James M. Odato
On these flatlands that make up the New York side of Akwesasne — the St. Regis Mohawk reservation — three similar-looking buildings have risen along Frogtown Road. Not counting the tribe’s casino and bingo hall, they are the largest commercial structures around. Inside the first, a red warehouse and factory, are stacks and stacks of hundreds of crates of cigarettes with the brand name Native. At the nearby green structure are stocks of cigarettes called Signal. And in the sprawling tan facility down the street, cartons and cartons of Nations Best and Discount are bunched in packages.
Besides the aroma of tobacco, the cigarette companies share other traits. They are federally licensed and regulated, employ dozens of people in a region with high unemployment and are key contributors to the reservation economy, tribal officials say.
Another characteristic has resulted in a problem for the state and local law enforcement authorities. The plants’ products lack tax stamps, and are ending up among the tens of millions of confiscated cigarettes piled high in a secure warehouse in Schenectady County leased by the New York State Department of Taxation and Finance.
Because of recent seizures of truckloads, tempers have flared in the tribal government and Mohawk business community in cases that reveal a chaotic enforcement system that may end up costing the state. The cigarettes have been taken by State Police at the direction of district attorneys near the reservation despite a state tax department directive to allow transport of native-made cigarettes from one reservation to another even if they lack $4.35-per-pack stamps and state excise taxes have not been collected on them.
“This is not happening anywhere else in the state,” said lawyer Lorraine White, a former elected Mohawk chief now representing a driver arrested with a million untaxed cigarettes. “I’m not aware of any other district attorney offices engaging in a such a full court press the way it is happening here.” She said six seizures have happened in the past few months, four of them in St. Lawrence County where District Attorney Nicole Duve in Canton appears to be looking at the cases as “smuggling” although charges have yet to be lodged. The seizures have quieted the factories, as clients are reluctant to order from Akwesasne, according to court papers and tobacco company representatives.
In western New York, the much more active tobacco ventures on the Seneca Indian reservations have been moving Seneca-made cigarette products without confiscations, two spokespersons for the Seneca said, and the tribe considers transport of all native-made cigarettes from any Iroquois reservation, which would include the Mohawk and Oneida nations, to be free from taxation or seizure. “I was not aware of those seizures,” said Sen. George Maziarz, R-Newfane (Niagara County), who wrote to the Tax Department on behalf of Indian commerce and allowing native-made cigarettes to be free of taxation. “No district attorneys in my area ever expressed any interest in this whatsoever.”
Seizure data released on Friday by Gov. Andrew Cuomo’s office shows most of the seizures of native-made cigarettes of the past year have come from the Akwesasne reservation, including two big ones in April involving more than 108,000 cartons of Native brand cigarettes, one bound for Las Vegas seized in St. Lawrence County and another headed for Charlotte, N.C. confiscated in Clinton County.
St. Lawrence County District Attorney Duve finds herself as a defendant in civil litigation that may test the aggressive posture of offices such as hers. It was triggered by the seizure on Jan. 23 of 26,160 cartons of Signal brand cigarettes and cigars, and 72 bags of Signal brand pipe tobacco, worth more than $2 million. The Signal shipment, which involved a bill of lading showing it was heading for a Nebraska reservation and was purchased from a federally licensed Mohawk company, was aboard a bonded common carrier. The tractor-trailer was stopped at a routine border patrol checkpoint. The Signal cigarettes, which normally sell for $25 a carton or $18 a baggie at tax-free Indian smoke shops, have been at the Rotterdam Industrial Park under lock and key for more than three months.
The client, HCI, a subdivision of the Nebraska Winnebago tribe, wants delivery to its Omaha region reservation before the cigarettes go stale. HCI has sued Duve, her assistant Jonathan Becker and the New York State Police. Interested parties include the manufacturer of Signal brand cigarettes, Ohserase, also known as Tarbell Management, run by a well-known Mohawk family. Eli Tarbell, a part-owner with his son, Justin, is a long-time operator of the Bear’s Den restaurant that is a mainstay at Akwesasne. The Tarbells, operators of the big green building on Frogtown Road, declined comment.
But in an amicus brief in the HCI case, their lawyer, Michael Feeley of Buffalo, said: “New York is badly overreaching in this case by seeking to export its regulatory laws onto sovereign Native American land.” Like others enraged at the seizures of native-made cigarettes coming from Akwesasne, he said the state can’t do what it is doing.
