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Illicit Trade

Management Approach

RAI and its subsidiaries believe that cigarette counterfeiters and smugglers undermine health and fiscal policy and hurt legitimate businesses and communities. We support efforts to educate elected officials, law enforcement and the public about the illicit trade of tobacco products as well as efforts to combat its growth.

cigarette smuggling

Cigarettes are taxed on a national, state and often, local level. The tobacco excise tax rates adopted by different states and localities, often neighboring localities, may vary substantially from one another. These tax differentials have contributed to the purchase and illegal resale of cigarettes across markets, known as cigarette smuggling. A 2016 literature review from the Mackinac Center for Public Policy shows that smuggled cigarettes may account for nearly a third of the entire U.S. cigarette market. The U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives reports that illicit trade results in the loss of billions of dollars in tax revenue annually for federal and state governments.

"Cigarettes aren't illegal, but governments have artificially raised the price of the product to such a degree that their sale and purchase are now tinged with many of the consequences of full alcohol prohibition. Thanks to "prohibition by price," people commonly smuggle cigarettes across borders, usually illegally, to evade excise taxes.”
Michael D. LaFaive, Senior Director of the Morey Fiscal Policy Initiative, Mackinac Center and Todd Nesbit, Assistant Professor of Economics, Ball State University, 2018 Article

Societal Impacts

As state and local governments pass additional tobacco product excise taxes to increase revenue, illicit trade continues to grow. This illicit trade has several unintended consequences, such as

  • Undermining Youth Tobacco Prevention efforts. The illegal resale of cheaper cigarettes compromises Youth Tobacco Prevention efforts because criminals don’t care to whom they sell.
  • Declining tax revenue for our communities. Since the appropriate taxes are not paid on the illegal sale of cigarettes, illicit trade contributes to the loss of state and local tax revenue. According to the National Research Council and Institute of Medicine, “…[t]he illicit tobacco market results in the loss of government revenues. In the United States, these losses are especially incurred by the states: at least $2.95 billion were lost in state tax revenues in 2010-2011.”

working with law enforcement

Our companies engage with diverse stakeholder groups including law enforcement, tax administrators, civic organizations, legislators and others to raise awareness of this problem. In addition to cooperating with law enforcement, for example, by assisting in the identification of counterfeit products. RAI's subsidiaries support organizations such as the National Sheriffs' Association, which offers training and education to sheriffs and their deputies to assist them in understanding and combatting contraband cigarette trafficking.