EUROPEAN COMMUNITY v. RJR

PDF URL: http://www.nyed.uscourts.gov/coi/02cv5771cmp.pdf

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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COMPLAINT

THE EUROPEAN COMMUNITY, acting on its own behalf and on behalf of the MEMBER STATES it has power to represent, and the Kingdom of Belgium, Republic of Finland, French Republic, Hellenic Republic, Federal Republic of Germany, Italian Republic, Grand Duchy of Luxembourg, Kingdom of the Netherlands, Portuguese Republic, and Kingdom of Spain, individually,

Plaintiffs,

- against -

RJR NABISCO, INC.,

R.J. REYNOLDS TOBACCO COMPANY,

R.J. REYNOLDS TOBACCO INTERNATIONAL, INC.,

RJR ACQUISITION CORP., f/k/a

NABISCO GROUP HOLDINGS CORP.,

RJR NABISCO HOLDINGS CORP.,

R.J. REYNOLDS TOBACCO HOLDINGS, INC.,

DEFENDANTS.

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Plaintiffs, THE EUROPEAN COMMUNITY, acting on its own behalf and on behalf of the MEMBER STATES it has power to represent, and the Kingdom of Belgium, Republic of Finland, French Republic, Hellenic Republic, Federal Republic of Germany, Italian Republic, Grand Duchy of Luxembourg, Kingdom of the Netherlands, Portuguese Republic, and Kingdom of Spain, individually, (hereinafter referred to as the "MEMBER STATES" and together with THE EUROPEAN COMMUNITY, as “PLAINTIFFS”), by and through their undersigned attorneys, for their complaint herein allege:

TABLE OF CONTENTS

I. INTRODUCTION.............1

II. PARTIES .............3

III. JURISDICTION .............10

IV. VENUE .............11

V. THE LINK BETWEEN RJR’S CIGARETTE SALES, MONEY LAUNDERING, AND

ORGANIZED CRIME .............11

Money-Laundering Links Between Europe, The United States, Russia, and Colombia ...11

Background on the Convergence of Narcotics Trafficking and Money Laundering ........12

Background on Black Market Money Exchanges .............14

Background on Money Laundering: The Cut-Out Strategy .............17

VI. THE RACE FOR MARKET SHARE .............18

VII. RJR’S DIRECT INVOLVEMENT IN MONEY LAUNDERING.............23

RJR’s Relationships with Money Launderers .............23

RJR’s Direction and Control of the Money-Laundering Scheme .............26

The Gerardo Cuomo Money-Laundering Organization .............28

The Alfred Bossert Money-Laundering Organization .............31

Money Laundering for Italian Organized Crime .............33

Money Laundering through the Bank of New York .............36

Walt Money-Laundering Conspiracy .............41

Money Laundering through Cut Outs in Ireland and Belgium .............42

Cigarette Sales to Launder Narcotics Proceeds .............44

Cocaine Trafficking and Money Laundering in Spain .............45

Money Laundering Through Central America and the Caribbean .............47

Money Laundering through Panama .............49

Money Laundering through the United Kingdom .............50

Distinctions between Sales to Legitimate Customers and Sales to Criminal Customers ..51

Money-Laundering Mechanisms / Laundering of Cash .............54

Money Laundering through Brady Bonds .............55

Money Laundering through Secret Swiss Accounts .............57

Movement of Operations to Cyprus .............58

Illegal Sales into Iraq .............59

RJR and the PKK .............70

Corruption of Public Officials in the Balkans .............72

Travel and Entertainment by RJR Employees .............74

RJR’s Efforts to Deceive the Plaintiffs .............75

RJR’s Responsibility for its Agents, Employees, and Coconspirators .............78

RJR’s Use of Wires and Mails .............79

VIII. IMPACT OF THE MONEY-LAUNDERING SCHEME ON THE US AND THE EC ....81

IX. CONTINUING DAMAGE TO THE PLAINTIFFS AND COMPELLING NEED FOR

INJUNCTIVE AND EQUITABLE RELIEF .............85

COUNT I: MEMBER STATES (RICO, 18 U.S.C. § 1962(a).............102

COUNT II: MEMBER STATES (RICO, 18 U.S.C. § 1962(b) .............116

COUNT III: MEMBER STATES (RICO, 18 U.S.C. § 1962(c) .............117

COUNT IV: MEMBER STATES (RICO, 18 U.S.C. § 1962(d).............119

iii

COUNT V: MEMBER STATES (RICO, 18 U.S.C. §§ 1964(a), 1964(c), 28 U.S.C. § 1651(a)

....121

COUNT VI: EC AND MEMBER STATES (COMMON LAW FRAUD) .............123

COUNT VII: EC AND MEMBER STATES (PUBLIC NUISANCE) .............126

COUNT VIII: EC AND MEMBER STATES (UNJUST ENRICHMENT) .............130

COUNT IX: MEMBER STATES (UNJUST ENRICHMENT) .............132

COUNT X: EC AND MEMBER STATES (NEGLIGENCE).............133

COUNT XI: EC AND MEMBER STATES (NEGLIGENT MISREPRESENTATION) ........137

COUNT XII: MEMBER STATES (COMMON LAW CONVERSION) .............139

COUNT XIII: MEMBER STATES (MONEY HAD AND RECEIVED).............141

DEMAND FOR JUDGMENT .............142

I. INTRODUCTION

1. For more than a decade, the DEFENDANTS (hereinafter also referred to as the “RJR DEFENDANTS” or “RJR”) have directed, managed, and controlled money-laundering operations that extended within and/or directly damaged the Plaintiffs. The RJR DEFENDANTS have engaged in and facilitated organized crime by laundering the proceeds of narcotics trafficking and other crimes. As financial institutions worldwide have largely shunned the banking business of organized crime, narcotics traffickers and others, eager to conceal their crimes and use the fruits of their crimes, have turned away from traditional banks and relied upon companies, in particular the DEFENDANTS herein, to launder the proceeds of unlawful activity.

2. The DEFENDANTS knowingly sell their products to organized crime, arrange for secret payments from organized crime, and launder such proceeds in the United States or offshore venues known for bank secrecy. DEFENDANTS have laundered the illegal proceeds of members of Italian, Russian, and Colombian organized crime through financial institutions in New York City, including The Bank of New York, Citibank N.A., and Chase Manhattan Bank.

DEFENDANTS have even chosen to do business in Iraq, in violation of U.S. sanctions, in transactions that financed both the Iraqi regime and terrorist groups.

3. The RJR DEFENDANTS have, at the highest corporate level, determined that it will be a part of their operating business plan to sell cigarettes to and through criminal organizations and to accept criminal proceeds in payment for cigarettes by secret and surreptitious means, which under United States law constitutes money laundering. The officers and directors of the RJR DEFENDANTS facilitated this overarching money-laundering scheme

by restructuring the corporate structure of the RJR DEFENDANTS, for example, by establishing subsidiaries in locations known for bank secrecy such as Switzerland to direct and implement their money-laundering schemes and to avoid detection by U.S. and European law enforcement.

This overarching scheme to establish a corporate structure and business plan to sell cigarettes to criminals and to launder criminal proceeds was implemented through many subsidiary schemes across THE EUROPEAN COMMUNITY. Examples of these subsidiary schemes are described in this Complaint and include:

(a.) Laundering criminal proceeds received from the Alfred Bossert money-laundering organization;

(b.) Money Laundering for Italian organized crime;

(c.) Money laundering for Russian organized crime through The Bank of New York;

(d.) The Walt money-laundering conspiracy;

(e.) Money laundering through cut outs in Ireland and Belgium;

(f.) Laundering of the proceeds of narcotics sales throughout THE EUROPEAN COMMUNITY by way of cigarette sales to criminals in Spain;

(g.) Laundering criminal proceeds in the United Kingdom;

(h.) Laundering criminal proceeds through cigarette sales via Cyprus; and

(i.) Illegal cigarette sales into Iraq.

Numerous additional subsidiary schemes exist that harm THE EUROPEAN COMMUNITY and each of the MEMBER STATES named herein.

4. This civil action is based upon violations of the Racketeer Influenced and Corrupt Organizations Act, which was specifically intended by Congress to eradicate organized

crime on all fronts (including in foreign and interstate commerce) and to deprive violators of their ill-gotten gains. It is also based upon violations of standards of common law, including fraud, negligence, unjust enrichment, public nuisance, and conspiracy to commit such torts.

Plaintiffs seek damages; equitable relief such as disgorgement of profits; and injunctive relief (a) to enjoin DEFENDANTS from engaging in money laundering and facilitating organized crime, and (b) to compel DEFENDANTS to adopt necessary programs and procedures to prevent such conduct in the future. Absent such relief, there will be an increased risk to national security, continued harm to Plaintiffs, and damage to the vital interests of the United States and Plaintiffs.

II. PARTIES

5. THE EUROPEAN COMMUNITY is a governmental body created as a result of collaboration among the majority of the nations of Western Europe, more specifically, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, and the United Kingdom. Pursuant to the Treaty establishing THE EUROPEAN COMMUNITY, as last amended by the Treaty of Amsterdam (1999), Article 2, THE EUROPEAN COMMUNITY is vested with the responsibility "to promote throughout the Community a harmonious, balanced and sustainable development of economic activities, . . . a high level of protection and improvement of the quality of the environment, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among the Member States." THE EUROPEAN COMMUNITY has certain legal rights and responsibilities. Pursuant to Article 281 of the Treaty establishing THE EUROPEAN COMMUNITY, THE EUROPEAN COMMUNITY is a legal person. Pursuant to

Article 282 of the Treaty establishing THE EUROPEAN COMMUNITY, THE EUROPEAN COMMUNITY possesses the most extensive legal capacity accorded to legal persons under the laws of the Member States, and it may, in particular, acquire or dispose of property and may be a party to legal proceedings. In such instances, THE EUROPEAN COMMUNITY is represented by the European Commission. Pursuant to Article 280 of the Treaty establishing THE EUROPEAN COMMUNITY, THE EUROPEAN COMMUNITY has the duty to counter fraud and any other illegal activities affecting the financial interests of THE EUROPEAN COMMUNITY through measures which shall act as a deterrent and be such as to afford effective protection in the Member States. THE EUROPEAN COMMUNITY has a duty to protect against harm to the financial institutions and infrastructure within THE EUROPEAN COMMUNITY. THE EUROPEAN COMMUNITY possesses additional duties and authorities that have been conferred upon it by the MEMBER STATES or that it shares with the MEMBER STATES, by virtue of treaty and/or law, including but not limited to the following: (a) The duty and authority to regulate foreign commerce; (b) The duty and authority to regulate and set rules to combat money laundering; (c) The duty and authority to prescribe regulations for the seizure of bank accounts and assets and to take other related actions to combat money laundering and other financial crimes committed against the financial interests of THE EUROPEAN COMMUNITY and the MEMBER STATES; (d) The duty and authority to ensure and regulate the free movement of goods within THE EUROPEAN COMMUNITY; (e) The duty and authority to regulate safety and security at sea; (f) The duty and authority to regulate and take action to protect against breaches of THE EUROPEAN COMMUNITY Customs Territory or THE EUROPEAN COMMUNITY Customs Border; (g) The duty and authority to regulate ports, customs territories, free trade zones, and customs bonded warehouses; (h) The duty and

authority to regulate transportation into THE EUROPEAN COMMUNITY or within its borders; and (i) The duty to promote throughout the Community a harmonious, balanced, and sustainable development of economic activities and to protect and promote the economic well being of its citizens. THE EUROPEAN COMMUNITY has the general duty and the authority to act to abate any harm to itself or to the general public of THE EUROPEAN COMMUNITY within its areas of competence as set forth above. Among the legal rights of THE EUROPEAN COMMUNITY is the right to hold a legal or beneficial interest in property. THE EUROPEAN COMMUNITY is represented in the United States by a Delegation in Washington, D.C. The Delegation has full diplomatic privileges and immunities, and the Head of the Delegation is accorded full ambassadorial status.

6. Each of the named MEMBER STATES, Kingdom of Belgium, Republic of Finland, French Republic, Hellenic Republic, Federal Republic of Germany, Italian Republic, Grand Duchy of Luxembourg, Kingdom of the Netherlands, Portuguese Republic, and Kingdom of Spain, is a sovereign State. As such, each State possesses the legal capacity to acquire, own, or dispose of property and may be a party to legal proceedings. Each MEMBER STATE is a “person” as defined under the applicable United States law. Each MEMBER STATE has the right to hold a legal or beneficial interest in property.

7. Within the areas of their competency and jurisdiction, THE EUROPEAN COMMUNITY and each of the named MEMBER STATES are the legal entities with the duty and responsibility for enforcing the money and banking laws within their respective jurisdictions.

If any entities, including the RJR DEFENDANTS, launder criminal proceeds or commit other illegal acts that violate the money and/or banking laws of the PLAINTIFFS, it is these PLAINTIFFS with the duty and competency to enjoin and obtain redress for such conduct.

8. RJR NABISCO, INC. was a Delaware corporation and, according to public records, maintained its principal place of business at 1301 Avenue of the Americas, New York, New York 10019-6013. During relevant times, RJR NABISCO, INC. was the parent corporation of R.J. REYNOLDS TOBACCO COMPANY and has participated in the sale and manufacture of cigarettes and other tobacco products both individually and through its agent and instrumentality, DEFENDANT R.J. REYNOLDS TOBACCO COMPANY, and related entities and ventures. At all relevant times, RJR NABISCO, INC. assumed an active role in the tobacco business and treated the tobacco business as a department or division of RJR NABISCO, INC.

