Enforcing the Law Against Illicit Traffic in Tobacco Products: Organizational Problems and Potential Solutions

Abstract

The illicit trade in tobacco products (ITTP) is substantial and growing. The federal government does not now have adequate capacity to control ITTP. Other urgent priorities have compelled the Bureau of Alcohol, Tobacco, Firearms, and Explosives (BATFE) to substantially abandon its tobacco enforcement efforts. The potential gains from ITTP activity are high and unlikely to decrease under any currently probable scenario, while the enforcement risks are modest. That combination predicts continued growth in ITTP levels. The resources required to bring any illicit market under control are roughly proportional to the size of the market. Thus, current neglect increases the future difficulty of the problem.

There are several options for improving the effectiveness of enforcement at the federal level, with minimal budgetary implications. There is a strong ethical and business case for cooperation with such efforts on the part of firms in the (licit) industry, and good reasons for public enforcement agencies to accept such assistance.

Keywords: ITTP, tobacco, enforcement, taxes

JEL Classification: K42, I18, H26, H21, H71