News / USA

US States Target Black Market Cigarette Sales

Smuggling costs billions of dollars in lost tax revenues

A truckload of black market cigarettes could be worth $2 million in profits for smugglers.
A truckload of black market cigarettes could be worth $2 million in profits for smugglers.

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Faiza Elmasry

Lawmakers across the U.S. have raised taxes on cigarettes to provide local governments with much needed funds.

But a thriving black market in cigarettes is costing governments billions of dollars a year in lost revenue. That's prompted agencies at all levels to join an effort to fight cigarette trafficking.

Price of a smoke

The price of a smoke varies widely across the United States, because each state sets the tax imposed on the retail sale of a pack of cigarettes.

In some states, it's a few cents. In others, it's several dollars. So, with 45 million American smokers, cigarettes are big business.

So is cigarette smuggling.

Smugglers stock up on cigarettes in low-tax states or buy them tax-free on Indian reservations. Then they transport them to states where the price of a pack is higher. The higher the tax in the state where the smugglers unload the cigarettes, the greater the profit.

Huge profits

"Right now a tractor-trailer load of illegal cigarettes will net the truck driver about $2 million in profit," says Ted Deeds, spokesman for the Law Enforcement Alliance of America, a private law-and-order advocacy group.

Deeds points out that profits for the smugglers mean uncollected taxes for the states, money that's needed to fund local services, especially education.

"The Wall Street Journal has reported that the individual states are losing approximately $5 billion annually, simply from the lost taxes caused by the illegal cigarette black market," he adds.

Cigarette taxes are a vital revenue source for New York State, which has the highest-priced cigarettes in the nation - almost $15 a pack.

State taxes make up more than $4 of the cost. New York City tacks on an extra levy of $1.50. The state is collaborating with the federal Bureau of Alcohol, Tobacco, Firearms and Explosives, known as the ATF, in cracking down on the cigarette black market.

Cracking down

Brad Maione, with New York's Department of Taxation and Finance, says the agencies have been conducting long-term undercover investigations.

"This work is dangerous, difficult and involves out-of-state operations," he says. "We've been relatively successful over the years in fighting bootlegging. We did a case in March that resulted in numerous arrests. That was about $11 million in tax-loss for the state."

"ATF, you know, worked literally on hundreds of cases across the country in recent years," says Jeff Cohen, an ATF spokesperson. "One of our more noted success was a case a couple of years back involving a Hezbollah terror cell in North Carolina that was transporting cigarettes to the State of Michigan and making a great deal of money on the untaxed cigarettes and then was using the money to basically buy military equipment."

In spite of many successes, Cohen says, fighting cigarette smugglers is becoming more difficult.

"One of the major problems around the world is the manufacturing and distribution of counterfeit cigarettes," he explains. "In recent years, these companies have become much more sophisticated, up to the point where it's impossible to tell the difference between the counterfeit cigarettes and the actual cigarettes."

And, he says, law enforcement's efforts are often hindered by a lack of resources - and other priorities.

Sophisticated smugglers

"In particularly, at ATF, we focus primarily on violent crimes," says Cohen. "When you have people who are trafficking firearms or engaged in blowing up buildings, or engaged in drug trafficking, sometimes cigarette trafficking is not considered a high priority. The other thing is that criminals are very clever. They often insulate themselves by having many different transactions in between where cigarettes are ultimately sold."

Raising public awareness about this crime is essential to stopping it, according to the Law Enforcement Alliance of America's Ted Deeds.

"America's police need to do a better job letting everybody in America know there is a black market," Deeds says. "And every person in America needs to make better choices and obviously not to buy it. And if they see somebody selling stolen [items] out of the back of a truck, call local law enforcement and report that. Second, law enforcement has to have a seat at the table when we talk about what to do next. Maybe we secure the border. Maybe we increase the penalty. Maybe we decrease the profitability."

Deeds says developing more cooperation among various federal and local agencies can help combat smuggling. And he adds that it would be useful for U.S. law enforcement officials to coordinate with foreign agencies and governments, since cigarette smuggling has increasingly become a crime with no borders.

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