The cigarette game.

THE CIGARETTE GAME

BIC IS involved in a legitimate--and quite substantial--cigarette wholesaling business. Don't ask me anything else about him, thank you.

DKM: You told me that, back five or six years ago, 52 per cent of cigarettes sold in New York City were bootlegged from North or South Carolina.

Bic: Sure. Once upon a recent time somebody offered me fifty thousand cartons of nontaxed cigarettes per week--or as much as I could handle. They'd come in truck containers out of the airport. Every international airport gets nontaxed cigarettes for export purposes.

DKM: Is it easy to get them?

Bic: Even you could do it. You take a car down to North Carolina. You drive ten miles past the border. There's a warehouse. You flash your lights twice, you beep your horn twice, and the door opens. Just like in Prohibition days. The warehouse is a legal distributor. Between the trunk and the back seat you can bring up 1,200 cartions. Six years ago you were working on a buck fifty profit per carton. That's $1,800, tax free.

DKM: But things have changed somewhat since then. Bootlegging has been made a federal crime. What's the percentage of bootleg cigarettes in New York City today?

Bic: I'd guess 20 to 25 per cent. And we can live with that.

DKM: Who distributes them? Momand-pop candy stores?

Bic: Not as a rule. They're afraid of being busted. Forged tax stamps won't pass. If one of my customers is being beaten out by an illegal dealer across the street, well, I'll drop a dime on the illegal dealer. I'll call a state inspector anonymously. No, the best place to distribute bootleg cigarettes is through beauty parlors. They do a tremendous business.

DKM: Beauty parlors? I've got to get my hair done. But your business is entirely with legal cigarettes?

Bic: Uh-huh. We have cigarettes shipped in from manufacturers. We buy tax stamps from a bank--you have to have a license--and we distribute them from there. Our problem is with price fixing.

DKM: How?

Bic: New Jersey and Connecticut have legal price fixing. In New York they haven't been able to pass the law. So you work on nothing or maybe ten cents a carton profit. If you don't do enormous volume, you're in and out of this business in six months. There are no more than 12 big distributors in New York now. Five years ago there were 75. The business is so cutthroat it forces the weak companies into bootlegging or forging tax stamps. [Laughs.] We try to keep the state tax authorities well informed of any bad business practices our competitors are into.

DKM: But there is price fixing.

Bic: Got a cigarette? Thanks. For instance, in the month of October all the wholesalers had union situations and raised their price 25 cents a carton minimum. It lasted six weeks, then it broke. One wholesaler cut the price, then the next one. For the time it works it's like a windfall profit. You think a minute: a quarter a carton profit on 100,000 cartons a week.

DKM: And the government winks at price fixing?

Bic: Hell, no. Four years ago there were indictments involving a number of wholesalers. They paid very stiff fines. Fortunately no one went to jail. A cigarette wholesaler isn't good prison material.

DKM: What happens in New Jersey?

Bic: It's better. But they pay under the table. You get your customer that's buying ten, fifteen thousand dollars' worth a week, he's going to look for the guy who'll make a cash kickback.

DKM: Is the mob involved in the legal or the illegal end?

Bic: Both. But mostly illegal. Five years ago, before bootlegging became a federal crime, they owned legal businesses and maybe they also counterfeited tax stamps. Now, well, they run trucking business. They come up from North Carolina with a load of vegetables and the vegetable is tobacco. Between New York City and New York State you have taxes of $3.10 on every carton. You realize what kind of room for profit you have there?

DKM: Are people still smoking as much?

Bic: Despite all the reports from the surgeon general, despite all the antismoking campaigns, cigarette sales increase annually. It's new smokers, young smokers coming into the market. Additional smoking by the existing smokers. When the economy is bad, smoking increases. It's a stress-related habit.

DKM: Doesn't the huge tax increase bootlegging?

Bic: Of course. If the tax were lower, the profit margin on illegal shipments would be lower. But the last state increase was 60 cents a carton. They lose in volume but they make up for it with a large increase. The happiest day of my life would be when the North Carolina manufacturers distributed their own cigarettes. I make my profit on candy, tobacco, sundries. But my customers want me to service them totally, so I have to carry cigarettes.

DKM: If you were running New York State, what would you do?

Bic: Put an auditor in every momand-pop store for two weeks, clock their volume. I'm just talking about sales tax, not income tax. One hundred per cent of retail business is cash.

DKM: Wouldn't that be too expensive?

Bic: Are you kidding? Take a 24-hour newsstand. They do a gross business of $25,000 a week and net about 20 per cent of that. On a quarterly basis, quarterly, they'll show $8,000 worth of sales. Think about it. That store is doing $100,000 a month, $300,000 a quarter, so they're avoiding sales tax on roughly $290,000 per quarter at 8.25 per cent. The state would be so rich they could go on until 3,000,000 A.D. But you're dealing with politicians, and they're not streetwise.

DKM: But doesn't this all come up because the sales tax is ridiculously high to start with?

Bic: Of course. It's a joke. One per cent of real gross sales would yield ten times more. And cut out the illegalities. But, like I said, you're dealing with politicians.

DKM: Want another cigarette?

Bic: Yeah. I think I'm feeling some stress. Aren't you?