In his statement to Congress in March 2000, the head of U.S. Customs — a former Marine and New York City cop who rose to the rank of police commissioner before turning to federal and international law enforcement — alerted lawmakers to a new and alarming problem. There had been a "dramatic increase" in the number of cigarette imports to the United States, starting roughly in the last half of 1999. "International cigarette smuggling has grown to a multibillion-dollar-a-year illegal enterprise linked to transnational organized crime and international terrorism," Commissioner Raymond Kelly said. He noted that cigarette smuggling profits now rivaled those of drug trafficking, with the United States playing an important role as a source and transshipment country. "Large sums of money related to cigarette smuggling flow through U.S. financial institutions," Kelly added. Congress had already held two hearings on the laundering of drug dollars through the purchase of U.S. goods, including cigarettes, and several worried manufacturers (though not from the tobacco industry) had reportedly held talks with Justice Department officials on the matter.
Kelly testified that Customs had "taken steps to disrupt and dismantle some of the smuggling networks in cooperation with foreign law enforcement officials" and was "studying the dramatic increase of cigarette imports into the United States in the last two quarters of 1999." Kelly, who has since stepped down as Customs commissioner, declined to be interviewed about this subject. But an internal government memo on the dramatic rise in cigarette imports to the United States, obtained by the Center, shows that the value of cigarette imports nearly doubled in 1999 over the previous year, from $91.6 million in 1998 to $172.2 million in 1999. The total for 2000 was expected to be at least as high, if not higher. The import figures have caught law enforcement's attention because they are greater than even those registered during the height of the Canadian smuggling scam, when Canadian cigarettes were exported to the United States, allegedly for consumption, but smuggled back into Canada, where cigarette taxes were much higher.
For example, cigarette imports to the United States were valued at $15 million to $18 million a month during the Canadian smuggling heyday in 1993-1994, the memo said. Since October 1999, the monthly cigarette importation rate has been between $20 million and $25 million and was increasing to about $30 million a month. In addition to the unexplained rise in imports — the majority of which are said to be international brands, mostly Philip Morris and R.J. Reynolds products — authorities have noted an increase in exports from countries that had not previously shipped cigarettes to the United States, including Spain, Switzerland, India, Korea, Greece, and Latvia.
A Center analysis of cigarette imports to the United States since 1995 shows a similar trend. Based on data from the U.S. Agriculture Department, which tracks cigarette imports and exports, cigarettes imported to the United States for consumption (as opposed to imported cigarettes entering legally bonded warehouses for possible transshipment to other locations) doubled between 1998 and 1999, from 4.3 billion sticks a year to 8.6 billion sticks. The 1999 import figures the most recent available were nearly three times greater than 1997 imports. Imports from Spain, Japan, and India rose the most dramatically over the past five years, according to USDA data. In 1995, Spain exported 10.9 million cigarettes for U.S. consumption. By 1999, that number had jumped to 2.6 billion cigarettes. Imports from Japan and India also increased by more than a billion cigarettes over the same period.
In a country where smoking rates have declined nearly 18 percent over the last decade, and cigarette exports and domestic production have each dropped 13 percent over the last five years, law enforcement authorities are puzzled by the rise in cigarette imports for consumption. They suspect that, as during the Canadian smuggling operation and as Kelly suggested before Congress, the United States might again have become a way station on the global black market trade. "That would suggest we've got a bunch of cigarettes coming in and transiting the United States," said one law enforcement official, on condition that he not be further identified. Duties on container loads of cigarettes bound for the United States are significantly cheaper than for the European Union or Canada, about $125,000 per container load compared with about $1 million, adding to the profit margin of smuggling cigarettes via the United States. U.S. officials said it was possible that the rising cigarette imports were increases on paper only, because only a fraction of all goods entering or leaving the United States are ever inspected at the country's ports. Indeed, the racketeering lawsuits that have been filed against the tobacco companies contend that the "vast majority" of smuggled cigarettes are shipped from the United States and that the companies regularly filed false documents with U.S. Customs and the Bureau of Alcohol, Tobacco and Firearms "so as to deceive . . . and allow the smuggling to continue."