Big Tobacco and Cigarette Black Market

City Hall for the first time is directly blaming Big Tobacco for the burgeoning black market of bootleg Prima Lux cigarettes on city streets. Newport maker Lorillard, the country's No. 3 tobacco company, consciously oversupplies the Poospatuck Indian reservation on Long Island -- knowing full well bootleggers buy in bulk and then flood city neighborhoods with unstamped, cheap smokes, a city official told The Post.


"If Afghanistan is the seed of the heroin trade, then Lorillard is like that with cigarettes," said Eric Proshansky, a deputy chief in the city Law Department. "Lorillard knows its cigarettes are being bootlegged into the city, and they have refused to stop supplying the reservation, and that's because they know . . . [the trade is] boosting their sales tremendously."

Marlboro maker Philip Morris discontinued business with wholesalers supplying the Poospatucks in 2008, leaving Lorillard as the chief supplier, according to the city.
In four months in 2010, 2.25 million cartons were sold to Indian shops on Long Island -- 1.7 million of them Newports, according to the city. Officials said 5 percent of the national volume of Newports flows through the reservation, whose tribal council declined comment.

Proshansky said the black market was "absolutely" part of Lorillard's marketing strategy.

"Newport is a big brand in New York City, and so this is a way of getting cheap cigarettes into the city," he said. "If cigarettes are expensive, people don't buy them."

A pack of legal, taxed, state-stamped Newports goes for upward of $14 at a legitimate Manhattan retailer. The Post purchased illegal, unstamped Newports at a 125th Street bodega last week for $6.50. The clerk said the butts originated with "the Indians."
The cigarette maker remains defiant.

"We have spoken to Lorillard on many occasions and asked them to stop supplying the Poospatucks, and they have refused," Proshansky said.

The incendiary comments are the city's first salvo against Big Tobacco. When asked if the city would follow its tough talk with a precedent-setting lawsuit against the nation's oldest tobacco company, Proshansky would only say, "We never talk in advance about what we're trying to do."

The city is currently suing an array of Poospatuck shops for illegally selling smokes to non-tribesman, and, separately, it is suing wholesalers for supplying untaxed smokes to the reservation.

The prospect of a legal battle against Lorillard is murky. The cigarette giant legally sells smokes to wholesalers, who supply the Indian shops -- which are immune from a $4.35 state tax.

The tax dodge may soon end. A state law passed last year would compel tribes to pony up and collect taxes on smokes sold to nontribe members. But the Indians sued, lost and last week appealed to keep the law from taking effect immediately.

The measure would also limit the number of cigarettes that could be made available to tribes based on their populations.

It is illegal to sell untaxed smokes to nontribe members -- but without enforcement, the practice continues, with buyers hauling away as many cartons as they can carry.
Bootleggers buy in bulk from the Indians -- for as low as $37 a carton of unstamped Newports, $78 less than the $115 they would fetch in NYC legally.

The butts usually end up in poor neighborhoods like Harlem and the South Bronx.
The state and city lose $420 million in uncollected taxes because of the illegal pipeline.

Officials also fear the bootlegged butts end up in the hands of minors.
"Untaxed cigarettes undermine the efforts to protect the public's health and prevent youth from starting smoking," said Susan Kansagra, of the city Health Department's Bureau of Tobacco Control.

The Greensboro, NC-based Lorillard -- which reported net sales of $5.9 billion last year -- insists it's doing nothing illegal.
"Lorillard has strictly followed the New York tax law and regulations and has only sold cigarettes to state-licensed wholesale dealers, not directly to Native American retailers," said spokesman Gregg Perry.

"New York has always had the power to shut down the trade in untaxed cigarettes on Native American reservations but has chosen not to do so."