May 2, 2017

Working Together for our Safety


 

I want to give you an example of how people of goodwill working across party and regional lines can make life safer for everyone.
 
Last week Governor McAuliffe along with Attorney General Mark Herring and Secretary Brian Moran signed two identical bills dealing with tobacco smuggling.  One of the signed bills was one of more than ten dealing with tobacco smuggling that I have succeeded in getting passed over the last five years.  Each bill was the result of the efforts of literally dozens of concerned Virginians.
 
The problem of cigarette smuggling was brought to my attention more than five years ago, innocently enough,  by a lobbyist for a company that makes the stamps put on packs of cigarettes by the state.  His client wanted to sell a more sophisticated stamp that could track the sales of cigarettes.  Ironically, despite the serious problem unearthed, no one ever felt the solution was changing the stamps! 
 
It was widely suspected that Virginia's low tobacco taxes were making it very profitable for people to smuggle cartons of cigarettes to higher tax states, such as New York.  Virginia's tax was thirty cents a pack and New York City taxes were almost six dollars a pack (the discrepancy has actually increased since then).  Law enforcement was beginning to be concerned about the bad actors who were buying our cigarettes and transporting them to NYC.  
 
My first bill was simply to request the Crime Commission to determine if we had a problem with cigarette smuggling.  The study's conclusions were horrifying:  yes, we had a problem throughout our state and the smugglers had contacts with organized crime and even terrorists.  Something had to be done.
 
 
Senator Howell with Governor McAuliffe, Delegate Richard Anderson, Director Kristen Howard, AG Mark Herring
and Secretary  of Public Safety Brian Moran
   
The obvious solution was to increase Virginia's tobacco tax to at least the national average. I have always supported increasing those taxes for health reasons and have even introduced legislation to do so.  But, in Richmond, the bills are defeated in nanoseconds. 
 
We needed another approach.  So, Crime Commission staff, under Executive Director Kristen Howard, put together a working group composed of state, local and federal law enforcement, tobacco executives, legislators,  and commonwealth attorneys,  The group was starting with very little information.  So they researched court records, talked to their counterparts in New York, and increased awareness of the dangerous situation.  And, they determined our laws were not addressing this problem in a meaningful way.  The pressure rose when shootings and even deaths were reported.  
 
For the whole five years, we have been perfecting our laws and giving law enforcement more tools to use in combating the smugglers. The legislation has been totally bipartisan with support from all segments of the state.  Arrests are increasing and who knows what disasters may have been avoided.  It has been one of the most satisfying endeavors of my years in office.
 
I asked Kristen Howard to prepare a short summary of the efforts of the Crime Commission. It follows this letter.   I hope you take the time to read it -- it is state government at our best.


                 Kind regards, 
Janet Signature
  Senator Janet Howell


Here is Executive Director Kristen Howard's summary:

Virginia State Crime Commission
Cigarette Trafficking Legislation
 
Since 2012, the Crime Commission has been studying the issue of cigarette trafficking at the request of Senator Howell. Virginia has the second lowest tax rate in the nation at 30 cents per pack. This tax rate disparity, as well as geographical location, has caused Virginia to continue to be the primary source state for black market cigarettes that are trafficked to areas with higher taxes. As an illustration of the profit that can be made from cigarette trafficking, a single car can transport up to 10 cases of cigarettes, resulting in a profit ranging from $15,000 to $25,000.  A van can be used to transport up to 50 cases of cigarettes, which would produce a profit of $80,000 to $100,000, depending on the state where the cigarettes are trafficked.
 
As a result of the enormous amount of monies involved, organized crime and gangs have become heavily involved in cigarette trafficking and have continued to bring violent criminal activity to the Commonwealth. Trafficking has been connected to an increase in attendant crimes, such as credit card fraud, money laundering, burglaries, robberies, homicides and murder-for-hire schemes. Organized criminal enterprises amass large profits by purchasing cigarettes cheaply in Virginia and then selling them illegally in other states, oftentimes sending their profits overseas. 
 
