Va. crime panel examining cigarette trafficking

Cigarette smuggling has become so lucrative that organized crime is getting involved, and many former drug dealers have switched to peddling contraband smokes instead of narcotics, the Virginia State Crime Commission was told Wednesday. The General Assembly last winter directed the commission to study illegal cigarette trafficking and make recommendations before the 2013 legislative session, which begins in January. The commission's staff conducted the investigation and will present its recommendations at the next meeting in November.

G. Stewart Petoe, the commission's legal affairs director, said the amount of money cigarette smugglers can make is staggering. That's because they can buy a pack of premium cigarettes for about $5.55 in Virginia and sell it for a big profit on the black market in New York City, where a higher cigarette excise tax pushes the retail price to about $14 a pack. Smuggle enough cigarettes and the payday can be enormous.

Petoe said a federal Bureau of Alcohol, Tobacco, Firearms and Explosives agent estimated that a car can carry 10 cases of cigarettes — there are 60 cartons in a case — with an estimated profit of $34,000. Upgrade to a van, and 50 cases can turn a $170,000 profit. A large truckload can haul 800 cases and net a profit of $4 million. Petoe said he was stunned by a Virginia State Police agent's observation that bootlegged cigarettes now have a higher profit margin than cocaine, heroin, marijuana or guns.

"It has just become irresistible for organized crime, and when they come to Virginia, they will bring ancillary violent crime with them," Petoe said. He added that drug dealers are switching to smokes not only for the money, but also because they face less prison time if they're caught. Petoe said cigarette smuggling is booming because many states, particularly those north of Virginia, have increased their cigarette excise taxes in recent years. Virginia — the nation's fifth-largest tobacco producer and home of its most prolific cigarette factory — has the country's second-lowest tax: $3 per carton. The tax is $43.50 in New York state and $58.50 in New York City.

According to Petoe, a recent study found that 30 percent of all cigarettes in New York City came from out of state — and of those, 71 percent were from Virginia. "As the second-lowest tax state, we're setting ourselves up to be complicit," said state Sen. Janet Howell, D-Fairfax, who added that she wasn't necessarily suggesting a tax increase. Petoe said one of the simplest and fastest-growing methods of bootlegging is called "smurfing." Individual smugglers or small groups buy cartons of cigarettes at multiple locations throughout the day, then haul them out of state for resale on the black market.

Commission staff members conducting the study hung out for a while at a convenience store off Interstate 95 in the Richmond area, Petoe said, and watched one customer get out of a car and buy five cartons of cigarettes and return to the vehicle. Then another person got out of the car and did the same thing. "It's very clear what they were doing," Petoe said. Some cigarette traffickers seeking to maximize their illicit gains have established bogus retail operations so they can buy in bulk from wholesalers, Petoe said. He added that there are myriad other schemes involving forged tax stamps, selling cigarettes "off the books" to evade taxes, international smuggling and importing counterfeit cigarettes.