At times pertinent to this complaint, RJR NABISCO, INC., individually and through its agents, subsidiaries, divisions, or affiliated companies, or ventures, materially participated in the operation and management of RJR's money-laundering enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other DEFENDANTS in the unlawful and fraudulent conduct alleged herein, all of which has affected foreign and interstate commerce. Upon information and belief, based on RJR’s public filings, RJR NABISCO, INC., was renamed R.J. REYNOLDS TOBACCO HOLDINGS, INC., a Delaware corporation, and is now a direct, wholly-owned subsidiary of RJR ACQUISITION CORP., f/k/a NABISCO GROUP HOLDINGS CORP. During relevant times herein, RJR NABISCO, INC., has conducted continuous and systematic business in the State of New York, maintains a substantial financial presence in the State of New York, utilizes offices of its own and of its affiliated corporations in New York, and is otherwise subject to the jurisdiction of the courts in the State of New York.

9. R.J. REYNOLDS TOBACCO COMPANY is a New Jersey corporation whose principal place of business is located at 401 North Main Street, Winston-Salem, North Carolina

27102. At times pertinent to this complaint, R.J. REYNOLDS TOBACCO COMPANY, individually and through its agents, subsidiaries, divisions, or affiliated companies or ventures, materially participated in the operation and management of RJR's money-laundering enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other DEFENDANTS in the unlawful and fraudulent conduct alleged herein, all of which has affected foreign and interstate commerce. During relevant times herein, R.J.

REYNOLDS TOBACCO COMPANY conducted continuous and systematic business in the State of New York, maintains a substantial financial presence in the State of New York, utilizes offices of its own and of its affiliated corporations in New York, and is otherwise subject to the jurisdiction of the courts in the State of New York.

10. R.J. REYNOLDS TOBACCO INTERNATIONAL, INC. is a Delaware corporation. At times pertinent to this complaint, R.J. REYNOLDS TOBACCO INTERNATIONAL, INC., individually and through its agents, subsidiaries, divisions, or affiliated companies or ventures, materially participated in the operation and management of RJR's money-laundering enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other DEFENDANTS in the unlawful and fraudulent conduct alleged herein, all of which has affected foreign and interstate commerce.

During all relevant times, R.J. REYNOLDS TOBACCO INTERNATIONAL, INC. conducted continuous and systematic business in the State of New York, maintained a substantial financial presence in the State of New York, utilized offices of its own and of its affiliated corporations in New York, and is otherwise subject to the jurisdiction of the courts in the State of New York.

11. RJR NABISCO HOLDINGS CORP. is a Delaware corporation whose principal place of business is 1301 Avenue of the Americas, New York, New York 10019-6013.

During all relevant times, RJR NABISCO HOLDINGS CORP. was the parent corporation of RJR NABISCO, INC. On June 14, 1999, RJR NABISCO HOLDINGS CORP. changed its name to NABISCO GROUP HOLDINGS CORP. In 2001, NABISCO GROUP HOLDINGS CORP.

changed its name to RJR ACQUISITION CORP. RJR ACQUISITION CORP., f/k/a NABISCO GROUP HOLDINGS CORP. is a Delaware corporation whose principal place of business is 7 Campus Drive, Parsippany, New Jersey 07054-0311.

12. On June 14, 1999, RJR NABISCO HOLDINGS CORP. distributed all of the common stock of its subsidiary, R.J. REYNOLDS TOBACCO HOLDINGS, INC., to the shareholders of RJR NABISCO HOLDINGS CORP.

13. During all relevant times, the holding corporations, identified above in paragraphs 11 and 12, participated, directly and indirectly, in the sale and manufacture of cigarettes and other tobacco products through their agent and instrumentality DEFENDANT, R.J. REYNOLDS TOBACCO COMPANY, and related entities and ventures. These holding corporations assumed an active role in the tobacco business, and at relevant times have treated the tobacco business as a department or division. At times pertinent to this complaint, these holding corporations, individually and through their agents, subsidiaries, divisions, or affiliated companies or ventures, materially participated in the operation and management of RJR's money-laundering enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other DEFENDANTS in the unlawful and fraudulent conduct alleged herein, all of which has affected foreign and interstate commerce.

During relevant times herein, the holding corporations, identified above in paragraphs 12 and 13, conducted continuous and systematic business in the State of New York, maintained a substantial

financial presence of their own and their affiliated corporations in New York, and are otherwise subject to the jurisdiction of the courts in the State of New York.

14. The RJR DEFENDANTS are and were, during all relevant times, involved in directing, managing, and controlling money-laundering operations that extended within and/or directly damaged the PLAINTIFFS. At all times pertinent to this complaint, the RJR DEFENDANTS, individually and through their employees, agents, joint venturers, coconspirators, subsidiaries, divisions, or affiliated companies, actively directed, managed, and controlled the RJR money-laundering enterprise, and actively participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of their coconspirators in the unlawful and fraudulent conduct alleged herein, all of which has affected and continues to affect foreign and interstate commerce in the United States.

15. The foregoing RJR corporations, as well as their affiliated entities, ventures, and successors, are and were, during all relevant times, affiliated, consolidated, combined, and unitary entities for purposes of tobacco operations and related activities. Tobacco operations were departments within the RJR corporate family. The RJR DEFENDANTS maintain control of tobacco operations worldwide through a web of affiliated entities and joint ventures. This corporate structure was an essential aspect of RJR’s successful efforts to launder the proceeds of criminal activity to the detriment of the PLAINTIFFS.

16. The RJR DEFENDANTS are and were, during all relevant times, responsible for the acts and omissions of their employees, for acts undertaken within the general area of their authority and for the benefit of the RJR DEFENDANTS. As alleged herein, the RJR DEFENDANTS were central figures in the overall conspiracy that actively embarked on and extensively participated in the fraudulent scheme. By means of corporate policies that put RJR

DEFENDANTS' resources and strategy at the heart of the conspiracy, the RJR DEFENDANTS were aggressor entities that acted to harm the economic interests of the Plaintiffs.

17. The RJR DEFENDANTS, during relevant times, have adopted a "worldwide" policy that purports to exercise control of the activities of their employees, as well as those of their direct and indirect subsidiaries. Under this policy, which is said to be monitored and enforced by RJR’s Audit Committee, RJR DEFENDANTS have undertaken responsibility for the acts of the employees of the RJR DEFENDANTS, wherever taken, including acts related to money-laundering activities within Europe and elsewhere which materially injured THE EUROPEAN COMMUNITY and its MEMBER STATES.

III. JURISDICTION

18. As to the Plaintiffs, the MEMBER STATES, jurisdiction is proper in this Court pursuant to 28 U.S.C. §§ 1331, 1337 because this matter involves allegations of illegal behavior arising under the laws of the United States, including violations of RICO. Furthermore, jurisdiction in this Court is proper pursuant to RICO, 18 U.S.C. §§ 1964(a),(c) and 28 U.S.C. § 1651(a). The DEFENDANTS are “persons” within the meaning of 18 U.S.C. § 1961(3). As to all Plaintiffs, jurisdiction is proper in this Court pursuant to 28 U.S.C. § 1332 because the matter in controversy exceeds the sum or value of $75,000 and involves parties of diverse citizenship.

The Plaintiffs are “persons” within the meaning of 18 U.S.C. § 1961(3). Finally, this Court may exercise jurisdiction over Plaintiffs’ non-federal claims pursuant to 28 U.S.C. § 1367, as this Court possesses both federal question and diversity jurisdiction.

IV. VENUE

19. Venue is proper in this Court pursuant to 18 U.S.C. § 1965(a) because DEFENDANTS reside, are found, have an agent, or transact affairs in this District. Venue is also proper in this Court pursuant to 18 U.S.C. § 1965(b) because, to the extent any DEFENDANT may reside outside of this district, the ends of justice require such DEFENDANT or DEFENDANTS to be brought before the Court. Venue properly lies in this Court pursuant to 28 U.S.C. § 1391(b)(2) or, alternatively, pursuant to 28 U.S.C. § 1391(a)(2). Further, certain of the conspiratorial acts alleged herein took place within this judicial district.

V. THE LINK BETWEEN RJR’S CIGARETTE SALES, MONEY LAUNDERING, AND ORGANIZED CRIME

Money-Laundering Links Between Europe, The United States, Russia, and Colombia

20. Cigarette sales, money laundering, and organized crime are linked and interact on a global basis. According to Jimmy Gurule, Undersecretary for Treasury Enforcement:

“Money laundering takes place on a global scale and the Black Market Peso Exchange System, though based in the Western Hemisphere, affects business around the world. US law enforcement has detected BMPE-related transactions occurring throughout the United States, Europe, and Asia.” 21. The primary source of cocaine within THE EUROPEAN COMMUNITY is Colombia. Large volumes of cocaine are transported from Colombia into THE EUROPEAN

COMMUNITY and then sold illegally within THE EUROPEAN COMMUNITY and the MEMBER STATES. The proceeds of these illegal sales must be laundered in order to be useable by narcotics traffickers. Throughout the 1990s and continuing to the present day, a primary means by which these cocaine proceeds are laundered is through the purchase and sale of cigarettes, including those manufactured by the RJR DEFENDANTS. Cocaine sales in THE EUROPEAN COMMUNITY are facilitated through money-laundering operations in Colombia, Panama, Switzerland, and elsewhere which utilize RJR cigarettes as the money-laundering vehicle.

22. In a similar way, the primary source of heroin within THE EUROPEAN COMMUNITY is the Middle East and, in particular, Afghanistan, with the majority of said heroin being sold by Russian organized crime, Middle Eastern criminal organizations, and terrorist groups based in the Middle East. Heroin sales in THE EUROPEAN COMMUNITY and the MEMBER STATES are facilitated and expedited by the purchase and sale of the DEFENDANTS’ cigarettes in money-laundering operations that begin in THE EUROPEAN COMMUNITY and the MEMBER STATES, Eastern Europe, and/or Russia, but which ultimately result in the proceeds of those money-laundering activities being deposited into the coffers of the RJR DEFENDANTS in the United States.

Background on the Convergence of Narcotics Trafficking and Money Laundering

23. This complaint is about Trade and Commerce or, more correctly, illegal Trade and illegal Commerce, and how money laundering facilitates the financing and movement of goods internationally. Merchants engaging in global trade often turn to the more stable global

currencies for payments of goods and services purchased abroad. In many markets, the United States dollar is the currency of choice and, in some cases, the United States dollar is the only accepted form of payment. Merchants seeking dollars usually obtain them in a variety of ways, including the following three methods. Traditional merchants go to a local financial institution that can underwrite credit. Private financing is usually available for those with collateral. A third and least desirable source of dollar financing can be found in the “black markets” of the world. Black Markets are the underground or parallel financial economies that exist in every country. Criminals and their organizations control these underground economies, which generally operate through “money brokers.” These “money brokers” often fulfill a variety of roles not the least of which is an important intermediate step in the laundering process, one that we will refer to throughout this complaint as the “cut out.” (See paragraphs 32-35 below.) 24. The criminal activity that provides the dollars for these black market moneylaundering operations is often drug trafficking and related violent crimes. South America is the world leader in the production of cocaine, and the United States and the European Union are the world’s largest cocaine markets. Likewise, Colombia and countries in the Middle East produce heroin. Cocaine and heroin are smuggled to the United States and Europe, and are sold for United States dollars as well as in local European currencies (and now the Euro). Russian drug smugglers obtain heroin from the Middle East and cocaine from South America, and sell both drugs in large quantities in the United States and in Europe. Retail street sales of cocaine and heroin have risen dramatically over the past two decades throughout the United States and Europe. Consequently, drug traffickers routinely accumulate vast amounts of illegally obtained cash in the form of United States dollars in the United States and Euros in Europe. The U.S.

Customs Service estimates that illegal drug sales in the United States alone generate an estimated fifty-seven billion dollars in annual revenues, most of it in cash.

25. A drug trafficker must be able to access his profits, to pay expenses for the ongoing operation, and to share in the profits; and he must be able to do this in a manner that seemingly legitimizes the origins of his wealth, so as to ward off oversight and investigation that could result in his arrest and imprisonment and the seizure of his monies. The process of achieving these goals is the money-laundering cycle.

26. The purpose of the money-laundering cycle is to establish total anonymity for the participants, by passing the cash drug proceeds through the financial markets in a way that conceals or disguises the illegal nature, source, ownership, and/or control of the money.

Background on Black Market Money Exchanges

27. Within Europe, the United States, South America, and elsewhere, a community of illegal currency exchange brokers, known to law-enforcement officials as “money brokers,” operates outside the established banking system and facilitates the exchange of narcotics sale proceeds for local cash or negotiable instruments. Many of these money brokers have developed methods to bypass the banking systems and thereby avoid the scrutiny of regulatory authorities. These money exchanges have different names depending on where they are located, but they all operate in a similar fashion.

28. A typical “money-broker” system works this way: In a sale of Colombian cocaine in THE EUROPEAN COMMUNITY, the drug cartel exports narcotics to the MEMBER STATES where they are sold for Euros. In Colombia, the cartel contacts the money broker and

negotiates a contract, in which the money broker agrees to exchange pesos he controls in Colombia for Euros that the cartel controls in Europe. The money broker pays the cartel the agreed-upon sum in pesos. The cartel contacts its cell (group) in the European Union and instructs the cell to deliver the agreed-upon amount of Euros to the money broker’s European agent. The money broker must now launder the Euros he has accumulated in the European Union. He may also need to convert the Euros into U.S. dollars because his customers may need U.S. dollars to pay companies such as RJR for their products.

