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Smuggling Issues

October 26, 2000: Framework Convention on Tobacco Control

Tamara J. Light, Project Officer, Department of Treasury

Ms. Tamara Light described the ATF as a regulatory and criminal enforcement agency responsible for collecting excise taxes imposed on tobacco products manufactured or imported into the United States. They are also responsible for monitoring contraband cigarette trafficking. Under the Contraband Cigarette Trafficking Act, ATF is charged with assisting states in their efforts to collect revenues imposed on cigarette products. In her experience, tobacco trafficking occurs when foreign or state governments impose a higher excise tax on tobacco products than those tax rates in surrounding jurisdictions. She said that ATF is involved in efforts to curtail smuggling and trafficking, because such diversion ultimately defrauds the United States government, states, and other governments of their revenues and also because there have been increased criminal networks over the past 10 years.

The ATF also recognizes that tobacco smuggling is a public health concern. Smuggled cigarettes frequently are sold at low market prices, which undermines increasing prices as a means of curtailing consumption. It also denies governments tax revenues that can be used to support public health efforts. Smuggled cigarettes often do not comply with the various health regulations, including labeling requirements.

Ms. Light then shared with the group examples of smuggling experiences the ATF has recently faced. This year, ATF staff arrested 18 people involved in a cigarette trafficking and money laundering ring that bought products in North Carolina and sold them in Michigan, in part to support militant terrorism in the Middle East. Another case involved a networking scheme between New York and Michigan. The network involved a major U.S. wholesaler, Native American smoke shops, Michigan traffickers, and retail stores. They moved over $70 million worth of cigarettes. Another example involved smuggling cigarettes and alcohol from the United States to Canada. When caught, a subsidiary of RJR Northern Brands International admitted selling over eight billion cigarettes to U.S. companies smuggling cigarettes into Canada. This was the first time a tobacco company was implicated in smuggling. The ATF is also seeing a rise in cigarette hijackings and armed robberies. Eventually, the cigarettes land in the black market in the United States. Ms. Light also spoke about violent crimes related to cigarette smuggling abroad.

Examples like those above have led the United States, and ATF in particular, to commit to support the development of a protocol in the Framework Convention with strong measures to curb smuggling. Proposals to curtail smuggling should include a uniform distribution system regulating interstate commerce of tobacco. This would include a licensing system for tobacco products similar to the one the federal government has effectively used for the past 60 years to regulate alcoholic beverages. A license would be issued based on certain clearly specified criteria, and it could be revoked or suspended for specified violations. ATF also recommends effective marking, branding, and identification of tobacco packages intended for domestic distribution or for export to prevent diversion or smuggling and circumvention of the legitimate channels of distribution. Currently, people are involved in cigarette smuggling partly because the sentencing guidelines and the penalties for it are much less than those for drug trafficking.

Ms. Light mentioned that, during the opening statements at the Framework Convention, many countries mentioned that smuggling is a major problem for them. She had an opportunity to meet with counterparts from several countries to discuss some of the unique challenges the various governments face in detecting and prosecuting cigarette smuggling violations.

Speaking on behalf of her Canadian counterpart who could not attend the ICSH meeting, Ms. Light told the group that for Canada to tackle smuggling problems in the early 1990s, they devised a national action plan. It was a comprehensive plan with health, tobacco tax and enforcement initiatives. Their anti-smuggling initiative increased their enforcement resources, while the health component saw the introduction of a major anti-smoking campaign. Canada has seen success since increasing penalties, instituting export taxes, improving stamping and marking, improving security features on tobacco markings, increasing enforcement and auditing, increasing use of electronic surveillance, and increasing cooperation between domestic and foreign agencies.

Despite developments in the United States'efforts to combat smuggling, Ms. Light indicated there are still serious concerns. Research conducted by the USDA leads to the conclusion that up to a third of world tobacco exports are diverted to the black market. In a recent meeting, ATF learned that cigarette smuggling is intensifying globally and organized crime is increasingly involved. Cigarette smuggling is linked to secondary criminal activity and increased disrespect for the rule of law. Counterfeit cigarette seizures are on the rise, and cigarette smuggling is highly profitable. Obstacles identified in the fight against organized cigarette smuggling include the inability to trace confiscated cigarette shipments, the lack of cooperation and information sharing between member states, and the inability to effect controlled deliveries in some countries. She concluded her presentation by indicating that each country cannot effectively tackle organized cigarette smuggling in isolation. A successfully negotiated Framework Convention on tobacco control with a comprehensive anti-smuggling component will assist countries in meeting their domestic tobacco control policies and goals by reducing the threat of international tobacco smuggling.

To a question on the current penalty for tobacco smuggling in this country, Ms. Light indicated it is 5 to 10 years in prison and a quarter of a million dollars fine. In Europe, however, most smuggling offenses carry only a 2 to 3 year penalty, with time served hovering somewhere around 1 year. Discussions are under way to harmonize the money laundering laws in an effort to raise the sentencing guidelines, particularly in Europe where smuggling is very profitable. To a question on ATF resources devoted to finding and prosecuting tobacco smugglers, Ms. Light admitted that resources are scarce; ATF seeks partnerships with Customs and others to be more effective in this regard. Dr. Novotny stressed that smuggling is very much a health issue because it depresses cigarette prices and leads to increased access for children and others. If prices remain high as a result of taxation, consumption will decrease.

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