The pain of rising cigarette prices has meant profit for some entrepreneurs on Staten Island willing to break the law to make a buck.

As a recent police sweep at St. George Ferry Terminal highlighted earlier this month, shady merchants have taken to selling loose cigarettes and cheap packs of smokes — all without the bother and extra cost of a state tax stamp.

New tax laws from last June have spiked the price of cigarettes to anywhere from $11 to $14 a pack, but bootleggers are charging $5 for a pack of Newports and, in some cases, 75 cents for a “loosie” — a single smoke.

They’re operating in a borough that has the highest rate of smokers in the city — a city health department study showed last year that as many as one in four Staten Islanders smoke.

And the police have taken notice: Earlier this month, cops arrested two men and a woman on allegations they were selling untaxed cigarettes at the Ferry terminal.

The suspects were Kristie Gerhold, 32, of the 100 block of Bay Street in St. George, Joseph Calabria, 48, of the 300 block of Seaview Avenue in Dongan Hills, and Donald Alford, 64, of Brooklyn. All three were charged with possession and selling of untaxed cigarettes, a tax code offense that’s considered a class-a misdemeanor.

The arrests came on the heels of a report by state Sen. Diane Savino highlighting quality of life issues at the ferry terminal. Police made five additional arrests over the same weekend, largely for marijuana possession and disorderly conduct. An NYPD source said the sweep was done independently of Ms. Savino’s report.

“This is a real problem for the state of New York. While we’re not going to go bankrupt from the one guy selling a loosie on the ferry, he is one of hundreds of people violating the law of the state of New York,” Ms. Savino said.

The ferry isn’t the only place authorities have made arrests — police and state tax investigators have also run sting operations on local delis thought to be selling packs without tax stamps.
 
Overall, investigators with the state Department of Taxation and Finance have made 11 arrests on Staten Island for untaxed cigarette offenses over the past two and a half years — three in 2009, six last year, and two so far this year, said Susan Burns, a department spokeswoman.

Those arrests amounted to 58.8 cartons and 2,558 cigars seized, she said.

One such sting, conducted at a deli on Richmond Terrace in October uncoved nearly 400 packs, many with forged tax stamps, and a loaded gun, police said. The deli owner and another man faced a variety of charges, though according to law enforcement sources, the charges connected to the gun were sealed and ultimately dismissed.

“Tax payers are hurt in many different ways through cigarette tax evasion. Merchants that pay the appropriate rate of tax are at a competitive disadvantage as compared to the merchants that evade their tax obligations,” Ms. Burns said. “In addition, municipalities lose funding that could be used to pay for roads, schools and other necessary items. Tax evasion is not a victimless crime.”

Ms. Burns called it “impossible” to determine the amount of tax revenue lost by the sale of untaxed cigarettes, but Ms. Savino offered an estimate: $150 million. 

FEEBLE ENFORCEMENT
   
And Ms. Savino said 11 arrests over two and a half years didn’t amount to nearly enough enforcement.

“They don’t bother,” she Ms. Savino said of the tax department, stating that the agency’s priorities appear to be focused on the sale of untaxed cigarettes at Indian reservations.

Regarding bodegas and individual sellers, she said. “They need to crack down on it. They know where it’s happening. It’s not an isolated thing.”

Nevertheless, Ms. Burns said called combating cigarette tax evasion a “priority.”

We conduct hundreds of investigations each year and we work closely with the NYC Dept. of Finance to fight tax fraud,” she said.

Lawmakers changed the tax code last year to require reservation to charge and collect taxes on cigarettes sold to non-Native Americans, which has resulted in a legal battle between the state and the Oneida and Seneca nations. Most recently, on May 10, a state Supreme Court judge in Erie County issued a temporary restraining order preventing the state from enforcing the new law.

“It’s very simple: Indian reservations, Indian stores, Indian casinos have the right to sell untaxed cigarettes to Native Americans, not to anyone else,” said Ms. Savino.

