On 21 September the US government launches its lawyers against the country’s largest cigarette makers.
The hearings begin on September 21st. America’s federal government charges its top cigarette makers—Philip Morris, R.J. Reynolds, Brown & Williamson (an arm of British American Tobacco that is now merging with Reynolds), Lorillard and Liggett Group—plus a British arm of BAT, with lying to the public about the hazards of smoking, of trying to fiddle or hide the scientific evidence, of deliberately getting people addicted to nicotine, of selling knowingly to people below smoking age, of pushing low-tar cigarettes as safer than others, while knowing they were not; and more. All untrue, say the companies. For them, it better had be: the government says they made $280 billion in “ill-gotten” profits and wants it disgorged.
To the tobacco firms, this looks like double jeopardy. In 1998, the four biggest reached a deal—the “master settlement agreement” (MSA)—with 46 state governments that accused them of pushing up the states’ health-care costs.
They agreed to pay $206 billion over the first 25 years, via a levy that is by now almost 50 cents a pack; four other states had already settled, for $40 billion over 25 years. Other companies have signed up. Problem solved.
Not so. The Clinton administration soon launched a federal suit, heavily reliant on a law meant to help the government recover health-care costs if someone injures a soldier. The judge threw out this part of the case, but left in another, based on the Racketeer Influenced and Corrupt Organisations Act of 1970.
This law, originally aimed at the mob, makes normal business a crime when it is part of an illegal conspiracy. That is what the tobacco men were up to, says the government, when they met on December 15th, 1953 in a doubtless smoke-filled room in a New York hotel, and schemed to mislead the public about the risks of smoking.
But did not the government itself once distribute cigarettes to GIs? Does not it still prop up tobacco prices and collect taxes on cigarette sales? It does indeed: about $8 billion a year. On top of that federal rake-off, states’ excise taxes take about $9 billion. In addition, the 46 MSA states alone used to get about $8 billion a year from that agreement, though this has slid to an estimated $5.2 billion in 2003-04. Securitisation of the revenues has brought some states huge short-term windfalls.
It is hard to see the government really wanting to butcher this milch cow, even if it can persuade a court to lend a hand. And if the tobacco barons were “defrauding the public”, as it alleges, what was it doing itself as it raked in tax revenues? Were its own scientists duped too?
Yet the industry has reason to worry. In pre-trial hearings, it argued that the MSA shielded it from the federal case. The judge disagreed. She also refused to cap the size of the government’s claim, though that ruling is under appeal. However, to make the firms pay up, the government will have to prove that they not just defrauded the public but are likely to go on doing so. Since the MSA also imposed strict limits on their marketing, that will not be easy.