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Bill Seeks to Tamp Down Cigarette Trafficking

February 13, 2015

By Victoria Zawitkowski
Capital News Service

RICHMOND – Sen. Bryce E. Reeves, R-Spotsylvania, urged the General Assembly on Friday to pass a bill that would crack down on cigarette trafficking and, by extension, the funding of terrorist groups.

“I’m making a plea to the citizens of the commonwealth, to ask for your support to combat terrorism,” Reeves said.

At a press conference, Reeves gathered with members of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives and the Virginia State Crime Commission to push for support of Senate Bill 1230. It would shift the regulation and sale of all cigarette and tobacco products from the Virginia Department of Taxation to the state’s Alcoholic Beverage Control Board.

The bill cleared the Senate on a 30-8 vote on Feb. 6 and is now before the House General Laws Committee.

Speaking as a former undercover narcotics agent, Reeves said SB 1230 was a law enforcement necessity. He said it is aimed at “stopping the flow of funds from illegal cigarette trafficking and asking for reasonable, prudent licensing and legislation, so we know who is legitimately and illegitimately selling cigarettes to the public.”

The bill stems from several cases in which groups bought cartons of cigarettes wholesale in Virginia and sold them in states like New York, where cigarette prices are much higher. Those groups make a large profit and do not pay taxes to the state. Some of the traffickers used their profits to fund terrorist organizations linked to Hamas and Hezbollah, Reeves said.

Sheriff Brian Roberts of Brunswick County is on the Virginia State Crime Commission with Reeves. Roberts said the black market for cigarettes sees the same profit margins as cocaine and heroin.

“If you look at the penalty phase of people moving cartons of cigarettes and the profit margin, it’s very lucrative,” Roberts said. “It’s a 100 percent no brainer: This is where you should be if you’re a smart criminal – trafficking cigarettes and stop trafficking heroin and cocaine.”

Paul Carey is the chief of enforcement with the Northern Virginia Cigarette Tax Board. This is currently the state’s only regulatory body for cigarette sales. The board has several case studies for what officials call “Operation Tobacco Road,” a reference to Interstate 95.

Carey explained how easy it is to purchase cigarettes from wholesalers – often big-box stories like Costco, Sam’s Club or BJ’s.

“All they have to have is a sales and use certificate, and you can obtain one of those online by typing in a federal I.D. number, a few questions asked, and the address. It’s not vetted,” Carey said.

He said many cigarette trafficking operations have multiple accounts. He cited a case in which one individual purchased $9 million of cigarettes over the past two years.

“For our records and purposes, we know that he’s filed nothing with the commonwealth of Virginia. And tax-wise, the way taxes are collected in Virginia, it’s collected in arrears and on the honor system,” Carey said. “They turn that in and on his count alone, this one individual should have paid around $540,000 in taxes back to the commonwealth.”

Roberts said that in more rural areas of Virginia, it’s especially difficult to regulate cigarette sales.

“Who would I have to reach out to if I needed to look at the local truck stop and it’s moving a thousand cigarettes, you know, in a week’s time? Who do you go to?” Roberts asked. “There is no resource; there is no information to go and gather. Everything right now is done through the bulk of taxation.”

The difference in tax rates among states has fostered the market for illegal cigarettes. In New York, the tax on cigarettes is $4.35 per pack – the highest in the country, according to the Federation of Tax Administrators. Virginia’s tax is just 30 cents a pack. Among the 50 states, only Missouri is lower, at 17 cents.

Reeves said it’s critical to crack down on cigarette smuggling because some of the profits fund terrorist attacks on Americans.

“As of this date, 6,836 service members have sacrificed their lives in the global war on terrorism; 263 of these are my fellow Virginians,” Reeves said.

SB 1230 would also require businesses to obtain a license, at a cost of about $150, to sell cigarettes. Some critics of the legislation say this would hurt small businesses.

Reeves said the last thing he wants is to put “undue regulation or a burden on businesses that sell tobacco.” However, he said this bill does more good than harm.

“I find it very hard to believe that any legitimate seller of tobacco wants the proceeds of their sales going to kill the men and women who wear the cloth of our country,” Reeves said.