SENECAS AND TOBACCO

Senecas confront tobacco roadblock
As Congress threatens mail-order cigarette business, nation puts up a last-ditch fight
By Jerry Zremski
News Washington Bureau Chief
Updated: January 11, 2010, 12:17 AM

WASHINGTON — Congress may be about to put the Seneca Nation's mail-order cigarette industry out of business.

The Senate is expected to soon consider a bill that would bar the U.S. Postal Service — which has been handling an estimated 70 percent of the Senecas' tobacco merchandise — from delivering those cigarettes. The House passed a similar measure last May, and lawmakers and anti-smoking lobbyists talk as if the new legislation could be a done deal before long.

In other words, Albany's long-standing quest to curb the Senecas' sales of tax-free cigarettes may soon end successfully in Washington, leaving the Indian nation's smoke shops as the central remaining venue for its tobacco business.

But the Senecas are putting up a last-ditch fight, contending that the bill threatens 1,000 jobs and unsuccessfully prodding New York's senators to oppose the measure — even though they co-sponsored it.

Then again, that sort of turnabout would not be unprecedented.

Democratic Reps. Brian Higgins of Buffalo and Eric J.J. Massa of Corning recently expressed qualms about the bill, even though they voted for the House version last year.

Those qualms stem in part from the grave concerns of their Seneca constituents.
"An attack on the Seneca Nation is an attack on the economy of Western New York," said J.C. Seneca, a successful tobacco entrepreneur who also is co-chairman of the tribe's Foreign Relations Committee.

Considering its cigarette businesses, casinos and other enterprises, the Seneca Nation represents "a $1.1 billion economic engine" for the area, Seneca said.

"We are in the infancy of our economy," he added. "Let us use [the tobacco trade] to build on, to diversify."

Such aspirant words ring hollow to officials from the State of New York, as well as the anti-smoking lobby, who see the Senecas building their economy on tax evasion and sales of a an addictive carcinogenic product.

Paterson backs PACT

The state backs the proposed federal law — the Prevent All Cigarette Trafficking (PACT) Act — even though it would provide the state only an estimated $30 million a year in new tax revenue from people who would buy cigarettes at stores rather than from the Senecas by mail.
That's far short of the $220 million the state would get if it could tax the cigarettes that the Senecas currently sell both through the U.S. mail and at their smoke shops, but it's good enough for Gov. David A. Paterson.

"We strongly support the PACT Act," said Morgan Hook, a spokesman for the governor. "Eliminating the ability of cigarette sellers to ship cigarettes to customers by mail is in the interest of the public health."

The House passed its version of the PACT Act by a 397-11 margin last May.
Even though versions of the bill have been kicking around for years, congressional sources said that it was rushed onto the House calendar before the Senecas could wage a big fight — and before some lawmakers understood its ramifications.

That's why Higgins and Massa have changed their tune.

The PACT Act "would eliminate the [Senecas'] mail-order businesses and associated employment," Higgins wrote in a Dec. 14 letter to Democratic Sens. Charles E. Schumer and Kirsten E. Gillibrand of New York. "I do not believe that Western New York can afford any more job losses and so this letter is a request for your help in preventing that from happening."
Asked about the letter, Higgins said it stemmed from concerns that a North Carolina senator would add language to the bill to shelter a tobacco seller in that state from the law.\

"I still support the bill," Higgins said. "My point — perhaps unclear in the letter — was, if the Senate is going to amend the bill to protect North Carolina, would they consider amending it to protect New York?"

But Senate sources said the bill's sponsor, Sen. Herb Kohl, D-Wis., refused to grant exemptions to North Carolina or any other state. And a spokesman for Sen. Richard M. Burr, the North Carolina Republican who had sought such an exemption, said there would be no such language in the final bill.

Nevertheless, Massa — who sent Gillibrand a Dec. 16 letter urging her to prevent a quick vote on the matter — said he now opposes the PACT Act.

