So far, we’ve discussed the results of our statistical model concerning the relationship between cigarette tax rates and illicit smuggling. The figures this analysis produces are important for policymakers to consider when debating the merits of making changes to cigarette tax rates. But, as with any statistical analysis, its reflection of reality is limited to the quality of the data it uses and to the appropriateness and accuracy of its assumptions.
Recognizing this, we would also like to present some evidence that suggests that cigarette smuggling is, in fact, a real issue that impacts real people. Although these are anecdotes, they imply that smuggling and related crimes are becoming more common in the United States as more states have increased cigarette taxes. They also reveal other costs to cigarette smuggling — the corruption, violence and required policing associated with this illegal activity. Policymakers should also keep these stories in mind when considering cigarette tax rates.
- A Queens, New York man was arrested on November 21 in a bust that yielded over 2,000 cartons of cigarettes on which taxes had not been paid. Police had been investigating the alleged smuggler, Wenheng Zhao, and undercover detectives had bought 100 cartons of illegal cigarettes from Zhao before his arrest.
- In late October, a Virginia smuggling came to an end with the arrest of Ahmed Leweisy, according to the Richmond Times-Dispatch. Police estimate he bought more than $1 million worth of cigarettes over just 18 months and resold them in New York. This is not Leweisy’s first arrest. He was charged in 2014 for “possession with intent to distribute tax-paid cigarettes” and more.
- On September 29, three New Orleans police officers were indicted for their role in a cigarette and cigar smuggling ring that involved moving smokes from New Orleans to North Carolina and other states for resale.
- On September 28, police in Newark, New Jersey, arrested a suspect in a counterfeit tax stamp operation. The police also confiscated 400 cartons of cigarettes that bore a Virginia tax stamp, or no stamp at all. The large amount found in New Jersey points to the smokes having been smuggled. The article also notes that local law enforcement officials call Interstate 95 “Tobacco Road,” because it is a known route for smuggling cigarettes from the Carolinas up to New England.
- A Tennessee state representative was found guilty on August 8 of tax fraud associated with reselling cigarette tax stamps. Joe Armstrong failed to declare $300,000 in profit he generated by selling tax stamps that he had purchased before he voted to raise cigarette taxes.
- A New Jersey woman pleaded guilty on June 16 for her role in a scheme to sell in New Jersey and other states cigarettes purchased in Virginia. The cigarettes were purchased at wholesale club stores, such as Sam’s Club. The government alleges that this woman made 1,735 purchases of cigarettes at Sam’s Club in Virginia worth $6.3 million from March 2014 to August 2015. The total estimated amount of cigarettes alleged purchased for resale in New Jersey was worth $9.5 million.
- On May 12, a Holyoke, Mass., man was arrested and charged on five different counts, including “conspiracy to sell 12,000 or more unstamped cigarettes,” forging or altering tax stamps and money laundering.
- A May 8 story in the New York Post details how law enforcement officials broke up an operation “that used Chinatown buses and cars to bring 2 million contraband cigarettes into New York City every week.” City Sheriff Joseph Fucito said the smuggling cigarettes represent $34 million of loss taxes for New York City and New York state.
- An April 1 report notes that a Canadian NASCAR driver, Derek White, was arrested and charged for his role in a cigarette smuggling scheme that shipped illicit smokes from North Carolina to Canada. About 60 people were arrested in connection to this smuggling operation. Canadian law enforcement seized over 100,000 pounds of tobacco and estimate that the scheme was responsible for importing over four million pounds of tobacco into Canada from the United State from August 2014 to March 2016.
- The Queens District Attorney announced arrests of a married couple from Long Island in early March. The couple was found to have possessed 375 untaxed cartons of cigarettes and 3,540 fake Virginia tax stamps. The arrests took place on March 1 and came hard on the heels of another Queens-area bust on February 26 where authorities seized hundreds of thousands of untaxed cigarettes and tens of thousands of counterfeit tax stamps.
- A March 3 article in the St. Louis Dispatch describes the indictment of a 14-member cigarette smuggling ring, that shipped cigarettes bought in Missouri and Georgia to New York state. The articles reports that the group avoided some $20 million in New York taxes.
- On February 27, Maryland police made an arrest of an alleged cigarette smuggler moving 20,000 packs of cigarettes up from North Carolina. Police reported the illicit products would have had a value of more than $130,000 had they been successfully sold in Maryland.
- Over the last two weeks in February, Maryland authorities confiscated over 70,000 packs of contraband cigarettes worth about $300,000. The people involved in these schemes were thought to be transporting cigarettes from North Carolina and Virginia to Maryland and New York. One law enforcement authority said that “smuggling of illegal cigarettes and tobacco products is occurring on a daily basis.”
We expect these types of stories to continue. There seems to be a steady interest in raising cigarette taxes in state legislatures, usually under the assumption that doing so will raise more revenue for the government and reduce smoking. The unintended consequences of these policies matter though and can be costly.