The following transcript is from an Aug. 15 broadcast on WNEM Channel 5 in Saginaw.

Police Say Cigarettes Are Funding Terrorists
(See video.)

(TV5) Mid-Michigan--It's big business and getting bigger. Bootleggers re-selling cigarettes here in Michigan to raise money for terrorists.

The tax on a pack of cigarettes in North Carolina--five cents. But you pay $1.25 in tax for the same pack of cigarettes at a store like this one in our state. This big tax gap is how terrorists can make money off Michigan tax payers.

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If paying $1.25 in taxes for a pack of cigarettes doesn't make smokers quit, perhaps the idea that their money could be funding terrorism operations will. (ML) "They were running van loads of cigarettes from North Carolina to Michigan and distributing them in retail stores in the Dearborn area where they had a lot of friendly contacts," said Michael LaFaive, an economist with the Mackinac Center.

Here's the connection to terrorism--the profits made by these runs from 1995 to 1999 went to Mohammed Youssef Hammoud, a man with alleged links to Hezbolla in Lebanon, a known terrorist organization. Economist Michael LaFaive predicts that cigarette smuggling operations will increase, now that Michigan's tax has increased. He says cigarette smugglers will drive vans filled with about a thousand cartons, paid for in cash in states like North Carolina where the tax is low, and then re-sell them in Michigan. The trip nets up to $10 thousand--not bad for the 13-hour drive.

The most recent bust, of these two men, found that some of the money was used to buy night vision goggles, global positioning systems, stun guns, blasting equipment and get this--advanced aircraft analysis and design software. "If there's anything available in the western market that could aid the Hezbollah's movement, it was being shipped overseas."

LaFaive wonders if lawmakers discussed the terrorism issue before passing the cigarette tax. "No it wasn't," responded Senator Joel Gougeon, a Republican who helped write the senate version of the new tax. "I acknowledge that we're making that law enforcement issue more difficult but off-setting that is our need in the budget--we are trying to live within our means," argued Gougeon. He says the tax hike will offset the deficit by 400 million dollars per year. That is, if everyone buys their cigarettes here, in Michigan.