[Intl-tobacco] NY/Switz: Penalty against internet cigarette retailer

[robert weissman]

LAWSUIT $MOKES CIG FIRM
New York Post

By CARL CAMPANILE


October 13, 2004 --

A federal judge slapped a Switzerland-based Internet cigarette retailer
with a $17 million fine for allegedly running a scam that stiffed the
city out of tobacco taxes, The Post has learned.

Manhattan federal Judge Naomi Recie Buchwald issued the staggering
penalty after Yespeedy/Otamedia repeatedly failed to answer court papers
or show up in court.

The Bloomberg administration sued Otamedia and a number of other
Internet retailers as part of a sweeping crackdown against the sale of
illicit cigarettes, which officials said conservatively cost the Big
Apple treasury "tens of millions of dollars a year."

Buchwald said Otamedia was compelled to respond to the charges as a
foreign entity under the international Hague Convention law.

City lawyers investigating "contraband cigarette" scams via the Internet
said the $17,382,121 judgment is the largest penalty issued to date.
They said they would do all they can to collect.

New York imposes combined excise and sales taxes of $33.30 on every
carton of cigarettes sold by stores located in the Big Apple.

In other words, a carton of taxed cigarettes in the city costs about
$70, while "duty-free" cigarettes run as low as $15.

"We're losing tens of millions of dollars a year. It's a very big
number," said Eric Proshansky, City Hall's chief lawyer probing illicit
sales of cigarettes on the 'Net.

He said it's a challenge tracking down Internet retailers, particularly
those incorporated in foreign countries. Otamedia was incorporated in
Belize.

"It's an elusive company. They didn't even show up in court," Proshansky
said.

"We'll find out where they are and collect the judgment."

It's not the first time that Otamedia has been charged with running
afoul of the law.

Another federal judge found that Otamedia illegally sold Philip Morris
USA cigarettes on the Internet after issuing an injunction ordering it
to stop.

In that case, Manhattan federal Judge Gerard Lynch ordered the transfer
of Otamedia's "yessmoke.com" domain name to Philip Morris.

The city accused the company of mail and wire fraud.