29. The money broker uses his European contacts to place the monies he purchased from the cartel into the European banking system or into a business willing to accept these proceeds (a process described in more detail below). The money broker now has a pool of narcotics-derived funds in Europe to sell to importers and others. In many instances, the narcotics trafficker who sold the drugs in THE EUROPEAN COMMUNITY is also the importer who purchased the cigarettes. Importers buy these monies from the money brokers at a substantial discount off the “official” exchange rates and use these monies to pay for shipments of items (such as cigarettes), which the importers have ordered from United States companies and/or their authorized European representatives, or “cut outs.” The money broker uses his European contacts to send the monies to whomever the importer has specified. Often these customers utilize such monies to purchase the DEFENDANTS’ cigarettes in bulk and, in many instances, the money brokers have been directed to pay the RJR DEFENDANTS directly for the cigarettes purchased. The money broker makes such payments using a variety of methods, including his accounts in European financial institutions. The purchased goods are shipped to their destinations. The importer takes possession of his goods. The money broker uses the funds derived from the importer to continue the laundering cycle.

30. In that fashion, the drug trafficker has converted his drug proceeds (which he could not previously use because they were in Euros) to local currency that he can use in his homeland as profit and to fund his operations; the European importer has obtained the necessary funds from the black market money broker to purchase products that he might not otherwise have been able to finance (due to lack of credit, collateral, or U.S. dollars, and/or a desire for secrecy); the company selling cigarettes to the importer has received payment on delivered product in its currency of choice regardless of the source of the funds; and the money broker has made a profit charging both the cartel and the importer for his services. This cycle continues until the criminals involved are arrested and a new cycle begins. Money laundering is a series of such events, all connected and never stopping until at least one link in the chain of events is broken.

31. Many narcotics traffickers who sell drugs in THE EUROPEAN COMMUNITY now also purchase and import cigarettes. In particular, as the trade in cigarettes becomes more profitable and carries lesser criminal penalties compared to narcotics trafficking, the “business end” of selling the cigarettes has become at least as attractive and important to the criminal as the narcotics trafficking. Finally, it makes no difference whatsoever to the moneylaundering system whether the goods are imported and distributed legally or illegally.

Regardless of whether he sells his cigarettes legally or illegally, the narcotics trafficker has achieved his goal in that he has been able to disguise the nature, location, true source, ownership, and/or control of his narcotics proceeds. At the same time, the cigarette manufacturer (in this case RJR) has achieved its goal because it has successfully sold its product in a highly profitable way.

Background on Money Laundering: The “Cut-Out” Strategy

32. There are numerous important steps in any money laundering cycle. “Dirty” money of necessity moves in a way that is specifically designed to conceal or disguise its nature, source, ownership, and/or control. Successful “layering” of “dirty” transactions will often involve intermediaries, like money brokers, as a matter of necessity and convenience. These “money brokers” play an important role in the laundering conspiracy. They serve to isolate relevant coconspirators from the overt criminal acts, and because of that they are often referred to by law-enforcement agencies as “cut outs.” The “cut out” is purposefully inserted into the transaction to create a layer of activity between the overt criminal actors and those receiving the laundered proceeds or profits of the criminal scheme. The “cut out’s” role is to shield the true participants in the conspiracy from discovery.

33. In this money-laundering conspiracy, the RJR DEFENDANTS’ role will often be masked by the activities of the “cut outs.” Consequently, the “cut-out” strategy will be referred to often throughout this complaint. The “cut-out” strategy is also relevant to the sales and marketing end of the international cigarette export cycle. When a cigarette manufacturer intentionally sells its products into criminal distribution channels via carefully selected wholesalers, so that it can deny responsibility for “where the customer sells the product,” the manufacturer is using that wholesaler as a “cut out” to insulate itself from the overt acts involved in the sale of cigarettes as a means of supporting the money-laundering cycle.

34. The cut-out strategy works for the benefit of the manufacturers looking to increase market share and for those merchants looking to conceal their involvement in legal or illegal business activity. Overall, this process develops into the creation of an unfair business

strategy for the manufacturer that increases its market share by creating a competitive disadvantage. By operating outside the legal framework for fair business operations, the manufacturer creates an unfair advantage for itself as against its competitors in virtually all aspects of business activity, including profit margins, financing terms, price structures, shipping, storage, advertising, regulation (e.g., in the case of cigarettes, health warnings), reporting obligations, and other aspects of business strategy. The resulting “competitive disadvantage” is particularly onerous to domestic companies that must comply with an array of regulations ranging from the sourcing of raw materials to laws governing treatment of their employees.

Consequently, domestic manufacturers in THE EUROPEAN COMMUNITY (both state owned and privately owned) are particularly harmed by the cut-out strategy.

35. As will become clear from the RJR DEFENDANTS’ use of Weitnauer Trading Company Ltd. (hereinafter referred to as “Weitnauer”), Michael Haenggi, Copaco, Alfred Bossert, and many others, the “cut out” was an integral part of the RJR DEFENDANTS’ direction of and participation in this international money-laundering conspiracy.

VI. THE RACE FOR MARKET SHARE

36. RJR has been aware of organized crime’s involvement in the distribution of its products since at least the 1970’s. On January 4, 1978, the Tobacco Institute’s Committee of Counsel met at the offices of Philip Morris in New York City. The Committee of Counsel was the high tribunal that set the tobacco industry’s legal, political, and public relations strategy for more than three decades. The January 4, 1978, meeting was called to discuss, among other things, published reports concerning organized crime’s involvement in the tobacco trade and the

tobacco industry’s complicity therein. The published reports detailed the role of organized crime in the tobacco trade (including the Colombo crime family in New York), and the illegal trade at the Canadian border and elsewhere. RJR’s general counsel, Max Crohn, attended and participated in the meeting. All of the large cigarette manufacturers were present at the meeting and represented by counsel, such as Philip Morris (Arnold & Porter, Abe Krash), and Brown & Williamson (Paul Weiss Rifkind Wharton & Garrison, Martin London). The Committee of Counsel took no action to address, investigate, or end the role of organized crime in the tobacco business. Instead, the Committee agreed to formulate a joint plan of action to protect the industry from scrutiny of the U.S. Congress. Notice and the agenda for the meeting, and the minutes of the meeting, were transmitted by the use of the U.S. mails.

37. Throughout the 1990s and continuing to the present day, the RJR DEFENDANTS have undertaken extensive efforts to increase their market share and to expand the sales of their products throughout the world.

38. To accomplish this end, the RJR DEFENDANTS have actively engaged in the sale of their products to criminals and/or criminal organizations, which can purchase goods with their criminal proceeds only if the payments for those goods are made covertly so as to avoid detection by law enforcement. The RJR DEFENDANTS engaged in such conduct through illegal acts, including money laundering, wire fraud, mail fraud, and other violations of United States law. The RJR DEFENDANTS have controlled, directed, encouraged, supported, and facilitated the activities of the criminals who purchase their products. The RJR DEFENDANTS have collaborated with criminals, directly and indirectly, and have sold cigarettes to persons and entities that they know or had reason to know were laundering criminal proceeds through the purchase of cigarettes.

39. By engaging in this illegal conduct the RJR DEFENDANTS have achieved multiple benefits for themselves, including but not limited to the following:

(a.) The RJR DEFENDANTS have increased their cigarette sales because they have new and additional customers, namely, the money-launderers and the criminal organizations they service.

(b.) The RJR DEFENDANTS have increased their profit margins because they require the criminals to pay a premium for their cigarettes and/or subject the criminals to sales and credit terms that are more favorable to the RJR DEFENDANTS than those granted to legitimate customers.

(c.) The RJR DEFENDANTS have increased their market share by adding to their customer base to the detriment of their competitors.

(d.) The RJR DEFENDANTS have enhanced the market value of their tobacco operations, while decreasing the market value of their competitors’ operations.

40. The RJR DEFENDANTS, jointly and as individual corporations, control, direct, encourage, support, promote, and facilitate the criminal activities that harm THE EUROPEAN COMMUNITY in a variety of ways, including but not limited to the following:

(a.) The RJR DEFENDANTS developed mechanisms and procedures, including the use of cut outs, to allow their criminal customers to pay them for cigarettes in ways that could not be detected by U.S. and European law enforcement. In most instances, the RJR DEFENDANTS mandate that their criminal clients utilize these procedures to ensure that the RJR DEFENDANTS’ role in these money-laundering activities will remain undetected.

(b.) The RJR DEFENDANTS accept payments from persons or entities they know, or have reason to know, are criminals and money launderers, and/or from distributors that they know, or have reason to know, are selling cigarettes to criminals and money launderers.

(c.) The RJR DEFENDANTS make arrangements by which the cigarettes they sell can be paid for in such a way that the payments are virtually untraceable.

(d.) The RJR DEFENDANTS make arrangements for payments for their cigarettes to be made into foreign accounts, including accounts held by Swiss corporations and/or Swiss bank accounts, in an attempt to improperly utilize Swiss banking and privacy laws as a shield to protect the criminals from government investigations concerning their activities.

(e.) The RJR DEFENDANTS agree to receive payment for cigarettes by way of third-party checks and other forms of payment executed by persons who have no relationship to the transaction other than that they have provided the funds. Such persons are a common part of money-laundering schemes. Payments for cigarettes by such third-party persons are a clear indication of money-laundering activity.

(f.) The RJR DEFENDANTS established protocols for “layered transactions” that allowed for payment for cigarettes to be made through multiple intermediaries (cut outs) to conceal the ultimate source and nature of the illicit funds.

(g.) The RJR DEFENDANTS invoiced distributors and intermediaries (cut outs) for cigarettes that were sold to criminal customers to conceal the fact that these sales were being made to criminals. In fact, however, the intermediaries and distributors were never expected to pay for the invoiced cigarettes and, at most, would act as pass-through accounts by which the criminals paid the RJR DEFENDANTS for cigarettes.

(h.) The RJR DEFENDANTS generate false or misleading invoices, bills of lading, shipping documents, and other documents that expedite the process by which the cigarettes are secretly delivered to criminals.

(i.) The RJR DEFENDANTS approve their criminal customers on an expedited basis and do not require them to go through the formalities required of legitimate customers.

(j.) The RJR DEFENDANTS engage in a pattern of activity by which they ship cigarettes designated for one port knowing that, in fact, the cigarettes will be diverted to another port to be sold illegally and/or in violation of United States laws and embargoes.

(k.) The RJR DEFENDANTS have formed, financed, and directed the activities of industry groups to disseminate false and misleading information to Plaintiffs and the public to conceal their illegal activities.

(l.) The RJR DEFENDANTS controlled, directed, encouraged, supported, and facilitated cigarette sales to criminals by giving instructions to distributors, shippers, shipping companies, retailers, and/or various other intermediaries so as to effectuate the sale of large amounts of cigarettes by criminal organizations.

41. But for the involvement and active assistance of the RJR DEFENDANTS, money launderers and criminals could not have laundered the proceeds of their criminal activities and continued such activities at such levels to the detriment of THE EUROPEAN COMMUNITY and the MEMBER STATES.

42. The members of this vertical group, consisting of the DEFENDANTS, the distributors, the shippers, the criminal customers, currency brokers, and the RJR DEFENDANTS’ agents and subsidiaries who receive payment for the cigarettes, work together

for the common purpose of depriving Plaintiffs of money and property and engaging in a course of conduct to gain massive profits from the sale of cigarettes as a part of a global moneylaundering enterprise while harming Plaintiffs’ economic interests. The activities of this core group constitute a conspiracy in law and in fact.

VII. RJR’S DIRECT INVOLVEMENT IN MONEY LAUNDERING

43. The RJR DEFENDANTS have been actively involved in money laundering for many years, and have carried out their scheme through acts within this District and throughout this State. Examples of the methods and means by which the RJR DEFENDANTS have been complicit in the money-laundering scheme, directly and through the acts of their coconspirators, are set forth below.

RJR’s Relationships with Money Launderers

44. The RJR DEFENDANTS solicited contacts with companies and individuals in Europe, Central America, and the Caribbean that the DEFENDANTS knew, or had reason to know, were money launderers. Large parts of RJR’s illegal activities were conducted through a branch of RJR called North American Duty Free (NADF). Richard LaRocca was vice presidentgeneral manager for North America Duty Free. He had been recruited by the RJR DEFENDANTS because of his special knowledge of the Spanish cigarette market. Richard LaRocca knew and worked directly with Michael Haenggi who was a major customer of RJR and a central figure in a massive cigarette sales/money-laundering scheme. In 1997, Michael

Haenggi freely admitted to the New York Times that he sold RJR cigarettes in bulk to known criminals. In spite of this public announcement, the RJR DEFENDANTS made a corporate decision to continue selling huge volumes of cigarettes to Michael Haenggi even though they were on notice that payments from Haenggi would include the proceeds of criminal activity.

45. In light of the dramatic increase of narcotics sales in THE EUROPEAN COMMUNITY over the last two decades, narcotics traffickers and money launderers in THE EUROPEAN COMMUNITY increasingly needed to launder enormous volumes of cash and/or convert their cash from one form of currency to another. The RJR DEFENDANTS wished to increase their market share in certain target markets in THE EUROPEAN COMMUNITY by obtaining additional customers for their product on whom they could rely to sell the cigarettes in the markets targeted by the DEFENDANTS. In general, it was immaterial to the RJR DEFENDANTS whether the cigarettes were sold legally or illegally, so long as the cigarettes were sold in the target markets. Accordingly, the RJR DEFENDANTS reached an agreement with their coconspirators, the narcotics traffickers and money launderers, that the DEFENDANTS would provide these criminals with the capability to launder the proceeds of their criminal activities, including narcotics trafficking, by purchasing the DEFENDANTS’ tobacco products. The RJR DEFENDANTS arranged for secret delivery of the cigarettes and secret means by which the coconspirators could pay for the cigarettes, an essential component of the money-laundering scheme. In return, the narcotics traffickers and money-launderers agreed to sell the products in the markets targeted by the RJR DEFENDANTS and sold the cigarettes under the instructions of the RJR DEFENDANTS. In this way, the proceeds of enormous amounts of Colombian cocaine money and Russian heroin money derived from narcotics sales in

the United States and THE EUROPEAN COMMUNITY, as well as the proceeds of other crimes, were laundered through the purchase and sale of the RJR DEFENDANTS’ products.