Massa said that his view evolved "as I became more informed" and that he now worries that the bill would infringe on the Seneca Nation's rights established by treaty more than two centuries ago.

"It is my job to uphold federal treaties, and this is one of them," Massa said in an interview. Richard E. Nephew, chairman of the Seneca Nation Legislative Council, echoed that concern. "It all begins with our treaty rights, which we were given by the federal government and which say that we will be undisturbed in our territory," Nephew said. "We've learned to capitalize on that."
Competitive advantage

There's no doubt of that.

About 11.8 million cartons of stamped, legally sanctioned cigarettes flowed through the Seneca reservations in 2008, the state Department of Taxation and Finance reported.

That's about 1,483 cartons of cigarettes for every Native American living on Seneca lands — and that doesn't count the counterfeit or smuggled cigarettes that critics believe pass through Seneca hands on their way to smokers nationwide.

Citing the sovereignty of Indian lands, Seneca merchants refuse to collect state taxes on the cigarettes they sell, giving them a huge advantage over convenience stores and other outlets that sell tobacco products at full price. That has made Seneca smoke shops and mail-order cigarette businesses a huge success.

Seneca cigarette sales peaked at 29.8 million cartons in 2004 and have fallen sharply since then, as credit card companies and shippers such as FedEx, UPS and DHL bowed to state pressure and stopped servicing Seneca cigarette businesses.
What's left is still a thriving business that, the Senecas say, employs 1,000 people — and relies primarily on the Postal Service to deliver its goods.

Asked to detail where those 1,000 jobs are, the tribe declined.

"Do they really expect us to fall for the canard that cigarette tax evasion is an economic-development engine?" said James S. Calvin, president of the New York Association of Convenience Stores.

Calvin and other supporters of the federal bill argue that many of the Seneca jobs would simply shift to cigarette sellers who pay taxes — and who do a better job of ensuring that tobacco products don't get sold to minors.

Even though the Seneca businesses require a copy of the customer's ID before shipping out cigarettes, anti-smoking advocates said it's still far easier for kids to borrow a parent's ID and order smokes than it is to buy them face to face. "This bill is all about making sure cigarettes don't get in the hands of kids and that the tax revenue goes to the state," said Russell C. Sciandra, director of the Center for a Tobacco Free New York.

The Senecas counter by insisting they are diligent on checking IDs and by stressing that they have worked with the federal Bureau of Alcohol, Tobacco, Firearms and Explosives to crack down on cigarette trafficking.

In fact, Ronald B. Turk, the ATF's special agent in charge for New York, lauded the Senecas' efforts in a letter last May. "As a result of the Seneca Nation's cooperative efforts with ATF, several investigations into illicit cigarette trafficking have been initiated and are now being prosecuted," Turk wrote. "The assistance provided thus far has been invaluable."
Strange bedfellows

If the Seneca Nation and the ATF seem like strange bedfellows, note this: Supporters of the PACT Act include not only the Campaign for Tobacco-Free Kids, but also Altria, the tobacco giant once known as Philip Morris. Altria is part of the Coalition to Stop Contraband Tobacco, which is lobbying for the bill's passage — a fact that leaves the Senecas arguing that they're in a death struggle with Big Tobacco.

"It's all about money for Philip Morris," said Seneca, who now manufactures his own brand of cigarettes, called Buffalo. "They're losing market share."

While private shippers — who have voluntarily stopped delivering the cigarettes — would still be able to legally ship them under the PACT Act, the Senecas are pressuring Schumer and Gillibrand to try to stop the bill in the Senate. But that argument appears to be getting nowhere.
Congressional aides said Kohl is seeking a way to get the measure passed quickly and to then get the House to simply repass the Senate's slightly different version of the bill.

New York's senators remain steadfast in their support of the PACT Act.

"Sen. Gillibrand supports the legislation because it will end illegal trafficking of cigarettes to minors," said her spokeswoman, Bethany Lesser.

Schumer spokesman Max Young said: "We strongly believe that cigarettes should not be sold in the mail or anywhere else to children or minors."