CRASH AND BURN
Tobacconists report rise in heists to match price hikes
By Michael Collins
LA Weekly – March 18, 1999
“The mounting cost of tobacco is simply wonderful, a breath of fresh air,” trumpeted David Geoffrey Collier, a former smoker and drinker who voted for the new tax on smokes demanded by Proposition 10. “Even if it saves just one life, I don’t care what the price is.”
But smokers do. New manufacturer charges and the success of actor-director Rob Reiner’s Prop. 10 tax initiative have turned cigarettes and cigars into rolled gold. For tobacco retailers, the price hike has spurred a rash of burglaries throughout the Southland. And, already scorned by civil society, smokers also face aggressive new undercover measures to bust cigarette butt-heads in bars and restaurants.
The latest series of cost escalations dates to last November’s $206 billion agreement, by 46 states and five U.S. territories, to smoke out Big Tobacco. The four tobacco giants, Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard — which together control 97.5 percent of the market — decided to stick it to their customers, making them pay part of the expense of the settlement. Per-pack prices went up 50 cents in late November. Prop. 10 raised the tax on all tobacco products 61.53 percent on New Year’s Day, adding another half-buck for a pack.
In May, California will decide how much to add to the new 1999 tax, due to rise again in July. Plus, President Clinton’s unscripted oath in the State of the Union address to sue Big Tobacco on the federal level has already caused some wholesalers to lob on another charge. What cost less than $2.50 a year ago may reach $5 by the end of the year.
Much of this was foreseen by anti-smoking activists, who gleefully await the $700 million windfall that Prop. 10’s passage promised annually for social service, targeting families with children under age 5. The new tax money will also go toward domestic-violence prevention, immunizations and smoking-cessation programs. They may not have calculated another unfortunate aspect of the price hikes: a Prohibition-style surge in crime throughout the region. The target isn’t booze but tobacco.
On December 29, Saad Galal’s M & A Tobacco store in Santa Monica was burglarized by black-market thieves who smashed through the back door of a vacant adjacent building. The thieves used a wrecking tool to knock a 2-and-a-half-foot hole in Galal’s interior wall; within minutes, the burglars absconded with 2,410 cartons of name-brand cigarettes worth $55,000. “My business is already down 40 percent,” lamented Galal. “I can’t stay in business with a theft like this.”
Galal is not alone. While police deny they’ve encountered a crime wave, retailers report break-ins with the same m.o. across Southern California. In early December, Royal Tobacco of Downey was taken for $80,000 worth of cigarettes and cigars. Downey Distributing lost $35,000 on September 29. G & M Tobacco, in the Riverside County town of Perris, got hammered for $75,000 last year, and smoke shops in Yorba Linda and Moreno Valley lost $75,000 and $40,000, respectively. The Moreno Valley theft occurred just a month ago.
Not all these burglaries came in answer to the price hike. Because it sells so readily, tobacco has long been a favorite target for thieves, and merchants have become accustomed to getting hit.
Last June, for example, pros busted into the pizza store next to the Tobacco Club in Cypress. When manager Omar Gabry arrived at work, he found the telltale hole in the wall and $55,000 worth of smokes stolen. “What gets me is, if a bank is robbed, the ATF, the FBI, everybody shows up,” he said wearily. “If we didn’t have insurance and we didn’t have money, then we would be out of business. We would be on food stamps and welfare right now. The system is not helping us much.”
Gabry took the unusual step of encasing the entire shop in steel. He also now carries a 9mm to ward off punks like the one who ran into the store a month ago and stole four cartons from Gabry’s wife, who was working alone.
Retailers posit that crime syndicates, primarily Armenian-Russian and Middle Eastern, are pillaging Southland smoke shops. Here again, law-enforcement authorities are not commenting on the allegations, but federal officials acknowledge that organized crime has shown a nose for tobacco.
In testimony before the House Commerce Committee in December 1997, John W. Magaw, director of the Bureau of Alcohol, Tobacco and Firearms (ATF), stated, “In addition to illegal trafficking by traditional organized-crime groups and Native Americans, ATF has also uncovered involvement in cigarette smuggling by Russian, Middle Eastern and Asian organized-crime groups.”
State tax authorities are already feeling the pinch. The state Board of Equalization estimates that $50 million in tax revenues is already being lost each year in this new black market, with that figure expected to rise sharply as prices continue to soar.
The tobacco retailers include the government as a culprit. “The only way it’s going to stop is if they get rid of all those taxes,” said Greg Reheis, Cypress sales manager for Sam’s Club, the giant wholesale arm of Wal-Mart. His store got ripped off two months ago.
“The same thing is going to happen down here that happened up in Canada,” Reheis added. It’s “going to create a large black market. It’s going to happen.” Canada increased cigarette taxes by a factor of five in the early 1980s, causing a dramatic spike in black-market crime. The levies were rolled back in 1994, after Canada had lost billions of dollars in tax revenues.
