Philip Morris, lawmakers seek law to stop counterfeit cigarettes

[FaGal]

Philip Morris, lawmakers seek law to stop counterfeit cigarettes
www.news-journalonline.com - Associated Press - April 4, 2005


TALLAHASSEE - Calls to a consumer complaint line tipped Philip Morris USA to a problem that's costing the cigarette giant and states around the nation millions of dollars while providing terrorists and organized crime groups an easy way to make money.

The red-and-white cardboard packs customers were buying looked like Marlboros, but actually were being made by counterfeiters who are profiting off one of the world's most recognizable trademarks.

Now Philip Morris is going state-to-state asking lawmakers to pass bills that allow law enforcement to better track sales with the hope of removing illicit cigarettes from the market.

Basically, the company is asking states to require anyone involved in cigarette sales, from the manufacturer to the corner store, to be licensed and document where the they received their product. Wholesalers would be have to make sure cigarette packs have tax stamps.

"We want to make sure that if a consumer is going into a store and paying $3, $4, $7, $8 a pack for a pack of our cigarettes that they're getting the quality they've come to expect," said Jamie Drogin, a Philip Morris spokeswoman. "Why should anyone else care? Revenue."

Her point has already been proven in California, where the number of legal cigarette sales jumped by more than 42 million packs the year after a law tracking sales was passed there. That helped raise $36.7 million in cigarette taxes in a state where cigarette sales had been declining in recent years, said Anita Gore, a spokeswoman for the state's Board of Equalization.

In addition to California, laws have already passed in 11 other states from Alaska to Georgia and there's legislation pending in another 15.

"We would absolutely love to see legislation passed in all 50 states," said Drogin. "We've confirmed counterfeit in 19 states and have reasons to suspect it in 23 more."

The laws deal not only with counterfeit cigarettes, but also contraband, or gray market, cigarettes. That problem involves people transporting cigarettes from a low-tax state and selling them in a state with higher cigarette taxes or importing legitimate cigarettes made overseas to avoid state and federal taxes.

Gray market cigarettes have been a problem for years. It wasn't until more recently that Philip Morris noticed the widespread sales of counterfeits.

"Consumers were calling in saying, 'It doesn't taste right, it tastes stale,"' Drogin said. "As part of our quality control process we had them send it in, give us the information where they got it and what we were discovering is they were actually counterfeit versions of our cigarettes. This is absolutely hurting our trademark -- one of the most valuable trademarks in the world."

A U.S. General Accounting Office report on cigarette smuggling published last year said some people involved in the trade have ties to terrorist groups.

"There are indications that terrorist group involvement in illicit cigarette trafficking, as well as the relationship between criminal groups and terrorist groups, will grow in the future because of the large profits that can be made," the report said.

Most counterfeit cigarettes are coming into the country from China and other Asian countries through California, said Dean Boyd, a spokesman for U.S. Immigration and Customs Enforcement in Washington.

But the problem is spread throughout the country, he said, pointing to arrests made last year in a counterfeit cigarette ring based out of El Paso, Texas. Officials seized more than $18 million worth of counterfeit cigarettes in a case that also led to arrests in New Mexico, Florida, New York and California.

"It's not limited to any geographical area," Boyd said. "Criminal organizations are realizing that this is a way to earn substantial money with what they perceive as minimal or few risks."

His agency estimates that counterfeiters spend about $2 a carton to produce cigarettes and can sell them for as much as $70 a carton in places like New York.

"The total tax losses to this activity to the United States are estimated to exceed a billion a year. At the same time cigarette smuggling creates incredible profits for criminal organizations. It's an easy money making venture and where does that money go?" Boyd said. "It's lining the pockets of criminal organizations or, God forbid, going to terrorist organizations."

In Florida, Rep. Thad Altman and Sen. Mike Haridopolos, both Republicans from Melbourne, are sponsoring bills to try to stop counterfeit and contraband cigarettes. Each (SB 816 and HB 205) has one more committee stop before reaching the vote of their full chambers. The bills also make possession of counterfeit cigarettes a felony that carries up to five years in prison.

Haridopolos said there are many good reasons to support his bill.

"This is a legitimate health risk -- besides the fact you're smoking cigarettes -- because you don't know what you're getting in the product," he said. "Second, it's untaxed and third if we continue to allow this to happen, you're going to have these groups such as Hezbollah finding another source of revenue."

Similar bills died in the Legislature last year, most likely because some House members were afraid an unrelated cigarette tax bill would be attached to it.

"It was just a mistake. It helped terrorists. We've had a year of imported (counterfeit) cigarettes that slipped through that we may have caught," Altman said.