The company allegedly used the Kurdistan Worker's Party -- a Turkish separatist group aiming to form an independent homeland in parts of Turkey, Iraq, Iran and Syria -- as a conduit. The Turkish government has outlawed the group as a terrorist organization.

Despite Saddam's suspected use of chemical weapons against the Kurds in the 1980s, the lawsuit alleges he cut a deal with the separatists, handing over a fee for every container they brought into the country.

"The illegal cigarette trade is so lucrative to Saddam Hussein and his family that they allow several Kurdish groups to import these cigarettes," the suit said. "Saddam Hussein's son Uday Hussein oversees and personally profits from the illegal importation of cigarettes into Iraq."

EU officials said the practice dates back a decade and involves hundreds of millions of dollars. They said their proof came from shipping papers, witness statements and customs documents.

In a statement, R.J. Reynolds said: "We operate our businesses in a legal, responsible manner."

The EU estimates several billion dollars in taxes are lost every year to smuggling of cigarettes from Eastern Europe and the Middle East into the 15-nation bloc. It alleges American tobacco companies deliberately dump cigarettes in Eastern Europe and elsewhere so the surplus would be smuggled into the EU.