46. The RJR DEFENDANTS had a well-established relationship with distributors in Switzerland, Panama, the Caribbean, Eastern Europe, and elsewhere who were well situated to develop and exploit relationships with criminal individuals and organizations. The RJR DEFENDANTS directly and indirectly encouraged their distributors to solicit and/or expand their relationships with customers who were purchasing the cigarettes largely for the purpose of laundering criminal proceeds.

47. The RJR DEFENDANTS entered into agreements and understandings with money launderers and narcotics traffickers in Europe, Russia, and South America to meet the business needs of RJR and their coconspirators. These money launderers include but were not limited to Gerardo Cuomo, Patrick Laurent, Gilbert Llorens, Corrado Bianchi, Werner Denz, Martin Denz, Luis Garcia, members of the Mansur family, and Patrick Monnier.

Communications with or on behalf of these individuals were accomplished through a regular use of the U.S. wires and mails.

48. Two Swiss companies known as Algrado A.G. (hereinafter referred to as “Algrado”) and Weitnauer were primary distributors of RJR products and an essential link in the money-laundering chain. During the time that the RJR DEFENDANTS and their coconspirators, including Algrado and Weitnauer, were selling cigarettes through the aforesaid scheme, they developed a sophisticated mechanism by which the proceeds of these sales could be laundered to disguise their criminal origins. For example, throughout the 1990s and until some time in 1998, a significant conduit for the laundering of criminal proceeds in THE EUROPEAN COMMUNITY and the MEMBER STATES was a series of accounts opened in Liechtenstein

and Switzerland by Mingo Finance Limited, a British Virgin Island company. Payments of criminal proceeds to Algrado for RJR products were made through several Mingo Finance accounts, including but not limited to account #: 0577983-AB/US at the Bank of Liechtenstein, One Herrengasse 12, located in Vaduz, Liechtenstein. The RJR DEFENDANTS knew or, but for their willful blindness would have known, that the payments through Mingo Finance constituted the proceeds of criminal activity.

RJR’s Direction and Control of the Money-Laundering Scheme

49. The RJR DEFENDANTS controlled every aspect of the financial transactions involving the purchase of their cigarettes. The RJR DEFENDANTS set either favorable or unfavorable financing terms for their customers as a means to reward, punish, and/or control the customers. The RJR DEFENDANTS also controlled the exact methods and means by which RJR was paid for the cigarettes. In this way, RJR structured its payment schemes to maximize its own security from detection by United States and European law enforcement.

50. In addition to establishing the rules by which the RJR DEFENDANTS would be paid by cash, Brady Bonds, secret payments to Swiss accounts, or other means as described more fully below, the RJR DEFENDANTS also dictated that their criminal customers route payments to RJR through intermediary distributors, shippers, and other cut outs. This procedure, known in money-laundering jargon as “layering,” is conducted for the sole purpose of concealing the payments’ true source from THE EUROPEAN COMMUNITY and United States law enforcement. In the case of money-laundering transactions related to THE EUROPEAN COMMUNITY and the MEMBER STATES, such intermediaries included Weitnauer, Algrado,

Copaco, and various exchange houses in Switzerland, including Intercambi S.A. In the case of sales of cigarettes into Iraq, the primary intermediary was IBCS and other companies owned by Issa Audeh.

51. At key distribution points such as Antwerp, Belgium, the RJR DEFENDANTS utilized certain storage and shipping companies to handle their products. These storage and shipping companies maintained lists of “direct customers of RJR” which included special handling instructions for shipments designated for RJR customers that RJR knew were involved in criminal activities. These direct customers included but were not limited to Porespa, Copaco, Arbol, Brascotres, Icosa, Sacon, and others. These special handling instructions included, for example, that all invoices for shipments to certain companies must be sent to Renato Meyer, an employee of the RJR DEFENDANTS in Switzerland who was a central actor in RJR’s money-laundering scheme. Instructions concerning other customers included that the cartons (master cases) should be “neutralized and decoded.” To neutralize and decode a master case meant to remove the marks and numbers on the case that otherwise could be used by THE EUROPEAN COMMUNITY authorities to track and regulate the product. As to other companies, special instructions included that invoices must not travel with the product but must be sent to a particular fax number. These special instructions, directed by the RJR DEFENDANTS, were intended to conceal the true purchaser of the cigarettes and/or RJR’s relationship with these special customers. These “direct customer” lists clearly demonstrated that the RJR DEFENDANTS knew that they were selling to criminal customers and thereby demonstrated that the RJR DEFENDANTS knew that they were receiving criminal proceeds in payment for their products.

52. RJR’s criminal customers were obtained, serviced, and supervised by other RJR employees in Switzerland in addition to Renato Meyer, including Diego Luchessa and Oscar Ivanissevich. Distributors and warehousemen in Belgium had regular communications with these individuals regarding many of RJR’s criminal customers, including Porespa, Copaco, Arbol, Brascotres, and others. For example, these criminal companies routinely used certain ships for the shipment of RJR products. These ships included the Tara I, the Ali B, Bleu Diamond II, and Wendy I. Details of the shipments of cigarettes aboard these vessels were requested by and delivered to RJR employees in Switzerland, including Diego Luchessa, so that RJR could keep track of the cigarettes all the way to their ultimate destination. In this way, the RJR DEFENDANTS knew who their ultimate customers were and knew that they were receiving criminal proceeds in payment for their products.

The Gerardo Cuomo Money-Laundering Organization

53. The RJR DEFENDANTS knowingly sold large volumes of cigarettes to Gerardo Cuomo, an Italian citizen residing in Switzerland who is currently under indictment by the Italian government for charges of money laundering and other criminal activities. The RJR DEFENDANTS, their coconspirators, and Gerardo Cuomo created a complex web of companies located in various bank secrecy havens to disguise the true nature and origin of the criminal proceeds that the Cuomo money-laundering organizations were receiving from Italian mafia-type criminal organizations which included the proceeds of arms trafficking, drug trafficking, and other illegal activity. Monies received from Cuomo’s criminal activities, as well as from the criminal activities of other mafia organizations, would be ferried illegally out of Italy in large

cash amounts and received by the money-laundering broker organizations located in Switzerland, including but not limited to the Alfred Bossert organization and the Gegis money-laundering broker organization. Gerardo Cuomo accomplished his purchase of RJR cigarettes through the use of the U.S. wires and/or mails.

54. The principal company of the Gerardo Cuomo money-laundering organization was Maxim S.A., located at Via Motta #34, 6900 Lugano, Switzerland. This company would distribute RJR cigarettes to itself and to Italian criminal cigarette distribution, drug-trafficking, and arms-trafficking organizations. These organizations delivered payment for the cigarettes to money brokers in Switzerland who would in turn credit the payments to Maxim S.A.

55. From the accounts held by the Bossert money-laundering broker organization and the Gegis money-laundering organization, payments would be wired to the different companies that were providing huge volumes of RJR cigarettes to the Gerardo Cuomo organization. The criminal proceeds would then be exchanged for RJR cigarettes as part of the money-laundering process. Providers of the RJR products included:

(a.) Kyro Avia Limited located at 202 Christoforous Court, 3734 Limassol, Cyprus. Payments to Kyro Avia were made to account 233-10561419.1 at Union Bank of Switzerland, 4001 Basel, Switzerland. Payments of criminal proceeds were made to Kyro Avia on behalf of the Gerardo Cuomo organization by the money-laundering broker organizations throughout the 1990s.

(b.) Van Caem Belgium Bvba, located at Van Cuyclestaat #7, Bus 13, 2000 Antwerp, Belgium. Payments of criminal proceeds to Van Caem were made throughout the 1990s and were made to account 633.033.219 at KBC Bank Nederland N.V., located in Amsterdam, Holland, Swift KRED NL 2X through KBC Bank N.Y., SWIFT KRED U.S. 33.

(c.) Rosacta Co. Ltd., located at 62 Arch. Makarios Avenue, 3728 Limassol, Cyprus. Payments of criminal proceeds to Rosacta were made to account 241-07- 158027-02 at Helenic Bank Ltd., located at Gladstonos Avenue in Anaxagoras Street, 3041 Limassol, Cyprus, Swift #: HEBACY2NLIM. Payments to Rosacta were made throughout the 1990s.

(d.) Namari Holdings Ltd., located at 22 Grenville Street, in St. Helier, Jersey, Channel Islands, JE4PX. Payments of criminal proceeds to Namari were made to Harris Bank International Corp., located at 430 Park Avenue, New York, New York 10022, Swift # HATRUS33, for credit to the Royal Bank of Scotland International PLC, located at Royal Bank House, Baxt Street, St. Helier, Jersey, JE48XF, account 16028601 for credit to sub-account Namari Holdings Ltd., sub-account 34878/610/1045889 – Account name: “Nama Hold-USD1”.

(e.) Corlett Trading Limited also located at 202 Christoforous Court, 3734 Limassol, Cyprus. Payments of criminal proceeds to Corlett were made to account 310 465 US dollars in the name of Corlett Trading Limited at Anker Bank Genf Postfach 4923, 8022 Zurich, Switzerland, clearing number 8279. Payments were made to Corlett Trading for product exchanged for criminal proceeds throughout the 1990s.

(f.) Old Navy Trading, 56 Macarious Avenue, Christoforous Court, Office 202, 3734 Limassol, Cyprus. Payments of criminal proceeds were made to Old Navy Trading for products received and exchanged for criminal proceeds to account 10-561’419.1 US dollars at Union Bank of Switzerland, located in Basel, Switzerland. Payments were made to Old Navy Trading throughout the 1990s.

(g.) Icosa A.G., located at Post Office Box 409, 4132 in Muttenz, Switzerland. Numerous payments of criminal proceeds were made to Icosa A.G. throughout the 1990s to account 700.192.00 held at Banque Vanorient Geneva, in Geneva, Switzerland.

(h.) Rowill International located at Mikseban, 238 Links, 2930 Brasschaat, Belgium. Numerous payments of criminal proceeds were made to Rowill International on behalf of the Cuomo money-laundering organization by the Swiss money-laundering broker organizations to account 63.30.56.103 at KBC Bank, located in Rotterdam, Netherlands, Swift KRED-NL-2X and additional payments were made to a second Rowill account 411-2015001-22 at the KBC Bank located in Antwerp, Belgium, Swift KRED-DE-22.

56. All of the aforesaid companies ultimately delivered these criminal proceeds to the RJR DEFENDANTS. The aforesaid scheme was developed and facilitated by the RJR DEFENDANTS.

The Alfred Bossert Money-Laundering Organization

57. One of the primary Swiss money-laundering organizations involved in the wholesale laundering of the proceeds of narcotics trafficking, arms trafficking, and other criminal activities in THE EUROPEAN COMMUNITY was the organization created by Alfred Bossert, located in and around Lugano, Switzerland. Mr. Bossert’s primary company, “Intercambi S.A.,” received and continues to receive large cash payments stemming from the criminal activity of various criminal organizations operating in THE EUROPEAN COMMUNITY, including the proceeds of narcotics trafficking. These payments would be received by the Bossert organization in Switzerland, the sums would be counted, and the person

or entity to which the funds belonged would be credited with the appropriate amount. The Bossert organization would then, either directly or through a variety of money-laundering “subcontractors” such as Enrico Rosini and/or Gecap S.A., change the various currencies (i.e., Italian lira, Spanish pesetas, and others) into U.S. dollars, and would hold those dollars in several accounts created and/or controlled by the Bossert organization or its “subcontractors”.

58. On a monthly basis, the Bossert organization would send a “statement” to the various owners of the funds, such as the organization created by Corrado Bianchi, a major RJR customer, indicating the dates and sums received on their behalf from mafia-type criminal organizations. Furthermore, the Bossert organization would receive instructions from its various clients, including Corrado Bianchi, to make payment out of their informal “account” to a variety of destinations, including directly to RJR and other providers of cigarettes. In this way, huge volumes of cash were illegally transported out of THE EUROPEAN COMMUNITY and the MEMBER STATES by mafia-type criminal organizations, converted into United States dollars, and funneled to the RJR DEFENDANTS via their coconspirators.

59. The Bossert organization holds the funds for its money-laundering clients and issues payment through accounts it controls according to the instructions received by the clients.

These accounts included account 251884/01/US dollars, located at Corner Banca S.A. located at Via Canova 16, 6901 Lugano, Switzerland; account #: Q5-790-418/US dollars, located at the Swiss Bank Corporation (SBC) located in Lugano, Switzerland; account #:1.1.17300.01.333.0002, located in Banca del Sempione, in Lugano, Switzerland; or accounts held by companies controlled by Intercambi, S.A.; or by the Bossert organization such as the account held by Okapi Panama S.A., including account 242.151/02 in the name of Okapi Panama, S.A. at the ABN/AMRO Bank in Lugano, Switzerland.