Still, she said, the reservations aren’t the only source for bootleggers and loosie-sellers: counterfeit cigarettes often make their way from China to New York through smuggling routes.

“Nobody really knows where these cigarettes are coming from,” and that presents a public health risk, she said.

That’s why Cliff Wagner, of Mariners Harbor, said he steers clear of loosies — “I don’t know what I’m getting when I buy a loose cigarette.”

Wagner smoked a Pall Mall as his stood outside the St. George ferry terminal Thursday. “These are $10, and these are considered a discount cigarette,” he said.

He admits that he’s considered buying a $5 pack from shady merchants a the ferry. “Sure, who wouldn’t consider that? What smoker wouldn’t consider that?” he said, but he added he’d rather go through friends who pick up cheap cartons from lower-tax states like Virginia and South Carolina.

“You can get them for $20 a carton online,” said Mark Mcbride, a Hofstra University student from Cleveland, Oh. — which taxes cigarettes at less than a third of New York’s rate –who was on Staten Island visiting his girlfriend.

The bootleggers at the terminal don’t tempt him, he said. “It kind of sketches me out, selling loose cigarettes and stuff.”

Not so for Harry Hoffman of Tottenville, who has no problem going to the Whitehall terminal, where he can find cigarettes for $5 a pack. “As long as they’re closed with the wrapper on it,” he said, “they’re good.”

MALACCA: The Health Ministry will work with the Customs Department to wage an all-out war on the sale of illicit cigarettes in the country.

Health Minister Datuk Seri Liow Tiong Lai said the government was concerned over the wide distribution of counterfeit cigarette that could lead to health complications.

Over 38% of Malaysians are now opting for illicit cigarette due to its low pricing without considering the harm smoking can cause, he said here yesterday.

“We need to address the sale of counterfeit cigarette as it is an emerging scourge in the country. Apart from evading taxes, the distribution of such contraband could pose a serious health risk to smokers, he said.

Liow said fake cigarretes contained high levels of tar and nicotine.

“We will intensify our crackdown of such illicit cigarettes by also roping in relevant enforcement agencies,” he added.

Earlier reports noted that Malaysian smoke a staggering nine billion sticks of illicit cigarettes each year, which means that almost four out of 10 cigarettes smoked here are illegal.

Trading of illicit cigarettes is also costing the Government up to RM2 billion in lost revenue in the from of taxes.

Meanwhile, Penang has appealed to the Health Ministry to approve smoke-free zones that were proposed by the state government in April last year.

If the proposed areas are not gazetted, the plan to make certain areas in Penang smoke-free will never come to fruition, Penang Health, Welfare, Caring Society and Environment Committee chairman Phee Boon Poh said.

“We proposed the plan last year in April, but the green light has not come from the Federal Government.

“Malacca already has its own smoke-free districts, so I hope our turn will be next,” he told a press conference here yesterday.

LOS ANGELES — The first person indicted under a federal anti-terrorism law adopted after the Sept. 11 attacks was sentenced Monday to 25 years in prison for attempting to smuggle anti-aircraft missiles into the United States from his native China.

Yi Qing Chen of Rosemead was convicted in October of attempting to ship the shoulder-fired QW2 missiles as well as launch and operational hardware to a man who turned out to be an undercover FBI agent. He was arrested in 2005 before the missiles could be delivered.

“The defendant’s willingness to smuggle surface-to-air missiles into this country or anywhere is a frightening concept because there can be no confusion as to the purpose of such contraband,” said Steven Martinez, assistant director in charge of the FBI’s Los Angeles office.

In passing sentence, U.S. District Judge Dale S. Fischer said Chen “never saw a criminal scheme he didn’t want a part of.”

U.S. Attorney Andre Birotte Jr. said Chen, a naturalized U.S. citizen, was the first person indicted under a federal anti-terrorism statute adopted in 2004 as a result of the Sept. 11 attacks.

