In adherence with their statutory duty, GAO has released the first part of its report on contraband tobacco. The report analyzes the illicit cross-border trade in cigarettes with a focus on tax evasion schemes. GAO explained that their second report, to be released later in 2011, will discuss “the health effects from cross-border and illicit trade.”
Based on information from the Treasury Department, report explains that “the diversion of tobacco products occurs for two principal reasons: the potential for illicit gains is high and the risk to illegal operators is low.”
The report, discussing a single illegal cigarettes internet sales operation, states that “ATF estimated that losses in federal and state tax revenue resulting from this illegal operation exceeded $425 million.”
Of note, the GAO report explains that law enforcement officials “characterized illict trade in tobacco products as like a whacka-mole problem, stating that although illicit trade may decrease immediately following successful law enforcement efforts, these activities usually resume after a period of time. ATF officials also noted that illicit trade in tobacco is often connected to other crime and criminals may use proceeds from illicit trade in tobacco to fund other crimes.”
Attached below is the GAO Report.