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DOJ Meets Big Tobacco

posted on March 25, 2005


Hello, I'm Mark Pearson.

Interest rate hikes will occur "at a pace that is likely to be measured." That's become the mantra of the Federal Reserve in recent months as it ratchets up interest rates to control the economy.

It happened again this week when the Fed boosted a key interest rate by a quarter-point. *The increase in the federal funds rate, which is the interest banks charge each other, marked the seventh rate hike by the Fed since last June. *Interest rates are moving higher, in part, to combat rising inflation. January wholesale prices, for instance, jumped by their biggest margin in three months, thanks to increases in food and energy costs.

Like the economy, there are elements in farm country going through transition. Nowhere is that more evident than in tobacco country, where a sizable government buyout and a litany of lawsuits still are playing out.

DOJ Meets Big Tobacco Early last year, the U.S. District Court for the District of Columbia agreed that tobacco companies could be charged under the federal Racketeer Influenced and Corrupt Organization Act, or RICO. The wrangling over how to proceed in the case has gone on for six months. Recently, the same U.S. District Court denied a federal government motion asking the major U.S. tobacco companies to pay $289 billion for past medical expenses related to cigarette smoking. Despite this setback for the government, the battle rages on.

Industry observers are recommending the Justice Department seek an out-of-court settlement and there is some evidence this is the avenue being pursued. According to Wall Street Journal, a secret meeting recently took place between Department of Justice prosecutors and tobacco company representatives. A court-appointed mediator was present but both sides are remaining silent.

If there is a settlement in the case, it may be on par with the previous landmark 1998 decision against the major tobacco companies. That lawsuit awarded 206 billion dollars to 46 states and was the largest monetary judgment in the history of the United States legal system. Most of the money was earmarked for tobacco-related health care costs and anti-smoking education.

But the reality of how the money has been allocated is far from its original intent. According to a U.S. Government Accounting Office report, of the 9.7 billion dollars allocated in fiscal year 2004, 44 percent went to cover budget shortfalls. Meanwhile, only 20 percent went to health-related programs. That picture is expected to change in fiscal year 2005. Of the 5.4 billion dollars set to be allocated, the GAO is predicting that 11 percent will be used to shore-up flagging budgets and 32 percent will go for neglected health-related programs.


Tags: Congress courts news smoking tobacco