Today’s NY Post story about bootleg cigarette sales at bodegas reaffirmed my opposition to increased tobacco taxes. First, raising the cigarette excise tax by another $1 per pack only rewards bootleggers, some of whom will use their illegal proceeds to fund terrorist attacks on America and her allies, notably Israel. Governor Paterson’s administration seems ignorant of the growing link between cigarette taxes and terror financing. Second, a virtual 100% increase of the excise tax on “other tobacco products” has driven NY cigar shops and lounges out of business. Governor Paterson succeeded in breaking his pledge against business-killing taxes.
New York State has become the national poster child for cigarette tax evasion and bootlegging. Collectively, our state and city levy the highest combined tobacco taxes in the nation.
Increases in New York tobacco taxes perversely incentivize profiteers; especially those waging war against America and Israel. We can no longer allow Native American retailers to avoid paying taxes on cigarette sales to non-Native Americans, while supplying extensive cigarette bootlegging operations.
Cigarette Bootlegging and Terrorism
The federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) has stated that tobacco is the new commodity for terrorists. The ATF has concluded that contraband cigarette trafficking funds international money laundering and terrorism. The ATF reported that in 2002 Mohammed Hammound was sentenced to prison for using his cigarette bootlegging operation to fund terrorist activity. Mr. Hammound and nine other men, including his brother, Chawki, conspired to buy cigarettes in North Carolina, which had a 5-cent per pack tax, affixed phony tax stamps, and sold them in Michigan which had a 75-cent excise tax. Over four years, they amassed $1.5 million profit which they shared with Hezbollah –an avowed enemy of Israel and America.
The NY Post reported that bootlegger, “Abdullah Alsaidia, 37, was allegedly caught delivering 20 cartons of untaxed cigarettes to a deli on West 183rd Street in The Bronx, court records show. State investigators with the Department of Taxation and Finance busted him and allegedly found 205 cartons of Newports, 10 cartons of Marlboros, two cartons of Winstons, and two cartons of Kools — all without tax stamps.” One bodega clerk said that his supplier sold him cartons for between $45 and $50 each, netting him a $30-$35 per carton profit.
Last May, state Tax Department investigators arrested four men in the Bronx for trafficking untaxed cigarettes. When arrested the four men, each of Middle Eastern descent, were found in possession of 1,925 cartons of untaxed cigarettes and over 36,800 phony tax stamps from New York and New Jersey. Conceivably, those men could have made a substantial profit just off the cigarettes found in their possession. Aref Ahmed, the former gas-station operator who funded the “Lackawanna Six” terror cell in Buffalo, was convicted in 2004 for cigarette trafficking and money laundering. Mr. Ahmed financed the six Buffalo men’s trip to an al-Qaida training camp in Afghanistan. We have yet to discover where the Bronx men planned to send their ill-gotten gains.
In a 2008 Homeland Security Committee report issued by Rep. Peter King, New York law enforcement officials estimated that cigarette smuggling networks generated $200,000 to $300,000 weekly and that much of that money is used to “directly or indirectly finance groups such as Hezbollah, Hamas, and al-Qaida.” The King report also stated that this activity was causing losses in State revenue in the hundreds of millions of dollars. In 2006, The Department of Health estimated that New York State was losing as much as $550 million in taxes through the illegal sales of untaxed cigarettes. Other estimates maintain that up to 35% of all cigarettes sold in this State are not stamped legally for proper tax collection.
Native American Connection
For over twenty years, New York State has authorized the taxation of goods sold to non-tribal consumers and in 1994 the law was upheld by the Supreme Court. Since the 1997 Seneca protest briefly shut down the New York Thruway, it has been state policy not to curb Indian cigarette sales in New York – since that policy, known as “forbearance” went into effect, wholesale shipments of cigarettes to New York reservations have soared. New York residents have taken advantage of our inability to enforce taxation on cigarettes sold on reservations.
Fewer than 20,000 Indians live on reservations in New York, yet in 2007 reservation stores sold more than 30 million cartons – six billion cigarettes with a retail value of nearly $2 billion. According to the State Department of Taxation and Finance, those cigarettes amounted to nearly one-third of all cigarettes sold in New York, where the bulk of sales went to the Poospatucks and the Seneca Nation.
Prior to enactment of the federal PACT Act, law enforcement authorities said New York Indians operated five of the top 10 Internet web sites selling cheap cigarettes and that the reservations are a primary source of cigarettes for smuggling rings that place counterfeit stamps on cigarettes and sell them in retail stores in New York.
Breaking the Tobacco-Terrorism Nexus
Governor-elect Cuomo and our legislative leaders must open their eyes to the growing link between tobacco taxes and those who fund terrorism. The diverted tax revenue is going directly into the pockets of traditional organized crime and the coffers of Hezbollah, Hamas, al-Qaida, other terrorist organizations, and their sympathizers. I also urge Native American tribal leaders to cooperate with New York law enforcement and state tax agents in collecting the tax on sales to non-Native Americans.
The Cuomo Administration should make good on a Paterson promise to appoint a cabinet-level adviser on Indian Nations Affairs. The holder of that post must report directly to the Governor, have a seat on the Empire State Development Corporation, and coordinate with the State’s chief diversity officer. Creation of this post will tell the leaaders of New York’s Indian Nations that Cuomo respects them and seeks to build a cooperative relationship with the indigenous people of New York.
The incoming administration must coordinate its efforts with Federal, State and Local officials in eradicating the illegal tobacco trade. The Governor’s Office of Homeland Security, the Department of Taxation and Finance and the State Police must issue an Annual Report on their efforts to combat the illegal cigarette trade. An annual report would provide New Yorkers and the Legislature with information on the progress of enforcement efforts. Failure to implement these recommendations will only make the illegal tobacco trade worse and provide yet another financial windfall for those who wish us harm.