The law, which banned the importation of missile systems designed to destroy aircraft, calls for a mandatory minimum sentence of 25 years and a maximum of life in prison without parole.

Chen, 49, was among dozens of people arrested as the result of Operation Smoking Dragon, an undercover FBI investigation that targeted those suspected of trying to smuggle counterfeit currency, drugs and other contraband into the United States.

Authorities said the arrests have resulted in nearly three dozen convictions in Los Angeles.

Evidence presented at Chen’s trial, including tape-recorded conversations, showed he and a fellow conspirator, who has since died, told the FBI agent they had been involved in trafficking drugs, counterfeit cigarettes and other items from China. The agent was told they could supply as many as 200 anti-aircraft missiles.

Chen was also convicted of conspiracy to distribute cocaine and methamphetamine and of trafficking in counterfeit and contraband cigarettes. He was ordered to pay $520,000 to tobacco company Philip Morris USA.

New Yorkers hoping to avoid the nation’s highest cigarette taxes have long turned to the Internet as a source for cheap smokes, but few bought as often, or as much, as Roza Budansky, according to city officials.

Over a three-year period, the 64-year-old purchased nearly $1 million worth of untaxed cigarettes from an Internet retailer in Louisville, Ky., said a federal lawsuit filed Wednesday by the City of New York. In total, some 32,232 cartons were shipped to her modest apartment in Brooklyn, the suit claimed.

The city’s lawsuit accuses Budanksy and 31 other people of evading millions of dollars in taxes by buying heaps of cigarettes over the Web from Chavez Inc., which was raided and effectively shuttered by the Bureau of Alcohol, Tobacco, Firearms and Explosives in late 2009.

Lawyers for city said the variety and quantities of cigarettes involved made it clear that the cartons were being resold on the black market as part of a tax evasion racket.

Each of the defendants was listed in company billing records as having bought thousands of cartons — far more than they could smoke themselves. Budansky’s orders, the suit said, were for 22 different brands and were placed 10 to 15 times a month.

The suit seeks $6.5 million in unpaid taxes from Chavez and its major New York City customers, plus $13 million in penalties.

Attorneys who have represented the company’s principal owners, Israel and Pam Chavez, in past legal proceedings said Thursday that they hadn’t seen the complaint and didn’t yet know whether their clients would comment.

In January, the company lost a legal appeal in which it had challenged the seizure of its bank accounts and assets. In court, the company had acknowledged that it didn’t collect taxes on out-of-state cigarette purchases but argued that it wasn’t required to do so.

Justice Department lawyers said the company had $132 million in online sales over just a few years. They had argued that the company’s key sin wasn’t the failure to collect taxes, but its refusal to comply with a law requiring it to report purchases to state officials, so that customers could eventually be billed at their local tax rate.

Attempts by The Associated Press to reach Budansky by phone and through social networking messages were not immediately successful, but she told The New York Post in an interview published Thursday that she was innocent.

She acknowledged that she had, indeed, bought cigarettes over the Internet in the past for drivers at a limousine company where she once worked, but she claimed she stopped in 2006 after she was diagnosed with lung cancer. Budansky told the newspaper that someone at the limousine company must have continued placing orders under her name.

“There were, like, 30 people there,” she said. “They were all buying.”

The case is the latest in the city’s campaign to go after the legions of scofflaws and smugglers who go to great lengths to evade the $5.85 in state and local cigarette taxes charged on every pack sold in New York City.

Previously, the city has sued smoke shop owners on one of Long Island’s Indian reservations, accusing the businesses of supplying tons of untaxed cigarettes to street hustlers and convenience store owners who re-sell them in the city.

It has also collected more than $3.3 million since 2006 from residents who have purchased cigarettes over the Internet, based on records supplied by the retailers who are complying with the federal reporting requirement.

On Thursday, Queens District Attorney Richard Brown announced that he had formed a new unit that would be focused on tax crimes, especially ones involving cigarette trafficking.

