Smugglers' Blues

Cheap cigarettes in South Carolina lure illicit traders

COLUMBIA, S.C. -- 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 South Carolina officials say they see no evidence that cigarette smuggling is a problem in the state, according to a report in the Columbia, S.C., publication The State.

In any event, officials add, it's not South Carolina's problem, and they don't intend to make it tougher [image-nocss] 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, according to the report.

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, South Carolina 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 state 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.

"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. State Department of Revenue director Burnie Maybank said the tax stamps were expensive and didn't benefit the state.

But the absence of a 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 South Carolina taxes on cigarettes is rare. "Why should we spend money ... for the benefit of a high-tax state?"