A new report from the Republican staff of the House Homeland Security Committee says federal and state governments, especially New York's, must do more to combat cigarette smuggling because its profits fund terrorist entities abroad.
"Recent law enforcement investigations ... have directly linked those involved in illicit tobacco trade to infamous terrorist organizations such as Hezbollah, Hamas, and al Qaeda," states the report.
The disparity between state taxation of tobacco products along with the discounted prices to certain populations, such as Native Americans, garner cigarette smugglers huge profits.
"For example, a pack of cigarettes that costs $8 in New York and New Jersey will only cost $4 in 'tobacco states' like Virginia and North Carolina," the report explains. "The profit on a standard diverted load of 1,500 contraband cartons [of cigarettes] could be as high as $60,000."
Sometimes smugglers purchase cartons of cigarettes directly from tribal smoke shops because these shops are immune from state taxes applied to cigarette sales. For instance, a smuggler can buy a carton of cigarettes from a reservation smoke shop for $30 where in New York City the retail price for that same carton is $67.
New York state law enforcement officials estimate that a well-run cigarette smuggling operation can make $200,000 to $300,000 a week. "A large percentage of the money is believed to be sent back to the Middle East, where it directly or indirectly finances groups such as Hezbollah, Hamas, and al Qaeda," the report says.
Arab-Americans, the report says, have a corner on the cigarette smuggling market in New York where "tight-knit, nationality-based networks, primarily families through blood or marriage of Lebanese, Yemeni, Jordanian, and Palestinian descent" rely on Arab-owned convenience markets to peddle their contraband cigarettes. According to the report, 60 percent of all convenience stores are now Arab-owned in the state. The ethnic and familial character of the networks make it hard for law enforcement to penetrate these networks.
And as recent prosecutions have revealed, cigarette smuggling flourishes and has been linked to terrorist financing.
A Charlotte, North Caroline, cigarette smuggling ring led by Mohamad Hammoud exploited the $.50 sales tax on a carton of cigarettes in North Carolina by shipping cartons to Michigan, where the sales tax is $7.50 per carton. The criminal enterprise racked up $8 million dollars in four years. Law enforcement officials believe Hammoud sent $100,000 of his earnings to Hezbollah by the time he was arrested in 2000.
Demonstrating the reservation nexus to Arab American cigarette smuggling and terrorist financing, two women from the Seneca Nation of Indians' Cattaraugus reservation in New York were sentenced in 2003 for their role in supplying tax-free cigarettes to Hezbollah-linked smugglers in Dearborn, Michigan. The smuggling ring's leader, Lebanese-born Elias Mohamad, had direct ties to the Shiite terrorist organization, prosecutors argued.
In 2004, Aref Ahmed was convicted of conspiracy to commit money laundering and smuggling contraband cigarettes. He has also popped up in the case of the "Lackawanna Seven" where he reportedly paid for their travel from Buffalo, New York, to Afghanistan for terrorist training.
The report also charges that while the link between reservation cigarette smuggling and terrorist financing is clear, New York state has looked the other way and in the process "created a safe haven for illicit smuggling networks."
Quoting a New York State Department of Health report, the committee's Republican staff state that the state loses between $436 million and $576 million in taxes to the sale of illicit cigarettes. Nevertheless, New York state ignores this, the report charges, "despite the fact that these illicit profits are leaving the state and being sent overseas to Jordan and Lebanon, among other countries."
If the Empire State does not crack down on cigarette smuggling starting beginning with tax-free cigarettes sold off reservations, the report argues, it will not only jeopardize state tax revenue but "our continued security."