SENECA FALLS — Calling them “major contraband cigarette dealers,” state Attorney General Eric Schneiderman has sued Native American companies in Canada and western New York.

Schneiderman announced Monday that a lawsuit against Grand River Enterprise in Ohsweken, Ontario, Canada, and its wholesaler, Native Wholesale Supply of Perrysburg, Cattaraugus County, was filed in U.S. District Court for the Eastern District of New York in Brooklyn. The lawsuit charges Grand River Enterprise and Native Wholesale Supply with selling illegal cigarettes in New York, based on two incidents Schneiderman said establishes that the companies are selling and trafficking large quantities of untaxed cigarettes. One of the incidents Schneiderman cites is the Jan. 16 raid by agents from the Bureau of Alcohol, Tobacco and Firearms at the Skydancer Smoke Shop in Seneca Falls, operated by the Seneca-Cayuga Tribe of Oklahoma. ATF agents seized, among other items, more than 16,230 cartons of unstamped Seneca tribal brand cigarettes.

Schneiderman also cited a Nov. 6, 2012, undercover purchase of unstamped Grand River Seneca brand cigarettes from a smoke shop on the Poospatuck Reservation in Mastic, Long Island. During that purchase, investigators reported more than 50 cartons of Seneca brand cigarettes on display in the store. The lawsuit charges that Grand River Enterprise avoided state taxes by illegally selling its products to Native Wholesale Supply instead of a state-licensed stamping agent who would prepay the cigarette excise tax and affix a tax stamp, as required by the law.

Schneiderman said that from November 2011 to July 2012, Native Wholesale Supply paid $85 million to Grand River Enterprises for its cigarettes, which accounts for more than three million
cartons of cigarettes and a potential tax loss to the state of more than $13.2 million.

Under federal law, Grand River could face a civil penalty of up to 2 percent of the gross sale of cigarettes for the year, which could be “tens of millions of dollars.” Licensed stamping agents are the only entities in the state authorized by the state Department of Taxation and Finance to affix a tax stamp and collect the excise tax due. On-reservation cigarette sales to tribal members can be made tax-exempt, but those cigarettes still must have the tax stamp affixed by a licensed stamping agent, Schneiderman said. “The illegal sale of contraband cigarettes violates both state and federal laws, robs New Yorkers of the funds to pay for essential state services, places legitimate businesses that play by the rules at a competitive disadvantage and makes it easier for young people to take up a deadly habit,” Schneiderman said. “My office is committed to taking action to stop the illegal sale of contraband cigarettes to protect the state’s fiscal and physical health and ensure all businesses in New York are playing by one set of rules.”

The federal Contraband Cigarette Trafficking Act makes it unlawful to possess, sell or distribute more than 50 cartons of untaxed cigarettes in a state that requires tax stamps and tax collection. The lawsuit also claims the two companies violated the federal Preventing All Cigarette Trafficking Act and state tax and public health laws by not reporting these sales to the Department of Taxation and Finance, as required. In December 2012, Schneiderman filed a similar lawsuit against King Mountain Tobacco Company in the state of Washington for selling hundreds of thousands of its cigarettes in New York each year without paying the required state excise tax.

“I don’t know much about this lawsuit and the attorney general didn’t contact me about filing it, but I’ll take a look and see what effect, if any, it has on cigarette sales by the Cayuga Indian Nation in Seneca County,” said Frank Fisher, Seneca County Attorney. “I knew he took an action in the Northern District Court against the Mohawks. Our question is if Skydancer was in violation, why aren’t the Cayugas also being targeted?” Fisher asked. “This is a positive development for the county, for taxpayers and the state. We have been trying to get the state and federal government to enforce these laws and all have an even playing field.”

The matter is being handled for the Attorney General’s Office by Tobacco Compliance Bureau Assistant Attorney General Sarah Evans. She is under the supervision of Tobacco Compliance Bureau Chief Dana Biberman and First Deputy of Affirmative Litigation Janet Sabel.