The Smokeasy: Bootlegging Returns To America

Betty Bootlegger

By Darren Smith, Weekend Contributor

With many states grappling with the need for tax revenue and the otherwise laudable effort to curtail cigarette smoking among their citizens, laws of supply and demand are beginning to having unexpected consequences to some. Rises in taxation of cigarettes with prices in one location as high as $15.00 per pack, the majority of cigarettes consumed by smokers there are now bootleg. According to the U.S. Bureau of Alcohol, Tobacco, Firearms, and Explosives, nearly $5 billion in revenue in 2010 was lost because of smuggling. But this figure is very likely to rise dramatically since many states since enacted even higher levels of taxation.

The situation has formed a fertile ground for illegal cigarette trafficking and there have been inroads into organized crime. Sources of illegal cigarettes have been neighboring states where tax rates are lower, Native American reservations, and even foreign sources of the same brand names, often from Vietnam, Thailand, and Eastern Europe. Wholesale illegal supply chains are becoming increasingly significant. While cigarettes are otherwise available, albeit at a higher price, these states are beginning to see a softer form of prohibition. But there is also a very dark side to smoking bootleg cigarettes. Illegal cigarette trafficking has been used as a vehicle to channel money to foreign terrorist organizations. Are the benefits worth the costs inherited from high taxations?

According to the non-partisan research group Tax Foundation, increased excise taxes on cigarettes to discourage smoking have, in fact, created lucrative incentives for black market trafficking between states. According to their report, 56.9 percent of the cigarettes sold in the Empire State are brought in from other states. New York State has the highest cigarette taxes in the country – a whopping $4.35 a pack. If you live in New York City, it’s another $1.50 per pack, bringing taxes to $5.85 per pack, with the overall cost of a pack in the city in the $12 to $15 range.

Mob Borough SmokesArizona is the country’s second largest net importer of smuggled smokes with 51.5 percent of its cigarettes smuggled in illegally. New Mexico follows at 48.1 percent, Washington at 48 percent and Wisconsin at 34.6 percent, according to the survey.

The states which had the highest outbound smuggling rates were New Hampshire at 24.2 percent, Wyoming at 22.3 percent, Idaho at 21.3 percent, Virginia at 21.2 percent and Delaware at 20.9 percent.

Enforcement is often lax and under-funded on the state and local level. Yet a semi-truckload of bootleg cigarettes can bring in nearly three million dollars in illicit profits. With easy availability on a wholesale level and unlike drugs such as heroin are a legal substance, it is often more attractive than drug or weapons smuggling.

It can be said that nearly all of the end users of these bootlegs are ordinary smokers who want to buy their product at a lower price, and they are not necessarily otherwise the stereotype of a contraband user, it is the supply side that is has a insidious nature. This is not limited to profiteers, but according to the BATFE and FBI reports, terrorism is now cashing in on the racket.

The first large-scale cigarette trafficking case tied to terrorism was prosecuted in North Carolina in 2002. A federal jury in Charlotte convicted Mohamad Hammoud, 28, of violating a ban on providing material support to terrorist groups by funneling profits from a multimillion-dollar cigarette-smuggling operation to Hezbollah.

Getaway CarThe jury also found Hammoud, whom prosecutors described as the leader of a terrorist cell, and his brother guilty of cigarette smuggling, racketeering and money laundering. The two men, natives of Lebanon, were accused of smuggling at least $7.9 million worth of cigarettes out of North Carolina and selling them in Michigan. Hammoud was sentenced to 155 years in prison.

Prosecutors were able to prove that profits from the venture were funneled to high-ranking Hezbollah leaders. And Hammoud was caught on wiretaps speaking on the telephone with Hezbollah’s military commander in Lebanon, Sheik Abbas Harake, according to trial testimony.

In another case in September, Hassan Moussa Makki, 41, a key player in a multimillion-dollar interstate cigarette smuggling ring, pleaded guilty in Michigan to providing material support for terrorism and participating in a racketeering conspiracy. Prosecutors said he also funneled money to Hezbollah. Makki, a native of Lebanon, was one of 12 people indicted last year in the scheme to buy low-tax cigarettes in North Carolina and sell them in Michigan. He was sentenced to 57 months in prison.

207 Million Dollars
207 Million Dollars.  This represents only 4% of the total estimated tax revenue lost in 2010 due to smuggling

While it is certainly unfair to label a tax evading smoker as an indirect supporter of terrorism and organized crime, most are probably unaware of this link. It is time for state legislatures to see beyond the current tax revenue addiction of tobacco and focus on alternative approaches.

