Stamping out counterfeit cigars

Posted on Mon, Apr. 24, 2006
By Christina Hoag: choag@MiamiHerald.com

Stamping out counterfeit cigars

Theo Folz's view from his Fort Lauderdale condo encompassed a prime
expanse of the Atlantic Ocean and the Intracoastal Waterway, but it
annoyed him to gaze out from his balcony.

That's because the vista also took in a tobacconist who Folz knew was
peddling fake cigars under the storied Cuban brand names belonging to
his company.

''I found it particularly irritating,'' said the president and chief
executive of Altadis USA, the world's largest cigar maker. ``I could see
it from the terrace of my condominium.''

Folz is not putting up with it any more.

Fort Lauderdale-based Altadis USA has declared war on the counterfeit
cigar trade. As Folz discovered -- from personal experience -- the
national capital of knockoff habaneros is right here in South Florida.

''There's a significant population here who were active in the cigar
industry in Cuba,'' said Leora Herrmann, Miami counsel for Altadis.
``And the local population has a particularly strong attachment to and
appreciation of cigars. We also have close access to the Caribbean.''

The whole business of knockoff cigars gets a bit tricky.

Some of the world's most prized and pricey brands are those that
originated in Cuba. Many, such as Montecristo, Romeo y Julieta and H.
Upmann, are today owned by companies such as Altadis, which hand-rolls
them for the U.S. market -- not in Cuba, but in the Dominican Republic.
(The U.S. trade embargo prohibits the sale of Cuban cigars in the United
States.)

In the late '90s, Altadis USA bought the trademark rights from Cuba's
exiled cigar-baron families whose companies were nationalized after the
1959 Cuba Revolution. But the company had been making cigars under those
brands under contract with the families since the 1980s.

Meanwhile, Altadis, the parent company based in Madrid, markets the same
brands in Europe and elsewhere, but those cigars are made in Cuba by the
Cuban government.

Because the cigars with Cuban pedigrees have such cachet, plenty of
people want to copy them. Altadis is not the only cigar maker whose
brands fall victim to counterfeiters, but it's been one of the most
aggressive in battling bogus brands.

CONCERTED EFFORT

It starting a concerted effort seven years ago, but its campaign
especially started to reap positive results in recent months.

• In March, five Miami-Dade men were indicted on federal charges of
trafficking in counterfeit goods after police raided nine contraband
operations in December.

• In February, two Fort Lauderdale retailers were arrested on charges of
selling illegal cigars.

• Cigar shops around the country have been blanketed with warnings that
Altadis will prosecute those found to be selling ''replicas'' of its
Cuban-style cigars.

''We've put somewhat of a dent in it, but we're not going to stop
here,'' Folz said. ``This thing is much bigger than we thought.''

The crackdown comes as demand for top-drawer smokes is rising.
Cigar-puffing had lost some of its allure at the turn of the century
following the mid-'90s celebrity-driven fad.

But last year, the number of premium, or fat, cigars, sold jumped 13.6
percent to 321.6 million, the highest sales since 1998, according to the
Cigar Association of America, a Washington D.C.-based trade group.

The financial impact of the impostor cigars on the industry is hard to
gauge with any certainty, but it appears to be swiping a chunk of
legitimate cigar sales.

In 2002, Altadis nabbed a small Miami cigar shop where fake-cigar
invoices totaling $60,000 were found.

And Folz noted that December's raid netted enough counterfeit packaging
materials for 30 million to 50 million cigars -- at least 10 percent of
those sold in 2005.

''The magnitude of it has really surprised everybody,'' said Norman F.
Sharp, president of the Cigar Association of America. ``I don't think
anyone understood that.''

SEVERAL VARIETIES

Contraband habaneros have been around for a long time. Some are the
made-in-Cuba article smuggled into the United States in violation of the
trade embargo.

More nefarious are the cheap, malodorous, often unsmokable cigars made
in Central America and the Caribbean that are packaged to pass as their
tonier Cuban-name cousins.

''If people can't trust that cigar band and that box, that erodes the
value of your brand and product,'' said Herrmann, the Altadis lawyer.

After the apex of the 1990s cigar boom, the flow of those fake cigars
swelled along with retailer and customer complaints. Altadis decided to
get tough. ''It got to the point where I just couldn't take it
anymore,'' Folz said.

But the company found that cigar piracy was a low priority for law
enforcement. So, it hired its own private investigators to track down
leads and put lawyers in charge of building cases to present to police
for enforcement.

The company now annually spends in the ''low seven figures'' on rooting
out the counterfeiters, educating retailers about the fakes, and
training Customs officers to recognize them, Folz said. It's money he
believes is well spent.

''We've spent generations developing products, developing brands,
developing image with the consumer,'' he said. ``We have a lot invested
here.''

Still, the company didn't quite realize the extent of the counterfeit
trade until Dec. 15, when police raided nine such operations around Miami.

Altadis had rented two, 25-foot trucks to cart away the fake merchandise
but had to swap those for an 18-wheeler when cops found the stockpiles
of boxes, printing presses and cigars, some moldy and crumbling.

''Even then, we couldn't take every single thing away,'' said Chuck
Grimes, the lawyer who heads Altadis' investigations.

STREET PRICES

Altadis estimated the street value of the confiscated goods at $20
million to $30 million.

The busted counterfeiting ring operated by importing bundles of cheap
cigars from Central America.

Workers made the wooden boxes, complete with burnt-in trademark, printed
up fake bands and box wrapping, and filled the boxes, making them ready
for sale to stores or on the street. With a box of legit 25 Montecristos
retailing for about $250, there's plenty of room to undercut that price
and still reap a sizable profit.

Altadis executives hope that their efforts will be boosted by a new
federal law that makes people involved in the production and sale of
counterfeit packaging liable for prosecution, regardless of possession
of fake product.

And they're hoping that the federal indictment of the five men arrested
in December will result in stiff penalties and serve as a deterrent to
others. Trafficking in counterfeit goods carries a maximum 10-year
prison sentence; conspiracy, up to five years.

Still, they know their battle is far from over. ''You can go to almost
every major city in the U.S. and find fake Cuban cigars,'' Folz said.
``We're going to get more active.''

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