Bureau of Alcohol, Tobacco, Firearms and Explosives Fact Sheet Public Affairs Division � Washington, DC At The Frontline Against Violent Crime
 For Immediate Release March 2011 http://www.atf.gov/
 Contact: ATF Public Affairs Division (202) 648-8500
 ATF Tobacco Diversion Purpose The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is 
the federal law enforcement agency with primary jurisdiction over the Contraband 
Cigarette Trafficking Act (CCTA) to stop tobacco 
diversion. The CCTA 
was enacted in 1978 and was amended in 2006 with the re-authorization of the 
Patriot Act. The CCTA 
specifically deals with the interstate transportation, possession and sale of 
non-state tax paid cigarettes and smokeless tobacco. The CCTA was 
enacted to combat structured and organized criminal groups that derive 
significant financial gain through the transportation and sale of contraband 
tobacco from no- or low-tax locales to high-tax jurisdictions. Goals ATF�s primary goal in tobacco enforcement is to enforce the 
federal laws relating to tobacco diversion and protect the revenue of the 
federal and state governments. Because of the diversity of crimes involved in 
the tobacco black market, ATF often charges defendants with 
violations other than, or in addition to, Contraband Cigarette Trafficking Act 
violations. Criminal Activity There are two types of tobacco traffickers who move black market tobacco 
products. The first is the casual smuggler. These include smokers who may 
cross a state line to purchase cheaper cigarettes because of the varying state 
excise taxes. The second type is the commercial smuggler which includes 
structured or organized groups. People who engaged in the manufacturing and distribution of contraband 
tobacco products are able to reap substantial profits by avoiding payment of 
federal and state excise taxes. Legal entities pay significant taxes on their 
product, including $1.01 per pack in federal excise tax, from $0.17 to $4.35 per 
pack in state and local excise taxes, and typically $0.50 per pack to a 
settlement fund for health care costs incurred by the states as a result of 
tobacco use by their citizens. The potential financial gain of tobacco smuggling is immediately apparent. By 
selling non-tax paid cigarettes at, or just below tax paid prices 
criminal organizations are able to net a substantial profit. For example, 
purchasing legally taxed products in Virginia (a low excise tax state) for 
approximately $4.50 a pack and driving them to New York City (a high excise tax 
state/city combined), which sells for approximately $13.00 for resale, creates 
an estimated $8.50 per pack profit margin. In this example, a single carton (10 
packs) yields $85.00 in profits; a single case (60 cartons) yields $5,100 in 
profits and a single truckload (typically 800 cases) yields $4,080,000. Organized criminal groups, including those with ties to terrorist 
organizations, have increasingly engaged in the illegal trafficking of tobacco 
products, particularly counterfeit and lawfully manufactured cigarettes. Prior 
to 2003, ATF averaged about 40 new diversion investigations 
annually. Since 2003, ATF has initiated a total of 1,052 tobacco 
diversion investigations, with an average of 131 investigations per year. Through tobacco diversion investigations, ATF disrupts and 
eliminates criminal organizations by indentifying and arresting offenders who 
traffic illegal tobacco products. In addition, ATF conducts 
financial investigations in conjunction with ongoing criminal investigations in 
order to seize and deny further access to assets and funds used by criminals and 
terrorist organizations. State Cigarette Tax Rate Chart  ATF faces several challenges enforcing tobacco smuggling. Some 
tobacco businesses that sell over the Internet or through mail order are not in 
compliance with the Jenkins Act. The Jenkins Act requires businesses to report 
their sales of tobacco to appropriate state revenue agencies so state taxes can 
be assessed. ATF continues to investigate these types of cases. The trade of counterfeit tobacco products is also a rapidly growing global 
problem. Smokers who are tricked into buying fake cigarettes don�t get the 
product they�re expecting. While all cigarettes are dangerous and cause disease, 
it has been reported that counterfeit cigarettes have been found to contain 
higher levels of tar, nicotine and carbon monoxide than genuine cigarettes. 
Furthermore, many are even contaminated with sand and other packaging materials 
such as bits of plastic. Since these are illegally manufactured and imported 
cigarettes, consumers do not know what ingredients are used to manufacturer 
these cigarettes. Counterfeit cigarettes pose a greater health risk to consumers 
because of this reason. Counterfeit cigarettes have a direct impact on the U.S. economy since no 
federal or state taxes or Master Settlement Agreement (MSA) payments are made. 
This differs from contraband cigarettes where the federal taxes are paid by the 
manufacturer. Like all black market cigarettes, counterfeit cigarettes are used by many 
organized crime organizations because of the substantial profits that are 
generated through tobacco diversion. Much of these profits are used by these 
organizations to fund other criminal activities, to include international money 
laundering and possibly terrorism. Legitimate tax stamps are used to assist in the identification of state 
tax-paid cigarettes. Many tobacco traffickers use counterfeit tax stamps to save 
the cost of paying the state excise tax on the genuine manufactured cigarettes. 
It is cheaper for the black market trafficker to buy counterfeit stamps than to 
pay the state excise tax. Authority These statutes and charges have been used in ATF tobacco 
diversion investigations: Title 18 USC Section 2342 � The Contraband Cigarette Trafficking Act makes 
  it illegal to possess more than 10,000 unstamped cigarettes in a state which 
  requires a tax stamp.
  Title 18 USC Section 2343 � Requires that any person who distributes more 
  than 10,000 cigarettes to keep accurate records pertaining to the shipment, 
  receipt, sale and distribution of cigarettes.
  Title 18 USC Section 2320 � Trafficking in counterfeit cigarettes.
  Title 15 USC Section 375 � The Jenkins Act makes it illegal to ship 
  cigarettes to a non-licensee in a state without notifying the state taxation 
  authority.
  Internal Revenue Code � Imposes a $1.01 per pack federal tax and requires 
  a permit for manufacturers and importers. ATF coordinates with 
  the U.S. Department of Treasury Alcohol and Tobacco Tax and Trade Bureau 
  (TTB) in enforcing this law.
  Title 26 USC Section 5762 � Failure to pay the federal excise tax on 
  tobacco products.
  Title 18 USC Sections 1341 and 1343 � Mail and wire fraud.
  Currency Reporting Act � Failure to report currency transactions over 
  $10,000.
  Title 18 USC Section 1956 � Money laundering.
  Racketeering Influenced and Corrupt Organizations (RICO).
  Aiding and Abetting.
  Conspiracy. For more information on ATF�s programs, please visit the website 
at http://www.atf.gov/publications/factsheets/www.atf.gov. ###