December 14, 1994
The Honorable Janet Reno
Attorney General of the United States
Department of Justice
Room 4400
Tenth Street and Constitution Avenue, N.W.
Washington, D.C. 20530

Dear Attorney General Reno:

I am writing to request that the Department of Justice initiate a formal criminal investigation into the conduct of the following corporations and individuals:

American Brands, Inc./American Tobacco Company
Donald S. Johnston, President and CEO. American Tobacco Company
Brown & Williamson Tobacco Corporation ("B&W")
Thomas E. Sandefur, Jr., Chairman and CEO
T.F. Riehl, Vice President for Research and Development
Batus Corporation/British-American Tobacco Co. Ltd./B.A.T. Industries P.L.C.
Brooke Group Ltd./Liggett Group Inc./Liggett and Myers, Inc.
Edward A. Horrigan, Jr., Chairman and CEO, Liggett Group Inc.
Center for Indoor Air Research
Council for Tobacco Research - U.S.A.. Inc.
James F. Glenn. M.D.. Chairman. President and CEO
Healthy Buildings International
Gray Robertson, President
Hill & Knowlton, Inc.
Kimberly-Clark Corporation and LTR Industries
Loews Corporation/Lorillard Tobacco Company
Andrew H. Tisch, Chairman and CEO, Lorillard Tobacco Company
Dr. Alexander Spears, Vice-Chainnan and Chief Operating Officer, Lorillard Tobacco Company
Philip Morris Companies, Inc./Philip Morris Incorporated/Philip Morris USA
William I. Campbell, President and CEO, Philip Morris U.S.A.
RJR Nabisco, Inc./R.J. Reynolds Tobacco Co.
James W. Johnston, Chairman and CEO
Andrew J. Schindler, President and Chief Operating Officer U.S.A., R.J. Reynolds Tobacco Company
Shook, Hardy & Bacon
Donald Hoel, Partner
Smokeless Tobacco Council
The Tobacco Companies of the Contraf Group
Tobacco Institute, Inc.
Samuel Chilcote, President
Walker Merryman. Vice President
Brennan Dawson. Vice President
Charles O. Whitley, Senior Consultant
U.S.T. Inc./United States Tobacco Company Joseph Taddeo, President, U.S. Tobacco Company

In light of the numerous and complex facts that are involved, and the great obstacles encountered by Federal government officials and agencies when they have attempted over many years to obtain complete and truthful information from tobacco companies and their representatives, I recommend that the Department of Justice convene a grand jury to investigate these matters.

Following ground breaking hearings before the Subcommittee on Health and the Environment of the House Committee on Energy and Commerce and related investigative reports in the media earlier this year, on May 26, 1994; I and other Members of Congress asked your Department to examine the newly available evidence to determine whether individuals or corporations within, or doing business with or for, the tobacco industry may have engaged in criminal conduct. My colleagues and I identified several areas of inquiry, and I understand that your Department's Criminal Division subsequently carried out a preliminary examination of these matters.

Since then, more hearings have been held and investigative reports published. The additional evidence uncovered through these activities strongly suggests that tobacco company witnesses committed perjury while giving sworn testimony before Congress on April 14, 1994. The evidence further indicates that other Federal crimes may also have been committed by the individuals and corporations named above.

As a former prosecutor and as a Member of Congress who is concerned both about the toll wrought on my constituents and our society by tobacco and about the conduct of sworn witnesses in hearings before the United States Congress, I looked further into these issues and assembled the attached Prosecution Memorandum in order to assist your office in more fully investigating these matters.

The attached document is not exhaustive but, rather, is intended to highlight certain key areas for further investigation by the Department of Justice. It identifies numerous instances of alleged criminal conduct. It also identifies some, though not necessarily all, of the Federal criminal laws which may have been violated, and recommends options for further investigation by your Department.

The enormity of the harm perpetrated by tobacco companies and their agents on American consumers is difficult to comprehend. It is apparent, however, that the crimes alleged here, committed over decades. have contributed profoundly to the serious illness and early death experienced by tens of millions of Americans, as well as to literally trillions of dollars in health care costs and lost productivity borne by the economy of this nation and the individual States.

Cigarettes and smokeless tobacco products prematurely take the lives of more than 400,000 Americans each year. Moreover, the marketing and public relations efforts of the U.S. tobacco companies and their agents also succeed in recruiting more than 3,000 new smokers and users of smokeless tobacco products into nicotine addiction each day. Most of these beginners are children and teenagers and, tragically, many of them will succumb years before their time to the ravages of tobacco - leaving friends, colleagues and family members behind to mourn their loss.

