Editor’s Note: The complete GAO Report GAO-18-21 to the Sen. Wyden, Ranking Member of the Senate Finance Committee, is here. The following are excerpts.
Duty-free stores may sell tax-exempt cigarettes in any quantity to passengers departing the United States for Mexico at a port on the land border; agencies have identified schemes and practices associated with duty-free sales that are used to evade U.S. and Mexican taxes.
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U.S. Agencies Identified Three Schemes and Related Purchasing Practices by Which Duty Free Cigarette Traffickers Evade Taxes in the United States and Mexico
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Smuggling Duty-Free Cigarettes Back into the United States after First Smuggling Them into Mexico
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Smuggling of Duty Free Cigarettes across the Southwest Border Is Reportedly Linked to Organized Crime and Supplies the Illicit Tobacco Market in Mexico; U.S. Efforts to Counter This Illicit Activity Face Challenges
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Criminal Organizations Reportedly Use Duty-Free Cigarettes to Launder Money and Generate Revenue
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Certain Duty-Free Cigarettes from the United States Comprise a Large Share of the Illicit Mexican Market
Relatively inexpensive cigarettes manufactured in the United States, which, according to a Mexican customs official, do not meet requirements for sale in Mexico are routinely sold at duty-free stores on the southwest border. According to this Mexican customs official, one particular brand of cigarettes, which is sold exclusively at U.S. duty-free stores, is prohibited for commercial distribution in Mexico because the cigarettes do not comply with packaging and labeling regulations, including those related to health messages. This brand of U.S.-made cigarettes has been among the illicitly trafficked cigarettes that the Mexican government confiscated at various locations in the country from 2012 through 2015. In addition, in 2013, the Mexican customs agency executed a number of seizures of this brand of duty-free cigarettes that were undeclared at ports of entry on the U.S.-Mexico border (see fig. 7).This brand of cigarettes has been cited in recent studies as a significant part of the illicit tobacco trade in Mexico.