60. RJR cigarettes were paid for in bulk through the aforesaid scheme. The RJR DEFENDANTS were fully aware that their primary customers for the sale of cigarettes into Italy were various families of the Italian mafia and that the RJR DEFENDANTS were receiving criminal proceeds, including narcotics proceeds, in payment for their cigarettes, and that a primary purpose of these purchases was to conceal the nature, source, ownership, and control of the criminal proceeds. No reasonable company, upon receiving these payments from the Bossert money-laundering organization, could possibly have concluded that these funds were derived from legitimate sources. The payment for cigarettes, not by the true purchaser but rather through cut-outs such as Alfred Bossert, is a clear and classic sign of money laundering.

Money Laundering for Italian Organized Crime

61. Throughout the 1990s and at least through 2000, the RJR DEFENDANTS and their coconspirators maintained four major customers for sales of their products to Italian organized crime groups via Montenegro. These four customers, known within the trade as the “fabulous four,” were the following: (a.) Gilbert Llorens; (b.) Luis Garcia Manolo, a/k/a Il Spaniolo; (c.) Patrick Laurent; and (d.) Patrick Monnier. This group of the “fabulous four” each enjoyed a “license” granted by the exclusive license holder in Montenegro, Montenegrin Tabak Transit (MTT). Montenegrin Tabak Transit received an exclusive license from the Montenegrin government for the transit of tobacco products through Montenegro.

62. The RJR DEFENDANTS and their coconspirators maintained an additional, second tier of coconspirators who were actually representatives of Italian mafia organizations,

and included Gerardo Cuomo, Guglielmo Chiavi, Augusto Arcellaschi, Gregory Tsortzakis, Ciro Mazzarella, Francesco Prudentino, and others.

63. Representatives of the first tier group of the “fabulous four” also participated in this second tier of RJR coconspirators, providing the product directly to Montenegro, and then taking the product out of Montenegro and providing it to Italian mafia-type criminal organizations.

64. The RJR DEFENDANTS also sold products to these groups through routes other than Montenegro using criminal organizations that included but were not limited to, Gerardo Cuomo, Martin Denz, and Luciano Caré.

65. Throughout the 1990s, the Italian mafia-type criminal organizations illegally transported large volumes of cash, including narcotics proceeds and the proceeds of other crimes, to Switzerland for deposit with money-laundering broker organizations located in Switzerland, including but not limited to the Alfred Bossert organization. After the funds were received, the various currencies would be exchanged for U.S. dollars and held in “informal” accounts at the disposal of the particular cigarette distributor that was dealing with the criminal organization in question. Upon receipt of notification from the money-laundering broker, the provider would order the release of the appropriate quantity of cigarettes to the representatives of the purchasing criminal organization.

66. The RJR DEFENDANTS made special arrangements with these criminal groups to ensure that they could make secret payments to the RJR DEFENDANTS so that the RJR DEFENDANTS could sell their products to these groups and these groups could avoid detection by law-enforcement authorities of THE EUROPEAN COMMUNITY and the MEMBER STATES. As a result, a complex scheme of money launderers, money couriers,

corporate structures, and banking relationships was established to launder the aforesaid proceeds.

Billions of dollars in criminal proceeds were laundered in this manner. The RJR DEFENDANTS were both the architects and the beneficiaries of the payment plan by which these massive amounts of funds were laundered. But for the RJR DEFENDANTS’ complicity in the money-laundering scheme, the money laundering could not have been accomplished.

67. The RJR DEFENDANTS and their coconspirators made use of an organized group of money couriers whose function was to receive criminal proceeds in Italy and other parts of THE EUROPEAN COMMUNITY and to illegally ferry those proceeds out of Italy and THE EUROPEAN COMMUNITY to Switzerland, where the couriers would hand the cash proceeds over to the Swiss money-laundering broker organizations. Examples of the courier organizations include those associated with Nedo Caneva, Adriano Corti, Donino Verdamo, Aldo Tacchini, Pietro Cerroni, Lorenzo Fieni, Americo Mirandi, and Angelo Carboni. These courier organizations provided a vital and necessary link between the Italian mafia-type criminal organizations and the Swiss money-laundering broker organizations, and provided an essential link in the laundering of the criminal proceeds distributed to the RJR DEFENDANTS.

68. Throughout the 1990s, employees of the RJR DEFENDANTS traveled to the warehouses and facilities of these criminals groups to inspect product, ensure freshness, replace damaged goods, and provide other services for these criminal organizations just as they would any other customer. In this way, the RJR DEFENDANTS knew who their customers were and knew, or but for their willful blindness would have known, that their customers were organized criminal organizations. The United States wires and mails were used on a regular basis for communication between the RJR DEFENDANTS and these individuals and/or their employees.

Money Laundering through the Bank of New York

69. The RJR DEFENDANTS have participated in and have received the proceeds of a massive money-laundering scheme through the Bank of New York. Throughout the late 1990s, the Bank of New York was the hub of a money-laundering scheme created by Russian organized crime, including Russian narcotics traffickers. In this scheme, a group of bank entities, some legitimate and some fabricated, opened correspondent accounts with the Bank of New York. Through these correspondent banks and the Bank of New York, Russian organized criminals were able to launder hundreds of millions of dollars of criminal proceeds in the Eastern District of New York. The RJR DEFENDANTS were prime beneficiaries of this moneylaundering enterprise. THE RJR DEFENDANTS received millions of dollars per month in payments through the Bank of New York that constituted the proceeds of Russian organized criminal activity, including narcotics trafficking. The RJR DEFENDANTS knew or should have known that the money that they were receiving through this route constituted the proceeds of criminal activity and was being illegally laundered. In spite of this fact, the RJR DEFENDANTS continued for years to sell cigarettes to these customers and receive these criminal proceeds in New York. The transfer of these illicit funds to and through the Bank of New York was accomplished through a continuing use of the U.S. wires and mails. The vast majority of the aforesaid transactions were accomplished through the use of the SWIFT system, which is based in Belgium and which is an important part of U.S., EUROPEAN COMMUNITY, and international banking systems.

70. Sinex Bank. One example of the ways in which the Bank of New York was utilized to launder criminal proceeds by way of payments to the RJR DEFENDANTS involved a

bank known as Sinex Bank. Sinex Bank was incorporated under the laws of the country of Nauru in 1996 and was created almost exclusively for the purpose of laundering the proceeds of Russian organized crime. Sinex bank did business in the United States by way of an office maintained in this district in Kew Gardens, Queens, New York, by Aleksey Volkov, one of its directors. The owners and general managers of the bank were indicted and are currently incarcerated as a result of their activities laundering Russian criminal proceeds through the Bank of New York.

71. Sinex’s criminal customers initiated bank transfers that were sent to Depozitarno Kliringovy Bank (DKB). Transfers to DKB Bank were cleared through DKB’s accounts at the Bank of New York in Queens. These payments were then sent to accounts at Credit Suisse First Boston in Geneva, Switzerland, for the benefit of the RJR DEFENDANTS.

Such payments occurred over a several-year period. Examples of such payments in one limited time period include the following:

Date Payee Amount May 27, 1997 RJ Reynolds Tobacco International S.A. $1,000,050.

May 28, 1997 RJ Reynolds Tobacco International S.A. 491,745.

May 29, 1997 RJ Reynolds Tobacco International 200,000.

May 30, 1997 RJ Reynolds Tobacco International 260,000.

June 2, 1997 RJ Reynolds International S.A. 379,235.

June 3, 1997 RJ Reynolds Tobacco International 245,850.

June 25, 1997 RJ Reynolds Tobacco International 125,000.

July 23, 1997 RJ Reynolds Tobacco International 290,000.

July 24, 1997 RJ Reynolds Tobacco International 459,745.

July 25, 1997 RJ Reynolds Tobacco International 679,910.

R.J. Reynolds Tobacco International, S.A., the recipient of the above-listed funds, was the subsidiary and/or agent and/or alter ego of the RJR DEFENDANTS. Criminal proceeds received by R.J. Reynolds Tobacco International, S.A. were received for the benefit of the RJR DEFENDANTS. R.J. Reynolds Tobacco International S.A. was based in Switzerland by the RJR DEFENDANTS as a part of the money-laundering scheme by which criminal organizations could make payments to the RJR DEFENDANTS and avoid detection from U.S. and European law-enforcement agencies by utilizing Swiss secrecy laws.

72. In each of the above-described transactions, the “ordering bank” was Sinex Bank. The RJR DEFENDANTS, as payees for these orders, knew or should have known that they were receiving millions of dollars in payments ordered by an obscure bank located on a tiny Pacific island. The RJR DEFENDANTS thus knew or should have known that they were receiving laundered criminal proceeds. No legitimate purchaser of cigarettes would be ordering payment for product through Sinex Bank. Equally revealing, on the payment detail forms that would have been delivered to or available to the RJR DEFENDANTS, Sinex Bank identified itself as the Ordering Customer. By identifying itself as the “Ordering Customer,” Sinex Bank was concealing the true identity of the entities that were paying for the RJR cigarettes. Such concealment is a classic indication of money laundering and would have been certain to alert the RJR DEFENDANTS that the proceeds in question were most likely laundered criminal proceeds.

73. Between 1996 and 1999, Sinex Bank laundered up to Seven Billion Dollars in criminal proceeds. Much of the data surrounding these transactions has not yet been available to the Plaintiffs. Accordingly, it would be impractical to list individually all of the similar transactions by which Russian organized crime proceeds were laundered through payments to the

RJR DEFENDANTS. All the aforesaid transactions occurred through extensive use of the U.S.

wires and mails. Employees of the Bank of New York and officers of Sinex Bank have pled guilty to U.S. money-laundering charges in connection with the above-described scheme. THE EUROPEAN COMMUNITY’S banking system, transportation system, and free market were exploited, and various crimes were committed in THE EUROPEAN COMMUNITY, including fraud, forgery, and others, as many of the cigarettes that were purchased through this scheme were transported through THE EUROPEAN COMMUNITY to Russia.

74. Benex and BECS. One part of the conspiracy involving the Bank of New York includes the following facts. In late 1995, Peter Berlin and his wife, Lucy Edwards, who was then a vice president in the Bank of New York, Eastern European Division, in Manhattan, entered into an agreement with certain coconspirators, including Russian individuals, to establish bank accounts at the Bank of New York. Several accounts were established for the Russian coconspirators at the Bank of New York, including accounts in the names of “Benex” and “BECS.” These accounts were managed from offices in Forest Hills, Queens, and that office was run by individuals who were working for a Russian bank, DKB. DKB would transfer funds into the Benex and BECS accounts in bulk amounts on a daily or almost daily basis and then DKB would issue daily instructions from its offices in Moscow directing employees in the Queens office to transfer funds out of the accounts to various third-party transferees and beneficiaries located around the world.

75. Benex and BECS operated as front companies for the Russian coconspirators and the Russian banks they controlled. A large number of Russian individuals and businesses used this illegal banking operation to transfer and receive money in violation of Russian currency control limitations and to promote schemes to defraud the Russian government. Edward Berlin

and Lucy Edwards were charged by the United States government with conspiracy to, among other things, “launder money through international funds transfers intended to promote criminal activity, including a wire fraud service scheme to defraud the Russian government.” In pleading guilty, Berlin and Edwards admitted under oath that they personally assisted individuals to transfer money through the Benex and BECS accounts knowing that the reason, intent, and purpose of using these entities was to defraud the Russian government.

76. The money-laundering scheme described above was designed to launder the proceeds of crimes committed by Russian organized crime groups, including at least one group that utilizes the purchase and sale of cigarettes as a primary mechanism for its money-laundering activities—the Soltntsevskaya Group. The FBI has indicated that “the Benex and BECS accounts have been used to transmit funds for illegal purposes or to individuals or groups known or suspected to be involved in Russian organized crime or other criminal activities,” including kidnapping, financial crimes, narcotics trafficking, arms trafficking, and other crimes. Wire transfers involved in this scheme were made through United States financial institutions and were sent to countries throughout the world, including Luxembourg and Belgium. Cigarettes sold by the RJR DEFENDANTS were a part of this money-laundering conspiracy, and all or part of the funds laundered through the aforesaid conspiracy were laundered within the Eastern District of New York. In a substantial percentage of the transactions described above, THE EUROPEAN COMMUNITY and the MEMBER STATES were victims of the criminal schemes.

THE EUROPEAN COMMUNITY facilities and institutions were exploited as a part of this narcotics trafficking and money-laundering scheme. Many of the aforesaid transactions were conducted by Russian organized crime groups based in THE EUROPEAN COMMUNITY.

These schemes involved illegal acts in Belgium, Austria, Greece, the United Kingdom, and other

MEMBER STATES as part of an extensive narcotics trafficking/money-laundering scheme.

Narcotics involved in this scheme were sold in THE EUROPEAN COMMUNITY and in the United States.

The Walt Money-Laundering Conspiracy

77. WALT S.R.L. (hereinafter Walt) was an Italian company with offices in several European countries. Walt was owned and run by Luciano Caré, whose organization is currently under criminal investigation by European authorities for money laundering and other criminal activities in several MEMBER STATES and THE EUROPEAN COMMUNITY. The cigarettes for criminal proceeds money-laundering conspiracy carried out through Walt has harmed THE EUROPEAN COMMUNITY and several MEMBER STATES, including Italy, Spain, Belgium, France, and Portugal. It has also harmed several non-European Community jurisdictions, including the United States, Senegal, and Angola.

78. Throughout the 1990’s and, upon information and belief, continuing through at least 2001, the Walt scheme traded cigarettes manufactured by RJR in the United States with and through several criminal organizations within THE EUROPEAN COMMUNITY. The illegal proceeds received by Walt from these criminal organizations were then transported through several MEMBER STATES, including but not limited to Belgium, France, Spain, and Italy, via clandestine and covert means. Once transported to Italy, the criminal proceeds were delivered to banking institutions and deposited into accounts, including but not limited to account numbers 00300/24/08279513, and 00300/16/09330095 in the San Paolo Bank, located in Genoa, Italy. From this account and others, funds representing criminal proceeds were wired to

the Bank of New York, for further credit to R.J. REYNOLDS TOBACCO INTERNATIONAL in Geneva. Examples of these transactions occurred on April 12, 1997 ($53,000), and September 30, 1997 ($90,010). Such transactions continued throughout the 1990s and, upon information and belief, through 2001.

