By Charles Giblin and Jack Donohue
American law enforcement has undergone a remarkable transition from just two years ago. Changes are ongoing, and challenges remain.
Unaddressed social problems, including the opioid epidemic, mental illness, homelessness and the COVID-19 pandemic, have compounded the stresses on police officers and sheriff’s deputies across the country. Law enforcement agencies will face new challenges in 2022, but the underlying obligation to building communities that trust their law enforcement officers is essential.
An emerging concern
Our concern centers around emerging challenges to the nation’s already strained law enforcement ecosystem. In some cases, law enforcement has been placed in the position of enforcing new laws or government policies that are not supported by the citizens they serve.
The U.S. House of Representatives Ways and Means Committee has advanced legislation that would increase costs on legitimate consumer products; in this case, cigarettes and other tobacco products such as e-cigarettes.
As former law enforcement we know how the underground economy will react to this additional cost to consumers – consumers will seek out products for the lowest cost. Therefore, it is easy to recognize how the proposed doubling the cigarette Federal Excise Tax rate and raising tax on other products (some over 1,000% increase in the excise tax), would near instantaneously stimulate international counterfeit manufacture and smuggling of cigarettes and other tobacco products, along with illicit interstate transportation of these same products.
Policymakers are ignoring independent research and history that demonstrates that organized crime and terrorism funding comes, in part, from cigarette and tobacco product smuggling. Without input from law enforcement, the unintended consequences of these new tax policies would empower cartels and other transnational criminal organizations to the detriment of public and officer safety.
Remember, this is at a time when the southern U.S. border is experiencing crisis conditions and law enforcement resources across the nation are stretched thin.
Tobacco products already moved illegally
There is documentation that large amounts of tobacco consumed in the U.S. were moved illegally across jurisdictions to sidestep taxes and regulations. Cross border smuggling has the attention of federal agencies, including the U.S. Department of State, which in 2015 issued a report (available in full below) alerting policymakers to the gravity of the issue, saying:
Illicit trade in tobacco, including cigarettes, has been linked to the financing of terrorist organizations. In some cases, smugglers deal in cigarettes and other illicit commodities, such as drugs, weapons, bulk cash smuggling, stolen antiquities, diamonds, and counterfeit goods. In most cases, the criminals also engage in identity theft, money laundering, and bulk cash smuggling to either continue their illicit enterprises, or to use their illegal profits.”
There are recent examples of criminal organizations trafficking illicit tobacco products, and engaging in many other criminal activities including:
- In 2019, the Kingsmen Motorcycle Club, engaged in the distribution of controlled substances, possession, use, and sale of firearms, sales of untaxed cigarettes and promoting prostitution. Sixteen members were convicted of RICO, drug and firearm offenses for participating in a drive-by shooting of rival Club members.
- In 2018, the Chee Kung Tong, engaged in racketeering activity; charges included money laundering, drug trafficking, illicit cigarette trafficking, trafficking in stolen liquor, firearms trafficking and murder for hire.
- In 2018, twelve individuals were convicted of credit card fraud and ID theft ring; defendants purchased cigarettes with stolen/forged credit cards to resell; one defendant participated in an organized dog-fighting ring.
- In 2017, an individual was convicted for using fictitious identity to set up businesses in Virginia to purchase cigarettes and traffic them to New York and New Jersey to sell at costs below properly taxed cigarettes.
According to a report from the Virginia State Crime Commission: “All cigarette trafficking schemes, no matter the methods employed, depend upon tax avoidance” as “illegally trafficked cigarettes now have a higher profit margin than cocaine, heroin, marijuana or guns.”
Knowing this fact, law enforcement will need to consider new ways to combat the likely increase in illegal tobacco and related product trafficking because it will have an impact on crime and quality of life. Chiefs and sheriffs may need to consider greater enforcement efforts while not injuring police-community relations.
Interstate, international tobacco smuggling
It is already a crime in most states to sell or possess illicit and untaxed tobacco products. It is also a matter of historic record that large differences in taxes between states and cities accelerated interstate trafficking in contraband cigarettes and tobacco.
There are other circumstances that create the opportunity for international tobacco smuggling. The routes and methods cartels and other criminal groups use to smuggle drugs and engage in human trafficking would be used for this relatively low-risk crime. Given the challenges along the Southern U.S. border, it is likely to become a significant entry point. Reports indicate that Mexican drug cartels are poised to exploit the border conditions and view those deteriorating conditions as an opportunity to supplement higher-risk criminal activities.
Other reports indicate that international smuggling of counterfeit cigarettes and tobacco products would occur. Countries such as China, Paraguay and Eastern European states in the Balkans may accelerate their efforts through transnational criminal organizations and cartels to import counterfeit products.
Many transnational tobacco smuggling investigations start at the state and local level with a trooper, deputy, or officer conducting a motor vehicle stop or a revenue agency’s law enforcement or regulatory inspection. These stops or inspections provide clues to curious officers that something is wrong with the products, such as a missing “tax stamp.” Unfortunately, the current legislation would exacerbate this by expanding the taxes to e-cigarette and vape devices that lack uniform indication that tax has been paid. Generally, federal agencies become involved with these investigations only after a local or state request. When federal law enforcement works with local and state governments the results are much stronger prosecutions.
With this potential new tax scheme, it is more likely than not that sophisticated criminal organizations, domestic and transnational, will exploit this poorly thought-through policy to extract greater profit. Less safe streets and borders will be the real unintended consequences. These problems will be left for state and local law enforcement agencies to handle.
With the history that criminal organizations have with illicit tobacco, the United States, through these new taxes, is poised to repeat that history. Law enforcement across the United States knows too well that no matter the best intentions of elected officials or regulators, they are far from where the rubber meets the road on the streets.
The Global Illicit Trade in Tobacco by epraetorian on Scribd
About the authors
Charles Giblin is the retired Special Agent in Charge of New Jersey Treasury’s Office of Criminal Investigation.
Jack Donohue is an attorney and retired Chief of Strategic Initiatives of the New York City Police Department.