“That violates Indian commerce,” said Robert Batson, an Indian law expert at Albany Law School and one-time adviser to Gov. Mario Cuomo. “I guess it’ll be fought out in the court.”
An odd thing about the seizures, which have affected several native manufacturers that are paying licensing fees to the federal government and to the Mohawk tribal government, is that it is in conflict with a state tax department memo. The memo comes up frequently in the HCI litigation and was placed into the record in a separate tobacco arrest case. Written in July 2011 by the leader of the tax department’s criminal division, it specifically says that untaxed native-made cigarettes bound for reservations in New York or outside of New York should not be seized.
The memo is irrelevant, according to an assistant to Attorney General Eric Schneiderman, who is defending the State Police in the case. “All cigarettes within New York State are presumed to be subject to tax until the contrary is established,” said Aaron M. Baldwin, in a brief. He said that only a licensed cigarette agent can possess untaxed cigarettes in New York and that agent must show proof of a legal sale exempt from taxes. The brief suggests that HCI could resell the Signals to customers in New York, thereby denying New York required taxes. The driver of the seized Signals shipment told State Police that he often delivers cigarettes from the Winnebago reservation in Nebraska to the Poospatuck reservation on Long Island, according to court documents.
Assistant St. Lawrence County DA Becker said in an interview that “we prosecute people who smuggle cigarettes.” He declined to discuss the tax department memo but pointed out it has come up in other cases. Indeed, in a county matter involving a felony charge facing Andrew L. Laughing, who is charged with felony possession of untaxed cigarettes, the county’s lawyer said: “the District Attorney is not bound by the decisions of the (Department of Taxation and Finance), nor does this office need the consent, permission or participation of the DTF to prosecute cigarette smuggling.”
Daniel Pease, a lawyer for Laughing and a co-defendant, said St. Lawrence County is stopping shipments that western New York authorities are allowing through, suggesting unequal enforcement. He said Laughing had made a trip to the Tonawanda Indian reservation in the Niagara Falls region and State Police in Batavia allowed the shipments to pass after an inspection of the truck revealed the one million untaxed cigarettes. Had the troopers in St. Lawrence County contacted the Department of Taxation and Finance, as the Batavia troopers apparently did, they would have been told that the load should not be seized and the drivers of the load should not have been charged, Pease wrote in a brief in the case.
In the HCI matter, which involved a much bigger shipment, the value of the cigarettes is $2,073,600. The state taxes calculated on such a load is $1,127,520, according to lawyers for the state.
The dispute is being watched very closely and could develop into a federal case if the state court in St. Lawrence County doesn’t release the Signals, according to a tobacco industry representative.
Elected tribal leaders, who are reluctant to publicly criticize seizures in a region with a history of smuggling problems, stood up for HCI. In a letter to DA Duve, the three tribal council chiefs said they were “very disappointed” and that Duve appears to be “targeting our tribal members’ legitimate businesses.”
Geoffrey Gloak, a spokesman for the tax department, said the state looks at every case independently. “There’s too many different factors that surround the issue,” he said. “If we learn of untaxed cigarettes we look at it on a case-by-case basis. We look at factors: are they bound for a licensed agent, are they destined for out of state and is their evidence to support they will not come back into the state?” Often, he said, state and federal courts ultimately decide if the possession of untaxed cigarettes is lawful. Cuomo spokesman Peter Brancato said the tax memo is “outdated” and the administration backs the DAs involved in seizures. “We’re supportive of the district attorneys prosecuting anybody who’s transporting untaxed cigarettes.,” Brancato said.
Clinton County District Attorney Andrew Wylie said he worked out a resolution involving a seized shipment a couple of weeks ago involving a driver from North Carolina taking products from a Frogtown Road plant to a North Carolina wholesaler An arrangement was made with the tax department and the governor’s office, he said. “We declined to prosecute,” Wylie said. Gloak declined to discuss it and Brancato didn’t know about it.
Franklin County District Attorney Derek Champagne said he is flexible when he finds out about untaxed cigarettes moving through his county. In recent months he’s taken two different approaches. He had one load of 80 cartons seized because the driver had a prior felony and suspicious paperwork. In another case, he said, he had State Police photograph and document a load before letting the untaxed cigarettes roll away to a distant reservation.
“I don’t know if there’s any right or wrong,” Champagne said. “It gets so complicated.”