79. An additional example of a transfer of criminal proceeds from Walt to the RJR DEFENDANTS occurred on November 12, 1997, when Walt transferred $82,800 from its account number 06572674071 at the Monte Paschi Bank, located in Paris, France, to R.J.

REYNOLDS TOBACCO INTERNATIONAL located in Switzerland. Payment was received in the R.J. REYNOLDS account #719100-82-1 in Credit Swiss Bank, in Geneva, Switzerland. The RJR DEFENDANTS knew that Walt was not the true purchaser of the cigarettes, but instead was serving as a cut out for criminal groups. The RJR DEFENDANTS knew or should have known that Walt had no license to import or sell cigarettes in Italy and therefore could not be a legitimate purchaser of the RJR products in question.

Money Laundering through Cut Outs in Ireland and Belgium

80. The RJR DEFENDANTS sold cigarettes and laundered criminal proceeds through a series of cut outs located in Ireland and Belgium. An example of such a moneylaundering scheme is set forth below.

81. The RJR DEFENDANTS maintained as direct customers two companies called Willbrook Trading Ltd. and Glenpower Ltd. These were Irish companies based at the same address in Dublin, Ireland. They both maintained Swiss bank accounts at the same Swiss

bank. Even though these companies ostensibly purchased RJR cigarettes through third-party distributors, they were direct customers of RJR and were serviced directly by RJR employees.

82. Willbrook Trading Ltd. and Glenpower Ltd. sold RJR-brand cigarettes to numerous companies owned and operated by criminals and/or criminal organizations, including Maverick Trading Limited and Delphinus Services Ltd. Both companies were owned and operated by individuals who have been charged with conspiracy, forgery, and other crimes within THE EUROPEAN COMMUNITY. Maverick Trading Limited and Delphinus Services Ltd., while incorporated in Guernsey, Channel Islands, were actually operated from Antwerp, Belgium.

83. In the years 1996 through 1998, the organization that included Willbrook Trading Ltd. and Glenpower Ltd. purchased almost forty million dollars worth of RJR cigarettes and sold them to Maverick Trading Ltd., Delphinus Services Ltd., and/or other related companies. All or virtually all of the forty million dollars utilized to purchase the aforesaid cigarettes constituted criminal proceeds. The RJR DEFENDANTS knowingly laundered the aforesaid criminal proceeds by way of their sales of their cigarettes to Willbrook Trading Ltd.

and/or Glenpower Ltd. The aforesaid sales and transfers of proceeds were accomplished through multiple uses of the U.S. wires and mails.

84. Companies related to Maverick Trading Ltd. and Delphinus Services Ltd.

include Unicorn, Encoterra, Sunflower, Ando-Invest, and A.I.T.A., all located in Belgium, and a company known as Incomondo, located in Aruba. At a minimum, Maverick Trading Limited, Unicorn, Encoterra, Sunflower, and Incomondo laundered criminal proceeds through the use of bank accounts located in Belgium and by way of money transfers between Belgian bank accounts utilizing the SWIFT system. The majority of the funds utilized in the aforesaid

transactions ultimately inured to the benefit of and/or were transferred to the RJR DEFENDANTS.

Cigarette Sales to Launder Narcotics Proceeds

85. The sale of cigarettes has become one of the primary vehicles by which drug traffickers launder their illicit profits. RJR has become a prime recipient of this business.

Money brokers routinely purchase large volumes of RJR cigarettes with money that represents the proceeds of illicit drug sales. Representatives of RJR know or should know the source of these funds and their illicit nature, yet RJR continues to receive these funds and to sell cigarettes to these persons and entities.

86. Sales of RJR cigarettes have enabled drug lords to launder their illicit profits.

Representatives of the RJR DEFENDANTS are on actual notice that the source of funds used to purchase their cigarettes is drug trafficking, yet RJR continues to receive these funds and to sell cigarettes to these persons and their affiliates. By reason of this conduct, the RJR DEFENDANTS aid, abet, and act in concert with drug lords to launder their ill-gotten gains.

87. The DEFENDANTS have long been on notice that their cigarette sales are linked to money laundering. In or about 1994, the National Coalition Against Crime and Tobacco Contraband, which was funded by RJR and other tobacco companies, retained Lindquist Avey Macdonald Baskerville Inc. (“Lindquist”) to investigate and analyze illegal activity involving cigarettes in the United States, among other things. In its August 15, 1994, report, Lindquist observed that: “There are indications that some Colombian cocaine barons still handle cigarettes, but for a different purpose. It is believed that, in some cases, they patriate

cocaine profits earned in the United States through cigarette purchases. These cigarettes are imported into Colombia and sold there, providing cocaine traffickers with a seemingly legal alibi for the source of their wealth." 88. That the RJR DEFENDANTS should have known that their distributors were laundering drug proceeds is undeniable. In or about the early 1990s, bank accounts in Miami, Florida, owned by various RJR cigarette distributors, were frozen by United States lawenforcement officials because funds credited to those accounts represented laundered drug money. The freezing of these accounts was well known to the RJR DEFENDANTS. By virtue of this event, the RJR DEFENDANTS were aware or should have been aware that their distributors had been involved in handling laundered narcotics proceeds. In spite of the fact that the conduct of these individuals was known to RJR, the RJR DEFENDANTS continued to develop these relationships actively so as to sell large volumes of cigarettes to these money launderers.

Cocaine Trafficking and Money Laundering in Spain

89. Cocaine trafficking occurs in Spain on a massive scale as a result of joint ventures between Colombian producers and Galician traffickers. In 1999, seventeen tons of Colombian cocaine were seized in Spain. These seizures represented a small percentage of the total amount of Colombian cocaine delivered into THE EUROPEAN COMMUNITY via Spain.

Prior to and during the 1990s, Galician organized crime groups specialized in trading in cigarettes manufactured by the RJR DEFENDANT S and laundering their money in Switzerland.

RJR’s Winston brand is by far the most popular foreign-made cigarette in Spain and a large

percentage of the money laundering conducted in Spain through cigarette sales was thus accomplished using RJR products. Accordingly, the marriage between the Galician crime groups and Colombian crime groups has proven mutually beneficial. The Galicians obtained a valuable new product for distribution in the form of cocaine. The Colombians obtained partners who had established trafficking networks in THE EUROPEAN COMMUNITY, expertise in money laundering in Switzerland, and expertise in the purchase and sale of American cigarettes, RJR-brand cigarettes in particular.

90. The activities of Colombian organized crime in Spain are particularly violent.

In 1999 alone, eight Colombian nationals were murdered in Spain as a result of turf wars and realignment within the criminal community. Spaniards actually became the heads of Colombian cocaine networks in Europe, especially as far as money-laundering operations were concerned.

91. Partnerships between the Colombian cocaine producers and Galician traffickers often occurred as follows: The Colombians conveyed cocaine to Central America, where the Galicians picked it up and transported it to the coast of Northern Spain. In return for this service, the Galicians received 30% to 50% of each shipment, which they then sold in THE EUROPEAN COMMUNITY, in particular Spain, Belgium, and The Netherlands. The remaining fifty to seventy percent of the cocaine was marketed in Europe by the Colombians themselves once the narcotics were within the borders of THE EUROPEAN COMMUNITY.

Two such smuggling networks were identified and dismantled in 1999 by Spanish authorities.

One such network was known as “Los Mataderos” (The Slaughter House).

92. Throughout the 1990s, the RJR DEFENDANTS had dealings with individuals in Spain that they knew or should have known were a part of these criminal organizations. One such individual, a major customer of the RJR DEFENDANTS, was Laureano Oubina. Laureano

Oubina was a member of the Galician drug trafficking network described above. As far back as June 18, 1990, Laureano Oubina was identified by and arrested by Spanish law-enforcement authorities as a result of his involvement in narcotics trafficking and money laundering. At that time, Laureano Oubina was considered by Spanish law enforcement to be the Spanish connection for the Colombian “Medellin Cartel.” He was linked to notorious Colombian cocaine traffickers, including Pablo Escobar Gaviria and Fabio Ochoa Vazquez. Both before and after June 1990, Laureano Oubina was also a major customer of the RJR DEFENDANTS. He was a customer of Michael Haenggi who was a major distributor for the RJR DEFENDANTS and who, as described above, has publicly admitted that he was involved in the sale of cigarettes to criminals.

93. During all or part of the time that Laureano Oubina was purchasing and selling RJR cigarettes, he was using those cigarette purchases to launder narcotics proceeds.

Laureano Oubina’s involvement in narcotics trafficking was known to the RJR DEFENDANTS or should have been known to them. Laureano Oubina had several publicized bouts with lawenforcement agencies in Spain throughout the 1990s regarding his alleged narcotics trafficking.

In the most recent incident in October 1999, he escaped just as law-enforcement authorities were preparing to arrest him on a hashish trafficking charge.

Money Laundering through Central America and the Caribbean

94. Richard Larocca, Vice President-General Manager for North America Duty Free/Latin America; Tom Brock, Vice President, Special Markets Americas; John Dyson, Latin America Sales Manager, RJR Tobacco International Miami; Sergio Rotati, Vice President, RJR Tobacco International for Special Markets Latin America; Bill Ventura, RJR Director Latin America; Orlando Morales, RJR Tobacco International Miami Chief Financial Officer, and other

agents or employees of the DEFENDANTS established direct relationships with individuals in Europe, Central America, and the Caribbean who they knew, or should have known, were actively involved in laundering the proceeds of illicit narcotics sales. Executives and employees of the RJR DEFENDANTS traveled to Europe, the Caribbean, and to Central America on multiple occasions for the purpose of meeting and negotiating business agreements with individuals who the RJR DEFENDANTS knew, or should have known, were involved in the laundering of narcotics proceeds. This travel was routinely arranged through the use of the U.S.

wires and mails.

95. An example of the RJR DEFENDANTS’ agreements with money launderers can be seen in RJR’s relationship with El Torreon, S.A. In October 1992, John Dyson (Latin America Sales Manager for RJR Tobacco International located in Miami) traveled to Aruba to establish direct contacts between RJR distributors and Colombian narcotics money laundering organizations. The meeting was arranged through the use of the U.S. wires and/or mails. During the meeting, RJR set up the following scheme to receive Colombian narcotics money in exchange for cigarettes sold by RJR:

(a.) RJR’s Aruba distributor would sell products to El Torreon, S.A., which would then sell the product into the distribution channels selected by RJR.

(b.) El Torreon would pay for the product with narcotics proceeds collected in Medellin and flown from Medellin to be handed over to the Aruban distributor.

(c.) El Torreon’s front man in Medellin was to be in charge of the collection of the narcotics proceeds in cash in Medellin and was to effectuate the transfer of the proceeds in person.

(d.) At the direction of Mr. Dyson, the El Torreon money-laundering arrangement was established to go into effect on January 1, 1993.

(e.) The Aruban RJR distributor explained to Mr. Dyson at the October 1992 meeting that the narcotics proceeds to be delivered to him would require special handling, and create special risks, and that the additional costs associated with the El Torreon money scheme would be charged to RJR. Mr. Dyson agreed to this.

(f.) Beginning in January 1993 and continuing for an undetermined time thereafter, the RJR DEFENDANTS laundered drug proceeds through this scheme.

(g.) The aforesaid criminal proceeds were delivered to the RJR DEFENDANTS in the United States through the use of the U.S. wires and/or mails.

96. El Torreon S.A. was owned, operated, and directed by a Spanish multinational corporation.

97. The development of these relationships with known money launderers, such as El Torreon S.A., was known or should have been known by all the RJR DEFENDANTS and in particular RJR NABISCO, INC., R.J. REYNOLDS TOBACCO COMPANY, and R.J.

REYNOLDS TOBACCO INTERNATIONAL, INC.

Money Laundering through Panama

98. The RJR DEFENDANTS knowingly and intentionally shipped large volumes of cigarettes to individuals and corporations in certain free trade zones such as the Colon Free Trade Zone in Panama for the purpose of expediting the money-laundering scheme. One such company was a company known as Compania Panamana de Comercio (Copaco). Copaco was a

major distributor for the RJR DEFENDANTS. Sales through Copaco were made to companies that were known money launderers. Copaco was wholly or partially owned and controlled by Michael Haenggi, who sold most of his RJR cigarettes to criminal customers in THE EUROPEAN COMMUNITY. Even as to cigarettes whose ultimate destination was nowhere near Panama, RJR shipped these cigarettes through cut outs in Panama so that the money launderers could use the secrecy laws of the Republic of Panama as a shield by which to prevent law-enforcement agencies and governments from identifying the true purchasers of the cigarettes. This trade allowed for the movement of laundered money out of Europe without detection. The RJR DEFENDANTS endeavored to conceal the sale of their products into money-laundering channels by transferring the cigarettes to several cut outs in several destinations prior to the ultimate delivery to the final customer, and by providing secret and circuitous means by which the cigarettes were paid for.

Money Laundering through the United Kingdom

99. From at least October 1995 through April 1997, the RJR DEFENDANTS knowingly supplied large volumes of cigarettes to a money-laundering group in the United Kingdom that was selling cigarettes into Spain as a part of a money-laundering enterprise. One of the companies involved in the operation was Entire Warehousing. Additionally, there were at least six other related companies that were engaged in a massive money-laundering scheme.

