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Big Tobacco Rewrites Nebraska Law to Subvert Tribal Sovereignty

Tobacco giants Philip Morris and R.J. Reynolds have reportedly been helping the Nebraska attorney general’s office revise the state’s tobacco legislation, which will crack down on Big Tobacco’s competition—sovereign Indian nations and small tobacco manufacturers, documents received by a Freedom of Information Act request reveal.

Lance Morgan, the chief executive officer of Ho-Chunk Inc., the Ho-Chunk Winnebago Tribe’s economic arm, says the proposed legislation is “a deliberate attempt to wipe out tribal tobacco competition in Nebraska because the legislation specifically singles out Indian tribes.”

A press release issued by the Winnebago Tribe questions the ethics of private corporations writing the country’s laws. “Is this government of the people, by the people and for the people? Or is this government of the people, by Big Tobacco and for Big Tobacco? If Big Tobacco is writing our state laws, what other special-interest groups are writing our laws, high-jacking our independence?”

Nebraska’s Chief Deputy Attorney General David D. Cookson, who solicited input from Big Tobacco on the proposed legislation, contends that the bill does not target Indian tribes, but in a phone interview, he said, “No, I would not agree with that at all. I think what it is—is—Well, I think—Then again, that’s not part of our bill, so I really can’t speak to it.”

This Nebraska battle is a familiar scenario in the ongoing tobacco wars that have been waged across Indian country for decades, particularly in New York, in which state governments have tried to force sovereign tribal nations to collect taxes on cigarettes sold to non-Indians on reservation land. States have become increasingly eager—and in some cases, desperate—to collect this money as they face huge budget gaps and deficits.

The Nebraska drama is unfolding against the backdrop of the latest snafu involving the 1998 Tobacco Master Settlement Agreement (MSA), in which the big tobacco companies and more than three dozen smaller ones agreed to pay more than $200 billion to 46 states over 25 years to help defray health-care costs associated with smoking in return for an end to litigation against the companies. The states and tobacco companies currently are in arbitration over payments of around $5.2 billion that Big Tobacco has withheld since 2006, claiming the states haven’t done enough of the “diligent enforcement” required by the MSA to stop small rival cigarette companies that didn’t sign the settlement from undercutting them on prices. Tribal nations had no role in the MSA, but the proposed legislation in Nebraska treats tribes as if they were small cigarette companies rather than sovereign nations with inherent rights to trade on their land.

The Winnebago Tribe in Nebraska was in the midst of negotiations with the state regarding a cigarette tax compact when the proposed Big Tobacco–authored Legislative Bill 590 came to light in January. The tribe broke off those negotiations and helped quash the worst of the bill’s attempted anti-tribal provisions—for now—but Morgan says the tribe won’t be surprised if the state reintroduces those portions of the legislation next year in order to try to force the tribe into a settlement. “This is about corporate greed and the states’ need for tax dollars,” he says. “They are hungry and tribes are once again on the menu.”

Legislative Bill 590 was introduced on January 19. According to the bill’s statement of intent, it “establishes uniform licensing, stamping and reporting provisions for tobacco-product manufacturers, stamping agents and wholesalers of cigarettes and roll-your-own tobacco. It also clarifies and enhances enforcement pertaining to those distributing tobacco in this state and authorizes the [Nebraska] attorney general to negotiate compacts with tribal governments relating to licensing, stamping and reporting for tobacco products.”

The next day Cookson wrote to Philip Morris and R.J. Reynolds—the two largest tobacco companies in America—asking them for input, according to the documents obtained under the Freedom of Information Act. “Attached is the draft legislation we introduced,” Cookson wrote. “Given the short time frame we were working on we may need to make changes. We would be interested in your thoughts if you think we missed something important.”The e-mails flowed freely between Nebraska Attorney General Jon Bruning’s office and tobacco-company representatives over the next few weeks. Special Counsel to the Nebraska Attorney General Katie Spohn asked the companies for input on definitions, revisions and other aspects of the draft legislation. “We would welcome your comments and suggestions as to the sufficiency of these legislative revisions,” Spohn wrote on February 14 to J.M. Wintner of WLRK, a firm representing Philip Morris. Two days later, Wintner sent Cookson a copy of L.B. 590 “with [Philip Morris’s] mark-up of the bill.” Philip Morris had inserted language into the bill that would expand state jurisdiction on sovereign Indian land, imposing unprecedented regulations on Indian tribal enterprises and on people doing business with Indian tribes. Among other things, the Philip Morris “revisions” would restrict the number of tax-exempt cigarettes that could be sold to tribal members on reservations; require tribes to prepay state excise taxes on cigarettes sold to tribal members, then seek reimbursement from the state; require escrow payments for tribally taxed sales; create a “do-not-sell list” for any tribe that exercises its right of sovereign immunity; and prohibit anyone from buying or selling products, including raw materials and manufacturing machinery, to any tribe on the list. Violations would make the buyer or seller “jointly and severally” liable for any due taxes or escrow payments on the products.

Philip Morris even marked up an exemption for itself and other big tobacco companies from “additional obligations” that would apply to all companies. It’s not clear which additional obligations Philip Morris meant, since the language of an e-mail is vague, but they likely involve additional reporting requirements.

Asked if it was standard operating procedure to invite attorneys from private corporations to write the laws of his state, Cookson said that the MSA “requires states when they change the statutes under the MSA to consult with the companies, so we’re doing what we’re required to do under the agreement. The important point to note is we also have maintained a very open and active dialogue with the tribes, because we view them as our partners and it’s been a very good and cooperative working relationship forged over the years.”

Cookson says he did not, however, consult with the tribes on the “amendments” proposed by Philip Morris, “because we didn’t put all of them in the bill.” Morgan disputes that; he contends that “the state did introduce most of the anti-tribal provisions” in the bill presented to the legislature.

The core of the problem lies in the terms of the MSA itself, which places states in the conflicted position of needing Big Tobacco to keep its market share in order to get paid. Since Big Tobacco is losing some market share but can’t go after other manufacturers who signed on to the MSA, it’s going after small and tribal companies instead, Morgan says. “Nebraska has been generally pretty good to deal with, but in this instance I almost feel sorry for them. They made a deal with the devil, and like all deals with the devil it started off pretty good, but in order to keep that money flowing, they have to do what the devil says, and right now Marlboro doesn’t want the tribes to be competitors."

L.B. 590 passed its first hurdle on April 27 when it received a first-round unanimous vote of approval in the state legislature. It now has two more rounds to go and is likely to pass, says Morgan. But it’s not certain that it will pass into law unchallenged. “It is questionable whether the state has the authority to pass this new legislation which goes beyond the original regulations of the MSA agreement that applied to manufacturers only,” Morgan says. “In reality, the only goal of the MSA was to shield Big Tobacco from current and future liability and protect its market share.… Big Tobacco is losing market share but it’s losing the share to other manufacturers who subsequently signed the MSA after the original agreement. Because Big Tobacco and the states really can’t go after these subsequent participants, they’re going after the other small and tribal companies instead.”