Here, however, reports of systematic cigarette heists have failed so far to capture the attention of federal officials. Although the number of ATF investigations tripled from 1992 to 1997, the agency isn’t charged with investigating the type of crime California retailers allege. Instead, the 1978 Contraband Cigarette Trafficking Act directed the ATF to focus on interstate “diversion” of packs that don’t bear a tax stamp — but the rip-offs locally have been of cigarettes that already have been taxed.
“The majority of law-enforcement efforts toward tobacco enforcement have been given back to the states,” said ATF Special Agent B.J. Zapor. “They receive some funding for this, but we are very much interested in cigarettes that have been exempt from federal taxes that are being diverted back into the street market and sold illegally.”
Like the ATF, the FBI has not asserted jurisdiction over cigarette-butt boosting in California. Said FBI Special Agent Ray Escudero: “The only reason the FBI would become involved in something like this, for example,” would be if “those robbing tobacco shops here in L.A., Santa Monica, the Los Angeles area, even California, are transporting those goods to another state and trying to sell them there. Then it becomes interstate. Until that happens, we are not going to get involved.”
Local police agencies have yet to track the reported break-ins. “We have not received any of that information yet,” stated LAPD Officer Jason Lee. “A rash of burglaries of cigarettes we would have heard of, but not yet.” Privately, some local cops admit they are aware of the problem. “Time to time, a whole big-rig container of cigarettes gets hijacked,” said one LAPD officer, speaking off the record. “Can you imagine — a whole container? That’s half a million bucks! It does happen.”
“We have no significant crime trends connected with tobacco products,” said Lieutenant Hector Rivera of the Orange County Sheriff’s Department. “But anything that incurs additional expense to purchase is going to create a black market.”
M & A Tobacco’s Galal says the police are simply behind the curve on a current crime wave that he tracks by word of mouth. “I know from the Costco in Inglewood, the manager told me last week for the first time after what happened to me, he told me it happened in their store,” Galal said. “In nine stores across California in the last year. That’s why now they put in a cage around the cigarette area. At night, they put some pallets in the front so nobody can go in.”
Indeed, a visitor to the Inglewood store encounters, within the confines of the cavernous store, a 10-foot-high chainlink fence surrounding a mountain of stacked cigarette cartons. Costco officials declined comment for this story, but one Costco employee confirmed off the record that they barricade the gate of the cigarette cage nightly with weighty freight pallets. “The black market is out of control now,” the employee said.
Reheis of Sam’s Club is also skeptical that Prop. 10 is a good idea. “Once the consumption goes down and people stop smoking because they are sick of paying the prices, or if they start buying on the black market, the tax revenue goes down to afford all these Prop. 10 commissions,” he argued. “What do you think the next thing is going to be? They are not going to dismantle the commissions. They are going to look for something else to tax that keeps those commissions in place. Next will be booze or fast food or whatever else they decide is not good for you.”
Smokers unwilling to steal their cancer sticks are finding other alternatives to the tax bite. Name-brand cigarettes can be had via the Internet for as cheap as $27.45 a carton. Recently, Iroquois Tobacco Direct mass-mailed Southlanders fliers advertising their tax-free cigarettes. The duty-free warehouse, located on the Sovereign Seneca Nation of Indians reservation in upstate New York, sells cartons for as little as $10.30 but requires a minimum order of five.
Sales of loose tobacco — the better to roll your own — are jumping, as are purchases of rolling machines. “Natural” loose tobacco seems to be a less harmful alternative to manufactured cigarettes, since pre-made-stick smoke contains over 4,000 chemicals; 200 are poisons, 43 of which cause cancer, according to the American Lung Association. On average, loose tobacco costs less than half the price of pre-rolled puffers and burns more slowly. One Weekly tobacco fiend reports his habit, which used to soak him for 50 bucks a week, now costs about 15. And loose tobacco is not sold by Big Tobacco, so rolling one’s own doesn’t serve to bail the cigarette companies’ multibillion bill for peddling poison.
Price hikes aren’t the only worries concerning nicotine addicts. Beefed-up enforcement of the ban on smoking in Los Angeles’ 6,000 bars and restaurants is set to fire up with the addition of two new inspector positions at the city Fire Department, supplemented by a clerk typist, to nab errant smokers and establishments. Aided by an anti-smoking hot line, the inspectors will dole out $30 fines for first-time offenders; second- and third-timers caught within a year will see the fines double each time. Owners and managers of the offending establishments will be forced to appear in court, pay stiffer penalties, and could face criminal charges.
Not surprisingly, perhaps, Santa Monica has been the most aggressive in the fight against indoor fumes. Their Workplace Smoking Task Force conducted undercover investigations in the fall of 1998 that resulted in four bars being charged, convicted and fined for illegal cigarette smoking. One pub, J.P.’s Bar and Grill, got popped a second time and had to cough up $540 in penalties and fines, according to City Attorney Adam Radinsky. A second set of stings was just completed, but the results aren’t public yet. “The Weekly has poked a little fun at us before for being ‘Smoke Nazis,’” laughed Radinsky. “But that’s okay. It’s one of those issues where there are always two sides to the argument.”