Panel to seek action against cigarette trafficking

ABC could lead effort against threat linked to organized crime, terror

 

Northern Virginia Cigarette Board

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A carload of 750 cartons driven from Virginia and sold in New York without paying New York taxes can mean a profit

of nearly $42,000

Posted: Monday, November 25, 2013 12:00 am

BY FRANK GREEN
Richmond Times-Dispatch

The Virginia State Crime Commission is drafting legislation aimed at illegal cigarette trafficking following a closed briefing from law enforcement agencies this month.

The commission chairman, state Sen. Thomas K. Norment Jr., R-James City, said he was alarmed by the pervasiveness and sophistication of the trafficking. He said the legislature and the public need to be educated about of the threat.

Norment and state Sen. Janet D. Howell, D-Fairfax, did not comment on the specifics of the 2½-hour, closed-door meeting. But Howell said, “We’re finding that the ties to organized crime and terrorism are real and the trafficking is increasing.

“For Virginia, it’s not just the revenue loss, but we’re bringing bad players into our commonwealth,” Howell said. “They’re setting up shop here and particularly down the (Interstates) 95 and 81 corridors.”

One commission proposal calls for studying the feasibility of the Virginia Department of Alcoholic Beverage Control serving as the lead agency coordinating law enforcement efforts against trafficking as well as licensing businesses that sell cigarettes.

Last year Howell prompted a crime commission study, which continued this year, of the illicit trafficking. “What little did I know,” she said. “I thought it was a minor problem. I had no idea it was going to be this serious.”

In May, for example, New York authorities announced the arrests of 16 Palestinians, some with connections to terrorist organizations, who allegedly shipped 1 million cartons of cigarettes from Virginia to New York, making an estimated $65 million profit.

Last month, two of the defendants were also charged with conspiracy to commit murder after allegedly plotting via telephone from the Rikers Island jail to kill witnesses.

The trafficking is bringing the state the same kind of unwanted attention it once drew as a major source of firearms for illegal gun traffickers.

A story last November in the magazine The Economist began: “The busy interstate highway that zips through Richmond, Va., and up to the crowded cities of the Northeast has long been a conduit for handguns bought wholesale in Virginia and sold to drug dealers in New York. Now I-95 is siphoning northwards another form of contraband: black-market cigarettes.”

Cigarette-trafficking schemes depend on tax avoidance and have been around for decades. However, recent major tax increases in other states have boosted the potential profit.

Virginia’s excise tax for a carton of cigarettes is $3. In New York City it is $58.50.

Virginia, with the second-lowest cigarette tax in the country, is near states with some of the highest taxes. A carton of cigarettes that sells in Virginia for $40 to $45 costs $120 to $150 in New York City.

A carload of 750 cartons driven from Virginia and sold in New York without paying New York taxes can mean a profit of nearly $42,000.

Virginia is unlikely to increase its excise tax, and states such as New York are unlikely to decrease theirs. “The solution is obvious, but there’s not the political will to do it,” Howell said.

As a result, Virginia is a top source state for trafficked cigarettes. The General Assembly stiffened some laws during the past two sessions in response to the dubious distinction, but the problem appears to be worsening.

The illicit trafficking is so lucrative it has corrupted some investigators and been linked to terrorist organizations. It also has led to murder and assaults, as well as ancillary crime such as fraud and money laundering.

A detailed public presentation to the commission Nov. 14 by Stewart Petoe, the commission’s director of legal affairs, concluded that the trafficking is not a “cigarette issue” but “an organized crime issue.”

There is more profit in trafficking 2,000 cartons of cigarettes than from the sale of a kilogram of cocaine, but while the kilogram sale of cocaine can bring a life sentence, the cigarette deal has a penalty of one to five years in prison, Petoe reported.

Petoe outlined some Virginia vulnerabilities, among them that local agencies may be unaware of one another’s investigations, leading to interference, and that coordination is needed between state and federal authorities to fight multistate traffickers.

Other issues identified by the crime commission staff:

• Businesses and residents routinely spot suspicious cigarette sales and related activity but often are uncertain where to report the activity.

• Because Virginia does not require a retail license for tobacco, investigators have a tough time identifying all the retail cigarette locations in a given locality — a situation that helps fraudulent retail fronts avoid detection.

• The Tobacco Enforcement Unit of the Virginia Attorney General’s Office found five fictitious businesses involved with trafficking in 2011, six in 2012 and 25 so far this year.

• The state tax department, the State Corporation Commission, and cigarette wholesalers and manufacturers all have key information — held separately — that could indicate abnormal activity to law enforcement about illegal traffickers.

• Virginia’s felony threshold for trafficking, 500 cartons of state-stamped cigarettes, may be too high, because police report that some traffickers when stopped immediately claim they are carrying only 490 cartons.

A policy staff recommendation was to create a centralized unit to coordinate the efforts of various law enforcement agencies, serve as a clearinghouse for criminal intelligence and to assist in investigations.

If the ABC Department took over the job, its current retail inspections of businesses that sell alcohol would parallel the inspections of businesses that also sell cigarettes.

The department also has experience auditing businesses, conducting inspections and verifying that retail businesses are real, the crime commission staff noted.

Norment asked the staff to draft a resolution that if passed by the assembly would direct the state’s Joint Legislative Audit and Review Commission to study the feasibility of the ABC Department assuming the role.

That and other proposed legislation will be considered for commission endorsement at its Dec. 2 meeting. An endorsement by the commission carries great weight but does not assure passage in the General Assembly.

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