The Economics of Cigarette Smuggling

Not as addictive as crack… but more profitable for organized crime.

Shipping black market cigarettes from Virginia to New York City is more profitable than peddling cocaine, heroin or illegal firearms. So states a new report by the State Crime Commission, “Illegal Cigarette Trafficking.”

The report also issues a warning, “If organized crime continues to view Virginia as an ideal location to obtain cigarettes, their habitual presence may lead, in turn, to increases in attendant crimes — robberies, burglaries, credit card fraud, and money laundering.”

The economics behind cigarette smuggling can be traced to the wide discrepancy between the taxes charged by Virginia, the second lowest in the nation, and those charged in Northeastern states. Academic studies have shown that Virginia is the largest single source of out-of-state, black market cigarettes in New York City. By some estimates, up to 30% of cigarettes purchased in the Big Apple are black market. Of those, over half may have been trafficked from Virginia. States the report:

The profits that can be generated by exploiting the differences in tax rates between Virginia and the states north of the Commonwealth are staggering. The state excise tax rate for a carton of cigarettes (1o packs) is $3.00 in Virginia; in New Jersey, it is $27.00; in Rhode Island, it is $34.60; and in New York, it is $53.50, while in New York City, it is $58.50. Traffickers can therefore realize a profit of around $100,000 for a smuggling run from Virginia to New York City, transporting in a car or van just 1,500 cartons of cigarettes. In turn, a tractor-trailer filled with cartons of cigarettes represents a potential profit of a few million dollars.

These large amounts of money have proven irresistible to organized crime. Law enforcement intelligence reports have indicated that gangs and other organized crime rings have increasingly begun to focus their efforts on cigarette trafficking as a source of revenue.

The crime commission report recommends that Virginia increase its penalties for a variety of offenses relating to the smuggling of cigarettes, and urges law enforcement authorities to increase efforts to combat trafficking.

– JAB

4 Responses to The Economics of Cigarette Smuggling

  1. It’s not even all of Virginia. Many localities at least double the state tax with municipal levies. But not the Richmond area. They are right there at 30 cents a pack. Conveniently located on I95 for all your smuggling needs.

  2. Actually, the State Police issue the same report last year.
    PG

  3. Increase the penalties? How about increasing the taxes? Richmond and a few other areas of the state are tacitly willing to let the less affluent (who constitute a high percentage of smokers) ruin their health in order to curry favor with tobacco companies. Beyond that, this shockingly bad habit encourages cross-state smuggling which undermines public policy decisions in other jurisdictions. I also assume that the sale of sumuggled cigarettes creates the same violence and turf wars that seems to attend the sale of any illegal product.

  4. that was my first thought also but then I realized this totally goes against the hegemony of the Grover Norquist types so they are reduced to silly stuff like more (taxpayer paid for) “enforcement” – as if paying taxes for more enforcement is somehow better than increasing taxes on cigarettes.

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