Editorial

Big Tobacco and Justice

For the past year, what may well be the greatest trial ever on corporate wrongdoing has quietly unfolded in a Washington, D.C. federal district courtroom.

There Judge Gladys Kessler has presided over the U.S. Department of Justice’s civil RICO case against the tobacco industry. RICO is the Racketeering Influenced and Corrupt Organization Act, and has both civil and criminal components.

The Department of Justice’s filings constitute the clearest and most compelling account of the conspiracy by Big Tobacco to deceive people in the United States about the health effects of cigarette smoking.

And although the Department of Justice’s proposals for remedies have been undermined both by a misguided ruling from the D.C. Circuit appellate court (one which may yet be overturned by the U.S. Supreme Court) and by political interference from high officials in the Bush Justice Department, the remedy proposals nonetheless do contain very instructive suggestions for how corporate behavior might be contained — if there was political will to do so.

The Department’s filings make for gripping reading.

They allege that the industry conspiracy started “at the end of 1953, [when] the chief executives of the five major cigarette manufacturers in the United States at the time —Philip Morris, R.J. Reynolds, Brown & Williamson, Lorillard, and American — met at the Plaza Hotel in New York City with representatives of the public relations firm Hill & Knowlton and agreed to jointly conduct a long term public relations campaign to counter the growing evidence linking smoking as a cause of serious diseases. … The fraudulent scheme would continue for the next five decades.”

The most publicized of the remedies sought by the government have to do with large dollar amounts. Most important is disgorgement of all profits generated by the industry since 1970 as a result of their unlawful activity — a claimed $280 billion. An appellate court ruling held that the disgorgement remedy was not available, but the Supreme Court may revisit the issue.

As the trial wound down in June, the biggest ticket item in the government’s list of remedies was a $130 billion education and cessation program for smokers. Under pressure from a Bush administration appointee, the request was reduced to $10 billion.

There’s no doubt the big money remedies are key to the case, especially because huge payments from the industry will increase cigarette prices and thereby reduce smoking rates.

But at least as interesting — and more instructive for generally controlling corporate activity — are the non-monetary demands of the industry.

Two in particular merit careful examination — and consideration of how they can be applied in other contexts.

First is a requirement that each defendant company reduce the number of youth age 12 to 20 smoking its cigarettes by 42 percent over a 10-year period between 2003 and 2013. If a company fails to reach this target, as well as interim targets, the government proposes, the company should have to pay a substantial penalty.

What is innovative about this proposal — which has been floated by tobacco control advocates for more than a decade — is that it changes the focus from industry conduct to outcomes. While restraints on specific industry behaviors are vital, they suffer from the limitation that the very creative marketing executives in the tobacco industry are generally able to develop alternatives to proscribed activities. The outcome-oriented standard cannot be so easily circumvented.

Democracy campaigners have done too little thinking about how such standards might be applied to other industries. (An exception is bank lending rules that require banks to provide credit to low-income and minority communities.) Not so coincidentally, many such performance requirements are prohibited or limited by the terms of investment agreements included in trade deals such as the North American Free Trade Agreement (NAFTA) and the Central American Free Trade Agreement (CAFTA).

The second feature of the Department of Justice’s proposed remedies that merits special attention is the proposed creation of an independent investigations officer with broad powers to review industry activities and recommend that the judge impose obligations and structural alterations on the defendants. The Justice Department proposes that the investigations officer should have subpoena power, the authority to attend any senior management or board meeting at any company, and the authority to recommend removal of any employee, including top management, at any defendant company, the sell-off of company divisions, or any other recommendations he or she believes is necessary to achieve the purposes of restraining future fraud by the industry.

This amounts to a kind of ongoing probation for the industry, but with a parole officer empowered to make very far-reaching demands for change (which must be ratified by the court).

Again, it is provocative to consider whether such measures could be applied to other corporate bad actors.

Whether Judge Kessler will rule in favor of such proposals remains to be seen. But if the Justice Department can contemplate such far-reaching corporate disciplines, surely activists should broaden their thinking about what is realistic and achievable, as well.