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N.Y. AG goes after contraband cigarette dealers

By Bryan Cohen | Mar 5, 2013

NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman announced a lawsuit Monday against two companies that allegedly engaged in the illegal sale of contraband cigarettes without paying compulsory state excise taxes.

Schneiderman filed the lawsuit in the U.S. District Court for the Eastern District of New York against the Ohsweken, Ontario-based Grand River Enterprises and its wholesaler, the Perrysburg-based Native Wholesale Supply. Grand River Enterprises allegedly avoided state taxes by illegally selling its products to Native Wholesale Supply instead of a New York state licensed stamping agent. The stamping agent would have prepaid the New York state cigarette excise tax and affixed the state tax stamp, as required by law.

"The illegal sale of contraband cigarettes violates both state and federal laws, robs New Yorkers of the funds to pay for essential state services, places legitimate businesses that play by the rules at a competitive disadvantage, and makes it easier for young people to take up a deadly habit," Schneiderman said. "My office is committed to taking action to stop the illegal sale of contraband cigarettes to protect our state's fiscal and physical health, and ensure all businesses in New York are playing by one set of rules."

Between November 2011 and July 2012, Native Wholesale Supply paid $85 million to Grand River Enterprises for its cigarettes, which represents an alleged tax loss to the state of more than $13.2 million. Under federal law, Grand River Enterprises could face a civil penalty of up to two percent of its gross sales of cigarettes for the year, which could potentially be tens of millions of dollars.

The federal Contraband Cigarette Trafficking Act makes it illegal to possess, sell or distribute more than 50 cartons of untaxed cigarettes in a state that requires tax stamps and tax collection. The Prevent All Cigarette Trafficking Act and New York state tax and public health laws make it illegal to not report sales of untaxed cigarettes to the Department of Taxation and Finance.

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