Failure to hold tobacco companies and their agents fully accountable for their conduct would permit them to continue in the present course of conduct. The result would be the perpetuation of massive illness and early death, as well as furtherance of the tobacco industry's successful efforts to thwart public health measures, not only by lawful means but through massive fraud and disinformation.

I urge you promptly to instruct the Criminal Division of the Department of Justice to open a formal investigation into these matters and to give such investigation the highest priority. I will, of course, be pleased to assist your Department's efforts. I would appreciate having your response to this request by January 31, 1995.

Sincerely,

Marty Meehan

Member of Congress

I. IDENTIFICATION OF PROPOSED TARGETS OF CRIMINAL INVESTIGATION

The Department of Justice is asked to initiate a formal investigation into the activities of the following tobacco companies and their executives, lawyers, public relations agents, scientists, trade associations and suppliers.

American Brands, Inc./American Tobacco Company
Donald S. Johnston, President and CEO, American Tobacco Company
Brown & Williamson Tobacco Corporation ("B&W")
Thomas E. Sandefur, Jr., Chairman and CEO
T.F. Riehl, Vice President for Research and Development
Batus Corporation/British-American Tobacco Co. Ltd./B. A.T. Industries P. L. C.
Brooke Group Ltd./Liggett Group, Inc./Liggett and Myers Inc. Edward A. Horrigan, Jr., Chairman and CEO, Liggett Group Inc.
Council for Tobacco Research - U.S.A., Inc.
Healthy Buildings International
Gray Robertson, President
Hill & Knowlton, Inc.
Kimberly-Clark Corporation and LTR Industries
Loews Corporation/Lorillard Tobacco Company
Andrew H. Tisch, ChairTnan and CEO. Lorillard Tobacco Company
Dr. Alexander Spears, Vice-Chairman and Chief Operating Officer, Lorillard Tobacco Company
Philip Morris Companies, Inc./Philip Morris Incorporated/Philip Morris USA
William I. Campbell, President and CEO, Philip Morris U.S.A.
RJR Nabisco, Inc./R.J. Reynolds Tobacco Co.
James W. Johnston, Chairman and CEO, RJR Nabisco
Andrew J. Schindler, President and Chief Operating Officer U.S.A.. R.J. Reynolds Tobacco Company
Shook. Hardy & Bacon
Donald Hoel. Partner
Smokeless Tobacco Council
The Tobacco Companies of the Contraf Group
Tobacco Institute, Inc.
Samuel Chilcote, President
Walker Merryman, Vice President
Brennan Dawson, Vice President
Charles 0. Whitley, Senior Consultant
U.S.T. Inc./United States Tobacco Company
Joseph Taddeo, President, U.S. Tobacco Company

III. SUMMARY OF THE CASE

This Prosecution Memorandum submitted by Congressman Martin T. Meehan asks the Department of Justice to initiate a formal criminal investigation into the conduct of the named tobacco companies and their executives, lawyers, public relations agents scientists, trade associations and suppliers. The following are named as potential targets of a possible Department of Justice investigation:

8 tobacco manufacturers

10 tobacco company executives and scientists

4 tobacco industry trade associations and tobacco company-funded research entities and 5 officials affiliated with these groups

1 scientific consulting group and its president

1 public relations consulting firm

2 companies that serve as suppliers to tobacco manufacturers

l law firm and 1 lawyer representing tobacco companies and a tobacco company-funded research entity

The Prosecution Memorandum provides substantial documentation of the conduct and statements of the proposed investigative targets, which, it is argued, may constitute violations of one or more Federal criminal statutes. Some of the laws that may apply, according to the analysis, are as follows:

Perjury, 18 U.S.C. §1621

Mail Fraud, 18 U.S.C. §1341

Wire Fraud, 18 U.S.C. §1343

False Advertising, 15 U.S . C. §52(A)( I)

Deception of the Public, 15 U.S.C. §52(A)(2)

Deception of Federal Agencies. 18 U.S.C. §1001

Deception of Congress, 18 U.S.C. §1001

Criminal Conspiracy, 18 U.S.C. §371

Racketeer Influenced and Corrupt Organizations ("RICO"), 18 U.S.C. §1962

Given the numerous and complex facts that are involved, and the obstacles encountered by Federal government officials and agencies when they have attempted over many years to obtain complete and truthful information from tobacco companies and their representatives, the Prosecution Memorandum recommends that the Department of Justice convene a grand jury to investigate these matters.

