In a riveting report released last week (PDF, 3.6MB), the Republican Staff of the U.S. House Committee on Homeland Security and Ranking Member Rep. Peter T. King (R-NY) shed new light on illegal tobacco trafficking enterprises that they say have “been largely ignored for far too long.”  Rep. King launched the investigation after he learned of the millions of dollars generated in the U.S. by illicit cigarette trade and the link to financing international and domestic terrorism.

The illicit cigarette trade is so successful, emphasizes the report, because its low-risk and high profitability serve as a gateway for “traditional criminal traffickers to move into lucrative and dangerous criminal enterprises such as money laundering, arms dealing, and drug trafficking.” 

The World Health Organization (WHO) estimates that illegal cigarette trade accounts for over 10%, or approximately 600 billion cigarettes, of the more than 5.7 trillion cigarettes sold globally each year.  In North America, the report says experts estimate that 5% of the annual cigarette trade, or approximately 414 billion cigarettes, are illicit.

In New York State, the primary focus of the report, large scale cigarette smuggling networks are dominated by tight-knit, nationality-based networks, primarily families through blood or marriage of Lebanese, Yemeni, Jordanian, and Palestinian descent.  According to Federal and New York State law enforcement officials interviewed for the report, these family-based smuggling rings can control up to four of the key stages in the smuggling process:  transportation, storage, retail, and remittance.

The report outlines just how easy it is for illicit tobacco traders to obtain cigarettes in lower tax states and sell them in higher tax states, saying that the large price disparity has created a tremendous opportunity for criminal enterprise.  In New York State, however, the report says that the smuggling networks rely primarily on access to the Native American Indian reservations for tax-free cigarettes.

New York State:  A Safe Have for Smugglers?
Manufacturers and distributors continue to sell more than 40 million cartons of cigarettes each year to New York’s Native American Indian reservation smoke shops, and it obviously is not all being consumed by Native American Indian residents. A 1994 estimate shows that every man, woman, and child on a Native American reservation would have had to consume 15 packs of cigarettes per day to account for the volume of cigarettes that the distributors sold to the reservations.

The New York State Executive Branch’s decision to “look the other way” on sales of untaxed Native American cigarettes to non-Native Americans in direct contradiction of numerous Federal and State laws is described as the “so-called policy of forbearance” and blamed for creating a safe haven for illicit smuggling networks.

Summary
Rep. Pete King and the Republican staff of the House Committee on Homeland Security say that New York’s failure to uphold federal laws, as well as the State’s own laws, has resulted in an environment where cigarette smuggling rings can operate with virtual impunity.  “Given the revelation that some of these rings are now funneling money to international terror groups, it is clear that the policy of forbearance not only costs the State hundreds of millions in tax dollars but is a threat to our continued security,” the report concludes.