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Bank Stopped From Enabling Online Tobacco Sales

Attorneys General crack down on Web sites illegally selling cigarettes

September 19, 2008

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The Attorneys General of California, New York, and Idaho have reached a settlement agreement that prevents Los Angeles-based First Regional Bank from providing payment-processing services to online retailers who illegally sell cigarettes and other tobacco products over the Internet.

"Stopping the illegal sale of cigarettes, especially to minors, is a major step in protecting public health. These online tobacco retailers are known to be a major source for young people to get their illegal cigarettes," said California Attorney General Edmund G. Brown Jr. "We're pleased that First Regional has agreed to take measures to address this important issue and hope that other banks and companies involved in online tobacco sales will follow suit."

An investigation by the state officials determined that First Regional processed income from online tobacco retailers throughout the United States. The probe included a sting against one of the largest online tobacco retailers, Scott Maybee. It was found that First Regional broke the law by allowing Maybee to process thousands of tobacco sales through the bank.

In June 2008, Brown sued Maybee for violating California laws designed to prevent cigarettes from falling into the hands of minors through online purchases. These laws include failing to call the cigarette buyer after 5 p.m. to confirm the sale, failing to impose a two-carton minimum purchase and failing to provide adequate purchase information to credit-card companies so that "Tobacco Products" can be printed on the credit card receipt.

Maybee also violated the law when he sold thousands of cigarettes to California consumers that were not fire-safe.

The investigation uncovered evidence that First Regional knew it was facilitating Maybee's illegal online tobacco sales since 2006. The bank was repeatedly advised to discontinue its practices by the attorneys general, who have been working since June on an agreement with First Regional to ensure that it no longer facilitates the illegal online purchase of tobacco products.

• Pay $60,000 in civil penalties, fees and costs

• Maintain and adhere to a formal policy prohibiting the facilitation of online tobacco sales

• Train its employees on the tobacco policy requirements

• Publish its tobacco policy on its public website

• Obtain basic information about its customers and their business operations

• Conduct a background check on potential customers

• Adopt procedures to terminate merchants who violate First Regional's tobacco policy

Many online tobacco retailers fail to follow laws enacted by states to prevent online cigarettes from falling into the hands of minors. These laws include violating state age-verification laws.

Many also violate numerous other state laws, which include failing to file required monthly sales reports with state tax agencies, selling cigarettes not certified and approved for sale and selling cigarettes that are not be fire-safe, as required by California law.

This agreement furthers the efforts of California and other states to fully implement the tobacco Master Settlement Agreement, a public health agreement that aims to reduce the use of tobacco products and to stop the flow of cheap cigarettes to minors.

Major credit-card companies already have agreed to prevent their cards from being used to facilitate unlawful tobacco sales, and several major shippers refuse to deliver cigarettes purchased online. Clamping down on electronic sales, such as those facilitated by First Regional, will make it more difficult for these retailers to continue their illegal operations.

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