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NYC may collect $15M in cigarette probe

An investigator with the New York City Department

An investigator with the New York City Department of Finance points packs up the cartons of cigarettes that were purchased by an undercover investigator on the Poospatuck reservation. (Sept. 16, 2010) Credit: Charles Eckert

New York City may collect almost $15 million in civil penalties from two wholesalers who provided millions of cartons of untaxed cigarettes that were bootlegged into the city from Long Island's Poospatuck reservation, a Brooklyn federal judge has held.

The ruling by U.S. District Judge Carol B. Amon against wholesalers Mauro Pennisi Inc. of Lindenhurst and Gutlove & Shirvint Inc. of Long Island City followed six years of litigation by the city against tribal smoke shops and their suppliers over lost tax revenues from street sales of truckloads of untaxed packs and cartons.

"This City was deprived of tax revenue to which it was entitled the minute the defendants' cigarettes were trafficked into City limits," Amon wrote in her 63-page decision. " . . . The presence of cheap, untaxed cigarettes in the City also contributes to higher rates of smoking, thereby threatening the health of City residents, another cognizable injury."

The decision followed years of legal squabbling over how to mesh American Indian sovereignty claims, New York State tax procedures and federal anti-smuggling laws. Both wholesalers -- along with a third who settled -- stopped selling to shops on the Poospatuck reservation in Mastic last year.

But the city said Amon's legal rulings -- issued last week and publicized by the city Wednesday -- would help stop other wholesalers from resuming the trade, and add to a legal arsenal that has also included actions against Internet sellers and "roll-your-own" stores.

"Businesses at all levels of the illegal cigarette trade can expect future enforcement actions directed to them," city Corporation Counsel Michael Cardozo said.

Tax-free cigarettes can be sold on reservations to tribal members, but Amon said the shipments to Poospatuck shops -- nearly 20 million cartons from each wholesaler over a five-year period to a reservation with a tribal population she placed at 376 -- made it clear that vast quantities were going to outsiders.

"Any reasonable wholesaler would have been well aware of that fact," Amon wrote. She said that instead of damages she would award "civil penalties" designed to deter future misconduct under the federal Contraband Cigarette Trafficking Act.

She said the city's request for $7.3 million from Pennisi and $7.4 million from Gutlove appeared reasonable in light of annual tax losses of $7 million to the city and $60 million to the state, but scheduled a hearing on the amount.

Lawyers for Pennisi and Gutlove did not return calls.

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