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Senecas clamp down on illegal cigarettes

Niagara Falls Repoerter

December 06, 2011

By Frank Parlato Jr.

Over the years, various illegal schemes have been used to evade taxes and fees when it comes to the sale of tobacco.

They range from interstate trafficking to avoid paying state excise taxes to smuggling cigarettes into the United States by criminal organizations.

One of the more serious schemes is the manufacture and sale of what are called "rollies," which are unlicensed, unmarked, unnamed cigarettes -- usually 200 at a clip -- generally sold in clear plastic ziplock sandwich bags, usually at Native American smoke shops.

According to a random sampling, these packages sell for as little as $8, and often for as much as $20, significantly less than a carton (200 cigarettes) of federally licensed name-brand cigarettes, which can sell for more than $100 in New York state.

The tobacco used in rollies is of indeterminate origin, and manufacturers purposely avoid paying federal excise taxes and seeking FDA approval. The product could be compared in a sense to moonshine liquor.

To make the point sharper -- consider whether you would purchase 200 unmarked cigarettes in a baggie from a stranger on the street for $20. Some people buy marijuana that way.

But rollies are not sold on the street. They are sold at Native American smoke shops that are willing to break the law and sell them. Possibly most members of the general public assume rollies are legal and FDA-approved because they are sold openly at a store.

In fact, the entire success of the organized criminal enterprise that produces rollies is dependent on Native American smoke shops' willingness to offer their illegal products and a hoped-for lax enforcement by federal authorities.

According to published reports that quoted numerous government officials and experts, much of organized criminal cigarette manufacturing occurs in what is estimated to be 15 to 18 sites in northern New York on land controlled by the St. Regis Mohawk Tribe. There are also said to be at least two manufacturers of rollies on the Tuscarora reservation and several others elsewhere.

The fact that these cigarettes might be manufactured on land controlled by a Native American tribe does not make it legal. Federal excise taxes are imposed on every manufacturer of cigarettes in the United States -- including those on Indian reservations.

The Federal Excise tax is $1.01 per pack, or $11.10 per carton of 200 cigarettes.

One can immediately see the financial advantage illegal distributors of rollies have over legal manufacturers. Because tobacco -- without taxes and fees -- is a relatively inexpensive commodity, these manufacturers can actually sell their product for less than the legal cigarette manufacturers pay in excise taxes.

The manufacture of rollies, because they are unlicensed cigarettes, is a felony. Evading or refusing to pay the tax is punishable by a fine of up to $10,000 and a prison sentence of up to five years per offense, in addition to tax penalties and forfeiture of the cigarettes.

In addition, the federal Contraband Cigarettes Trafficking Act (CCTA) mandates recordkeeping by cigarette distributors and makes it unlawful for any person to "knowingly ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes," since it involves the evasion of federal excise taxes. It is punishable by fines and imprisonment.

The smoke shop owners who knowingly sell unlicensed cigarettes might also be charged under the CCTA.

For some time, it seems almost everyone turned a blind eye to these illegal sales. Recently, however, the Seneca Nation determined to try to stamp out this growing underworld enterprise, on their lands at least. After all, rollies compete unfairly with Seneca's own brands of cigarettes -- which, by the way, are licensed and do pay federal taxes.

The Seneca Import Export Committee, called ICE, has, according to Native American sources, taken a dim view of smoke shops selling rollies, and this past week has begun to put their foot down at several smoke shops on Seneca lands. Sources say members of ICE made visits to certain smoke shops demanding they cease and desist selling unlicensed cigarettes.

Several smoke shops located on Seneca lands known to be selling rollies were contacted by the Reporter. They all claimed they discontinued the sale of rollies last week.

The manufacturers of rollies are in effect an underground criminal organization. They acquire raw tobacco, cut it, sometimes mix it with additives or fillers, and roll this into cigarettes, generally with filters.

