Big Tobacco’s New York Black Market

For Immediate Release

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Steve Carpinelli (202) 481-1225

Center for Public Integrity

Big Tobacco’s New York Black Market

How America’s Top Cigarette Firms Fueled a Billion-Dollar Underground Trade

WASHINGTON - America’s three top tobacco firms — Philip Morris USA, Lorillard, and R.J. Reynolds — supplied two-thirds of all cigarettes sold last year through New York State’s Indian reservations despite ample evidence that those sales fuel a billion-dollar black market, according to an investigation by the International Consortium of Investigative Journalists (ICIJ), a project of the Center for Public Integrity in Washington, D.C.

 
This investigation is the latest in the ICIJ series on cigarette smuggling — Tobacco Underground. The illicit trafficking of tobacco is a multibillion-dollar business, according to the ICIJ series, fueling corruption, organized crime, and terrorism; robbing governments of needed tax money; and spurring addiction to a deadly product.
 
New York’s 10 sparsely populated Indian reservations cannot possibly consume all the cigarettes their smoke shops purchased — 6.4 billion in 2007 — so the bulk end up sold untaxed online or bootlegged to New York City, robbing the state and the city of more than $850 million in tax revenue, according to an ICIJ analysis of wholesaler tax data filings to the state. Bootleggers and online merchants have netted an estimated $500 million from the New York trade since 2000, ICIJ found.
 
This week, New York Governor David Paterson signed into law a bill designed to stop the flow of tax-free cigarettes from Indian reservations. But it remains unclear whether the legislation will be successful. Past laws have encountered opposition from Indians, leaving the state reluctant to enforce cigarette tax laws on reservations.  
 
ICIJ’s investigation reveals the role played by Big Tobacco and their direct distributors as suppliers of the vast majority of cigarettes sold untaxed on Indian reservations. The inquiry relied on internal company sales data, tax filings and court documents, as well as dozens of interviews with law enforcement officials, cigarette wholesalers, and smugglers.
 
Among the findings:
 
  • As New York State struggled with a massive fiscal crisis in 2007, Lorillard, Philip Morris, and R.J. Reynolds funneled 4.3 billion tax-free cigarettes to smoke shops on New York Indian reservations — more than 25 percent of the companies’ combined total sales in the state.
  • Lorillard, maker of the popular Newport brand, sold 40 percent of its cigarettes in New York, 2 billion of them, through reservations — more than any other manufacturer. 
  • To distribute through the reservations, tobacco companies have relied on a handful of wholesalers who ship billions of untaxed cigarettes to Indian stores. One in three cigarettes sold in New York last year was channeled, untaxed, through these wholesalers, who are being sued by New York City for complicity in cigarette smuggling
Mounting legal pressures have left some manufacturers scrambling to unravel their ties to Indian reservations. Philip Morris this year dropped three of the state’s largest suppliers of untaxed cigarettes. One distributor was caught allegedly diverting Marlboros to a notorious smoke shop owner on the Long Island Poospatuck reservation. Another distributor allegedly sold millions of cigarettes to seemingly fictitious smoke shops, also on the Poospatuck, whose listed addresses were nothing more than light posts, trees, and dumpsters.
 
Today’s release also features an exclusive story on the rapidly growing online trade in untaxed tobacco:  SMOKE2U: Tobacco Sales Take Off in Cyberspace. From 2000 to 2006, despite states’ best efforts to crack down on the trade, the number of online cigarette sellers spiked from 88 to 772.
 
Largely based on Indian reservations, the sites boast a colorful array of names such as Smoke2U.com and EZTobacco.com. While most sites are in the United States, ICIJ’s reporting found online vendors are increasingly moving overseas — beyond the reach of effective U.S. law enforcement.
 
The Tobacco Underground website uses interactive and multimedia resources, from a map of global smuggling routes to interviews with experts and undercover video, to help readers grasp the scope of the growing illicit trade in contraband tobacco. 
 
This project is supported by the Johns Hopkins School of Public Health, with organizational support provided by Carnegie Corporation of New York, the Ford Foundation, the JEHT Foundation, the John D. and Catherine T. MacArthur Foundation, the Park Foundation, the Rockefeller Brothers Fund and other generous institutional and individual donors.
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The International Consortium of Investigative Journalists (ICIJ) was launched in 1997 as a project of the Center for Public Integrity to globally extend the Center's investigative style of journalism in the public interest. ICIJ's global network includes nearly 100 of the world's top investigative reporters who produce collaborative, cross-border reports on major global issues around the world. www.icij.org

The Center for Public Integrity is a nonprofit, nonpartisan independent Washington, D.C.-based organization that does investigative reporting and research on significant public issues. Since 1990, the Center has released more than 400 investigative reports and 17 books. It has received the prestigious George Polk Award and more than 22 other national journalism awards and 16 finalist nominations from national organizations. In April 2006, the Society of Professional Journalists recognized the Center with a national award for excellence in online public service journalism for the fifth consecutive year. In March 2007, the Center was given a special citation for the body of its investigative work from the Shorenstein Center on the Press, Politics and Public Policy at Harvard's Kennedy School of Government. www.publicintegrity.org

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