Lorillard Inks Deal With AGs

Agrees to use of established protocols to combat illegal sales of cigarettes

GREENSBORO, N.C. -- Lorillard Tobacco Co. said that it has joined the efforts of 33 state attorneys general to reduce illegal Internet and other remote sales of cigarettes.

As a result of the new partnership, Lorillard has adopted measures that would sanction any customer who illegally engages in remote salesover the Internet or by telephone, mail or fax. A similar agreement was reached with Philip Morris USA in January.

Lorillard said that it will:

Suspend cigarette shipments to its direct customers determined by the AGs to [image-nocss] have engaged in illegal remote sales of its products; Reduce the volume of cigarettes allocated to its direct customers who are determined by the AGs to have indirectly engaged in illegal remote sales; Suspend participation in Lorillard's promotional and merchandising programs for those retailers who are determined to have engaged in such illegal sales.

The negotiations with Lorillard were led by the New York AG's office. In addition, the AGs from the following jurisdictions have joined this agreement: Alabama, Arkansas, California, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Montana, Nebraska, Nevada, New Hampshire, New Mexico, Northern Mariana Islands, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia and Wyoming.

Lorillard always has supported compliance with laws dealing with the illegal sale of our products, and has instituted measures to punish those who are determined to be in violation of the law, said Ronald S. Milstein, senior vice president of legal and external affairs for Greensboro, N.C.-based Lorillard. We are pleased to enter this voluntary accord with the [AGs] to provide a framework for further cooperation with law enforcement and add additional safeguards against the illegal sale of our products. We believe that these measures will assist our active efforts to combat counterfeit product sales and will help us and our customers to comply with the laws and regulations intended to stop sales to and consumption of our products by youth.

Lorillard has already used a variety of voluntary internal checks and safeguards to ensure its wholesale and retail dealers comply with all applicable laws, it said. The company said that it has taken hundreds of distributors and retailers to court to protect the integrity of its products, and that it will continue to work with law enforcement to curb sales of counterfeit and smuggled cigarette products. Lorillard also recently strengthened its penalties against any of its customers that violate state laws regarding sales of cigarettes to children, it said, and it has supported legislative efforts to curb Internet sales.

The agreement with the AGs is effective immediately, and Lorillard will now begin to notify its customers of the new protocols. We expect to be able to implement these new measures throughout our distribution channels without delay, said Milstein.

"It is nearly always illegal to sell or buy cigarettes over the Internet," Idaho AG and National Association of Attorneys General (NAAG) Tobacco Committee Co-Chair Lawrence Wasden said. "Lorillard should be commended for taking a major step to cut off the supply of cigarettes for subsequent illegal Internet sales. I hope other tobacco companies will follow Lorillard's lead."

The AGs believe that virtually all sales of cigarettes over the Internet are illegal because the sellers are violating one or more state and federal laws, including: (1) state age verification laws; (2) the federal Jenkins Act, which requires that such sales be reported to state authorities; (3) state laws prohibiting or regulating the direct shipment of cigarettes to consumers; (4) state and federal tax laws; (5) federal mail and wire fraud statutes; and (6) the federal RICO law. Many of the sales made by foreign websites also violate federal smuggling, cigarette labeling, money laundering and contraband product laws.

"The bottom line here is that kids will have less access to cigarettes," said Iowa AG Tom Miller, co-chair of the NAAG Tobacco Committee. "And that's very important because most smokers start when they are young. Most traditional retailers check photo IDs to prevent children from buying cigarettes, but the great majority of Internet sellers have wholly inadequate age-verification systems."

The AGs said that they believe that Internet cigarette sales present a significant risk to public health, especially for youth. 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 insufficient. In addition, most Internet vendors illegally fail to charge taxes, and research has shown that lower cigarette prices lead to increased smoking rates, particularly among youth. Moreover, they said, numerous studies have shown that the earlier an individual begins to smoke, the more likely it is that the person will become addicted. These factors make age verification through photo IDs a critical safeguard in protecting children from a lifetime of smoking.

The agreement is another major development in multi-pronged efforts by state AGs to restrict the payment, shipment and supply operations of illegal Internet cigarette traffickers, they said. In March 2005, AGs announced that the major credit card companies had all agreed to stop processing credit card payments for the Internet retailers. Later in the year, both DHL and UPS agreed to stop shipping packages for the vendors engaged in these illegal sales. State AGs also have asked the U.S. Postal Service to refrain from delivering cigarettes for Internet sellers.

Click here to view the Protocol Regarding Remote Sales of Lorillard Cigarettes.