Cigarette smuggling

Posted: Aug 06, 2002 12:00 AM
In a recent column on cigarette smuggling, I mentioned that organized crime and even terrorist groups have now become engaged in this lucrative trade. It exists because of wide variations in state taxation of tobacco. Cigarettes are taxed just 2.5 cents per pack in Virginia, but $3 per pack in New York City. It is naive to think that nefarious groups are not going to exploit this difference for easy profits. Organized crime has been deeply involved in interstate cigarette smuggling for decades. However, recent sharp increases in state cigarette taxes have increased its involvement, according to law enforcement officials and numerous press reports. For example, a June 1 story in The Washington Post reported that Maryland's increase in its cigarette tax from 66 cents to $1 earlier this year led to an immediate jump in smuggling. It said that "a vast and burgeoning underworld of criminals" was now engaged in the business. "Criminals who once dealt exclusively in illegal drugs are now smuggling cigarettes because it is so lucrative and punishments generally are much less severe," the Post reported. A Detroit News story on July 21 reported similar problems in Michigan resulting from that state's sharp increase in the cigarette tax, which is now $1.25 per pack. It quoted John D'Angelo of the Treasury Department's Bureau of Alcohol, Tobacco and Firearms as saying, "There is no doubt that there's a direct relationship between the increase in a state's tax to an increase in illegal trafficking." On March 10, the San Francisco Chronicle ran a story titled, "Terrorists Mimic Crime Syndicates to Fund Attacks." It went on to detail the involvement of many terrorist groups in the smuggling trade. "More and more, terrorists are acting like traditional organized crime groups, engaging in rackets like cigarette and fuel smuggling," the Chronicle reported. Indeed, these terrorists groups are actually working with organized crime in these activities, it said. Earlier this year, a member of Hezbollah was convicted in North Carolina of running a multimillion dollar cigarette smuggling operation out of that state. When asked about similar activities in Maryland last year, State Comptroller William Donald Schaefer was quoted by The Washington Post as saying, "We know that some of the money used by smugglers is directly passed on to terrorist organizations." It is hardly surprising that terrorists would find cigarette smuggling to be an easy way of raising funds to finance their activities. Such groups are tightly organized, highly disciplined and already have experience with smuggling to obtain weapons and explosives. There have been reports from Britain for years that the Irish Republican Army has used cigarette smuggling as a key revenue source for its terrorist activities. On July 3, The Guardian, one of Britain's leading newspapers, reported that the IRA has now joined with organized crime to raise millions of pounds through cigarette smuggling. According to British police, the opportunity to make money outweighed "any sense of outrage caused by terrorist activity" in Britain. Israel has also found cigarette smugglers working together with terrorists. According to a May 20 report in The Times of London, Israeli authorities recently discovered that terrorists were using a tunnel dug by smugglers under the border between Israel and the Gaza Strip. Anti-smoking zealots would have us believe that increased enforcement will solve the smuggling problem. But authorities cannot even keep cigarettes out of prisons. On Feb. 7, The New York Times carried the following report: "A ban on smoking in state prisons has pushed the price of smuggled cigarettes to $7 to $10 each. Smuggling of methadone and heroin has dropped meanwhile, displaced by the more valuable tobacco." As long as tobacco remains a legal product and as long as sovereign governments tax it at widely different rates, massive smuggling is inevitable and impossible to stop. To even make a dent in it would require making tobacco illegal, as alcohol was during Prohibition. Although this is unlikely, anti-smoking zealots are hoping to use taxes for the same purpose. "If it were totally up to me, I would raise the cigarette tax so high the revenue from it would go to zero," New York City Mayor Michael Bloomberg recently said. One has to ask, If instead of prohibiting the production and sale of alcohol in the 1920s, would it have made any difference, substantively, if the federal government had simply imposed a tax of $1,000 per ounce on alcohol? In other words, high rates of taxation can have the same effect as prohibition at some point. Thus, the anti-smoking crowd hopes to achieve through the back door what it cannot achieve through the front: raising taxes to such a level that tobacco effectively is an illegal product. It won't stop people from smoking, just ensure that only smugglers make any money from it.