The smuggling of cigarettes across state borders increasingly has become big business for organized crime, as taxes on smokes climb in states such as New York and New Jersey and remain low in others like Virginia, federal officials told The Examiner.
In the last several months, federal authorities working with Fairfax County police have brought charges against three cigarette bootlegging schemes.
The busted rings earned more than $13 million by carrying their cargo from Virginia to New York, New Jersey and Michigan, where they illegally sold nearly 600,000 cartons of cigarettes on the black market, court documents said.
The most recent charges were filed late last week against Mark A. Frondelli, who, between November 2007 and Aug. 27, allegedly carried nearly 90,000 cartons from Fairfax to his home in New Jersey, earning nearly $2 million. He is also charged with selling counterfeit tax stamps to undercover federal agents, court documents said.
The case is part of a national trend of bootleggers taking on larger shipments as the profit margins increase with rising taxes, said Mike Campbell, a spokesman for the Bureau of Alcohol, Tobacco, Firearms and Explosives. Since 2002, the ATF has opened an average of 91 cases a year, compared with fewer than 50 a year in the late 1990s, Campbell said.
“There’s always been diversion, but it used to be guys looking to make a quick buck by selling 15 to 20 cartons to their friends,” he said. “Now we’re starting to see more organizations that are looking to make a big profit … a large part of it has been organized crime.”
In New York City, state and local taxes add $4.25 to a pack, compared to the 80 cents added to a pack in Fairfax County, federal officials said in court documents. A bootlegger stands to make $42.50 on each carton shipped between Fairfax and New York.
Patrick Fleenor, chief economist for the Tax Foundation, said taxes on cigarettes are now “far in excess” and are “justified only as out and out paternalism” by state governments. Anything more than a 30-cent tax goes beyond the costs society bears from smokers, he said.
“It’s a throwback to prohibition,” Fleenor said. “A guy in New York City stakes out a corner [to sell illegal cigarettes]. Another guy comes along and they end up killing each other.”
