In his latest crusade against teenage smoking, Attorney General Richard Blumenthal is butting heads with Stamford-based UST Inc.
Blumenthal wants Congress to add tobacco to the list of items banned from mail delivery, a step he claims would effectively block Internet sales of cigarettes to minors and those seeking to evade paying state taxes.

UST, the world’s leading producer of moist smokeless tobacco products, is lobbying against such a ban. The holding company and its public affairs arm reported spending $650,000 in the first quarter of 2008 on lobbying Congress, according to a quarterly report recently filed with the U.S. Senate.
Although $650,000 may seem large, it represents only a small fraction of special interest lobbying. Last year, special interests spent a record $2.9 billion on lobbying Congress — a figure that could easily be topped this year based on first quarter filings. Fairfield-based General Electric Co. spent $23.6 million on lobbying in 2007, according to the Center for Responsive Politics.

UST Inc. and UST Public Affairs Inc. listed five lobbyists that are following tobacco issues in Congress, including legislation aimed at blocking the U.S. Postal Service from handling tobacco products.

Blumenthal recently testified before a House panel on the need for legislation sponsored by Rep. John McHugh, R-N.Y., which would impose such a restriction. The bill cleared the House Oversight and Government Reform Committee by a voice vote earlier this month and now awaits a floor vote. Andrew Lee, spokesman for UST Inc., said that the company is monitoring the legislation.

“We would hope Congress would consider the interests of wholesalers and retailers who may use the Postal Service for business-to-business shipping,” he said.

Lee said that the company “is on board” with any proposals that would restrict youth access to tobacco products but reiterated the concerns they have for “business-to-business” shipping.

The company sells more than 1.7 million cans of smokeless tobacco each day, with its leading brands — Copenhagen and Skoal — having annual sales of more than $1 billion. UST also owns Ste. Michelle Wine Estates in Washington, which is among the nation’s top 10 wine producers.

Blumenthal was troubled that tobacco companies would oppose the restriction given their public rhetoric in opposition to illegal sales of cigarettes.

“I regret that credible American companies are working to block what is very well merited public health legislation and efforts to stop tax evasion,” he said.

Right now, the Postal Service is the sole carrier still delivering cigarettes through the mail, allowing children to order tobacco products online from vendors with few safeguards to stop underage purchasers,” McHugh said. “Private mail carriers like UPS, DHL and FedEx have already changed their policies, but Congress has the sole jurisdiction over what is delivered via USPS. We need to enact this legislation so we don’t continue to undermine the efforts of parents, teachers and organizations across the country that have worked to educate children on the dangers of cigarettes.”

McHugh’s bill would make it illegal to use the U.S. Postal Service to deliver cigarettes, smokeless tobacco and roll-your-own tobacco. It includes a $100,000 penalty per violation.

Blumenthal said that the majority of people who turn to the Internet to purchase tobacco are trying to evade state tobacco taxes or are minors looking for a way to secure cigarettes for themselves. Most Internet tobacco retail Web sites ask purchasers to attest that they are of legal age but few seek verifiable proof, such as a driver’s license.

A 2004 study found that it was relatively easy for teenagers to get cigarettes delivered to their homes using the Internet. Indeed, 29 of 30 were able to identify an Internet vendor and place an order within 20 minutes. Of those, 77 percent were delivered successfully.

“While virtually every state actively enforces minimum age requirements for the purchase of cigarettes, meaningful enforcement for Internet purchases in nearly nonexistent,” Blumenthal said.

Blumenthal believes that Internet sellers of tax-free cigarettes would go out of business if they could not rely upon the Postal Service for delivery. UPS, FedEX and DHL have signed agreements with state attorneys general that they will not deliver tobacco products — but not the Postal Service.

“This is the last refuge of illegal Internet sales,” Blumenthal said. “If we can just sever this channel it will have tremendous consequences for tax evasion as well as underage sales. In my view, it will happen. It is just a question of when.”

Mary Anne Gibbons, general counsel for the Postal Service, said that the Postal Service has taken action to reduce the ability of tobacco retailers to use the mail for illicit sales but acknowledged that their existing authority is limited.

The Postal Service has updated foreign posts on the general prohibition on foreign tobacco mailing and has cooperated with state and federal law enforcement to reduce illegal cigarette and tobacco sales.

In 2007, five individuals were arrested and charged with money laundering, as well as violations of the Jenkins Act, which requires cigarette seller to send reports to the destination-state’s tax authorities to facilitate the collection of state tax.

Tobacco sellers often use Priority Mail to send their products, which is sealed against inspection. A federal search warrant or consent would be needed to open those packages to determine if they contain ‘nonmailable’ matter, she said.

Even if the law were changed, Gibbons said it would be difficult to enforce and require extraordinary resources. In 2007, the Postal Service handled 897 million Priority Mail packages, which can be dropped off at any of nearly 37,000 Post Offices. Moreover, there are only 1,700 inspectors who now concentrate on narcotics, child pornography, explosives, mail theft and elderly exploitation.

“If a ban on tobacco were enacted, postal inspectors would have to shift resources to combating cigarette mailings,” she said.

Beyond the sale of cigarettes to minors, Blumenthal said the Internet is costing states tax revenues, particularly those that have enacted high taxes like Connecticut. The state’s $2-a-pack tax is one of the highest in the nation.

Prudential Financial Research estimated that states lost $254.7 million in excise taxes in 2002 as a result of Internet cigarette sales.