ATF Tobacco Diversion
Purpose
The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is the federal law enforcement agency with primary jurisdiction over the Contraband Cigarette Trafficking Act (CCTA) to stop tobacco diversion. The CCTA was enacted in 1978 and was amended in 2006 with the re-authorization of the Patriot Act.
The CCTA specifically deals with the interstate transportation, possession and sale of non-state tax paid cigarettes and smokeless tobacco.
The CCTA was enacted to combat structured and organized criminal groups that derive significant financial gain through the transportation and sale of contraband tobacco from no- or low-tax locales to high-tax jurisdictions.
Goals
ATF�s primary goal in tobacco enforcement is to enforce the federal laws relating to tobacco diversion and protect the revenue of the federal and state governments. Because of the diversity of crimes involved in the tobacco black market, ATF often charges defendants with violations other than, or in addition to, Contraband Cigarette Trafficking Act violations.
Criminal Activity
There are two types of tobacco traffickers who move black market tobacco
products. The first is the casual
smuggler. These include smokers who may
cross a state line to purchase cheaper cigarettes because of the varying state
excise taxes. The second type is the commercial
smuggler which includes
structured or organized groups.
People who engaged in the manufacturing and distribution of contraband tobacco products are able to reap substantial profits by avoiding payment of federal and state excise taxes. Legal entities pay significant taxes on their product, including $1.01 per pack in federal excise tax, from $0.17 to $4.35 per pack in state and local excise taxes, and typically $0.50 per pack to a settlement fund for health care costs incurred by the states as a result of tobacco use by their citizens.
The potential financial gain of tobacco smuggling is immediately apparent. By
selling non-tax paid cigarettes at, or just below tax paid prices
criminal organizations are able to net a substantial profit. For example,
purchasing legally taxed products in Virginia (a low excise tax state) for
approximately $4.50 a pack and driving them to New York City (a high excise tax
state/city combined), which sells for approximately $13.00 for resale, creates
an estimated $8.50 per pack profit margin. In this example, a single carton (10
packs) yields $85.00 in profits; a single case (60 cartons) yields $5,100 in
profits and a single truckload (typically 800 cases) yields $4,080,000.
Organized criminal groups, including those with ties to terrorist organizations, have increasingly engaged in the illegal trafficking of tobacco products, particularly counterfeit and lawfully manufactured cigarettes. Prior to 2003, ATF averaged about 40 new diversion investigations annually. Since 2003, ATF has initiated a total of 1,052 tobacco diversion investigations, with an average of 131 investigations per year.
Through tobacco diversion investigations, ATF disrupts and eliminates criminal organizations by indentifying and arresting offenders who traffic illegal tobacco products. In addition, ATF conducts financial investigations in conjunction with ongoing criminal investigations in order to seize and deny further access to assets and funds used by criminals and terrorist organizations.
ATF faces several challenges enforcing tobacco smuggling. Some tobacco businesses that sell over the Internet or through mail order are not in compliance with the Jenkins Act. The Jenkins Act requires businesses to report their sales of tobacco to appropriate state revenue agencies so state taxes can be assessed. ATF continues to investigate these types of cases.
The trade of counterfeit tobacco products is also a rapidly growing global problem. Smokers who are tricked into buying fake cigarettes don�t get the product they�re expecting. While all cigarettes are dangerous and cause disease, it has been reported that counterfeit cigarettes have been found to contain higher levels of tar, nicotine and carbon monoxide than genuine cigarettes. Furthermore, many are even contaminated with sand and other packaging materials such as bits of plastic. Since these are illegally manufactured and imported cigarettes, consumers do not know what ingredients are used to manufacturer these cigarettes. Counterfeit cigarettes pose a greater health risk to consumers because of this reason.
Counterfeit cigarettes have a direct impact on the U.S. economy since no federal or state taxes or Master Settlement Agreement (MSA) payments are made. This differs from contraband cigarettes where the federal taxes are paid by the manufacturer.
Like all black market cigarettes, counterfeit cigarettes are used by many organized crime organizations because of the substantial profits that are generated through tobacco diversion. Much of these profits are used by these organizations to fund other criminal activities, to include international money laundering and possibly terrorism.
Legitimate tax stamps are used to assist in the identification of state tax-paid cigarettes. Many tobacco traffickers use counterfeit tax stamps to save the cost of paying the state excise tax on the genuine manufactured cigarettes. It is cheaper for the black market trafficker to buy counterfeit stamps than to pay the state excise tax.
Authority
These statutes and charges have been used in ATF tobacco diversion investigations:
- Title 18 USC Section 2342 � The Contraband Cigarette Trafficking Act makes it illegal to possess more than 10,000 unstamped cigarettes in a state which requires a tax stamp.
- Title 18 USC Section 2343 � Requires that any person who distributes more than 10,000 cigarettes to keep accurate records pertaining to the shipment, receipt, sale and distribution of cigarettes.
- Title 18 USC Section 2320 � Trafficking in counterfeit cigarettes.
- Title 15 USC Section 375 � The Jenkins Act makes it illegal to ship cigarettes to a non-licensee in a state without notifying the state taxation authority.
- Internal Revenue Code � Imposes a $1.01 per pack federal tax and requires a permit for manufacturers and importers. ATF coordinates with the U.S. Department of Treasury Alcohol and Tobacco Tax and Trade Bureau (TTB) in enforcing this law.
- Title 26 USC Section 5762 � Failure to pay the federal excise tax on tobacco products.
- Title 18 USC Sections 1341 and 1343 � Mail and wire fraud.
- Currency Reporting Act � Failure to report currency transactions over $10,000.
- Title 18 USC Section 1956 � Money laundering.
- Racketeering Influenced and Corrupt Organizations (RICO).
- Aiding and Abetting.
- Conspiracy.
For more information on ATF�s programs, please visit the website at http://www.atf.gov/publications/factsheets/www.atf.gov.
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