WASHINGTON — Sen. Orrin Hatch, R-Utah, says terrorists are now raising money by smuggling cigarettes from states where tobacco taxes are low and reselling them illegally at below-market prices where taxes are high.
So, he and Sen. Herb. Kohl, D-Wis., introduced a bill Tuesday to make it easier to prosecute sellers of such contraband cigarettes and to beef up penalties.
"Contraband cigarettes contribute heavily to the profits of organized crime syndicates, specifically global terrorist organizations," Hatch told the Senate.
He said members of the Lebanon-based terrorist group Hezbollah, for example, have been caught attempting to sell contraband cigarettes in New York and Michigan.
Hatch noted tobacco taxes in Virginia, for example, are just 2.5 cents per pack. In New York, they are $3 per pack. So terrorists and others can make big money by shipping truckloads of cigarettes they buy in states such as Virginia for resale at below-market rates in high-tax states.
"A state such as New York is losing millions of dollars in revenue each year because of unpaid taxes on these contraband cigarettes, while terrorist organizations are making millions in profits," Hatch said.
Hatch added that crime syndicates "produce counterfeit state and city tax stamps in order to make it less risky for these small retailers to sell (cigarettes) to consumers."
Kohl agreed with Hatch, saying, "It is clear that cigarette trafficking is becoming a method of terrorist financing. . . . In reducing cigarette smuggling, we will simultaneously help deny terrorists a needed source of funding and help our financially struggling states collect their revenue."
Their bill would lower the threshold of cigarettes to be treated as contraband from 60,000 to 10,000. It also would strengthen the reporting requirements for interstate cigarette sellers and make violations a felony instead of a misdemeanor.
It also would escalate civil penalties for violating reporting requirements and would allow state attorneys general to prosecute violators in federal court.
Hatch said that should also make it easier to prosecute companies selling cigarettes through the Internet who are not properly registering or paying taxes as required by federal law.
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