Over the last five years, based upon the Crime Commission's endorsement, the General Assembly has enacted numerous criminal and civil penalties for cigarette trafficking. Each year, new laws were passed aimed at punishing a variety of methods used to traffic cigarettes, oftentimes with steep penalties. Each year, traffickers would adapt and find new ways to purchase cigarettes. Unfortunately, these new laws did not fix the problem as criminals were continuing to come to Virginia to traffic cigarettes.
 
Throughout 2016, staff monitored cigarette trafficking cases and trends. Many of these cases involved the establishment and use of fraudulent businesses to purchase large quantities of cigarettes solely for the purpose of trafficking. Business registrations and sales tax exempt certificates are easily obtained online and are immediately available to the applicant without any vetting process, which makes it very easy to create a "phony" business.  Virginia loses millions of dollars in sales tax every year due to these fraudulent businesses and attracts unwanted criminals to the Commonwealth.
 
Crime Commission staff continued to consult with numerous interested parties in effort to close any loopholes. Several meetings were convened that brought all of the stakeholders together to discuss the growing problem and work collectively to develop a solution to combat cigarette trafficking. Staff worked closely with cigarette manufacturers, wholesalers, retailers, the cigar industry, law enforcement, prosecutors, local tax boards, city and county associations, and state agencies - specifically, the Attorney General's Office, the Department of Taxation, ABC, and DCJS, as well as federal agencies and other states. During the course of the year, staff collaborated with a wide variety of experts in the private industry to devise a meaningful mechanism that would create a systematic change to the way cigarettes are sold in the Commonwealth. Throughout the entire process, numerous modifications were made to the legislation in an effort to address concerns from the retail industry, wholesalers, and manufacturers, while also balancing the needs of law enforcement and prosecutors.
 
As a result of continued dedication and collaboration by everyone involved, staff was able to present recommendations for consideration by members of the Crime Commission. The Crime Commission unanimously endorsed these recommendations and members introduced two identical bills during the 2017 Session of the General Assembly - SB 1390 patroned by Senator Janet Howell and HB 1913 patroned by Delegate Richard Anderson. The bills do four main things:
  1.  Create a new cigarette exemption certificate to be used for the tax exempt purchase of cigarettes for resale with a delayed enactment date of January 1, 2018;
  2.  Penalize the fraudulent use of a forged or invalid cigarette exemption certificate;
  3.  Amend the definition of authorized holder; and,
  4. Create a form which must be completed and maintained when an individual purchases large quantities of cigarettes. 
The certificate helps to combat cigarette trafficking by impeding the creation of false businesses whose purpose is to purchase cigarettes for illegal resale. The bills create a new section, Virginia Code § 58.1-623.2, that requires the Department of Taxation to create and issue the certificate following a vetting process, which includes a background investigation and verification of a physical place of business. There is an expedited process for active valid ABC licensees and OTP licenses, which is designed to minimize the burden on legitimate, existing businesses.  For new applicants, there is a 30 day waiting period to obtain the certificate, which will be mailed to applicants. The use of a forged or invalid Virginia cigarette exemption certificate is punishable under existing Virginia Code § 58.1-1017.3 like a regular sales and use tax exemption certificate, which is a Class 1 misdemeanor. The definition of an authorized holder under Virginia Code § 58.1-1000 was also amended to reflect the requirement for this certificate and prohibit anyone from being an authorized holder if they have been convicted under Chapter 10 of Title 58.1.
 
Additionally, the bills create another new section, Virginia Code § 58.1-623.3, requiring that a form be completed and maintained for any cigarette purchase of more than 10,000 sticks or 50 cartons, or when the total value of the purchase is over $10,000. This form will help to monitor, investigate and deter purchases of cigarettes by would-be traffickers. This form will be developed by the Office of the Attorney General and transmitted to their office upon request. Purchasers will be required to show photographic identification and seller's must verify the information and keep the form on file for three years.  The form will be available for inspection by law enforcement, the Department of Taxation, ABC, the Attorney General's Office, and local cigarette tax officials.
 
This legislation received overwhelming support in both the Senate and the House of Delegates. The bills were enacted and signed into law by the Governor.


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