Tobacco giants face huge payoffs over smuggling allegations

Alleged collusion with smugglers will end up costing Philip Morris International a billion dollars (€827m) if the company's payoff offer is accepted by the European Union.

Claims that the cigarette manufacturer tried to avoid excise duty by co-operating with smugglers led to legal action being launched against it in 2002.

This sum has been offered in an attempt to extricate itself from the ensuing lawsuits.

It would represent the largest amount that the EU has ever extracted from a private company - dwarfing even the €497m fine antitrust Microsoft was hit with last month.

Philip Morris say it wants the money to be used to combat smuggling and counterfeiting - an increasing worry for the industry as the EU prepares for the accession of countries which share long borders with states like the Ukraine.

Fellow tobacco giants RJ Reynolds and Japan Tobacco - the makers of Camel and Winston cigarettes - also face similar lawsuits.

Japan Tobacco confirmed yesterday that they too had offered money to in a bid to settle all potential legal disputes arising from alleged collusion.

And EU budget commissioner Michaele Schreyer has given some indications that the Commission could accept these offers soon.

"We are willing to have discussions with all companies that show they are serious about their fight against this illegal trade," she said in today's Financial Times.

So far, Japan Tobacco's offers had been rejected by Brussels-based regulators, but a spokesman said that the likely success of the Philip Morris offer had given them hope.

"Perhaps they wanted to deal with the biggest player first," he said.

Ms. Schreyer would not guarantee that monies received would be directly invested in the fight on smuggling and counterfeiting, as desired by the companies.

She would only agree that funds "could be made available for that purpose."