The Problem


Huge tax differentials between states and inadequate enforcement have led to a flourishing black market for cigarettes.  For example, because of differing tax rates, a pack of cigarettes in New York costs almost $10 more than it costs in Virginia. Criminals are exploiting that price difference for illegal profit, turning the Interstate 95 corridor into the New Tobacco Road for criminal tobacco smuggling.

For a long time, smokers crossed borders to get lower-priced cigarettes for personal use. Now criminals are moving into the tobacco-smuggling business in an organized way, because the profits are huge and the risks are low.

Gangs are seeing the profit potential of tobacco, using stolen identities and fake credit cards to buy cigarettes in large quantities, then smuggling them along the Tobacco Road.

Black market cigarettes are becoming a preferred currency of crime, offering a new ways to launder money, finance illegal drug transactions or support other illegal activity. The longer the problem continues, the more deeply embedded black market cigarettes become in professional crime organizations.

Lost Tax Revenue

States were losing about $5 billion annually in tax revenue according to studies conducted in 2009 and reported by The Wall Street Journal. More recently, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) has stated that revenue losses are still approximately $5.5 billion annually.

Dunham & Associates conducted a study on behalf of the New York Association of Convenience Stores that found that cigarette tax evasion costs New York $1.7 billion per year in lost tax revenue. Massachusetts reported that higher tobacco taxes generated an additional $157 million. However, potential tax losses due to illegal trade is over $300 million, costing the state nearly twice as much as they hoped to gain from the tax increase.

One 2013 study of cigarette package litter discovered substantial amounts of discarded packs from lower-tax states, and suggested that Washington, D.C.; Philadelphia; New York City; Providence, R.I.; and Boston were losing $750 million dollars annually in tax revenue.

As the disparity between tax rates increases, the flow of illicit traffic will soon follow. A 2013 study by the Tax Foundation put New York as the No. 1 "importer" of illicit tobacco products, with New Tobacco Road states Virginia and Delaware among the highest "exporters" of smuggled cigarettes.


"While the illegal trade is oftentimes carried out by individuals trying to save money by buying illegal tobacco for personal use, it is carried out on a large-scale commercial level and has been liked to organized crime. Criminals are willing to work in the illegal tobacco market because the potential economic benefits have, under current law, far exceeded the associated risks of getting caught."
– Report of Commission on Illegal Tobacco Commonwealth of Massachusetts

Cigarettes are a legal product, and are easy to obtain, transport and sell on the open market. Because tobacco smuggling is so lucrative, yet penalties for smuggling tobacco are lenient in most states, illicit tobacco trade is a relatively low-risk crime.

In Virginia, for example, the State Crime Commission wrote, "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 profit margins on black-market cigarettes are now greater than for cocaine, heroin or illegal firearms. 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."

Many criminals are adding cigarette smuggling to illegal drugs, firearms and prostitution, and are shifting to illegal tobacco trade as a means of financing criminal enterprise. Tobacco smuggling operations have even been linked to numerous terrorist organizations globally.

A Worcester, Mass., newspaper reported that an attorney for the ATF told a Massachusetts commission, "Cigarettes were potentially the largest trafficking operation worldwide involving a legal commodity. An estimated $100 billion is lost each year as a result. Examples of rings cited included a $400 million-a-year online operation that mailed untaxed cigarettes from Europe and a Hezbollah terrorist cell that trafficked cigarettes between North Carolina and Michigan."

According to several reports, illicit trade of tobacco in relation to terrorism is an ongoing issue:


Revenue lost to black market cigarettes so far this year

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The MacKinac study "Cigarette Taxes and Smuggling" shows the strong correlation between high cigarette taxes and smuggling, theft and other violent crimes.