December 12th, 2011:

WASHINGTON – U.S. Rep. Peter King (R-NY), chairman of the House Homeland Security Committee, shared his opinions about the proliferation and consequences of contraband cigarettes last week in Politico, a Capitol Hill publication.

King wrote that the “failure to strongly combat the growing crime of contraband cigarette smuggling deprives governments of billions of dollars in tax revenues — siphoned off by terrorist and criminal organizations.”

Using his home state of New York as an example — which has the highest cigarette excise tax in the United States — King suggests that as cigarette taxes increase, so has the illegal activity by some retailers to bypass wholesalers and acquire and sell counterfeit-stamped cigarettes. “This allows the smuggler and retailer to sell at substantial discounts — and still profit thanks to the margin created by unpaid taxes,” the representative wrote.

“In New York, contraband cigarettes are typically trafficked from southern states, which have lower or no taxes, or across federal tribal lands, where taxes are not collected,” wrote King, adding that tax-free cigarettes sold on tribal lands account for as much as one-third of all brand name cigarettes sold in New York — sales that are “supposed to be limited to tribal members.”

One result of cigarette smuggling, notes King, is that both the federal government and state governments are missing out on tax revenue collected from tobacco sales. “Nationwide, the annual loss is estimated at $5 billion at the state level, and a further $3.8 billion loss at the federal level,” he wrote.

King also cites that in 2008, a House Homeland Security Committee investigation found “a terrifying nexus” between cigarette smuggling and terrorism.

“We uncovered far too many examples,” said King, noting that counterfeit cigarette tax stamps “were found in an apartment used by members of the Egyptian Islamic Jihad cell that carried out the 1993 bombing of the World Trade Center. The notorious ‘Lackawanna Six’ Islamic-terrorist cell received $14,000 from a former gas station operator, who was subsequently convicted for cigarette trafficking and money laundering. …Last year, the U.S. comptroller general and the Justice Department verified that cigarette smuggling provides financial support for international terrorist groups including Hezbollah and Al Qaeda.”

Citing his support for the Smuggled Tobacco Prevention Act (STOP), King says that cigarette smuggling has presented a security threat for years that has not been addressed. “With the revenue-starved governments across the country – including in New York — facing huge shortfalls, there is even more incentive to address the problem. The era for tolerating cigarette smuggling with ineffective tax enforcement must end.”

The STOP Act was introduced in both the U.S. House and Senate in October, which seeks to significantly hamper the proliferation of black market cigarettes through stiffer penalties on smugglers who avoid taxes. NACS is working to make sure that certain provisions contained in the STOP Act do not adversely affect retailers. NACS is also advocating that the legislation is drafted in a manner that will apply to all contraband tobacco, including Native American tribes.