By Darren Smith


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29 thoughts on “The Smokeasy: Bootlegging Returns To America”

  1. nick spinelli

    Democrats care, that’s why they tax sin so much. The more they tax, the more they care. They are the extreme evangelicals of government. And, just like extreme evangelical religion, they create situations antithetical to their “caring” message.
    Bootlegging Returns To America” – Darren Smith

    Actually, what started bootlegging, which Darren implies is the precursor to this cigarette tax thingy, was republican church chats on the floor of the senate:

    … temperance ideology has made its way into federal law though the religious faith of once Senate Majority Leader Bob Dole, along with ordained Episcopalian Priest Senator Danforth … Senator Danforth was an ordained Priest, and Senator Dole is a lifetime member in the arm of the Methodist Church that had activities called the “temperance movement” which led to the Eighteenth Amendment, then the Twenty First Amendment … Senator Danforth, (the priest at Reagan’s funeral), as an ordained Priest was obviously influenced by his religion, and Senator Dole was influenced strongly by his church ideology as well …

    (Church Chat). They are the only church to own property on capitol hill and to have had such an impact on constitutional law.

    They da mamma of “the mob.”

  2. chester, my comment was about public-health hazards, not taxing. But still, you have to recognize, according to my parents, that beer and wine were not household staples before the 90s. Alcohol is a mood modulator, responsible for a lot of the ugliness on roadways, among coworkers, and with neighbors. Also, to the degree that tobacco is, no one is lobbying to remove alcohol from restaurants, bars, and other places to socialize. So why are only tobacco users singled out? Do the affluent, who smoke very little in comparison, really need to be riding the backs of tobacco users, who tend to be from lower income brackets and have little to no political voice? As I see it, compared to tobacco taxation, the affluent, with their little-taxed bottle of wine with every meal, get a tax subsidy that they neither deserve nor need. Just saying.

  3. Can you say “Sin Tax”? That is how governments get away with raising the tax on tobacco and alcohol. Since people are addicted they will continue to use the product, even if you raise the price. When the price reaches a certain level, it is profitable to smuggle it. And America is based on smuggling. John Hancock of American Revolutionary fame was America’s no. 1 smuggler.

  4. Harry, your Rudy Giuliani comment is priceless!

    PaulRevereWear, great analogy.

    I used to smoke over 2 packs a day. The threat of cancer or heart disease never bothered me. I do, however, have orthopedic problems, and to date have had 12 surgeries on knees, shoulders, wrists, neck, you name it, I’ve had it. In 1989, I read that smoking could result in brittle bones, and that was when I was only up to about 6 surgeries. I plotted out my quitting: picked a week that I was going on vacation from what was a stressful job, told everyone I knew that I was going to quit (couldn’t sneak around then), and the month before, smoked like a chimney, to the point where I made MYSELF sick of smoking. I’ll never forget the day: November 5, 1989, 6:30 pm CST. Landed at an airport in Biloxi, and in front of 4 other friends threw out my cigarettes, lighter, and fancy cigarette case. I had gotten what was, at that time, the new gum for quitters. My doctor even had me chew some before giving me a prescription because it made some people sick. I felt fine. Of course, after spending $25 on the gum, chewed one piece, and got sick. After that, it was cold turkey, and I made everyone around me sick for about a week. Since then, I’ve never smoked one cigarette. It’s not willpower, it’s the knowledge that if I ever went back to smoking, it would be for life, because I would never go through that week again. I do, still, have dreams in which I’m smoking. I don’t know what quitting drugs is like, and I’ve heard some make the analogy, although I imagine drugs are harder, but that was one bummer of a week.
    One interesting thing, though, since I’m already wasting everyone’s time…two days after quitting I walked into a coffee shop. Now they always tell you to stop coffee as well, because you equate coffee and cigarettes, but I tell you, I never had anything smell so good to me in my life. The sense of smell is the first thing that comes back to you. The taste was equally good.
    It will be 25 years this November that I quit smoking. Coffee they’ll take from me when they pry it from my cold, dead hands!
    More on topic, tax tobacco! It kills. While we’re at it, tax gasoline. It’s killing us as well.
    Samantha, alcohol is taxed. As far as all the rest, I’m in agreement that they can kill us, too, especially prescription medication, and I take quite a bit. Still,
    you have to eat, and some people need medication. No one needs to smoke.

