New York State Office of Tax Enforcement Petroleum, Alcohol, Tobacco Bureau Chief Investigator John Connolly

1. Contraband Tobacco Smuggling New York State Office of Tax Enforcement Petroleum, Alcohol, Tobacco Bureau Chief Investigator John Connolly John_Connolly@tax.state.ny.us (O)518-485-7411/(C)518-461-4783

3. REGULATORY STRUCTURE INVOLVING CIGARS/TP

5. TOBACCO PRODUCTS SMUGGLING • The TP tax varies by state, some are high and some are low. • At present PA is only state that has no TP tax, hopefully that • will change soon. • TP manufacturers usually only sell to larger accounts (wholesalers). • These wholesalers then sell to other wholesalers or retail customers. • Some TP wholesalers set up in low tax states or states with favorable • regulations or little enforcement activity • Many TP wholesalers have set up businesses in PA because there is • currently no TP tax, no registration (other than with PA Dept of State) • and no reporting (tax return) requirements • -Several TP wholesalers have their main business in another state • (ie, CT,MA,MI) but have set up a wholesale operation in PA to make it • harder to track where the product is going to.

6. WHAT TO LOOK FOR • There are no stamps on cigars, chew or loose tobacco • packaging. • -Lack of proper invoicing is enough for us to seize product • and write charges • -Proper invoicing means invoices from a NYS registered • distributor/wholesaler who has authority to charge and • collect TP tax. • -Large amount of TP but only minimal proper invoices or • older dated invoices. • -Look for odd ball type invoices as you’re in a store. Ones • with no business name on them/hand written. • -No name cargo vans making deliveries • -Deliveries by USPS, UPS or FEDEX • -Surveillance of suspected locations

10. THE CIGARETTE PROBLEM • Along with the increase in excise taxes in most states, the • incentive to evade taxes has risen dramatically. • -The states loose millions of tax dollars each year • -Cigarette smuggling is profitable • -Export cigarette diversion • -State excise tax stamp counterfeiting • -Internet sales/reservations sales/cross border sales

11. UNTAXED CIGARETTES • Any pack of cigarettes without a legitimate New York State excise tax stamp • Cigarettes without any tax stamp • Cigarettes with a tax stamps from a state other than New York • In NYC cigarettes without a joint New York State/NYC stamp • Cigarettes with a counterfeit tax stamp You have loosely organized groups of Arabs, Hispanics, Chinese and Russians moving a great deal of the untaxed cigarettes

12. REGULATORY STRUCTURE INVOLVING MOVEMENT OF CIGARETTES

13. ILLEGAL SMUGGLING STRUCTURE INVOLVING CIGARETTES

14. CIGARETTE CRIMES IN NYS • Possession of untaxed cigarettes is a Misdemeanor • Possession of over 50 cartons of untaxed cigarettes is an E Felony • Possession of over 150 cartons of untaxed cigarettes is a D Felony • More than 10 cartons in vehicle and its seizable

17. Native American Reservations located in New York State

20. 28 ARRESTED IN CIGARETTE SMUGGLING SCAM September 2, 2005 A year-and-a-half-long investigation linking tobacco sweatshops in China to New York City bootleggers and Indian reservations on Long Island to Jordanian smugglers ended yesterday with 28 arrests, law-enforcement officials said. The ring, run by Middle Eastern nationals, was taken down by investigators led by the NYPD and included members of the Bureau of Alcohol, Tobacco and Firearms, the Bronx district attorney's office, state police and the Division of Taxation and Finance. The ring purchased cigarettes from Indian reservations and then resold them to bodegas, stores and independent distributors primarily in the Bronx, but also in Manhattan and Yonkers, officials said. The 28-member ring made an estimated $10 million in profits, and deprived state and city coffers of from $18 million to $24 million in tax revenue. The ring was led by Faiz Haddad, Emad Al-Naimat and Ahamad Alnuaimat, all of the Bronx, officials said. They and their accomplices face several charges including money laundering, according to the indictment. Law-enforcement officials yesterday stood next to stacks of boxes containing thousands of cigarettes, some of them counterfeit cartons made in China, and a table filled with bundles of cash, fake tax stamps and two guns recovered from the defendants' homes or the ring's storage facilities. The officials also said that a total of as much as $1 million was smuggled onto Royal Jordanian Airlines flights out of Kennedy Airport on six separate occasions by Jordanian air marshals and flight attendants. A law-enforcement source said they never witnessed the actual cash change hands between the bootleggers and the couriers. But while on surveillance jobs, investigators saw bags and suitcases containing the money being exchanged. They said on numerous occasions they heard references on wiretaps by the ring's members to the money being sent to Jordan. Where the money went once it arrived in Jordan remains a central unsolved question and a focus of the continuing investigation. Police Commissioner Ray Kelly said various agencies, including the Joint Terrorist Task Force, are looking into where the money trail ends.