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It was proven a long time ago that the more cigarette prices increase, the fewer cigarettes are sold. This makes the main argument for anti-smoking groups and public health officials in their constant struggle against smoking. However, there is another tendency that became a major headache for lawmakers and law enforcement agencies these days: that is a rapidly growing black market of smuggled and counterfeit cigarettes.

Although cigarette contraband has been known for many years, it saw a significant break-through when state tobacco taxes began their raise, becoming the main source of revenue for cash-strapped state budgets. According to the Federal Bureau of Alcohol, Tobacco, Firearms and Explosives spokesman, three weeks ago the Bureau agent took into custody two men who later were accused of purchasing 14 suitcases containing a total of 500 packs of untaxed cigarettes from undercover ATF agents.

The defendants, who are both Brooklyn residents bought cigarettes despite the undercover agent’s warning that the cigarettes they intended to buy had been stolen. As it was estimated, as a result of this deal the arrested men could have earned at least $7,000 if they had sold these cigarettes in Pennsylvania and up to $10,000 in case they had sold them in New York.

In any case, the detained men would have pocketed a tidy sum for less than 5 hours. Therefore, if New Jersey, Minnesota and other states approve the increase of state cigarette tax, it will only make the black market flourish much more than now because of the distinction in cigarette prices across the nation.

The smuggling scheme looks rather simple: some smugglers go to southern states where taxes are lower, stock for cigarettes and then resell them for higher prices. Others simply resell stolen cigarettes. According to the Bureau of Alcohol, Tobacco, Firearms, and Explosives experts at least one van full of cigarettes legally bought in Indian reservation could bring up to $250,000 in net profit.

New York treasury authorities refused to assess the amount of revenue passed to illegal cigarette sales. Meantime, the survey reports that New York state treasury lost up to $550 million in revenue in 2006. In accordance with the past years’ reports, both New Jersey and Pennsylvania reported declines in revenues when the previous tax hike was implemented. Pennsylvania Ways and Means Committee expert admitted that smoking lost its popularity when the state tax was increased and partial indoor smoking ban was imposed.

Tax increase opponents in their turn state that revenues inevitably fall since the neighboring states do not always follow these steps. Such situation happened in case of Pennsylvania: when the state raised their taxes, smokers simply started crossing the borderline, going to Delaware to stock for less expensive cigarettes.

Moreover, a great number of smokers also switched to online purchases of untaxed cigarettes or visit Smoke shops located in Indian reservations, where the cigarettes are exempted from all the taxes. In both cases, smokers save a lot of money. Traffickers usually go to states like South Carolina and buy hundreds of cigarette packs or operate with counterfeit cigarettes that lack tax stamp on the packs.

Smuggled cigarettes are then repackaged and stamped with counterfeit state tax stamps. After that, they are usually sold to convenience stores at a discount price or even traded for other illegal goods like drugs. The criminals use the false stamps in order to make their cigarettes look like they are regular ones. These stamps are a sort of attaching legitimacy on the smuggled cigarettes.

As regards the federal tax imposed on cigarettes and other tobacco products, it is paid by the manufacturers. Therefore, since many smugglers buy cigarettes in southern states, the manufacturers still get their revenue as well as the federal treasury. Thus, the ones who loose are only the treasuries of the states with hefty cigarette taxes.

Some experts claim that traffic in cigarettes would inevitably come to an end if the Congress obliges all the states to impose a uniform tax. However, it is not likely to happen very soon.