  5. So, it is a public-health hazard for tobacco, but not for alcohol, trans fat, GMO food, prescription drugs — all the things that destroy visage, alter the girth-height aspect ratio, accelerate aging, add pounds to backsides that fuel an oversized toilet industry, disrupt hormonal balance, and has transformed a nation of congenial folks into mean-spirited a–holes, whose only response by now is to have passed ten-million new laws?

  6. When the ambulance came for the dead guy who died of heart disease I did not listen. When they came for the emphysema dead guy I did not listen. Then they came for the lung cancer dead guy and I did not listen. I kept smoking. Until I learned that my money was going to terrorists. They can teach some of the people some of the time.
    But, as John Wayne said in the movie The Green Berets when he called a break in the platoon’s movement through the jungle in Nam: Smoke em if ya gottem. Of course Johnboy was getting paid by the tobacco industry to promote tobacco to the youth. That was fifty years ago and people are still dumb as toast. People everywhere killing themselves. Meanwhile back in Nam the Cong guys, now in their seventies are laughing about how easy it was to find us when we were hiding out in the jungle smoking.
    Say it ain’t so Joe.
    But, I will say to John Wayne and the rest of you who smoke: Guns are quicker.

  7. Democrats care, that’s why they tax sin so much. The more they tax, the more they care. They are the extreme evangelicals of government. And, just like extreme evangelical religion, they create situations antithetical to their “caring” message.

  8. As a non smoker now and having smoked for 20 years, I (on a dare) stopped smoking and now am 20 yrs. smoke free. I had the right to smoke when I did, I paid for them and as long as I did not make others uncomfortable in my presence, it was my choice. Not the government’s . Whatever a person chooses to do to his/her body, is his/her choice…………….. Not uncle Sam”s.

    What next, are we going to forbid people from, tattooing them selves (No, I have no tattoos) Govt. has gotten involved in what we should eat and not eat, where we get our electrical power, etc. It should stay our of our lives. We don’t need a “Nanny Govt.”. A big push is underway to stifle or kill the arms industry………… Look what has happened to the whiskey industry, now the marijuana industry. We drove the Tobacco industry overseas and now we are paying for it. I agree with “Rafflaw” “Any prohibition of something people want is doomed to fail.” Govt. should stay out of our personal lives!!!!!!!

  9. Addiction is powerful, smokers will get their cigarettes more cheaply even if it means it’s illegal I guess. Hopefully this won’t happen to food one day.

  10. Re the “terrrrrrrrorrrrrrrism” over-charging by the Feds. There have been many discussions of this on Talkleft, among attorneys specializing in federal criminal law. The degree to which you are screwed when a U.S. Attorney draws a bead on you can not be overstated. Charges piled upon charges upon even more charges, judges penalizing anyone who has the temerity to ask for a trial, procedural rules that allow judges to consider evidence in cases unproven when deciding sentences for charges which were proven.

    Almost as an argumentum ad absurdum, witness Professor Turley’s frequent threads describing kids charged with “Terrrrrrrorrrrrrrrism” for possessing finger guns, poptart guns, etc..

    Maybe the cigarette smugglers were sending a few bucks back to the old country. I’ve no idea. But I’d bet they were more interested in lining their own pockets.

    Like Al Capone found out, you can get away with a lot of $hit in this country, but you can’t get away with stiffing the taxman.

  11. $15/pack

    $15 is what an ounce of MJ cost when I was a college freshman. Incredible.

  12. I stopped reading when the author equated buying bootlegged cigarettes with supporting foreign terrorist groups. Sounds just like what Rudy Giuliani might say to fear monger home his point of view.

  13. While I have no problem taxing cigarettes at a reasonable rate as they are a health hazard to anyone who inhales the smoke or to those of us downwind, any tax needs to be reasonable. Any prohibition of something people want is doomed to fail.

  14. People have a right to smoke if they want to.
    Our govt is out of control with unfair taxation upon them. No I do not smoke either.

  15. Thanks Darren, you always present some very good commentary. It should be intriguing to everyone, just how often our illustrious social engineers get it wrong.

    “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.” – Marx, not Karl silly, Groucho.

    “Politics, noun. A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.” —Ambrose Bierce, The Devil’s Dictionary

  16. As a non-smoker, I’m curious. With the high cost of cigarettes now, is bumming a cigarette still socially acceptable?

    As I said, I am a non-smoker and have never smoked. I fully support efforts to ban smoking anywhere in public that others are subjected to second hand smoke. However, we are going to far in trying to stamp out smoking all together. Including trying to tax it out of existence. Have we learned nothing from prohibition and from the “war on drugs.” There are always going to be unintended consequences when the government goes to extremes.

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