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Payments to Cigarette Sites Up in Smoke

Federal efforts to snuff out illegal online cigarette sales got a boost Thursday when major credit card companies agreed to refuse payment to Internet tobacco sites, almost all of which are violating one federal law or another.

The joint public/private initiative was brokered by the attorney general offices of New York, California and Oregon, and it includes the Bureau of Alcohol, Firearms and Explosives (ATF), as well as American Express, MasterCard, Visa, Discover, Diners Club and PayPal, a division of eBay.

"We are taking a multi-faceted, multi-jurisdictional approach to halting illegal Internet cigarette sales," Vermont Attorney General William H. Sorrell said. "We believe this is the most effective and efficient strategy to enforce state and federal laws regulating online sales."

The credit card companies have adopted policies to prohibit the use of credit cards for the illegal sale of cigarettes over the Internet. They have also agreed to investigate and take action with respect to any Internet sellers identified by law enforcement as using their credit cards for illegal online cigarette sales.

According to the ATF, virtually all Internet cigarette sales sites are violating the Jenkins Act, a federal law that requires companies that ship cigarettes to out-of-state customers to report the customers to their respective states. States then collect the taxes from the individuals. The ATF said $1 billion in tax revenues have been lost. Failure to provide a report constitutes a misdemeanor punishable by up to one year in prison and a $1000 fine.

Last year, the Government Accountability Office testified before Congress that none of the Internet sites selling cigarettes were filing the required reports and 78 percent openly stated that they did not comply or said they were not subject to the Jenkins Act.

The ATF also claims that Internet cigarette sites violate state age verification laws and state laws prohibiting or regulating the direct shipment of cigarettes to consumers. The ATF also says the sites may be violating federal mail and wire fraud laws.

"ATF will aggressively continue to pursue violations of the law," Michael Bouchard, ATF assistant director for field operations, said in a statement. "However, 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."

In addition to being illegal, the state attorneys general contend the cigarette sites present a major risk to public health by making cigarettes readily and inexpensively available.

Moreover, the attorneys general said, while brick-and-mortar retailers check photo IDs to prevent children from buying cigarettes, the vast majority of Internet sellers have age verification systems that are inadequate.