Virginia is home to cigarette giant Philip Morris USA and the nation’s most prolific cigarette factory — as well as the country’s second-lowest excise tax at $3 a carton. That means smugglers can easily buy hundreds or even thousands of cartons and resell them in the Northeast, undercutting retailers and skirting the higher taxes imposed there to boost public revenues and curb smoking rates. New York City, for example, taxes cartons at $58.50 apiece — nearly $6 a pack. Just a short drive away in Washington, D.C., the tax is $25 a carton.
Cigarettes also can be trafficked from neighboring North Carolina, which is home to cigarette maker R.J. Reynolds Tobacco Co. and also imposes low excise taxes.
Arkansas — a neighbor to low-tax Missouri — is among the states that have passed legislation aimed at cigarette smuggling in recent years, and others have stepped up enforcement efforts. But most rely on the federal Bureau of Alcohol, Tobacco, Firearms and Explosives, which has prosecuted several high-profile smuggling cases in recent years.
“A lot of states are focusing on it more than they have in the past because they’re realizing that a lot of their tobacco control efforts, as well as their revenues, are not working as robustly,” said Maggie Mahoney, deputy director of the Tobacco Control Legal Consortium, a program that’s part of the nonprofit Public Health Law Center in Minnesota.
Smuggling enough cigarettes can lead to an enormous payday. ATF estimates that a car can carry 10 cases of cigarettes — there are 60 cartons in a case — with an estimated profit of $34,000.
Upgrade to a van, and 50 cases can turn a $170,000 profit, said Virginia State Crime Commission legal affairs director G. Stewart Petoe. A large truckload can haul 800 cases and net a profit of $4 million. The Justice Department says the lost tax revenues can add up to several billion dollars.
“There’s no other legal product in the United States where this type of money can be made within a thousand-mile drive,” said Paul Carey, chief of enforcement for the Northern Virginia Cigarette Tax Board, which works with 17 area jurisdictions to combat cigarette smuggling.
Authorities are confident that disrupting the smuggling rings can stem the flow of money to terrorist groups, though few federal trafficking cases end up leading to terror charges. In one notable case in 2002, a federal jury in North Carolina convicted two Lebanese citizens of diverting millions of dollars in cigarette smuggling proceeds to the radical Islamic group Hezbollah. Possible ties to terror groups have also been raised in other cigarette trafficking cases.
Sen. Janet Howell, D-Fairfax, who is carrying the legislative package addressing illegal cigarette trafficking, said some people might say “so what,” but the problem is that it is “bringing organized crime into Virginia and also we’ve had some cases where the profits of the illegal trafficking are going to terrorists.”
The package is wide-ranging and covers everything from “smurfing” — buying cigarettes at Virginia retailers to resell elsewhere — to forged tax stamps, selling cigarettes off the books and importing counterfeit cigarettes. The penalty for a first “smurfing” offense would double to a year in prison under state law, while repeat offenders caught smuggling at least 500 cartons could face up to 10 years.
Among the legislation’s supporters is the Virginia Association of Chiefs of Police. Executive director Dana Schrad said he hopes harsher penalties will serve as a deterrent, given that some criminals turn to cigarette smuggling because the penalties are less severe than those for drug dealing and other crimes. It will also give police officers in the field more tools to rein in criminal operations.
“Without the tools, they’re not going to go anywhere,” Carey agreed.
While increased penalties can help, police also have to step up enforcement efforts to make a dent in criminal enterprises, said John W. Colledge III, a consultant who once ran large-scale cigarette smuggling investigations for the U.S. Customs Service.
“If you’re just running around beating up on the little guys who are making money off this, that’s one thing,” Colledge said. “I’m a firm believer in you follow the trail wherever it leads you, but just jamming up these people that are driving one carload, one truckload at a time, that really doesn’t do much in the overall scheme of things.”