Cigarette smuggling is booming, in part because New York and 21 other states have raised cigarette excise taxes in recent years. On top of that, the U.S. government increased the federal tax on cigarettes last year by 159%, to $1.01 per pack. A pack now typically sells for about $10 in New York City, more than double what it cost 10 years ago, and the state is considering yet another excise increase.
The high levies, meant to help close huge budget gaps and discourage smoking, have had the unintended side effect of spurring the illicit market. One passenger car filled with Marlboros bought in low-tax Virginia and driven up Interstate 95 to resell in New York can yield more than $30,000 in profit, says Crisanto Perez, a senior official with the U.S. Bureau of Alcohol, Tobacco, Firearms, & Explosives.
In Asia, Altria employees have begun to build an intelligence network to combat the counterfeiting problem. The company cites academic research estimating that factories in China manufacture 400 billion knock-off cigarettes a year. Altria has hired detectives to try to infiltrate the international distributors that sell Chinese fakes to mom-and-pop shops in the U.S. The company says it will funnel the information it gathers to government authorities.
Back in the U.S., Altria has 21 employees in its brand integrity unit, which it created in 2002. They are assisted by outside contractors hired nationwide. The company even has given nearly $2 million over the past eight years to cash-strapped public police departments in such places as Los Angeles and Suffolk County, N.Y., to help fund contraband investigations.
Tax collectors have their own concerns. New York currently loses $1 billion a year because of cigarette tax cheating, according to a 2009 study by the New York Association of Convenience Stores. Across the country, tobacco excise revenue lost annually to smuggling totals $5 billion, the U.S. Justice Dept.'s Inspector General concluded last year.
via How Altria Is Winnowing Out Fake Marlboros – BusinessWeek.
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