Tobacco smuggling as an "unintended consequence of high cigarette taxes..

April 19,2011

A recent wave of state tobacco tax increases, designed to pump revenue into cash-strapped local governments, is inspiring an increasingly dangerous cigarette smuggling industry where big profits lure violent criminal gangs and drug traffickers into the booming illegal market, according to law enforcement officials and court records.

Larry Penninger, acting director of the tobacco diversion unit of theBureau of Alcohol, Tobacco, Firearms and Explosives (ATF), says investigations and prosecutions involving tobacco trafficking have been increasing as smugglers flood high-tax states with cigarettes from low-tax states.

From 2007 to last year, 27 states raised their cigarette taxes, according to Michigan's Mackinac Center for Public Policy, which closely tracks tobacco tax rates across the country. Mackinac describes tobacco smuggling as an "unintended consequence of high cigarette taxes."

There is so much illicit money to be made, Penninger says, that some drug and weapon trafficking organizations are adding tobacco to their product lines to boost profits. For example, in low-tax states such as Virginia, where cigarettes cost about $4.50 a pack, smugglers can sell a truckload (typically 800 cases) in New York at $13 a pack. New York is the highest tobacco taxing jurisdiction in the country.

Smuggling costs states and the federal government about $5 billion, according to U.S. government estimates. "Everybody out there (involved in illegal trafficking operations) is tapping into tobacco,'' Penninger says.

Since 9/11, much of federal law enforcement has focused on terrorism, but tobacco smuggling is attracting fresh interest.

- Last year, the ATF reported 357 open cases involving tobacco smuggling, compared with a handful a decade earlier.

- During the 2010 fiscal year, the Justice Department reported 71 new prosecutions referred by the bureau, a 39% increase from the year before, according to records compiled by the Transactional Records Access Clearinghouse at Syracuse University in New York.

- Seizures of cash and property also have been rising, from $11 million in the 2007 fiscal year to $31.5 million in the 2009 fiscal year.

Reference: Cigarette taxes spur smuggling
by Kevin Johnson - USA TOday, 4/18/2011.