Deal Aims to Prevent Web Cigarette Sales

ALBANY, N.Y. (AP) - Major credit card companies will refuse to participate in Internet sales of cigarettes nationwide under a government agreement made Thursday.

The U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, the companies and state attorneys general agreed to work together to prevent the long unchecked use of credit cards to buy cigarettes over the Internet across state lines. The agreement is effective immediately.

The result is that virtually all credit cards will no longer participate with Web sites based in the United States and abroad that sell cigarettes and tobacco products in every state, said New York Attorney General Eliot Spitzer. The card companies also agreed to take action against Internet sellers that authorities identify as violating state and federal laws regulating cigarette sales.

States lose more than $1 billion a year in tax revenue from Internet tobacco sales, said Sheree Mixell, ATF spokeswoman.

The effort is important because enforcement has been difficult, even though in many states, including New York, the Internet sale of tobacco products is illegal. The trade undercuts traditional business operators, often avoids sales tax for states and localities, and can be a way for underage consumers to buy cigarettes and chewing tobacco before they turn 18.

``By working with all the major card companies, we will severely restrict the availability of the Internet retailers to make these illegal sales,'' said Spitzer, one of the lead attorneys general in the partnership sealed Thursday.

The negotiations were also led by California Attorney General Bill Lockyer and Oregon Attorney General Hardy Myers. Attorneys general from Colorado, Idaho, Louisiana, Maryland, Pennsylvania, Vermont and Wisconsin also participated.

``ATF investigations show that millions of dollars each year in illegal sales of cigarettes are diverted to fund terrorists and criminal organizations,'' said Michael Bouchard, ATF assistant director for field operations. ``Through today's initiative, we are addressing the problem of illegal sales across multiple jurisdictions with tremendous support from the country's largest credit card companies. We welcome the help.''

Earlier this month MasterCard International issued a bulletin to its member banks on ``the need to comply with rules governing the Internet sale and shipment of tobacco.''

``MasterCard does not tolerate illegal activities of any kind,'' the statement said.

The agreement announced Thursday also includes American Express, Visa, Discover, Diners Club and the Internet financial transaction service PayPal, which is owned by eBay Inc.

Joshua Peirez, senior vice president at MasterCard, told The Associated Press the policy basically meant the card couldn't be used for Internet purchases of tobacco ``because at this point, no merchants are complying with all of these laws.''

Smokers can still buy cigarettes over the Internet, but they would have to use checks, money orders or some other payment system that would likely delay receipt in the Internet business built on speed. Operators of cigarette Web sites didn't immediately respond to requests for comment.

New York's ban on Internet cigarette sales was the first in the nation. But opponents argued the law wasn't about minors smoking, but about state tax revenue. The state's tax on a pack of cigarettes is $1.50, pushing the total price to around $5. Lower prices are offered on the Internet and in mail-order catalogs by tax-exempt Indian merchants and retailers in states with lower taxes.

In January, a federal judge tossed out racketeering charges against a group of online cigarette sellers. New York City had sued 16 cigarette Web sites to require taxes be paid on Internet sales. The city, which estimates it loses as much as $100 million a year because of the unpaid cigarette sales taxes, continues to seek to recover $15 million.

AP Business Reporter Eileen Alt Powell contributed to this report from New York.

On the Net:

http://www.atf.gov

http://www.oag.state.ny.us