The Prosecution Memorandum is intended to provide a basis from which the Department of Justice can open a formal investigation and conduct the fact-finding and legal analysis necessary to reach a determination of whether criminal prosecution may be warranted.

IV. STATEMENT OF THE LAW

A. TOBACCO INDUSTRY CRIMES ARISING OUT OF DECEPTION OF THE UNITED STATES CONGRESS

1. PERJURY

The evidence indicates that tobacco company representatives, acting in their official capacities, committed perjury in oral and written testimony before the United States Congress in violation of 18 U.S.C. §1621. A finding of perjury requires a false statement, willfully made as to material fact, under an oath authorized by law and taken before a competent tribunal, officer or person authorized by Federal law to administer such an oath. Section 1621 states, in part:

"Whoever -
(1) having taken an oath before a competent tribunal, officer, or person, in any case in which a law of the United States authorizes an oath to be administered. that he will testify, declare, depose, or certify truly, or that any written testimony, declaration, deposition, or certificate by him subscribed, is true, willfully and contrary to such oath states or subscribes any material matter which he does not believe to be true ...

is guilty of perjury and shall, except as otherwise expressly provided by law, be fined not more than $2,000 or imprisoned not more than five years, or both. This section is applicable whether the statement or subscription is made within or without the United States."

9. PROVIDING FALSE INFORMATION TO, OR WITHHOLDING INFORMATION FROM, A COMMITTEE OF THE U.S. CONGRESS. IN THE ABSENCE OF OATH

The evidence indicates that tobacco company representatives, acting in their official capacities, deceived committees of the United States Congress in violation of 18 U.S.C. §100l. which states:

"Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, -shall be fined not more than 510,000 or imprisoned not more than five years. or both. "

Section 1001 has been held to apply to the making of false statements to Congress. See, e.g., United States v. Poindexter, 951 F.2d 369 (D.C.Cir. 1991), citing Marzani v. United States, 168 F.2d 133, 141 (D.C.Cir.), aff'd by an equally divided court, 335 U.S. 895. 69 S.Ct. 299, 93 L.Ed. 431 (1948).

B. TOBACCO INDUSTRY CRIMES ARISING OUT OF DECEPTION OF THE U.S. SURGEON GENERAL AND THE FOOD AND DRUG ADMINISTRATION

The evidence indicates that tobacco company representatives, acting in their official capacities, violated 18 U.S.C. §1001 by providing false information to, and withholding information from, the U.S. Surgeon General and the Food and Drug Administration on matters within their jurisdiction. (For text of §1001, see Section A(2), supra.

C. TOBACCO INDUSTRY CRIMES ARISING OUT OF DECEPTION OF THE AMERICAN PUBLIC

1. DISSEMINATION OF FALSE ADVERTISEMENTS, PRESS RELEASES AND STATEMENTS TO THE MEDIA

a. By Other than the United States Mails.

The evidence indicates that tobacco companies, by disseminating or causing to be disseminated false advertisements via means other than the United States mails, sought directly or indirectly to induce individual members of the public to purchase substances known by such companies to be drugs or devices in violation of 15 U.S.C. §52(a)(2), which states:

"(a) Unlawfulness

It shall be unlawful for any person, partnership, or corporation to disseminate, or cause to be disseminated, any false advertisement -

(2) By any means, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase in or having an effect upon commerce, of food, drugs, devices, or cosmetics."

b. By the United States Mails.

The evidence indicates that tobacco companies, by disseminating or causing to be disseminated false advertisements through the United States mails, sought directly or indirectly to induce individual members of the public to purchase substances known by such companies to be drugs or devices in violation of 15 U.S.C. §52(a)(1), which states:

"(a) Unlawfulness

It shall be unlawful for any person, partnership, or corporation to disseminate, or cause to be disseminated, any false advertisement -
(1) By United States mails, or in or having an effect upon commerce, by any means, for the purpose of inducing, or which is likely to induce, directly or indirectly the purchase of food, drugs, devices, or cosmetics ..."

