Officials Butting In on Cigarette Counterfeits

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Campaigns to end the stream of illegal cigarettes into New York City, a black market that has been used to supply funding to terrorist organizations, are being launched on the city, state, and federal levels, according to lawmakers and law enforcement officials.

“New York is the perfect storm for the cigarette black market,” a vice president of SICPA Product Security, Scott Bessette, said. It has “a high tax rate going higher, many points of entry including large ports, state and international borders, and a lack of tools to effectively monitor and enforce the market,” Mr. Bessette, whose company investigates counterfeits around the world, said.

The demand for illegal cigarettes will only get worse, a number of experts concurred, if Mayor Bloomberg is able to implement a 50-cent a pack tax hike.

To combat the illegal trade, the chairman of the City Council’s public safety committee, Peter Vallone, a Democrat of Queens, is leading a charge to modernize the tax stamps placed on each pack of cigarettes. The current stamps, which experts say are easily counterfeited, provide proof that state and city taxes have been paid.

Mr. Vallone plans to introduce a resolution in the council this spring. “We’re using an antiquated technology to make these stamps,”

Mr. Vallone said.

By placing counterfeit stamps on cigarettes, criminal organizations can pocket the $1.50 tax on each pack that would otherwise go to state and city governments. The New York State Department of Health estimated that the state lost about $400 million in tax revenue in 2004 due to untaxed cigarettes.

In the Legislature, a senator of Erie County, Dale Volker, is revising a bill he introduced in 2005 that would mandate that wholesalers, who are in charge of collecting state and city taxes and stamping cigarettes, use high-tech stamps with bar codes.

The stamps would be difficult to counterfeit, and also allow law enforcement to trace cigarettes from their source with the use of scanners, Mr. Volker said. He said he hopes the bill will pass in June as part of the state’s supplemental budget.

In 2004, California enacted similar legislation; during calendar year 2005, the state reported an additional $73 million in cigarette taxes, according to a state official.

Cigarette companies such as Phillip Morris USA are lobbying against Mr. Volker’s proposed bill, which would require them to pay a half-cent-a-pack fee to offset the costs of the new technology.

A spokesman for Phillip Morris, Bill Phelps, said that while the company supports enforcement against illegal cigarettes, it doesn’t believe the new stamps will address the issue. Phillip Morris’s “retail buying” anti-fraud program found that criminals in California were easily able to counterfeit the new stamps, Mr. Phelps said.

On the federal level, the Bureau of Alcohol, Tobacco, and Firearms recently created a task force made up of federal agents and local vice squad officers to combat what it sees as the three major aspects of tobacco fraud: the manufacturing of fake tax stamps, the importation of counterfeit cigarettes from abroad, and the sale of untaxed cigarettes on Indian reservations.

Counterfeit cigarettes, which are manufactured abroad and shipped to America, present a separate problem. Placed in packs that resemble familiar brands such as Marlboros or Camels, counterfeits are especially detrimental because not only are the cigarettes not taxed, they are not inspected for content or quality, a spokesman for the ATF, Joseph Green, said.

In the past several years, the ATF has busted several criminal organizations selling counterfeit cigarettes, a majority of which arrived in America via China and North Korea, Mr. Green said.

Last August, federal prosecutors with the U.S. Attorney’s office in Brooklyn charged a criminal ring with smuggling untaxed and counterfeit cigarettes into the city from a Long Island Indian reservation, and funneling the proceeds to Hezbollah, a terrorist group in Lebanon.


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