Through the period from 1995 through 1997, the aforesaid companies sold thousands of cases of cigarettes manufactured by the RJR DEFENDANTS into Spain. The RJR DEFENDANTS sold cigarettes to "distributors" in Panama and elsewhere with the full knowledge that the true

purchaser of the cigarettes was this money-laundering group. The cigarettes were sold to intermediary "distributors" in Panama and elsewhere to conceal from law-enforcement authorities the fact that the RJR DEFENDANTS were selling cigarettes to this criminal group.

The cigarettes in question were paid for with the proceeds of criminal activity. The RJR DEFENDANTS were the recipients of these criminal proceeds and were a key part of the money-laundering process. A substantial portion of the cigarettes that were sold to this moneylaundering conspiracy were provided by Cimarron Holdings, S.A., a company that appears on RJR’s special customer lists described more fully in paragraph 51. Payments for cigarettes as a part of this conspiracy were paid for by Intercambi S.A., the primary company in the Alfred Bossert money-laundering organization.

100. Through the aforesaid transactions, cigarettes were sold by the RJR DEFENDANTS and criminal proceeds were laundered on or about the following dates:

November 23, 1995; November 27, 1995; November 28, 1995; November 30, 1995; December 1, 1995; December 4, 1995; December 5, 1995; December 6, 1995; January 5, 1996; January 11, 1996; January 19, 1996; January 26, 1996; February 2, 1996; February 12, 1996; February 22, 1996; March 20, 1996; April 30, 1996; and May 16, 1996.

Distinctions between Sales to Legitimate Customers and Sales to Criminal Customers

101. Throughout the 1990s, the RJR DEFENDANTS utilized different business practices depending on whether their customer was a legitimate business customer or a criminal business customer. Criminal customers were handled differently because they represented a greater risk. Specifically, the RJR DEFENDANTS faced a risk that the products intended for

criminal customers might be confiscated or the customers arrested. Additionally, the RJR DEFENDANTS took steps to secrete from law enforcement authorities their relationship with these criminal customers so as to prevent law-enforcement authorities from becoming aware that the RJR DEFENDANTS were laundering criminal proceeds.

102. Cigarette sales to a legitimate customer can be identified by the following characteristics:

(a.) Customers placed orders directly to RJR through the use of purchase orders. Purchase orders could be communicated by telephone or fax.

(b.) The purchase orders were processed and serviced by warehouses contracted by RJR.

(c.) The wholesaler of the cigarettes was responsible for complying with all applicable laws and the payment of applicable taxes.

(d.) Legitimate customers were usually provided with credit terms.

Because credit was being extended, the approval process for a new customer could take a substantial amount of time.

(e.) Legitimate customers routinely make payments directly to RJR via wire transfers.

(f.) Cigarettes purchased by legitimate customers were typically produced and shipped from a single source.

103. In contrast, when the RJR DEFENDANTS sold cigarettes to criminal customers, the procedure often was as follows:

(a.) The customers could not place orders directly to RJR; orders had to be placed with some intermediary company (a cut out).

(b.) Orders for production of the cigarettes were placed by an intermediary company, not the wholesaler.

(c.) If the cigarettes passed through a Free Trade Zone, the customer, not RJR, coordinated the shipment and transportation instructions with the Free Trade Zone.

(d.) The customer was deemed “responsible” for compliance with applicable law regarding the sale of the cigarettes.

(e.) Sales were often for cash only; no credit or credit terms highly favorable to RJR were offered.

(f.) The RJR DEFENDANTS approved such sales almost immediately without any attempt to “know the customer.” In fact, the RJR DEFENDANTS make it a point to not develop a knowledge of the customer so they would not have to admit that they were aware of the customer’s criminal activities. Formal applications and waiting periods for approval that were the standard in the industry were circumvented.

(g.) The RJR DEFENDANTS accepted payment by checks payable to intermediary companies, third-party checks, bank checks, third-party wire transfers, and other forms of payment that were not typical in the cigarette trade. Payments often had to be made through “cut outs” to hide or disguise the true nature of the transaction and the participants.

(h.) On some occasions, payments were made directly to the account of an RJR subsidiary in Puerto Rico. However, in such instances, those payments were directed to be sent to a numbered account and did not name RJR in the payment details.

(i.) The RJR DEFENDANTS continually switched the banks where payments were to be made to RJR in order to escape detection by U.S. law enforcement. This process was known within RJR as “musical banks.”

(j.) The RJR DEFENDANTS engaged in “dual sourcing,” a practice in which cigarettes were sourced from multiple locations or transferred through circuitous and indirect shipping routes to conceal the true customer.

Money-Laundering Mechanisms

Laundering of Cash 104. The way in which the RJR DEFENDANTS laundered narcotics proceeds and the proceeds of other forms of criminal activity evolved over the years. In the early- to mid- 1990s, the money-laundering operations were often simple and overt, involving meetings between RJR employees and known money launderers in which the RJR employees would actually receive large volumes of cash in payment for cigarettes, or would be present when these transactions took place.

105. For example, for many years it was virtually a monthly routine that employees of the RJR DEFENDANTS would travel to Colombia by way of Venezuela. These employees, traveling with authorized RJR distributors, would enter Colombia illegally, paying bribes to guards at the Colombian border so that they could enter the country without their passports being stamped. They would then travel by car to various locations such as Maicao where they would meet face to face with money launderers and narcotics traffickers. There the RJR employees would receive payments for cigarettes in the form of bulk cash that may be denominated in United States dollars or Venezuelan bolivars. They would also receive easily transferable instruments such as third-party checks, cashiers checks, and other such instruments.

The employees of the DEFENDANTS would then travel back to Venezuela, bribing border

guards at the Venezuelan border to ensure that they could move the cash illegally across the border into Venezuela. Once the employees of the DEFENDANTS reached a major Venezuelan city such as Maracaibo they would, by direct or indirect means, wire transfer the funds to bank accounts of the RJR DEFENDANTS in the United States, thereby completing the moneylaundering cycle.

106. At all times throughout this process, the RJR DEFENDANTS and their employees were well aware that they were laundering the proceeds of criminal activities. The great lengths that were taken to conduct these activities in a surreptitious manner demonstrate the knowledge of the RJR DEFENDANTS that these activities were illegal. The process by which these illegal payments were made, received, transported, and laundered was established by highlevel executives of the RJR DEFENDANTS. This money-laundering operation could not have occurred without the knowledge and complicity of officers and managers of the RJR DEFENDANTS. The above-described travel was arranged through the use of the U.S. wires and mails and the laundered narcotics proceeds were transferred to the bank accounts of the RJR DEFENDANTS through the U.S. wires and mails.

Money Laundering through Brady Bonds

107. At another time in the 1990s, to avoid the transportation of bulk cash and to conceal further the illegal nature of their transactions, the RJR DEFENDANTS laundered the proceeds of criminal activities through the use of Brady Bonds. Brady Bonds, named after former United States Secretary of the Treasury Nicholas Brady, were created in association with the IMF and the World Bank as part of an effort to restructure outstanding sovereign loans into

liquid debt instruments. Brady Bonds were coupon-bearing bonds for which the principal and interest were collateralized by United States Treasury zero-coupon bonds and other high-grade instruments. Creditor banks exchanged sovereign loans for Brady Bonds incorporating principal and interest guarantees as a means by which debtor governments could have their debts reduced.

Issued as registered and/or bearer bonds, Brady Bonds were utilized to restructure the debt in a number of countries, including Venezuela. Brady Bonds are transferable and can be bought and sold through various exchanges.

108. As an example of how Brady Bonds were used to launder narcotics proceeds, employees and/or distributors of the RJR DEFENDANTS traveled to locations such as Maicao, Colombia, to receive payment for cigarettes by cash, check, or money order. Often these payments were made in Venezuelan bolivars, not the preferred currency for the RJR DEFENDANTS. To convert these bolivars into United States dollars, the RJR DEFENDANTS and/or their distributors would transport the cash, checks, or money orders to a major city in Venezuela. At that point, they would use the funds in question to purchase Brady Bonds. Once the Brady Bonds were purchased, they would be transferred to an exchange in New York City where they would then be sold for dollars. In this way, the DEFENDANTS could launder the proceeds of criminal activities, convert the proceeds into United States dollars, and deliver them to their bank accounts in New York without detection from law enforcement. The purchase, movement, and sale of the Brady Bonds were expedited through the United States wires and/or mails.

Money Laundering through Secret Swiss Accounts

109. In the mid- to late-1990s, the RJR DEFENDANTS received public notice that many of their distributors were laundering narcotics proceeds. Several of their major customers were indicted for money laundering by the U.S. government or by the governments of other countries. Other distributors had their bank accounts in Miami, Florida, seized because they contained the proceeds of narcotics trafficking. In spite of this notice that the RJR DEFENDANTS were selling their cigarettes to criminals and were laundering the proceeds of narcotics trafficking, the RJR DEFENDANTS did not cease conducting their business with these distributors and customers. Rather, they moved their international operations to Switzerland for the sole reason of conducting continuing illegal activities, including the laundering of criminal proceeds by taking advantage of Swiss secrecy laws to conceal their activities. The RJR DEFENDANTS established policies by which many of their criminal customers could pay for the cigarettes they purchased only by way of such secret bank accounts and Swiss companies.

This secret and surreptitious method of payment was eagerly embraced by the RJR DEFENDANTS’ criminal customers. The primary reason they purchased cigarettes from the RJR DEFENDANTS was to launder the proceeds of their criminal activities. Secret payments were necessary to ensure that U.S. and European law-enforcement agencies did not detect their activities.

110. The decision to move certain operations to Switzerland and to provide for payment by their customers into Swiss accounts was made at an executive level by RJR NABISCO, INC., R.J. REYNOLDS TOBACCO COMPANY, R.J. REYNOLDS TOBACCO INTERNATIONAL, INC., RJR ACQUISITION CORP., f/k/a NABISCO GROUP HOLDINGS

CORP., RJR NABISCO HOLDINGS CORP., and R.J. REYNOLDS TOBACCO HOLDINGS, INC.. The RJR DEFENDANTS moved the records concerning almost all their illegal activities to Geneva, Switzerland, so as to escape the surveillance of the governments that are victimized by RJR’s illegal activities, including THE EUROPEAN COMMUNITY and governments of the MEMBER STATES.

Movement of Operations to Cyprus

111. One of the RJR DEFENDANTS’ primary agents for the storage and handling of cigarettes in THE EUROPEAN COMMUNITY was a company known as Belgian Pakhoed N.V. On May 26, 1997, Belgian Pakhoed N.V. sent a letter to the RJR DEFENDANTS notifying the RJR DEFENDANTS that a substantial number of the RJR DEFENDANTS' customers were "involved in major EC-fraud." Belgian Pakhoed N.V. identified these customers and told the RJR DEFENDANTS that Belgian Pakhoed N.V. would no longer load cigarettes on to ships operated by these customers.

112. By way of this communication, the RJR DEFENDANTS were put on notice that certain of their customers were criminals and that there was a high probability that these customers were paying RJR with criminal proceeds. The response of the RJR DEFENDANTS was not to cut off its supply of cigarettes to these customers, but rather to redirect their supply of cigarettes to these customers through the country of Cyprus, which is not a member of THE EUROPEAN COMMUNITY. The RJR DEFENDANTS continued to supply cigarettes to these customers for years after RJR had been notified that these customers were criminals, and RJR continued to receive and launder the proceeds of their crimes. Many of the aforesaid customers

were involved in money laundering and/or other criminal activities that were highly detrimental to THE EUROPEAN COMMUNITY.

Illegal Sales into Iraq

113. Throughout the 1990s, the RJR DEFENDANTS committed an array of crimes, including money laundering, by selling United States-made cigarettes into Iraq in violation of United States law. The means by which this money-laundering operation was conducted include the following: The RJR DEFENDANTS maintained a long-term relationship with an individual known as Issa Audeh. Issa Audeh had previously been an employee of R.J.

REYNOLDS TOBACCO INTERNATIONAL, INC. In the 1980s, Audeh served as Regional Director, Middle East/Near East Region for RJR. Around the late 1980s or early 1990s, Issa Audeh set up a group of companies located in Cyprus, including Audeh Trading and Consultancy Service and IBCS Trading and Distribution Company Limited (“IBCS”). IBCS was established in complicity with, and at the direction of, the RJR DEFENDANTS. The sole or primary purpose for IBCS was to sell and distribute RJR cigarettes throughout the Middle East, including Iraq. Throughout the 1990s, Issa Audeh and his companies became one of the largest international customers of the RJR DEFENDANTS. Throughout the 1990s, IBCS, as well as other companies managed or directed by Issa Audeh, acted pursuant to an agreement with RJR, under which RJR directed and controlled the actions of IBCS and other companies owned by Issa Audeh.

114. In late 1989 or early 1990, the RJR DEFENDANTS and Issa Audeh entered into an agreement with an individual known as Abdel Hamid Damirji for the purpose of distributing RJR products in Iraq. Through his Liechtenstein corporation, Tradinter Middle East

Development Establishment, Abdel Damirji worked with the RJR DEFENDANTS and Issa Audeh to establish RJR products and the RJR product name in Iraq.

