November 21, 2005

Cheap Cigarettes in South Carolina Lure Smugglers

By Jeff Stensland, The State, Columbia, S.C.

Nov. 20--South Carolina offers the cheapest smokes in the nation -- a fact federal officials say will make it a magnet for black market cigarette runners.

New York officials say the Palmetto State already is the source of cigarettes smuggled illegally into that state.

But S.C. officials say they see no evidence that cigarette smuggling is a problem in the state. In any event, they add, it's not South Carolina's problem, and they don't intend to make it tougher for the illicit trade.

More than simply a gangster cliche straight out of "The Sopranos," cigarette trafficking is a multimillion-dollar business that shows little sign of slowing down.

It also is attracting some of the nastiest elements of the criminal world, federal authorities say.

The reasons are simple. Profit margins are huge, the risk of getting caught is minimal, and punishment can be mild compared with penalties for other crimes.

Getting a handle on the scope of the bootlegging problem is difficult, but profits from smuggling rings run into the tens of millions, federal officials say.

"It's a safer way to make illegal money than typical drug trafficking," said Earl Woodham, a spokesman for the Charlotte office of the federal Bureau of Alcohol, Tobacco and Firearms. "And the profits can be just as good, if not better, than drugs."

Lower taxes on cigarettes in Southeastern states mean bootleggers can buy them cheaper here, sell them at discounted prices in high-tax Northern states and still profit handsomely.

New York, Michigan, Pennsylvania, New Jersey and Maryland are a few of the states trying to stop truckloads of cheap cigarettes entering their borders.

However, S.C. law enforcement officials say they see no evidence the Palmetto State is the source of cigarettes smuggled elsewhere.

SLED Chief Robert Stewart said his agency wouldn't normally be involved in investigating cigarette trafficking since it's not a crime until the smugglers cross the S.C. line.

"We investigate crimes against the state," Stewart said. "It sounds like they'd be violating another state's law or federal law."

The bottom line:

No one inside South Carolina or elsewhere can say how big a problem cigarette smuggling is here -- but that doesn't mean federal and state officials elsewhere have no cause for escalating concern.

New York authorities say the Palmetto State is part of the pipeline of cheap smokes running up the Eastern Seaboard.

"But it's not just South Carolina," said Michael Bucci, spokesman for the New York State Department of Taxation and Finance. "It's also Virginia and other states in that region that have low taxes."

At 7 cents a pack, cigarette taxes in South Carolina are the lowest in the nation.

That's because North Carolina lawmakers recently raised that state's cigarette tax to 30 cents per pack -- up from the previous national low of 5 cents. That state's tax will go up an additional 5 cents next year.

Taxes in other states and cities are far higher, making smuggling a profitable business.

For example, the sales tax alone on a pack of cigarettes in New York City is $3 compared with 7 cents in South Carolina.

Smugglers make money by buying cigarettes in South Carolina -- or another low-tax state -- and reselling them in a high-tax state for a price lower than that state's prevailing price, including its taxes.

So, the difference in cost from South Carolina to New York City -- almost $30,000 for, say, 1,000 cartons -- would leave plenty of room for a hefty profit, even with the cost of transporting the cigarettes.

"The lower the tax, the bigger the profit," said ATF's Woodham. "If you have organized criminals that would benefit financially from moving their operations to another state, it's only common sense that they would do that."

Officials in other states also complain South Carolina makes it easy for smugglers. Like many other states, South Carolina stopped putting state tax stamps on cartons of cigarettes years ago.

S.C. Department of Revenue director Burnie Maybank says the tax stamps were expensive and didn't benefit the state.

But the absence of an S.C. tax stamp makes it easier to resell cigarettes smuggled out of the Palmetto State in other states.

"If there's no tax stamp, it's a lot easier to just affix a counterfeit," said New York's Bucci.

But Maybank is unfazed.

"The purpose (of the stamps) was to make sure taxes are paid in South Carolina, not to protect higher taxes in New York state," Maybank said, adding that evasion of S.C. taxes on cigarettes is rare. "Why should we spend money ... for the benefit of a high-tax state?"

Many states are apathetic to the smuggling problem for that exact reason, the ATF's Woodham said. But, he says, the issue is no longer simply tax evasion.

Smugglers with ties to Hezbollah were prosecuted in North Carolina in 2002 for funneling profits from a $7.9 million cigarette operation into the Lebanon-based terrorist group.

Prosecutors proved the group bought cigarettes in North Carolina and resold them on the black market in Michigan.

Federal officials say that case is not the only one.

"We have ongoing cases where the proceeds are going to help fund terrorist organizations," Woodham said. He would not comment on whether any of those were in South Carolina.

Stewart said SLED would take part in federal investigations of cigarette-smuggling rings in South Carolina if they were linked to terrorist groups.

Smuggling more than 300 cartons of cigarettes is a federal crime, punishable by up to five years in prison and/or a $250,000 fine.

Some states have passed laws to stop the trafficking.

In Maryland, law enforcement has gone after cigarette runners. The state has arrested 476 people over the past four years for trying to smuggle nearly $7 million worth of cigarettes through the state.

"Clearly these guys weren't buying these for their own personal use," said Michael Golden, a spokesman for the Maryland comptroller general's office.

Those arrested in Maryland face up to two years in prison and can be fined $50 per carton. South Carolina officials say no similar arrests have been made here.


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