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Illicit and contraband . . . cigarettes

cigarettesThe excellent recent book Illicit by Moises Naim offers a startling overview of a big piece of the global economy little noticed (because it deliberately keeps its head down) – the trade in illegal, contraband or counterfeit goods and services. The longtime editor of Foreign Policy magazine at one point offers this description:

“Since the early 1990s, global illicit trade has embarked on a great mutation. It is the same mutation as that of international terrorist organizations like al-Qaeda or Islamic Jihad – or for that matter, of activists for the global good like the environmental movement or the World Social Forum. All have moved away from fixed hierarchies and toward decentralized networks; away from controlling leaders and toward multiple, losely-linked, dispersed agents and cells; away from rigid lines of control and toward constantly shifting transactions as opportunities dictate.”

A point to bear in mind, reviewing the announcement last week of a settlement in the great Northwest cigarette smuggling case, now, evidently, mostly settled in advance of trial.

It was a large case, brought in 2003 and worked steadily since in the old-fashioned way, getting participants to roll over on others. If you think cigarettes are a minor deal as crime goes, ask yourself how many crimes would cost taxpayers (in this case in Washington state) as much as $56 million in tax revenue, which federal officials estimate was the case here.

We’d have been highly interested to see all the details a trial might have unearthed, but we’ll settle for the moment for the reports in the plea agreement papers. (The Spokesman-Review has posted three of them on its web site.)

The conspiracy was pegged on two points of cigarette tax law: Buyers of cigarettes sold on Indian reservations aren’t assessed state taxes; and, Washington has some of the the highest cigarette taxes in the country. If you’re sitting on the Coeur d’Alene Indian Reservation at Plummer, Idaho, a few miles from the border, opportunity could seem to be yodeling at you.

The plea deal said that “the enterprise engaged in, and its activities affected, interstate commerce. The defendant Louie Mahoney was a central conduit of virtually every aspect of the enterprise’s unlawful activities. Louie Mahoney ran a multi-million dollar a year contraband cigarette trafficking organization headquartered in Plummer, Idaho.” The arrangement was that his partners would load trucks with cartons of cigarettes and haul them to Indian reservations around Washington state, not reporting them (of course) to Washington state officials, and bypassing the tax.

It seems to have been a criminal organization on the old model – fixed places of business, a specific hierarchy and leadership, an established pattern of operations. That probably is part of what allow federal Internal Revenue Service and the Bureau of Alcohol, Tobacco, Firearms & Explosives agents to effectively nail it.

The temptation to make illegal profit off the variances in tax rates, however, isn’t going away. If Oregon increases its cigarette taxes to roughly match Washington’s, as it may, the incentives for the regional illicit trade may grow. Which means the federal agents are likely to be busy again, in due course, tracking down Mahoney’s successors. The catch is that, if Naim’s analysis of the global illicit trade is right and if the patterns descend to localities, the next cigarette enterprise may be more diffuse, more ad hoc, less structured.

Tougher to catch.

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