	Background

DHS and Justice reviewed a draft of this report and had no comments on  the substance of the draft. Technical comments were incorporated as  appropriate. Smuggled cigarettes, which include counterfeit  and genuine brand cigarettes, also pose a public health risk as all  cigarettes do; though, no studies have been done to determine whether  counterfeit cigarettes pose a greater health risk than genuine brand  cigarettes. Intelligence Indicates Cigarette Smuggling Is a High Profit Crime with Possible Terrorism Connections

The smuggling of cigarettes into the United States is part of the worldwide  illegal cigarette traffic, but the full extent of such smuggling is unknown. According to an  ATF intelligence official, U.S. and European law enforcement information  shows that illicit cigarette trafficking has become a multibillion dollar a  year, worldwide crime phenomenon. Cigarette Smuggling Results in Lost Revenues and Public Health Risk

Cigarette smuggling into the United States results in lost federal and state  revenue. Federal Agencies Increased Efforts to Thwart Cigarette Smuggling into the United States and Increased Seizures

ICE, ATF, and CBP are responsible for law enforcement activities to  combat the smuggling of cigarettes into the United States, as part of their  multifaceted missions. ICE and ATF officials said they have been  conducting more cigarette smuggling investigations in recent years and  described the agencies’ current investigations as generally larger, more  complex, and longer-term than previous investigations. ICE investigates  organized international cigarette smuggling, including illegal activities  related to the smuggling of cigarettes into the United States. Legal Initiatives Being Pursued to Help Thwart Cigarette Smuggling

Two legal initiatives have been proposed to enhance efforts to thwart the  cigarette smuggling problem. Justice Suggested Three Legal Initiatives to Combat Cigarette Smuggling

In October 2003, Justice suggested that Congress could strengthen the  enforcement tools for combating cigarette smuggling by: (1) lowering the  threshold for violating CCTA (a felony violation) from 60,000 to   30,000 cigarettes, (2) giving ATF authority to use money generated during  undercover sting operations to offset investigative expenses, and   (3) increasing ATF’s authority to enter premises to enforce federal  cigarette laws. The fourth measure requires actions aimed at eliminating illicit trade in  tobacco products. Appendix I: Scope and Methodology

To determine what is known about the nature and scope of the problem of  smuggled cigarettes, including counterfeit cigarettes, entering the United  States, we obtained information from the Department of Homeland  Security’s (DHS) U.S. Immigration and Customs Enforcement (ICE) and  the Department of Justice’s Bureau of Alcohol, Tobacco, Firearms and  Explosives (ATF). To determine federal law enforcement agencies’ efforts to thwart the  smuggling of cigarettes into the United States, we interviewed ICE, ATF,  and CBP headquarters officials in Washington, D.C., and we collected and  reviewed pertinent documentation, including data on the number of ICE  cigarette-related investigations and ATF tobacco investigations initiated  and closed and CBP and ICE cigarette seizures for selected fiscal years.
Why GAO Did This Study

Illegal trafficking in cigarettes can generate enormous profits and is purportedly a multibillion dollar a year enterprise. As cigarette taxes increase, so do the incentives for criminal organizations to smuggle cigarettes into the United States. Cigarette smuggling results in lost tax revenues, undermines government health policy objectives, can attract sophisticated and organized criminal groups, and could be a source of funding for terrorists. Because of these concerns, GAO examined (1) the nature and scope of the problem of smuggled cigarettes entering the United States, including federal tax revenue losses and potential health risks; (2) federal law enforcement agencies'--U.S. Immigration and Customs Enforcement (ICE), U.S. Customs and Border Protection (CBP), and Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)--efforts to thwart the smuggling of cigarettes into the United States; and (3) legal initiatives being pursued to enhance law enforcement efforts to thwart the smuggling of cigarettes into the United States.

What GAO Found

United States is impossible to measure with any certainty. According to ICE and ATF, investigations and intelligence collected indicate cigarette smuggling is a significant problem, particularly the smuggling of counterfeit cigarettes. According to ATF, illegal cigarette trafficking worldwide is a multibillion dollar a year crime phenomenon, with some cigarette smugglers having ties to terrorist groups. Moreover, because smuggled cigarettes are not taxed, federal and state revenues are lost. Smuggled cigarettes, which include counterfeit and genuine brand cigarettes, also pose a public health risk as all cigarettes do, but no studies have been done to determine whether counterfeit cigarettes pose any additional health risk. ICE and ATF have been conducting more cigarette smuggling investigations in recent years. Their investigations are generally larger, more complex, and longer-term than previous investigations. Also, CBP and ICE have been seizing an increasing number of cigarettes, particularly counterfeit cigarettes, as criminals attempt to smuggle them into the United States. Two proposed legal initiatives are intended to enhance law enforcement efforts to thwart the smuggling of cigarettes into the United States. For example, a bill known as the Prevent All Cigarette Trafficking Act would lower the threshold for a cigarette smuggling violation (a felony) from 60,000 to 10,000 cigarettes, increase ATF's authority to enter premises to enforce federal cigarette laws, and provide ATF the authority to use money generated during undercover sting operations to offset investigative expenses. In addition, the Framework Convention on Tobacco Control, a proposed international treaty, includes provisions that seek to eliminate the illicit trade in tobacco products, including cigarette smuggling. The Departments of Homeland Security and Justice reviewed a draft of this report and had no substantive comments. Technical comments were incorporated as appropriate.