Cigarette Smuggling: Financing Terrorism?

Mohamad Hammoud

You may have seen the ads from the Office of National Drug Control Policy: "DRUG MONEY SUPPORTS TERROR." In the ads, teenagers—fictitiously—describe how their drug habit caused drug-related murder and mayhem.

Finally, as one teenager confesses, "I didn't really kill these people. I just kinda helped." The claim that drug trafficking funds terrorism has always been tenuous. But today there is another claim that has far more credibility and evidence: sky-high cigarette taxes fund terror.

Mohamad Harb

On July 21, 2000, 13 months before the World Trade Center attack, FBI agents raided a house in Charlotte, N.C., in an action dubbed "Operation Smokescreen." Inside they found cash, weapons (including shotguns, rifles and an AK-47), documents written in Arabic—and cigarettes. Lots of cigarettes.

It appears that the North Carolina safehouse was used as a base for smuggling cigarettes. The smuggling operation exploited the tax differential between North Carolina, which has low cigarette taxes at 5 cents a pack, and Michigan, with high taxes at 75 cents a pack.

Allegedly, the smugglers would drive the 680 miles from Charlotte to Detroit in a rented van with 800 to 1,500 cartons of cigarettes purchased with cash in North Carolina. The cigarettes would then be sold to Arab-owned convenience stores in Detroit, which sold them to customers. According to the U.S. Attorney, each trip—which required absolutely no special skills for the 13-hour drive—would net $3,000 to $10,000. The profits would then be shuttled back to Charlotte.

And here's where the pipeline to terrorism comes in: The homeowner and recipient of the profits was none other than Mohamad Youssef Hammoud, an individual with alleged links to Hezbollah in Lebanon.

Of course you know Hezbollah (which means "Army of God" in Arabic) from news reports as one of those groups the U.S. State Department has designated as a "foreign terrorist organization." This is the group responsible for the 1983 bombing of the Marine barracks in Beirut that killed 241 U.S. servicemen.

Hezbollah has connections with Osama bin Laden's Al-Qaeda organization, which masterminded the Sept. 11 operation, and the Al-Aqsa Martyrs Brigades, which carried out many of the recent homicide bombings in Israel. Together, they've declared jihad—or, "holy war"—on the United States.

Those $10,000 trips added up. In just one year, Hammoud deposited $737,318 in one bank account, while paying for houses, luxury cars and other goods with cash. It's likely that millions of dollars were made on the smuggling operation between 1995 and 1999.

But Hammoud was not the only one with connections to Hezbollah. He arranged for weekly meetings with other Hezbollah members in the Charlotte area, including Mohamad Harb, a Lebanese-born, naturalized U.S. citizen. Harb pleaded guilty on Feb. 25 of this year to conspiring to funnel cash, weapons, and supplies to Hezbollah.

Here's the list of what the U.S. Justice Department claims Harb purchased and sent to Hezbollah: night-vision goggles, cameras and scopes, surveying equipment, global positioning systems, mine and metal detection equipment, video equipment, advanced aircraft analysis and design software, laptop computers, stun guns, radios, mining, drilling and blasting equipment, radars, ultrasonic dog repellers and laser range finders.

Government agents suspect that all of these supplies were bought with profits from smuggling cigarettes. It is estimated that fully one-fourth of all cigarettes sold worldwide are now smuggled from low-tax areas to high-tax areas to reap the criminal's reward for government intervention in matters best left to the private sector.

The Michigan Senate recently rejected a proposal to hike Michigan's cigarette tax 25 cents a pack to $1.00; if such a hike were to pass, it would make smuggling and smuggler profits far more lucrative.

European officials have charged that the Russian mafia, Hezbollah and even Saddam Hussein have profited from cigarette smuggling, an activity some call more profitable than narcotics trafficking. Richard Fox, an agent with the U.S. Bureau of Alcohol, Tobacco and Firearms, told CNN following the North Carolina raid that cigarette smuggling is "a crime of national significance."

We can't know for certain whether increased cigarette taxes in Michigan would contribute to more terrorism. But, as the ads say, we may rightfully wonder if they would "just kinda help."


James A. Damask is a former director of appropriations with the Ohio House of Representatives and an adjunct scholar with the Mackinac Center for Public Policy. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliation are cited.


The tax differential is so great between low-cigarette-tax states like North Carolina and high-cigarette-tax states like Michigan, that the U.S. government is beginning to uncover a startling trend: Suspects linked to Middle East terrorist groups have been discovered making "cigarette runs," buying them in North Carolina and selling them at thousands-of-dollars profit in Michigan.

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