January 23, 2011 - Lorillard commissioned a study conducted by Compass Lexecon, a Chicago-based economic consulting firm, that concluded that banning menthol cigarettes would result in a black market quickly emerging.
Summary of the results of the Compass Lexecon study: Banning Menthol Cigarettes Would Create a Multi-Billion Dollar Black Market, Economic Study Concludes;
Compass based their study on the experience of existing cigarette black markets in New York State and Canada.
Let's take a closer look at these markets..
Canada.. The majority of illicit cigarettes in Canada come from the First Nation people and in New York State from Indian tribes.
The Ontario Tobacco Research Unit estimates that 20 percent of cigarettes consumed in Canada are illegal. In the Quebec over 40 percent of the cigarettes purchased are illegal and in Ontario 50 percent of the cigarettes purchased may be illegal. The seizure of 45,000 cartons containing 14 million contraband cigarettes in Alberta suggests a problem previously confined mostly to Ontario and Quebec is spreading across the country. (Canada - the National Coalition Against Contraband Tobacco (NCACT)..)
Canadian Indian (First National People) reservations have become hot spots for illicit tobacco manufacturing, selling, and smuggling. Among the key sites: the Akwesasne, Kahnawake, and Kanesatake reserves near the U.S.- Canada border.
The Mohawk Reserve of Akwesasne straddles three jurisdictions along the St. Lawrence River: Ontario and Quebec in Canada, and New York State. Mohawks view their territory as sovereign and not subject to federal tobacco regulations.
In 2008, the RCMP recognized that manufacturing operations in first nations communities, based on the U.S. side of Akwesasne and Kahnawake in Quebec and Tyendinaga and Six Nations in Ontario, were the largest source of illegal tobacco in Canada.
If the Canadian government and the New York State authorities can control the illegal tobacco activities within these Indian reservations (red dot on map) they will be able to limit the cigarette black market.
Tobacco company involvement..
April 13, 2010 - Reynolds Tobacco Co. an an indirect subsidiary of Reynolds American Inc., revealed a comprehensive settlement agreement with the Canadian federal, provincial and territorial governments with payment of $325 million. The agreement resolves all of the governments' civil claims related to contraband cigarettes in Canada during the 1980s and 1990s. (Canada - tobacco firms settle cigarette smuggling case..) July 31, 2008 - Two Canadian tobacco firms (Imperial Tobacco Canada Ltd -- a unit of British American Tobacco and Rothmans Benson & Hedges Inc, a unit of Philip Morris and Rothmans Inc) admitted on Thursday (7/31/2008) they had aided the contraband tobacco trade and will pay out more than C$1 billion ($980 million) in record fines and payments to boost anti-smuggling efforts over the next 15 years. (Canada tobacco firms admit aiding smuggling..)
The New Big Tobacco: Inside Canada’s underground tobacco industry, a five-part series.. More news briefs on the cigarette black market in Canada can be found below.
New York State.. the underground tobacco market in New York has spread in the wake of tax hikes that make the state's cigarettes the most expensive in the US -- and costs it tens of millions a month in lost tax revenue. The problem is that taxes in New York state and especially New York City can add as much as $60 to the cost of a carton of cigarettes. No wonder criminals including “organized crime groups with ties to Vietnam, Russia, Korea and China” are getting into the business of buying cigarettes in lower-taxed states and driving trailers full of them to the high-tax states.
Illegal cigarettes are pouring into neighborhood bodegas (small grocery stores) by the truckload from neighboring Indian reservations, lower-tax states in the South and even as far away as China, authorities say. Government data show that New York state is being smoked out of as much as $20 million a month from all these illegal cigarette purchases -- an estimated 7.3 million packs a month sold off the state tax radar. (New York State - since tobacco tax increase state losing millions in tax revenue..)
Cigarettes are sold tax-free on tribal lands in New York state, a status that has been exploited for years by crooked entrepreneurs who resell the packs as far away as the Midwest and Canada. Non-Indians are supposed to pay state and local taxes in reservation shops, but they do not, and now the Internet brings the tax-free benefits of reservation shopping to smokers without cars. Take a look at a series of news briefs on collecting tax on cigarettes bought on reservatons by non-Indians - New York State - federal judge rules in favor of the state but still can't start collecting sales tax; no mediation..
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. (Center for Public Integrity Investigates: Big Tobacco's New York Black Market How America's Top Cigarette Firms Fueled a Billion-Dollar Underground Trade by: Center for Public Integrity, 12/19/2008)
Bootleg cigarettes can also be found around the New York City area:
New York City - Poospatuck Reservation stores (2) caught selling cigarettes to bootleggers..
VIDEO - New York's Billion-Dollar Cigarette Black Market
New York - smokers crossing the border in search of cheaper cigarettes..
Also, New York State - with tax increase in place, smokers finding cheaper cigarettes in other states/Indian reservations..
The passage of the U.S. PACT ACT has resulted in the mail-order cigarette shops closing on Indian reservations. (Mail-order cigarette shops close by Dan Herbeck and Charlie Specht, BuffaloNews.com, 8/21/2010). This federal law bars the U.S. Postal Service from delivering cigarettes through the mail. (U.S. PACT Act takes effect Tuesday, June 29, 2010..)
Canada - cigarette smuggling (illicit, illegal) related briefs:
Canada - tobacco farmers suing government over the sale of contraband cigarettes..;
Canada - c-store association applauds move by govt to focus on nation's tobacco contraband problem..;
Canada - Health Canada shelves update of graphic warning messages to concentrate on the problem of contraband tobacco..;
Canada - action must be taken to control the illicit cigarette problem..;
The New Big Tobacco: Inside Canada’s underground tobacco industry, a five-part series..;
Canada - federal govt announced new initiatives to combat cigarette smuggling..;
Canada - even federal servants smoke illegal cigarettes..;
Canada - tobacco firms settle cigarette smuggling case..;
Ontario - NO new measures to curb youth smoking..;
Ontario - don't cut provincial tobacco taxes to try to reduce contraband tobacco traffic..;
Canada - nearly one in five packs of cigarettes smoked by Canadian teen smokers are contraband products..;
Canadian Tobacco Use Monitoring Survey - 2008..;
Ontario, Canada - illegal cigarettes are everywhere..;
Canada - half of smokers have tried to quit..;
Canada - illegal cigarette trade - Imperial Tobacco President Kemball comments..;
Canada - Imperial Tobacco Head - Illegal Cigarettes..;
Imperial Tobacco - Canada Head - Canada growing crisis of illicit tobacco sales..; Imperial Canada - stop illegal tobacco sales rather than raisng tax on tobacco..; Canada - will higher tobacco prices lead to increase in illicit cigarettes..;
Canada - to launch an advertising campaign on the problem of tobacco smuggling..;
Nova Scotia - buying smuggled tobacco you encourage organized crime..; Ontario Businessmen - want government to crack down on illegal cigarettes..;
Imperial Tobacco Canada - slow illegal cigarettes/sue tobacco companies..;
As tobacco prices rise - increase in illegal cigarette trafficing..; Canada - Obama visit - help STOP cigarette smuggling from U.S..;
Canada economic recession losing billions in unpaid tobacco taxes..;
Canada - Police arrest 46 in tobacco crackdown..;
Imperial Tobacco Survey - Canadian Illegal Tobacco Trade..;
Canada - Introduction of Tobacco Stamp to combat contraband...