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ALBANY – The state’s attorney general is stepping up efforts to combat the movement of tax-free cigarettes from Indian-owned companies in Canada to New York tribes, including the Seneca Nation of Indians.

Attorney General Eric T. Schneiderman is expected to file a lawsuit Monday morning targeting a cigarette plant on the Six Nations of the Grand River Indian reservation near Hamilton, Ont., and a Seneca businessman working with the Canadian operation to sell billions of tax-free cigarettes marketed under the “Seneca” brand name, The Buffalo News has learned.

The state’s top lawyer wants the tax-free sales into New York halted, and tens of millions of dollars in penalties may be at stake. The lawsuit seeks to further reduce supplies of tax-free cigarettes by cutting off out-of-state supplies.

Schneiderman’s move against the cross-border cigarette operation comes a couple of months after he went to court seeking to stop a similar tax-free cigarette distribution operation by a company operating from a reservation in the state of Washington.

The Indian-owned companies that Schneiderman is expected to target Monday were the subject of an investigative report by The Buffalo News in 2009. That report found cigarettes made at the Ontario plant, including the Seneca brand cigarette, were sold through a complex distribution network of tax-free outlets.

Health officials raised concerns at the time that the Seneca brand was manufactured in violation of the state’s self-extinguishing law designed to reduce cigarette-caused fires and that Roswell Park Cancer Institute scientists worried about evidence of two metallic elements found in the cigarette’s tobacco.

The Seneca brand cigarettes, The News previously reported, were sold to tribes in New York, and also made their way out West through a trucking network that included stops on the Seneca reservations, at a Las Vegas warehouse and then to a California tribe.

Schneiderman, in a lawsuit to be filed in federal court in Brooklyn, is seeking to shut down the tax-free sales by Grand River Enterprises near Hamilton to the Native Wholesale Supply, owned by Arthur Montour. The Buffalo News phoned both companies seeking comment but there was no response.

The two companies acted in a “joint scheme” and during one recent eight-month period ending last July moved at least 687 million Seneca brand cigarettes onto the tax-free tobacco market, the suit will claim. The sales to Montour’s company totaled $85 million, which should have resulted in the state collecting $13 million in taxes, Schneiderman’s lawsuit will argue.

Montour runs Native Wholesale Supply from its Perrysburg base, but the company is legally incorporated through the Sac and Fox Nation in Oklahoma. Montour in 2011 filed for bankruptcy protection after a court said his firm was responsible for potentially tens of millions of dollars in federal tobacco assessments.

In New York, the Seneca brand is sold at small smoke shops on several Indian reservations in Western New York as well as the Oneida Indian Nation’s Turning Stone casino in Central New York.

Schneiderman’s new lawsuit comes after a relatively quiet period in the state’s cigarette tax battles with Indian tribes. The state in 2010 ended its forbearance policy towards tax-free cigarette sales by Indian retailers, despite laws that ban such trade. In June 2011, a court battle over that forbearance policy ended and New York began to enforce the law by requiring wholesalers to pay up-front excise taxes of $4.35 per pack.

But the Cuomo administration only applied the tax collection policy toward brand-name cigarettes and not the increasing number of cigarettes made by Native Americans on Indian reservations.

In December, Schneiderman sued King Mountain Tobacco, a firm on the Yakama Nation Tribe reservation in Washington. The legal claims of that case and much of the wording in the legal filing are the same as the lawsuit being filed Monday in Brooklyn against the Seneca businessman and the Ontario company.

The Indian cigarettes, sold for one-third or less the price of taxable cigarettes, cost the state money in lost taxes and take a health toll on smokers, especially teens who are also attracted to the cheaper prices.

The attorney general, in the court filing, will note that Ontario’s Grand River Enterprises knew its products were going to be sold in New York because it applied in July 2012 – three years after the Buffalo News article noting its products violated fire-safety laws – to the Department of State in Albany to say its products were now in compliance with the New York statute.

The Seneca brand distribution network violates various state and federal laws, the lawsuit contends. The suit says investigators from Schneiderman’s office in November seized Seneca cigarettes without tax stamps from a shop on the Poospatuk Reservation on Long Island. Another raid by federal agents occurred at the Skydancer smoke shop in Seneca Falls in January; that raid found 3 million unstamped Seneca brand cigarettes in the store.

The 2009 Buffalo News article noted that some industry executives estimated the Seneca brand sales could total 10 billion cigarettes a year.

Besides the two companies and Montour, the new Schneiderman lawsuit will be filed against Grand River’s principals – Jerry Montour, a member of the Wahta Mohawk tribe and no relation to Arthur Montour, and Kenneth Hill, a member of the Lower Mohawk tribe and a shareholder of the Ontario firm.

email: tprecious@buffnews.com