2. MAIL FRAUD

The evidence indicates that tobacco companies engaged in a scheme to defraud members of the public and used the U.S. mails for the purpose of executing or attempting to execute such scheme in violation of 18 U.S.C. §1341, which states:

"Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses. representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting to do so, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed. any such matter or thing, shall be fined not more than $1,000 or imprisoned not more than five years. or both."

The tobacco companies' schemes or artifices to defraud need not have been fraudulent on their face or have involved affirmative representations, but must have involved fraudulent misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence and comprehension. See Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406 (3d Cir. 1991), cert denied 501 U.S. 1222. 111 S.Ct. 2839. The rule enunciated in Kehr and echoed in United States v. Biesiadecki, 933 F.2d 539 541-542 (7th Cir. 1991), that a scheme to defraud may be found when a defendant omitted information so as to cause people of ordinary intelligence to make uninformed decisions, takes on added significance in the case of the tobacco companies.

In Biesiadecki, the court found that the defendant participated in a scheme to defraud when he enticed people to participate in his investment program by not telling investors of the money that other customers had lost and by misrepresenting customer successes. Id. at S43. The defendant's scheme was designed to entice customers by fraudulently minimizing the risk, through the misrepresentation of some figures and the omission of others. (See infra regarding the creation and role of the Council for Tobacco Research ["CTR"], which bears a striking resemblance, albeit in a different and considerably larger context, to the scheme considered in Biesiadecki, The CTR, which originally was named the Tobacco Industry Research Committee, was formed not as a legitimate entity to fund research on tobacco and health, but rather as a public relations front whose primary purpose was to protect the profits of tobacco companies, who were its sole funders. Like the defendant in Biesiadecki, the CTR, on behalf of the tobacco companies that fund it, is an integral component in a scheme designed to entice customers by fraudulently minimizing the risk of tobacco use. through the misrepresentation of some health data and the omission of other health data.)

In United States v. Green, 745 F.2d 1205, 1207 (9th Cir. 1984), cert. denied 106 S.Ct. 259 (1985), the court identified intent by examining the scheme itself. The court found that if the scheme would be expected to deceive the reasonable or ordinary person, the requisite intent existed. The court found that intent existed when the defendant falsified test reports for nuclear coatings (which were subject to Nuclear Regulatory Commission standards) in order to persuade a corporation to buy them. Id. at 1207-1208. Rejecting the defendant's claim that he believed that the buyer had not relied on the falsified reports to make its purchasing decision, the court determined that the defendant had devised a scheme intended to deprive the buyer of the ability to make an informed choice among nuclear coatings. Thus, a scheme to defraud existed. See infra regarding the falsification of data on the impact of environmental tobacco smoke by Healthy Buildings International in its paid consulting work for the Tobacco Institute. Intent could be demonstrated in the case of HBI and the Tobacco Institute by, e.g., identifying internal memoranda that show the actual falsification of data.

Also relevant to an examination of the tobacco companies' conduct is the finding in United States v. Hathaway, 798 F.2d 902, 909 (6th Cir. 1986), where the court found that where a defendant acts with reckless indifference as to the truth or falsity of his statements he is charged with de facto knowledge of the falsity of the scheme and, therefore, the requisite intent.

The tobacco companies have misrepresented material facts in order to maintain and increase their profits, and the misrepresentations have resulted in the passage of money to the companies. See McNally v. United States, 107 S.Ct. 2875 (1987). Moreover, the scope of fraud under the mail and wire fraud statutes is broader than common law fraud, and no misrepresentation of fact must be shown in order to establish a scheme to defraud. McEvoy Travel Burl. Inc. v. Heritage Travel. Inc., 904 F.2d 786 (1st Cir. 1990, cert. den. 498 U.S. 992,111 S.Ct.536.

The validity of a mail fraud conviction does not hinge on a showing of actual loss by the intended victim. It is enough that the defendant knowingly devised a scheme to defraud and caused use of the mails in furtherance of the scheme. United States v. Ring, 860 F;2d 54 (2d Cir. 1988), cert. denied 490 U.S. 1065, 109 S.Ct. 2062. The government need not prove actual injury in a prosecution for mail fraud. United States v. Nelson, 988 F.2d 798 (8th Cir. 1993), cert. denied 126 L.Ed.2d 250, 114 S.Ct. 302. It is not necessary, therefore, to prove that particular consumers were injured by tobacco products. While contemplation of harm or injury must be shown to establish mail fraud, it may be inferred when the scheme has such an effect as a necessary result of carrying it out. See United States v. London, 753 F.2d 202 (2d Cir. 1985). Thus, if millions of consumers have been harmed by fraudulent concealment of the adverse health consequences of tobacco use, the intent of the scheme may be inferred, since the harm to the consumers was the necessary result of the concealment.

