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Cigarette smuggling increasing in Virginia

By Chelyen Davis

RICHMOND—What kind of illegal smuggling has the highest profit margin for criminals? Moving heroin? Cocaine? Guns?

No. It’s cigarettes.

Cigarette trafficking has become so lucrative that it is attracting organized crime and former drug smugglers, Virginia Crime Commission staffer Stewart Pettoe said on Wednesday, during a report to the commission on cigarette trafficking in and from Virginia.

He quoted an unnamed Virginia State Police agent as saying the profit margin on illegally trafficked cigarettes is now higher than on  cocaine, heroin, marijuana or guns. A Wall Street Journal article from 2009 cited at least one incident in which criminals were willing to trade cocaine for cigarettes—that’s how high the profit margin is.

Pettoe said cigarette smuggling has existed for years. But as the discrepancy among states’ tax rates has widened in recent years, the problem has worsened.

“We see data in the field that just in the last year it is blooming in the commonwealth,” Pettoe said.

That’s because Virginia has  the second-lowest cigarette tax in the nation, at 30 cents a pack (2010 figures give Missouri’s tax as the lowest, at 17 cents). Every state to the north has a higher tax, and by the time you reach New York state, the tax is $4.35 a pack.

Adding on federal taxes and other costs means that a carton of Marlboros that costs about $40 to $45 in Virginia costs more like $120 to $150 in New York City.

Truck 1,500 cartons of Virginia-bought cigarettes to the Big Apple and you could see a $100,000 profit. That’s assuming you even take legally purchased cigarettes; traffickers also deal in cigarettes without Virginia tax stamps, as well as counterfeit cigarettes and those with counterfeit stamps.

Trafficking doesn’t even require obvious equipment. A car can carry 10 cases (600 cartons) of cigarettes, Pettoe said—with a New York profit of about $34,000. Rent a U–Haul and pack it with 200 cases, and the profit could be about $670,000.

Looking at that math, Pettoe said, it’s no wonder criminals are attracted to cigarette smuggling.

“The temptation is there and it becomes irresistible for criminals,” Pettoe said. “You can easily make $300,000, $400,00 on one trip.”

 And Virginia is the source for many of the trafficked cigarettes.

Pettoe said a recent study showed that 30 percent of the cigarettes in New York City came from out of state; of those, 71 percent were from Virginia.

“We are now currently the primary source state  for black market cigarettes in New York,” he said.

Pettoe said it might be easy to say it’s New York’s problem—after all, it’s New York and other states that are losing out on most of that tax money, not Virginia.

But smugglers bring other crime, Pettoe said.

“Organized crime is always looking for ways to make money,” he said, and has noticed how profitable cigarette trafficking is.

So smugglers aren’t “college kids scheming up ways they can fund a college trip.”

Instead, they’re gangs such as MS–13—and even, in one investigation, Hezbollah.

“When they come to Virginia they will be bringing ancillary violent crime with them,” Pettoe said.

Illegal cigarette trafficking also hurts legal cigarette manufacturers—whose brand reputation could be harmed by counterfeit cigarettes—along with wholesalers and retailers.

Virginia this year passed a bill meant to penalize the practice known as “smurfing”—buying up large quantities of cigarettes legally, for later resale. That’s one way traffickers get cigarettes.

The new law bars anyone but licensed dealers or wholesalers from having more than 25 cartons of cigarettes with intent to distribute them, and applies civil fines of up to $10,000 for a third offense.

Pettoe didn’t offer suggestions for what the crime commission might propose, legislatively, to help curb cigarette smuggling in Virginia. He said the issue is so vast and complex that it will take staff until the commission’s November meeting to get more information on cigarette trafficking, including conviction data and options for changes to current laws.

At that time he’ll also provide more information on a warning sounded by a lobbyist representing the company that makes Bailey’s cigarettes: He said Virginia risks losing part of its master tobacco settlement money if it doesn’t step up enforcement of cigarette trafficking.

 Chelyen Davis:  540/368-5028