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.
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.''
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.
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.''
Source: Miami Herald