“Cigarette smuggling to evade state and local taxes is a multi-million dollar industry,” Brown said. “It is a highly profitable tax-free cash business for those involved in it. However, it cheats taxpayers who must dip into their pockets to pay higher taxes. And it cheats the government as well by fueling an underground economy which does not pay much needed state and city taxes.”

He cited 12 recent arrests, including some cases where airline passengers arrived from foreign countries carrying cartons of untaxed cigarettes in their luggage, and others where city residents had received cartons through the mail.

RETAILERS are concerned new laws mandating plain cigarette packaging will hurt business but anti-smoking groups say the changes are necessary.

Kristina Cowen owns two newsagencies in the city and said ordering and serving with identical packs would be difficult.

“It’s very unnecessary, given that they already go undercover, and just adds to the pressure of serving customers in a timely fashion,” Ms Cowen said.

She said the extra time serving would impact on her bottom line.

Team leader of tobacco programs at Cancer Council Queensland Rachel Hull said the packaging was a still key way tobacco companies marketed to smokers.

“They use colour and images and brand recognition to promote a particular personality of the user of that product, so this will take away the last remaining form of advertising,” Ms Hull said.

The proposed legislation also increases the size of the graphic pictures on packs to three-quarters of the front and 90 per cent of the back.

British American Tobacco spokesman Scott McIntyre said they had concerns that counterfeit cigarettes would be easier to produce.

“It provides a blueprint for criminals to make illegal cigarettes as they now have the exact specifications to produce and import them into the country,” Mr McIntyre said.

Ms Hull said the government has measures to deal with this and said it was just a tactic used by the industry to stop the legislation.

The new regulations were announced by the federal government on April 7.

Australia is the first country in the world to make this commitment and the laws will come into effect on July 1 next year.

A JOINT GHANAIAN police and Interpol operation dubbed ‘Operation Atlantic’ has led to the arrest of 16 persons for allegedly engaging in intellectual property offences, running into several thousands of Ghana Cedis, with four suspects currently on the run.

However, all the 16 suspects, according to the Director-General of the Criminal Investigations Department (CID) Deputy Commissioner of Police (DCOP) Prosper Kwame Agblor, have been granted police enquiry bail, explaining that the nature of the purported crime did not warrant their detention for more than the specified 48 hours.

A 40-footer container laden with fake Marlboro cigarettes, he told the media in Accra yesterday, was discovered at the Tema Port during the group’s operation. ‘If the importers had been successful, they would have made GH¢75,000,’ he indicated.

In addition, twenty-eight half pieces, and nine full pieces of replica Ghana Textile Products (GTP) were seized in just three stalls within the 31st December Market in Accra. 1,060 compact discs and digital video discs (DVD) of pirated musical and artistic products were equally confiscated.

DCOP defined Intellectual Property as a number of distinct creations of the mind, where the owners or the originators are granted certain exclusive rights to their assets. These innovations include musical products, literary, artistic works, and discoveries among others.

Reports indicated that some of the seized textile products were made in China, but were marked with the trade name of Ghana Textile Products, and some with designs which GTP did not even produce.

DCOP Agblor cautioned the general public to be wary of innovators, organised groups and criminal gangs, who produce counterfeit products to the detriment of the originators.

He further mentioned that a chunk of Ghanaian songs had been copied illegally on to Chinese phones, popularly known in Ghana as China phones, and sold here in the country.

This piracy phenomenon, he added, had been extended to other technological industries, which manufacture printer cartridges, especially, the Hewlett Packard brand of cartridges, on the Ghanaian market.

‘The issue of counterfeiting has become so pronounced that if nothing is done to fight it, the whole nation is going to be inundated by counterfeit and pirated products in the very near future. In other words, counterfeiting or piracy is not limited to only a few selected goods,’ he stressed.

Although the Ghana Police Service is bent on flushing out miscreants in society, DCOP Agblor said they could not do it alone, calling on the good citizens of the country to assist them in this exercise.

By Ben Finley, staff writer Calkins Media, Inc.