On Tuesday, German customs officials searched the offices of Imperial Tobacco's Reemtsma subsidiary in Hamburg, as part of an investigation into cigarette smuggling into Iraq and Germany.

Imperial said on Tuesday that a number of Reemtsma managers, including sales & marketing director Manfred Haussler, had been charged in connection with an investigation of alleged foreign trading and related violations.

Imperial Tobacco would like to confirm it does not sell cigarettes to Iraq Imperial Tobacco

But Imperial Tobacco issued a statement on Wednesday saying that neither Mr Haussler, nor any other employee of either Reemtsma or Imperial Tobacco had been arrested in connection with the investigation launched in Germany.

"Imperial Tobacco would also like to confirm that it does not sell cigarettes to Iraq, either directly or indirectly, nor has Mr Haussler been implicated in the sale of cigarettes to Iraq."

UN sanctions

Imperial, one of the UK's biggest cigarette companies, said the allegations date back to before it took over Reemtsma, which makes the West and R1 cigarette brands, in early 2002.

The German investigation centres on the suggestion that non-taxed cigarettes were exported then smuggled back into Germany and that Reemtsma broke UN sanctions by exporting cigarettes to Iraq.

Imperial said it would "co-operate fully" with the investigation.

The UK group said the first it knew of the problem was when customs officials arrived at the company's premises on Tuesday.

Officials believe up to 17 million cigarettes, worth about $270,000 (�170,000), were smuggled illegally into Iraq in 2000, breaking international embargoes.

Bad timing

The swoop comes less than a week after Imperial was accused of hindering government efforts to stop the smuggling of its cigarettes back into the UK.

The Commons public accounts committee found that the UK cigarette company had stepped up exports to what it called "unusual markets" such as Afghanistan, Andorra and Moldova.

The committee also noted a rise in the number of Imperial products being smuggled back into the UK and a "substantial increase" in its international profits.

Imperial Tobacco has now ceased trading with the countries mentioned in the report and has insisted that it has always co-operated with customs officers.