115. In the fall of 1990 after the Iraqi invasion of Kuwait, Abdel Damirji transferred his cigarette sales operations to Jordan with the approval of the RJR DEFENDANTS for the purpose of supplying the Iraqi market with RJR cigarettes from Amman. The RJR DEFENDANTS, through their officer or employee, Edward Touma, as part of RJR’s “Special Markets-Middle East-Near East” division, in written and/or telephonic communications with Abdel Damirji, arranged a procedure by which Abdel Damirji would purchase RJR cigarettes from RJR through Issa Audeh in Cyprus. At times when Abdel Damirji needed more RJR cigarettes than could be supplied through Issa Audeh’s companies, Abdel Damirji obtained his RJR cigarettes directly from RJR. For example, in June 1991, the RJR DEFENDANTS sold and delivered directly to Abdel Damirji seven full air-cargo shipments consisting of approximately 17,000 master cases of RJR cigarettes. (There are 10,000 cigarettes in a master case.) Between March 1991 and September 1992, Abdel Damirji purchased at least six hundred thousand master cases of cigarettes, either directly from RJR or from Issa Audeh.

116. On approximately September 1, 1992, the RJR DEFENDANTS modified their procedures with Abdel Damirji so that Mr. Damirji would be obtaining his cigarettes through IBCS. In October 1992, in meetings between Mr. Damirji and Issa Audeh held in Limassol, Cyprus, their agreements were further modified. At that time, Abdel Damirji agreed to acquire, build, and secure warehousing for storage and distribution of RJR products in Mersin, Turkey. In return, RJR and IBCS agreed that Abdel Damirji would have the exclusive rights to distribute RJR products in Iraq. Pursuant to this agreement, Abel Damirji spent almost one

million dollars building and equipping warehouses in Turkey for the purpose of selling RJR products into Iraq.

117. Between 1993 and 1995, the aforesaid agreement remained in place and Abdel Damirji acted as the exclusive distributor of RJR products in Iraq. During this period, hundreds of millions of dollars of RJR cigarettes were purchased by Abdel Damirji from the RJR DEFENDANTS and were sold and distributed in Iraq. During this time period, as part of the distribution arrangement, upon becoming aware of customers who wished to purchase RJR products in Iraq, IBCS and THE RJR DEFENDANTS would direct those customers to Damirji’s company, Tradinter Middle East Development Establishment 118. In approximately October 1995, IBCS and/or the RJR DEFENDANTS promoted the establishment of a different group (hereinafter referred to as the Zenjelawi Group) that also would sell RJR cigarettes into Iraq. In September 1996, IBCS and the RJR DEFENDANTS began to supply a company known as Akshimpex Trading Limited (“Akshimpex”) with RJR cigarettes for the Iraqi market. Akshimpex is owned by an individual who is, upon information and belief, an Iraqi citizen. Between October 24, 1996, and December 31, 1996, Abdel Damirji ordered and the RJR DEFENDANTS delivered forty-four containers of Winston cigarettes and fifty-seven containers of Aspen-brand cigarettes that were ultimately delivered and sold in Iraq. (A forty-foot container typically holds approximately ten million cigarettes.) According to an agreement between Abdel Damirji and Issa Audeh on behalf of RJR, these sales were made to “achieve the sales goal for 1996 . . . and the continuous promotion and sale of Winston and Aspen brand cigarettes to the Iraqi market.” On or about January 1997, the RJR DEFENDANTS sold fifteen containers of Aspen-brand cigarettes to Akshimpex for sale into Iraq.

119. In approximately January 1997, the RJR DEFENDANTS ceased selling cigarettes to Abdel Damirji and his company Tradinter Middle East Development Establishment.

However, the RJR DEFENDANTS continued to sell their cigarettes to Akshimpex for sale into Iraq and in fact dramatically increased such sales. Since January 1997, Akshimpex has acted as the agent for the RJR DEFENDANTS for the delivery of their products into Iraq. From January 1997 through 2001, RJR employees visited Akshimpex on a regular basis to check on consignments of cigarettes to confirm that they were in fact going into Iraq.

120. Throughout the aforesaid time period, IBCS Trading and Distribution Company Limited was acting as the agent, alter ego, and/or coconspirator of the RJR DEFENDANTS. All acts attributable to IBCS are equally attributable to the RJR DEFENDANTS. Additionally, all the RJR DEFENDANTS were put on notice of the aforesaid facts because on or about October 15, 1997, Tradinter Middle East Development Establishment sued R.J. REYNOLDS TOBACCO INTERNATIONAL S.A., a subsidiary of the RJR DEFENDANTS. The lawsuit specifically identified R.J. REYNOLDS TOBACCO INTERNATIONAL S.A. as a subsidiary of R.J. REYNOLDS TOBACCO COMPANY, INC.

and RJR NABISCO, and alleged that Tradinter Middle East Development Establishment had been granted by RJR the exclusive rights to sell RJR cigarettes into Iraq. IBCS, the codefendant of the RJR DEFENDANTS in the lawsuit, filed a responsive pleading to the lawsuit. In its responsive pleading, IBCS admitted sales of RJR products into Iraq, but only denied that there was an exclusive distribution agreement between IBCS, RJR, and Tradinter Middle East Development Establishment.

121. By May 1999, the RJR DEFENDANTS were actively maintaining a burgeoning business selling huge volumes of U.S.-made cigarettes into Iraq and laundering the

proceeds of those sales. In May 1999, the RJR DEFENDANTS sold their international operations, including their plant in Puerto Rico, to Japan Tobacco, Inc. and/or its affiliates. As a part of the purchase agreement, the RJR DEFENDANTS entered into a “transitional services agreement” under which, for a period of at least two years, the RJR DEFENDANTS would continue to manage and operate all or part of the international operations purchased by Japan Tobacco. The RJR DEFENDANTS therefore participated in and were materially responsible for the illegal transactions conducted by Japan Tobacco, Inc. regarding RJR products from at least May 1999 through May 2001. Additionally, from May 1999 through the present, all Winston cigarettes and other RJR-brand cigarettes sold internationally by the Japan Tobacco entities are sold under license of and with the complicity of the RJR DEFENDANTS. During that time, the RJR DEFENDANTS continued, and in fact increased, the volumes of cigarettes that were produced at the Puerto Rico plant for illegal sale into Iraq. In fact, during the first two-year period in which the transitional services agreement was in effect, the RJR DEFENDANTS, along with their coconspirator Japan Tobacco, Inc., produced and sold almost eight hundred forty-foot containers of United States-made cigarettes into Iraq, amounting to almost eight billion cigarettes. The majority of these cigarettes were delivered from Puerto Rico to Valencia and other ports in THE EUROPEAN COMMUNITY. There the cigarettes were offloaded and transferred to other ships that transported them to Cyprus. In this way, THE EUROPEAN COMMUNITY ports and facilities were misused as a part of this illegal scheme.

122. Following a brief period of warehousing in Cyprus, the cigarettes were sent to Iraq via Turkey. Shipments by way of the aforesaid route were so numerous that they cannot all be listed. However, said shipments included the following:

Shipping Date from Cyprus Number of Containers Consignee to Iraq via Turkey

August 18, 1999 15 Akshimpex Trading Limited February 25, 2000 11 Akshimpex Trading Limited April 11, 2000 12 Akshimpex Trading Limited May 2, 2000 7 Akshimpex Trading Limited June 16, 2000 12 Akshimpex Trading Limited June 26, 2000 21 Akshimpex Trading Limited July 8, 2000 15 Akshimpex Trading Limited August 9, 2000 10 Akshimpex Trading Limited August 18, 2000 10 Akshimpex Trading Limited August 24, 2000 8 Akshimpex Trading Limited August 25, 2000 7 Akshimpex Trading Limited September 7, 2000 5 Akshimpex Trading Limited September 11, 2000 7 Akshimpex Trading Limited September 20, 2000 12 Akshimpex Trading Limited September 22, 2000 5 Akshimpex Trading Limited October 2, 2000 7 Akshimpex Trading Limited October 11, 2000 15 Akshimpex Trading Limited October 18, 2000 2 Akshimpex Trading Limited November 6, 2000 11 Akshimpex Trading Limited December 11, 2000 4 Akshimpex Trading Limited January 9, 2001 11 Akshimpex Trading Limited January 23, 2001 22 Akshimpex Trading Limited February 25, 2001 9 Akshimpex Trading Limited

April 16, 2001 10 Akshimpex Trading Limited April 25, 2001 18 Akshimpex Trading Limited April 30, 2001 15 Akshimpex Trading Limited May 8, 2001 10 Akshimpex Trading Limited May 14, 2001 18 Akshimpex Trading Limited May 21, 2001 18 Akshimpex Trading Limited May 28, 2001 4 Akshimpex Trading Limited June 3, 2001 21 Akshimpex Trading Limited June 9, 2001 13 Akshimpex Trading Limited June 18, 2001 11 Akshimpex Trading Limited June 23, 2001 23 Akshimpex Trading Limited June 30, 2001 13 Akshimpex Trading Limited.

123. As to each of the shipments listed above, the paperwork accompanying the shipments as they left the manufacturing plant in Puerto Rico carried the following notice:

“UNITED STATES LAW PROHIBITS DISTRIBUTION OF THESE COMMODOTIES TO NORTH KOREA, VIETNAM, IRAQ, OR CUBA UNLESS OTHERWISE AUTHORIZED BY THE UNITED STATES.” (Emphasis added.) The United States government authorized none of these shipments.

124. Shipments similar to those identified above were made into Iraq as recently as February 2002. On January 15, 2002, ten containers of Winston cigarettes and one container of Magna cigarettes were delivered from IBCS to Akshimpex Trading Ltd. Shortly thereafter, the aforesaid containers were delivered into Iraq. On January 24, 2002, IBCS delivered another sixteen containers of Winston cigarettes to Akshimpex for delivery into Iraq. On February 12,

2002, IBCS delivered six containers of Winston cigarettes to Akshimpex for delivery into Iraq.

All the aforesaid cigarettes were transported through the Habur Gate, the entrance portal from Turkey into Iraq, to the town of Dohuk in Iraq.

125. The RJR DEFENDANTS and Japan Tobacco, Inc. knew of and participated in this scheme. Bills of lading and other shipping documents prepared by IBCS demonstrate that IBCS shipped the cigarettes in the aforesaid shipments to “AKSHIMPEX TRADING LTD. IN TRANSIT TO IRAQ.” Often IBCS directly invoiced customers in Iraq. The shipping company that transferred the cigarettes in question from Mersin, Turkey, to Iraq delivers the cigarettes into Iraq pursuant to a contract with Akshimpex. However, the shipping company often receives its instructions for shipment and delivery of the cigarettes by way of telephone calls from IBCS.

The shipping company is identified on shipping documents and ships’ manifests when the “real owner” of the cigarettes contacts IBCS and tells IBCS to identify the shipping company on the documentation.

126. The owner of Akshimpex also owns or operates two companies from the same location known as MBA Trading and KA International. Recently, shipments of Winston cigarettes bound for Iraq have been identified as consigned to MBA Trading or KA International, largely in an attempt to deceive law-enforcement authorities concerning their true owners and destination.

127. The RJR DEFENDANTS and/or their coconspirators expedited the sale of these cigarettes by creating false paperwork that would misstate the destination of these cigarettes, for example, by making official declarations to customs authorities that the ultimate destination of the cigarettes was Russia when in fact the intended destination was Iraq. These cigarettes were not smuggled; although the value of the cigarettes was grossly understated, by

and large, all the cigarettes in question were declared and certified as being exported from Turkey and therefore entered Iraq “legally.” This gross undervaluation of the cigarettes, “legal” importation based on false or misleading documentation, and sale of cigarettes on such a massive and sustained scale could only be accomplished and in fact were accomplished with the complicity of the Iraqi government and members of the ruling family.

128. The RJR DEFENDANTS and their coconspirators were well aware that they were violating United States law in providing economic benefit to the Iraqi regime by orchestrating this massive importation of cigarettes into Iraq. (Iraq Sanctions Act of 1990, Pub.

L. No. 101-513, §§ 586-586J, 50 U.S.C. § 1701 (1994 & Supp. IV 1998).) This massive scheme could not have occurred but for the full complicity of the RJR DEFENDANTS and their coconspirators, who made the scheme possible through their covert shipment of cigarettes and acceptance of covert payments.

129. Even following Japan Tobacco, Inc.’s acquisition of RJR’s international operation, the RJR DEFENDANTS remained actively involved in the sale of cigarettes into Iraq.

Employees of the RJR DEFENDANTS’ subsidiaries visited Turkey on a regular basis to oversee the delivery of RJR-brand cigarettes into Iraq and to ensure that the shipments in fact were being delivered from Turkey into Iraq. The RJR DEFENDANTS also employed a company to monitor the movements of their name-brand cigarettes through Turkey and into Iraq. RJR employees and/or agents even visited the Habur Gate, the entrance portal from Turkey into Iraq, to ensure that the cigarettes in question were being handled properly right up to the point where they were delivered across the border into Iraq. For example, RJR personnel visited the Habur Gate for this purpose in August 2001.

130. Additionally, in 2001 and 2002, the RJR DEFENDANTS produced and sold new brands of cigarettes that apparently were designed for the Iraqi/Middle East market. Two such brands were Easton and Barton. These cigarette brands, although virtually unknown in the West and unidentified in the RJR DEFENDANTS’ annual report, were manufactured by the RJR DEFENDANTS in North Carolina for sale into Iraq.

131. The Easton brand name is purportedly owned by a company known as GMB Inc. located at 401 North Main Street, Winston-Salem, North Carolina. This address is also the address for the corporate offices of the RJR DEFENDANTS. Although GMB Inc. ostensibly owns the brand-name rights to Easton cigarettes, the cigarettes themselves are manufactured by the RJR DEFENDANTS. Easton-brand cigarettes made in the United States are labeled in part:

“Manufactured by RJ Reynolds Tobacco Co., Winston-Salem, NC USA exclusively for A.T.C. .

. .Made in USA.” The Bar

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