Typically 200 of these makeshift cigarettes are put into a baggie, and without a license from the Alcohol and Tobacco Tax and Trade Bureau (TTB), without labeling on the baggie, without approval from the FDA, and without paying the federal excise tax required to be paid when cigarettes leave their place of manufacture, they go to Indian smoke shops willing to sell the illegal product.

A lot of people stricken with the mental disability known as political correctness see nothing wrong in selling illegal cigarettes -- as long as only Indians do it. They are willing to give the descendants of Native Americans their blessings on the breaking of laws they would never give their own descendants.

It is true, according to federal law, a federally recognized Native American tribe is exempt from federal taxes -- as a tribe. However individual Native Americans' income from employment and for-profit business enterprises -- even on reservation land -- is taxable at the federal level.

This is not only law, but is fundamentally fair, since Native Americans are entitled to receive (and in fact do receive) the same benefits as any other U.S. citizen, such as Social Security and everything else.

According to a study made by the General Accounting Offices of the U.S. government, taxes and other fees make up an average 53 percent of the retail price of a pack of cigarettes. The legal avoidance of state taxes is what has supported the burgeoning Indian tobacco sales businesses, particularly in states with high state excise taxes like New York, which tops the entire nation at $4.35 per pack.

Although they may legally avoid state taxes, legitimate Indian cigarette manufacturers still must pay $1.01 per pack in federal excise taxes.

Most U.S. cigarette manufacturing is concentrated within three manufacturers -- Philip Morris USA, R.J. Reynolds and Lorillard -- which represented 84 percent of cigarettes sold in 2009.

But on Indian smoke shops -- where cost-conscious customers increasingly go to save money -- a growing number of Native American legally manufactured brands are becoming popular. Locally, Native brands such as Signals, Pride, Smokin' Joes, Market, Sands, Lewiston, Heron, Buffalo, Gator and Senate are made and sold legally by licensed Native manufacturers.

The manufacturers of rollies directly compete with the legal brands and illegally evade more than $6,000 in federal excise taxes per case of cigarettes.

The Niagara Falls Reporter has obtained a list of smoke shops in the region that have been selling illegal rollies. It is not hard to compile such a list, since rollies are sold openly in most stores where they are sold. Some on the list have suspended the sale of rollies since the Seneca clampdown.

In the coming weeks, the Niagara Falls Reporter plans on making a second inquiry into those smoke shops that continue to sell illegal rollies and then publishing the names and addresses of each, prominently, in the pages of this paper, along with the names of the owners of these stores, so that the authorities will have notice that the sale of contraband is going on at these locations in violation of U.S. law.

ATF officials stated in a report to the General Accounting Offices that illicit trade in tobacco is often connected to other crime, and criminals may use proceeds from illicit trade in tobacco to fund other crimes.

Even if the manufacturers of rollies are not involved in violent crimes, it may safely be assumed they are not paying income taxes, not paying their employees unemployment insurance, and in fact may have employees who are otherwise on unemployment or welfare.

This is not some morally righteous argument: "Hey, we're Indians, and we were ripped off by the government in 1794, so we have the right to do commerce with Americans using U.S. money, without obeying the law."

This is big business. The total value of shipments for all tobacco products in the USA was $29.4 billion in 2009. In 2009, cigarettes made up 80 percent of those sales. Native American sales are on the rise. Illegal sales of rollies, too, seem on the rise.

At $1.01 per pack, the large income from federal excise taxes goes to helping solve the health problems in the USA that tobacco causes. In addition, the Children's Health Insurance Program Reauthorization Act of 2009 increased federal excise taxes on tobacco products, from 39 cents to $1.01 per pack, in order to fund the State Children's Health Insurance Program.

Tobacco use is the leading cause of preventable death in the United States and a significant contributor to health care costs in this country. According to the Centers for Disease Control and Prevention, smoking accounts for more than 400,000 premature deaths per year -- including almost 50,000 deaths among nonsmokers due to secondhand smoke -- and costs the United States an estimated $193 billion in health care expenditures and loss of productivity.

 

 

 
 
 
  Copyright © 2008 Frank Parlato Jr.