A reckless disregard for truth or falsity also has been held sufficient to sustain a mail fraud conviction. United States v. Schaflander, 719 F.2d 1024 (9th Cir. 1983), cert. denied 467 U.S. 1216. 104 S.Ct. 2660. While the government must prove that the defendant had the specific intent to defraud, the showing of an evil motive on the part of the defendant is not necessary, and intent may be inferred through circumstantial evidence. United States v. Savran. 755 F.Supp. 1165 (E.D.N.Y. 1991).

3. FRAUD BY WIRE, RADIO OR TELEVISION

The evidence indicates that tobacco companies engaged in a scheme to defraud members of the public by transmitting by means of wire, radio and television communication in interstate commerce misrepresentations of material fact, resulting in passage of money to these same companies in response to their misrepresentations in violation of 18 U.S.C. § 1343. which states:

"Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined not more than $1,000 or imprisoned not more than five years. or both."

D. OTHER POSSIBLE VIOLATIONS OF FEDERAL CRIMINAL LAWS

1. Criminal Conspiracy

The evidence indicates that two or more tobacco company representatives, acting in their official capacities, may have violated 18 U.S.C. §371 by conspiring to violate multiple laws of the United States (see supra) and to defraud the United States, the Food and Drug Administration and the U.S. Surgeon General (see supra), since one or more of such persons committed acts to effect the object of said conspiracy. Section 371 states:

"If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both.

"If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor."

2. "RICO" Violations

The evidence indicates that tobacco company representatives, acting in their official capacities may also have violated the prohibitions set forth at 18 U.S.C. §1962 (Racketeer Influenced and Corrupt Organizations, or "RICO") by participating in a commercial enterprise or an enterprise affecting commerce through a pattern of specific criminal racketeering activity. Section 1962 states in part:

"(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity ... to use or invest directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect interstate or foreign commerce...

"(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity ..."

Tobacco company representatives appear repeatedly to have committed acts prohibited by Federal law. including 18 U.S.C. §1341 and 18 U.S.C. §1342. which constitute predicate acts of mail and wire fraud, respectively (see supra), within the meaning of 18 U.S.C. §1961(1). Many of these acts were related in their common objective. or were consistently repeated, and are capable of further repetition. This conduct, therefore, may have constituted a pattern of racketeering activity within the meaning of 18 U.S.C. §1961(5).

3. False Claims and Unpaid Taxes

In a letter dated February 7, 1983, to Brown & Williamson's General Counsel Ernest Pepples, Samuel B. Witt III, R.J. Reynolds Tobacco Company's ("RJR's") Vice President, General Counsel and Secretary, suggests that the tobacco companies who fund the Council for Tobacco Research ("CTR") (see multiple discussions, infra) might be able "to take advantage of a new tax credit for basic research expenditures." Witt goes on to explain that RJR expects to take advantage of the tax credit by "paying our share of the grant to the [CTR] grantee directly," adding that RJR "will shortly be working out the details with the CTR staff."

It is not clear at this writing what the tobacco companies who have funded the CTR have done to carry out such a tax strategy. If, in fact, they have executed such a strategy, their having done so raises the question of whether they have improperly received tax credits for contributions for "research" when, in fact, the research they have funded has been supported, often with the facilitation of tobacco industry lawyers, primarily for public relations purposes.

An action can be brought under the False Claims Act. 31 U.S.C. §3729 et seq., where there is a claim submitted to the government to receive money. Under 31 U.S.C. §3733, the Federal government can issue civil investigative demands in order to obtain documents and testimony from any parry. Dependent upon the investigative findings of the Department of Justice. an action also might lie against the tobacco companies named in this Prosecution Memorandum for .recovery of unpaid taxes. The Internal Revenue Code, at 26 U.S.C. §7401, provides that "[n]o civil action for collection or recovery of taxes ... shall be commenced unless the Secretary authorizes or sanctions the proceedings and the Attorney General ... directs that the action be commenced." See United Stares v. Western Pac. R. Co., 190 F.2d 243 (9th Cir. 1951).