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Lorillard Agrees to Curb Internet Sales

Protocols Aim to Cut Off Supply to Illegal Cigarette Traffickers

July 11, 2006

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The attorneys general of 33 jurisdictions have reached an agreement with Lorillard Tobacco Company to prevent the illegal sale of its cigarettes over the Internet and through the mail.

The Lorillard protocols require:

• termination of cigarette shipments to any Lorillard direct customer the attorneys general have found to be engaging in illegal Internet or mail order sales;

• reduction in the supply to any direct customer found by the AGs to be engaged in the illegal re-sale of Lorillard cigarettes to Internet vendors; and

• suspension from the company’s incentive programs any retailer found by the attorneys general to be engaging in such illegal sales.

The protocols are being adopted nationwide and voluntarily by Lorillard pursuant to an agreement reached with 33 Attorneys General across the country. A similar agreement was reached in January 2006 with Philip Morris USA.

"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, Legal and External Affairs of Lorillard.

"We are pleased to enter this voluntary accord with the Attorneys General to provide a framework for further cooperation with law enforcement and add additional safeguards against the illegal sale of our products," he added.

The Attorneys General consider virtually all Internet sales of cigarettes to be illegal because the sellers violate one or more state and federal laws, including:

• state age verification laws;

• the federal Jenkins Act, which requires that such sales be reported to state tax authorities;

• state laws prohibiting or regulating the direct shipment of cigarettes to consumers;

• state and federal tax laws;

• federal mail and wire fraud statutes;

• the federal Contraband Cigarette Trafficking Act; and the federal anti-racketeering law.

Many sales made by foreign web sites also violate federal smuggling, cigarette labeling and money laundering laws.

Internet tobacco sales, according to the attorneys general, not only violate the law, they endanger public health, especially children’s health. Numerous studies have shown that the earlier an individual begins to smoke, the more likely that person will become addicted. That makes age verification through photo IDs, and other practices to curb youth access, critical safeguards in protecting children from a lifetime of smoking.

While "brick-and-mortar" retailers check photo IDs to prevent children from buying cigarettes, the vast majority of Internet sellers have wholly deficient, or nonexistent, age verification systems.

In addition, most Internet vendors illegally fail to charge taxes. That reduces the cost to consumers, and research has shown that lower cigarette prices lead to increased smoking rates, particularly among youth.

The agreement is another major development in a multi-pronged effort by attorneys general to restrict the payment, shipment and supply operations of illegal Internet cigarette traffickers.

In March 2005, attorneys general announced major credit card companies had agreed to stop processing credit card payments for Internet retailers. In addition, DHL, UPS and FedEx all agreed to stop shipping packages for vendors engaged in illegal direct sales.

The following jurisdictions joined the Lorillard agreement: Alabama, Arkansas, California, Connecticut, Delaware, 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, Washington D.C., West Virginia and Wyoming.

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