There is no better example of the law of unintended consequences that cigarette taxes in the United States.
Each state sets its own rate, and the disparity is huge. Missouri's state cigarette tax is 17 cents. It's $4.35 in New York.
What's the unintended consequence? Crime.
According to the Bureau of Alcohol, Tobacco, Firearms, and Explosives, the United States loses $5 billion in tax revenue every year from the trafficking of illegal cigarettes. Worldwide, it's a $100 billion problem, and its the No.1 economic crime in Europe.
"We liken it to to the new prohibition era," Special Agent Ashan Benedict told CNBC for the upcoming documentary Cigarette Wars. "We haven't outlawed cigarettes yet, but it's taxed to the point where criminals know they can make a lot of money trafficking."
The crime has other variations, but it's extremely simple. The most common way: Buy cigarettes in a low-tax state and sell them in a high-tax state. The tax disparity is straight profit.
"A carton of cigarettes in Virgina is $30," Benedict said. "In New York City, it can be $90 or more. That's just one carton."
"You start dealing with hundreds and hundreds of cartons, and folks are making more money selling cigarettes up north than drugs."
One truckload can translate into $1 million in cash.
Historically, the crime is considered a common racket executed by the Mafia. But in 2011, the criminals range from gangs to terrorists groups. There are cases of illegal cigarette sales with ties to groups like Hezbollah and the Irish Republican Army.
"We have made a few cases, notably, the Charlotte Hezbollah case, where a cell out of Lebanon was trafficking cigarettes from North Carolina (a low-tax state) to Michigan (a high-tax state)," said Jeff Cohen, a lawyer for the ATF. "They were using the proceeds to buy military armaments in Lebanon."
Albeit rare, those cases demonstrate that it's gone well beyond a Mafia trade.
"The organizations are much more complex involving cigarette trafficking," said Cohen.
But the crime also happens on Main Street...every day.
CNBC found one such example while following a multi-agency sting operation (ICE, ATF, FBI, local police) in Hampton, Virginia. A local convenience stare owner was selling contraband cigarettes that did not have the proper tax stamps. That basically means that the taxes were not paid.
The owner was found guilty on four counts.
Again, the unintended consequences comes into play. A government that raises taxes, mainly in an effort to deter smoking. However, it has become so dependent on the tax revenue that law enforcement is going out to get that illicit money back and stop the trade.
"There are inherent contradictions," Cohen admitted. "You're taxing it to finance your programs and allegedly to make sure that people don't smoke. But at the same time, you're saying 'Oh, we're going to catch all the bad guys doing this.'"
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