Federal laws focus on smugglers

as Virginia struggles to catch up


By Leigh Dannhauser

There is no law against adults owning cigarettes, as long as state and federal taxes have been paid on them. But if police in Virginia pull you over and find more than 25 cartons, you will likely be charged with intent to distribute them, a misdemeanor.

It’s finding those cartons that is hard, law enforcement officials acknowledge.

The General Assembly set the 25-carton limit in 2012, after federal and state agents began seeing sharp increases in interstate cigarette smuggling.

Authorities acknowledge that most cigarettes smuggled out of Virginia began in the state as legal purchases on which state taxes were paid. So while law enforcement officials say they want to catch smugglers, their budgets and staffing don’t allow them to make it a priority .

But the battle is also being fought beyond the state level.

Congress passed the first federal tobacco trafficking law, the Jenkins Act, in 1949. While it was not designed at the time to fight smuggling specifically, it required all interstate cigarette sellers to register with their state and record every sale or shipment. Failure to do so would potentially result in misdemeanor charges.

But there were major loopholes in the Jenkins Act that became especially apparent after 2003, when the average number of smuggling cases seen per year tripled.

David Marshall and Kenneth Mosley, special agents with the federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), say that sharp increase reflects much bigger gaps in state cigarette tax rates. In 2002 the New York City tax rate on tobacco increased by 1,775 percent to $1.50 a pack. New York state also increased its tax to $1.50, requiring New York City residents to pay $3 per pack in state and local taxes. At the time, Virginia residents paid 2.5 cents in cigarette taxes.

Federal taxes are paid by manufacturers before cigarettes leave the factory, so smuggling doesn’t cost the U.S. government much in revenue. But ATF agents say that as smuggling increases, so does the rate of violence associated with it.

Government reports from as early as the 1970s indicated that organized crime had become heavily involved in smuggling, and violence came along with that involvement.

Congress passed the Contraband Cigarette Trafficking Act (CCTA) in 1978 to fight organized crime’s involvement, according to the ATF. The new law made it illegal to possess 50 cartons without that state’s tax stamp being paid. It also gave the ATF primary jurisdiction over enforcement.

Federal laws to curb cigarette smuggling go back more than 60 years. Virginia's first attempt is much more recent. By Mickey Gorman and Cory Smith.

But there were gaps between the Jenkins Act and the CCTA that still needed to be filled. Congress amended the Jenkins Act in 2010 with the Prevent All Cigarette Trafficking (PACT) Act.

The PACT Act gives government officials more power to enforce the Jenkins Act. It also increases penalties for smuggling.

Before the PACT Act, in federal court cigarette smuggling in any amount was a misdemeanor charge with a maximum sentence of six months in prison, a fine of $1,000, or both. State officials could file additional charges carrying separate penalties. But the federal law did not take into account the number of cartons a person possessed. Under the Jenkins Act it was the act of selling the cigarettes that was illegal rather than a possession limit that defined intent to distribute.

But under the PACT Act, while the federal charge is still a misdemeanor and remains focused on selling rather than possession, the maximum sentence is three years in prison, a fine of $5,000, or both.

The PACT Act also attempts to control the use of the internet in cigarette smuggling, because people ordering cigarettes online often were avoiding state taxes. Federal officials say the number of online cigarette vendors selling to U.S. smokers increased from 40 in 2000 to more than 500 in 2005.

The PACT Act requires online sellers to report their sales to the appropriate state revenue agencies. ATF officials say the cigarette tax is imposed on the sellers and the tax stamp is applied at the manufacturers before shipment.

So, under the new federal law, online cigarette retailers cannot legally sell cigarettes to a buyer living in New York without the New York excise tax being paid on them, even if the seller isn’t located in New York.

Before the PACT Act, sellers had to register only with state tax administrators. The act now requires them to register with the U.S. Attorney General as well. It also gave enforcement power to the U.S. Attorney General, who delegated the power to the ATF. The PACT Act also specifically gave the ATF power to inspect records and stored tobacco.

But even though federal penalties have become harsher and more restrictions have been imposed on sellers, cigarette smuggling remains so pervasive that one estimate puts all states' tax losses at $10 billion a year.

Rockbridge County Chief Deputy Commonwealth’s Attorney Chris Billias says a part of the problem is the penalties associated with the state and federal laws.

“The way the law is structured does not allow for long sentences for people that do this stuff,” Billias said.

Cases are hard and expensive to prosecute, too, particularly if they require extradition of suspected smugglers from other states.

“If you don’t get a confession, you’ve got to prove the cases against the person typically on circumstantial evidence,” Billias said. “And if they’re not telling you anything, it’s pretty hard to do that.”

But cases are also difficult because catching smugglers in the first place is hard. Because smugglers ordinarily have to be caught in the act, law enforcement relies on tips from store owners, and police need either probable cause or a warrant to search any car or truck they pull over.

ATF officials refused to estimate how many smugglers actually slip through.