Cigarette Ring Stubbed Out, U.S. Says

Federal authorities said Wednesday that they had dismantled a vast cigarette smuggling operation that had cost taxpayers more than $8 million in lost tax revenue.

Federal agents said they had seized $18.1 million in brand-name and counterfeit cigarettes from the El Paso-based network. On Wednesday morning, they arrested 10 alleged participants in Encinitas, Calif., and in Texas, New Mexico, New York and Florida.

A 92-count indictment unsealed Wednesday in U.S. district court in El Paso alleged that Jorge Abraham, 34, of Sunland Park, N.M., was the mastermind of an interstate operation to smuggle into the United States more than 107 million cigarettes with a potential street value of $37.5 million.

Abraham was taken into custody Wednesday.

Officials at the Department of Homeland Security, which oversees the agencies formerly known as the Customs Service and the Immigration and Naturalization Service, called the investigation the nation’s “largest probe to date” of cigarette smuggling. The FBI, the IRS and the Bureau of Alcohol, Tobacco, Firearms and Explosives, as well as the El Paso County Sheriff’s Office, also participated in the investigation.

Federal, state and local governments lose more than $1 billion in tax revenue each year to the smuggling and illegal sale of cigarettes, authorities said, calling the operation “a large criminal conspiracy that sought to exploit the U.S. economy.”

California budget officials estimate that the state loses $130 million to $270 million each year to all forms of cigarette tax evasion, which includes not only smuggling but also Internet and other tax-free sales. The state collects $1.1 billion from cigarette sales annually.

Michael T. Dougherty, chief of operations for U.S. Immigration and Customs Enforcement, said the “groundbreaking” investigation, which began in 2000 and is proceeding, had revealed “numerous vulnerabilities” in the nation’s border security and would serve as a roadmap for efforts to stem cigarette smuggling.

Standing beside a table piled high with cigarette cartons, Dougherty said a carton of counterfeit cigarettes produced for $2 in Asia could be sold on the street in New York City for $70.

Because “the profits are so fantastic,” he said, drug smugglers and “even terrorists” are getting involved in tobacco smuggling.

In response to questions from reporters, Dougherty said the investigation “did not reveal a nexus to terrorists or terrorist organizations.”

As for what happened to the millions of dollars generated by the operation, Dougherty said only, “We are following the money in this case.”

The indictment alleges that Abraham’s operation used two methods to smuggle cigarettes into the United States and sell them at a huge profit.

In the first scheme, the operation brought cigarettes into El Paso and Miami that had been allowed into the country duty-free for shipment out of the United States, the indictment alleges. Instead, federal authorities charged, the operation smuggled the cigarettes to New York and California for sale.

The second alleged smuggling method involved the purchase of counterfeit cigarettes in China and Taiwan. The cigarettes were loaded into containers and shipped to the United States, where they passed through ports by being labeled as “toys” or “plastic goods.”