1. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Cigarette Trafficking Training for Virginia Law Enforcement Personnel Intercepting and Investigating Illegal Cigarette Trafficking 1Virginia DCJS Law Enforcement Training: Tobacco Trafficking

2. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov The development of this training was funded by the Virginia Department of Criminal Justice Services (DCJS). It is intended for use by Virginia law enforcement agencies. This training should be accompanied by the rationale document titled: “Rationale Document for Law Enforcement Training: Intercepting and Investigating Illegal Cigarette Trafficking”. This presentation is the intellectual property of the Commonwealth of Virginia and is not for resale or individual profit. It should not be distributed outside Virginia without permission from DCJS. 2Virginia DCJS Law Enforcement Training: Tobacco Trafficking

3. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Virginia DCJS Law Enforcement Training: Tobacco Trafficking3 In consultation with DCJS, this training was authored by William V. Pelfrey, Jr., Ph.D. A team of law enforcement personnel, private sector experts, and attorneys provided advice and guidance in the development of this training. Special thanks to Altria which provided critical assistance in developing this training. Dr. Pelfrey is Associate Professor of Criminal Justice and Chair of Homeland Security/Emergency Preparedness at Virginia Commonwealth University. Dr. Pelfrey conducts research in policing and homeland security and has worked with law enforcement agencies across the nation. You may reach Dr. Pelfrey at: wvpelfrey@vcu.eduwvpelfrey@vcu.edu

4. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Training Overview This training is designed to assist law enforcement personnel in the identification, interception, and investigation of criminals trafficking Cigarettes. Elements to be covered include: –Example Cases –Scope and Impact of Cigarettes Trafficking –Motivation for Trafficking Cigarettes –Trafficking Modalities –Tobacco Laws –Interdiction –Additional Information Sources and Conclusion Virginia DCJS Law Enforcement Training: Tobacco Trafficking4

5. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Case 1: Operation Tobacco Road Over a 17 month span, encompassing 2012 and 2013, a ring of 16 Palestinian nationals illegally trafficked $55 million in cigarettes from Virginia to New York. The cigarettes were then sold to small retailers in Brooklyn, the Bronx, Queens, and Staten Island. New York lost approximately $80 million in taxes from this criminal enterprise. About $22 million in profits were produced, of which less than $8 million have been identified. Some or all of the missing $14 million may have gone to fund terrorist organizations. Members of the ring have direct ties to Hamas and Hizbollah, particularly to Sheik Omar Abdel-Rahman (aka “The Blind Sheik”). One of the defendants was recorded saying “This business is better than selling drugs.” Some defendants were linked to violent crime (including attempted murder) and two were recorded in Rikers Island arranging for the murder of a witness. Virginia DCJS Law Enforcement Training: Tobacco Trafficking5

6. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Case 2: Repeat Traffickers Arrested in Ashland, Virginia Onesimo Marcelino and three others were arrested in Richmond, VA in April, 2012. They were charged with illegally trafficking cigarettes and related offenses. They purchased over one million packs of cigarettes in Virginia, transported them to New York, and sold them to small grocery stores. Total tax loss in NY: nearly $5 million. Tax loss in VA: $330,000. They paid for the cigarettes with millions in cash, several firearms, and thousands of ounces of cocaine. Many of the cigarettes purchased from a fake store in Ashland, VA, created by ATF agents. This represented Marcelino’s fourth conviction for cigarette related crimes—two previous convictions for cigarette trafficking and one for use of counterfeit tax stamps. Marcelino was sentenced to 11 years in federal prison. He may not have been the organizer of this enterprise, just a front person. Virginia DCJS Law Enforcement Training: Tobacco Trafficking6

7. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Element Two: Scope of the Problem Illegal trafficking of cigarettes is becoming a serious problem in Virginia. Trafficking is driven by differences in tax rates—cigarette taxes are low in Virginia but much higher in places like New York. Criminals purchase cigarettes in Virginia, drive them to New York, and sell them to retailers there, making enormous profits. The profits are drawing organized criminal networks to Virginia. These criminal networks are sometimes involved in other criminal enterprises like drug and firearm trafficking. Profits from cigarette trafficking support other crimes and have been connected to terrorism and other violent crime. Law enforcement personnel play a key role in the identification and interdiction of cigarette traffickers. This training presentation will provide an overview of the law, the motivation and process of cigarette trafficking, and what police can do to intervene. Virginia DCJS Law Enforcement Training: Tobacco Trafficking7

8. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Impact of Cigarette Trafficking Davis et al. (2013) studied cigarette trafficking in NYC, Boston, Philadelphia, Washington DC, and Providence, RI. They found that between 30-40% of all cigarette packs are trafficked, and another 10% have no tax stamp. Additionally, they found that nearly half of all trafficked cigarettes in NYC and Washington, DC are from Virginia. The tax losses in these northeastern states are in the hundreds of millions each year. The profits produced by illegally trafficking cigarettes are usually reinvested in tobacco but may also go to other criminal activities. Cigarette trafficking is an excellent way to launder money (thereby facilitating criminal organizations). Cigarette trafficking funds have been tracked overseas and found to have been invested in terrorist organizations. Virginia DCJS Law Enforcement Training: Tobacco Trafficking8

9. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Criminal Networks Some tobacco traffickers engage in small scale criminality involving car loads of cigarettes transported periodically. Criminal networks organize cigarette trafficking on a much larger scale and involve greater sums of money. They may use volume purchasing or fraudulent retail sources to obtain product then transport that product north. Identification of a cigarette trafficker during a routine traffic stop can be viewed as an opportunity to charge the driver/passengers with the instant offense or a chance to initiate an investigation of an organization. Drivers and passengers may represent potential confidential informants who can expose criminal networks and lead to multiple arrests. Asset forfeiture can also be a possibility, providing your organization with income and resources. Criminal organizations may be involved in racketeering and could be investigated under RICO statutes. There is some evidence of gangs (including MS-13) being involved in tobacco trafficking. Virginia DCJS Law Enforcement Training: Tobacco Trafficking9

10. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Element Three: Motivation for Trafficking Cigarettes The primary motivation for illegally trafficking cigarettes is money. Virginia has the second lowest tobacco excise tax in the nation. Northeastern locations, particularly New York City, have significantly higher taxes. This creates a tax disparity which presents significant profit potential for transporting cigarettes north and selling them illegally. Much of the tobacco trafficked north is purchased legally in Virginia. Some law enforcement experts suggest there is a higher profit margin for trafficking cigarettes than criminal enterprises involving cocaine, heroin, marijuana, or illegal guns. Virginia DCJS Law Enforcement Training: Tobacco Trafficking10

11. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Cigarettes and Tax One carton (ten packs) of cigarettes purchased legally in Virginia carries a state excise tax of $3.00. Below are some tax rates as reported by the 2013 Federal Tax Authority (per carton of cigarettes): –Washington, DC: $25 –New Jersey: $27 –Rhode Island: $34.50 –New York: $43.50 –New York City: $58.50 The tax differential between Virginia and NYC for a carton of cigarettes is approximately $55. For a case of cigarettes (60 cartons) the difference is $3300. Virginia DCJS Law Enforcement Training: Tobacco Trafficking11

12. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Cigarette Trafficking Profits In addition to the excise tax disparity, retail establishments charge more for products in high cost-of-living locations like Boston and New York City. ATF estimates profits for illegally transported cigarettes (Virginia to NYC). –$8.50 per pack –$85 per carton –$5100 per case The average car can hold eight to ten cases of cigarettes, which equals a profit estimate of over $30,000. A van can hold 50 cases, with a profit estimate of $170,000. A rented moving truck can carry 2,000 cases, with a profit estimate of $700,000. A full tractor trailer could bring millions in profit. Virginia DCJS Law Enforcement Training: Tobacco Trafficking12

13. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Secondary Motivators for Cigarette Trafficking Virginia DCJS Law Enforcement Training: Tobacco Trafficking13 There are several other factors which make cigarette trafficking preferable to other criminal enterprises: 1.Sanctions are light compared to other crimes—30,000 of cocaine or heroin could translate to decades in prison. 2.Profit margins are higher than almost any other criminal enterprise. 3.Violence is rarely involved. 4.Participation in this crime takes no special skills, equipment, or experience. 5.The risk of apprehension is low and some law enforcement personnel don’t know that interstate transportation of tobacco is a crime.

14. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Where Does the Money Go? Profits from cigarette trafficking are usually applied to future trafficking enterprises. Investigations have linked cigarette trafficking to the following additional crimes: –Terrorism –Human trafficking –Illegal drug manufacture and sales –Gun distribution –Fraud –Extortion –Robbery –Homicide Unfortunately, the high profit margins are luring organized crime to get involved in cigarette trafficking. This will likely lead to violent crime as rival factions compete and interact. There have been at least three homicides in Virginia that are suspected of being linked to cigarette trafficking gangs. Virginia DCJS Law Enforcement Training: Tobacco Trafficking14

15. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Element Four: Trafficking Methods There are several possible modes for trafficking illegal cigarettes. These include: 1.Smurfing 2.Wholesale purchases 3.Self-owned tobacco stores 4.Tax Stamps and Counterfeit Stamps Each of these modalities will be considered in detail. Although counterfeit cigarettes do exist and represent a serious issue in some cities, they are rarely a problem in Virginia given the extremely low taxes. Virginia DCJS Law Enforcement Training: Tobacco Trafficking15

16. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Smurfing Smurfing refers to small purchases made repeatedly. Individuals, or buyers in small groups, purchase cigarettes legally, usually at convenience stores. They may operate in teams, sometimes four to a car, and each person buys five cartons of cigarettes a few minutes apart. Most retail locations have agreements with tobacco manufacturers that preclude purchase of more than five cartons by any individual buyer. The buyers use cash and often have the cash pre-packaged in envelopes or rolls (held by rubber bands). When they have accumulated enough cartons, they transport them in a vehicle to a known vendor in the northeast. Virginia DCJS Law Enforcement Training: Tobacco Trafficking16

17. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Volume Purchases These buyers make large purchases of cigarettes, usually at warehouse stores. Virginia does not limit the number of cigarettes one can purchase, nor are stores required to keep records on cigarette sales. If a buyer makes a purchase using more than $10,000 in cash, the store will need to complete a federal form indicating buyer and destination of the cigarettes. Thus, a buyer can make numerous cash purchases under $10,000, with no records. Alternatively, they can make the purchases using a credit card. If they get 2% back on all credit card purchases, and purchase several hundred thousand dollars worth of cigarettes each year, this is an additional avenue of profit. Virginia DCJS Law Enforcement Training: Tobacco Trafficking17

18. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Storage Risks Virginia DCJS Law Enforcement Training: Tobacco Trafficking18 Cigarettes purchased in large quantity need to be stored, usually at a house or rental storage unit. The process of accumulating significant value in cigarettes and storing them creates the potential for ancillary crimes. A buyer that is storing tens of thousands of dollars worth of cigarettes in a house may be the victim of a home invasion and/or armed robbery. Storing the cigarettes in a storage unit may lead to burglary. Those who traffic cigarettes may also have large quantities of cash, which serves as an additional incentive for targeting. Example: A recent home invasion case in Henrico County was linked to a competitor storming into a house which was used to store cigarettes.

19. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Self-Owned Tobacco Outlet To purchase cigarettes from a distributor one simply needs a tax ID number, which can be obtained at no cost from the Virginia Department of Taxation. One can then purchase cigarettes in large quantities from a distributor without paying any sales tax. These cigarettes may then be transported north at even greater profit. To identify these perpetrators, look for tobacco businesses that seem to never be open, or have very few customers (usually the same customers over and over). Some of these retailers open a business, operate it for a few months, then close it and open a “new” business, often in the same location. In July 2013, two Powhatan county residents were convicted of using two tobacco stores as fronts for selling cigarettes to New York. Over 14 months, they brought in over $10 million. Virginia DCJS Law Enforcement Training: Tobacco Trafficking19

20. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Tax Stamps Virginia requires that all tobacco products sold at retail establishments have a tax stamp. This stamp indicates that appropriate federal and state taxes have been paid. Some localities of Virginia levy additional taxes and may use a different tax stamp, or require an additional stamp to be affixed. Below are images of the Virginia tax stamp, the New York City and State tax stamp, and the Northern Virginia Cigarette Tax Board stamp. Tax stamps may be counterfeited. It is difficult to identify sophisticated counterfeit stamps with the naked eye. If you see sheets of Virginia tax stamps, they are counterfeit. Virginia DCJS Law Enforcement Training: Tobacco Trafficking20

21. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Element Five: Laws Governing Cigarette Distribution, Federal Level The key Federal law is 18 USC § 2342 (also known as the Contraband Cigarette Trafficking Act of 1978) which states: a)It shall be unlawful for any person knowingly to ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes or contraband smokeless tobacco. b)It shall be unlawful for any person knowingly to make any false statement or representation with respect to the information required by this chapter to be kept in the records of any person who ships, sells, or distributes any quantity of cigarettes in excess of 10,000 in a single transaction. –Federal law also prohibits possessing greater than 50 cartons of cigarettes which do not display stamps of the state in which purchased (although NC and SC do not stamp cigarettes). –There is no federal license required to sell tobacco, however, there are record keeping requirements. –These are defined by: part 46 of Title 27 of the Code of Federal Regulations. Virginia DCJS Law Enforcement Training: Tobacco Trafficking21

22. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Recent Changes to Virginia Laws In recognition of the expanding scope of cigarette trafficking, the Virginia State Crime Commission (VSCC) was tasked (by Senate Joint Resolution 21) with studying the problem and making recommendations. In a 2013 report, the VSCC traced the impact, process, and current sanctions regarding cigarette trafficking. A variety of recommendations were also provided, including changes to the quantity of cigarettes representing illegal activities, the felony level associated with offenses, and the sanctions that accompany conviction. Policy changes were also suggested including treating cigarette trafficking as organized crime and facilitating asset forfeiture. On July 1, 2013, many of these changes were implemented, producing greater sentences and greater leverage for prosecutors and law enforcement. Virginia’s Department of Alcoholic Beverage Control (ABC) may also assume some responsibility in regulating cigarette sales and distribution. Virginia DCJS Law Enforcement Training: Tobacco Trafficking22

23. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Virginia Tobacco Laws The key Virginia law governing sale and distribution of tobacco is § 58.1-1017.1. Possession with intent to distribute tax-paid, contraband cigarettes. The law states: Any person other than an authorized holder who possesses, with intent to distribute, more than 5,000 (25 cartons) but fewer than 100,000 (500 cartons) tax-paid cigarettes is guilty of a Class 1 misdemeanor for a first offense and is guilty of a Class 6 felony for any second or subsequent offense. Any person other than an authorized holder who possesses, with intent to distribute, 100,000 (500 cartons) or more tax-paid cigarettes is guilty of a Class 6 felony for a first offense and is guilty of a Class 5 felony for a second or subsequent offense. There are subsections of § 58.1-1017.1 which specify civil penalties and fines for cigarette trafficking. Virginia DCJS Law Enforcement Training: Tobacco Trafficking23

24. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Element Six: Interdiction Methods Vehicle Issues You are most likely to identify tobacco trafficking during a routine traffic stop. Traffickers commonly use rental vehicles to reduce the chance that a personal vehicle could be seized. Once pulled over, there are several indicators which might suggest contraband trafficking of cigarettes. Any vehicle can be used to transport cigarettes. Although large vehicles (vans, trucks) can carry more product, it is very difficult to know which vehicles are employed in criminal enterprises as they drive by. Virginia DCJS Law Enforcement Training: Tobacco Trafficking24

25. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Indicators of Trafficking Boxes of cigarettes may be in plain sight Vehicle smells like tobacco Backseat full of covered boxes. Boxes may be covered in black plastic, brown paper, blankets, trash bags, etc. Backseat full of suitcases Bags from a variety of convenience stores Windows of vehicle are covered (paper or plastic taped to the interior) Air fresheners hung throughout interior of car Items that are usually in trunk (spare tire, jack) are in backseat Numerous cell phones Lots of cash (perhaps in envelopes or rolled in rubber bands) Virginia DCJS Law Enforcement Training: Tobacco Trafficking25

26. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Driver Behavior There are several driver behaviors which may suggest illegal activity: Driver behaving nervously Vehicle owned by someone other than driver Disparity between driver’s license, vehicle tag, and insurance info Driver unable to explain where he is going or purpose of trip Lack of consistency between driver and passengers If tobacco trafficking is suspected, it is important to separate driver and passengers and get individual stories, then compare them. Inconsistencies may contribute to articulable suspicion. Virginia DCJS Law Enforcement Training: Tobacco Trafficking26

27. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Conducting the Interview Virginia DCJS Law Enforcement Training: Tobacco Trafficking27 Interviewing the driver is one of the most important elements of a stop. If you see large quantities of cigarettes in the vehicle, or suspect the driver of trafficking cigarettes, here are some questions you could ask: Where did you purchase the cigarettes? How much did you pay? Did you visit more than one store to purchase cigarettes? Why? Where did you get the money to purchase the cigarettes? Do you have a cigarette distributor or stamping agent license? What agency issued that license? Are you being paid to transport the cigarettes? How much? Paid by whom? What is the destination for the cigarettes? How often have you traveled to purchase cigarettes for resale? Do you have a business license or are you employed by someone with a license?

28. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Vehicle Searches and Consent The best way to gain access to a suspected trafficker’s vehicle is through obtaining consent. Be sure to follow state and local guidelines in obtaining consent to search. Absent consent, you will need probable cause to search the vehicle. You must have articulable suspicion to support probable cause. Consult with your Commonwealth’s Attorney’s office to define the thresholds for articulable suspicion and probable cause. Positive hits from a drug dog may help justify a search. Virginia DCJS Law Enforcement Training: Tobacco Trafficking28

29. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Conducting the Search While conducting the search, be sure to take pictures (with a cell phone or digital camera) of any piece of evidence or data. These could include: –Toll receipts –Lists of convenience stores –Written directions or notes on maps –Destinations programmed into GPS systems (may require specific consent) –Cell phone address book and message history (may require specific consent) –Cash –Cigarettes—it is best to take pictures while they are covered/hidden and again when uncovered –Other trafficking materials (like rubber bands, envelopes, packaging materials, air fresheners, etc.). Virginia DCJS Law Enforcement Training: Tobacco Trafficking29

30. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Element Seven: Additional Sources of Information Virginia DCJS Law Enforcement Training: Tobacco Trafficking30 Consider contacting the following agencies and visiting their websites for more information: 1.Altria, the parent company of Phillip Morris USA 2.Virginia State Crime Commission 3.Northern Virginia Cigarette Tax Board 4.National White Collar Crime Center 5.Bureau of Alcohol, Tobacco, Firearms, and Explosives 6.Maryland State Police Tobacco Task Force 7.Richmond Regional Multi-jurisdictional Special Operations Group The Rationale Document which accompanies this training presentation has detailed contact information and websites.

31. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Additional Training Opportunities: Altria and NWCCC Altria and Phillip Morris USA sponsor a one-day training program for investigators and other law enforcement personnel. The training addresses: patterns of tobacco trafficking, legal issues, effective investigation and prosecution of tobacco traffickers, interception of traffickers, and other elements. Approximately 1,300 Virginia law enforcement personnel have completed this training. It is offered several times a year across Virginia, is free, and represents law enforcement continuing education credit. For more information on this training, contact the National White Collar Crime Center. Virginia DCJS Law Enforcement Training: Tobacco Trafficking31

32. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Conclusion Virginia DCJS Law Enforcement Training: Tobacco Trafficking32 Cigarette trafficking is a rapidly expanding crime in Virginia. Traffickers legally purchase cigarettes locally then transport them to northeast locations. Huge profits are generated as a result of the tax disparity between Virginia and cities like New York and Boston. Ancillary violent and property crime are growing in Virginia. Routine traffic stops may identify tobacco traffickers. Recent changes in laws and harsher sanctions can be applied to apprehended traffickers. Look for vehicles with packages in the back seat, covered by blankets or plastic. Try to get consent to search the vehicle. Look for businesses in your region which sell tobacco but have few customers—these could be fraudulent retailers.

33. Virginia Department of Criminal Justice Services www.dcjs.virginia.gov Virginia DCJS Law Enforcement Training: Tobacco Trafficking33 Thank you for your time and attention.