To hustlers seeking fast bucks, interstate-cigarette smuggling must look like a can't-miss proposition.

With a little money and a reliable truck, they can reap drug dealer-style profits by cheating on taxes. Thanks to a widening gap in state-by-state cigarette excise taxes, authorities say the black-market tobacco business is thriving. And critics in high-tax states say low-tax places like the Carolinas don't do enough to fight the problem. Last week's bust of a suspected Charlotte-to-Michigan smuggling ring is just one high-profile example of the challenge faced by states and the Federal Bureau of Alcohol, Tobacco and Firearms. "We consider it a major problem," said Richard Fox, head of the ATF's Charlotte office. "People have been doing this for years, but it's become more sophisticated." Hard numbers on the trade are elusive, but Fox estimates smugglers have cheated states out of hundreds of millions of tax dollars since the late 1970s. Other estimates go even higher - a 1997 study said the state of New York alone was losing $90 million each year. The crime is fueled by a growing disparity in state cigarette taxes, from a low of 2.5 cents in Virginia to a high of $1.11 in New York. New York's tax reflects a 55-cent increase this year, which officials hope will yield at least $270 million annually for health care for the uninsured. Meanwhile, in tobacco-producing states like the Carolinas, taxes have remained relatively low - 5 cents a pack in North Carolina and 7 cents in South Carolina. That means smugglers can buy cheap cigarettes, then sell them for more money in high-tax states, often in the North. Michigan, for instance, has seen a tremendous increase in cigarette smuggling since 1994, when the state tripled its cigarette tax to 75 cents a pack. According to an affidavit filed in the Charlotte smuggling case, conservative estimates are that Michigan has lost $100 million in cigarette taxes. Authorities say each carton of contraband cigarettes sold in Michigan earns an $8 to $10 profit. Fox said even a medium-sized-van load can net a smuggler as much as $10,000 "We think it's a constant problem," he said. "There are cigarettes traveling up the interstate every day." In Michigan, smugglers sell the cigarettes at cut rates to gas stations, convenience stores and tobacco shops, which then sell cheap smokes to the public. Carolinas' cigarettes bear no tax stamps - a disturbing fact for Michigan officials who can't trace the smuggled products. The N.C. legislature eliminated tax stamps in 1993. Sen. John Kerr, D-Wayne, sponsored the bill at the request of Southco Distributing Co., a cigarette wholesaler in his district. He said the company was wasting time ripping open boxes to put the stamps on cigarette packs. "I was not convinced it had anything to do with smuggling," Kerr said of his bill. "It's just a way to more efficiently manage our business. Their problem (in Michigan) is their tax is too high." But people in Michigan disagree. Eliminating the stamps made the Carolinas "a great source for all this illegal activity," said Larry Jenuwine, owner of a cigarette wholesale firm in suburban Detroit. "It's probably not a problem for the folks down in North Carolina," he said. "They're the ones profiting from it." It wasn't supposed to be this way. In 1978, the Contraband Cigarette Trafficking Act made it a federal crime to take more than 60,000 cigarettes, or 300 cartons, from one state to another without proof that state taxes have been paid. Smugglers can be punished with up to five years in prison, with additional time possible for related tax evasion or money-laundering charges. Courts can also order violators to pay restitution and surrender bank accounts, homes and businesses. "On its face it looks like an easy way to make some big money," said Earl Woodham, Charlotte ATF spokesman. "But the risk is losing everything you have." Still, with bombing suspects and gun traffickers to keep them busy, the ATF can't afford to make cigarette smuggling its top priority. In the Carolinas, where the agency has about 90 agents, about five work solely on tobacco-smuggling issues. Others are called in as needed, Woodham said. And since authorities have to spend massive amounts of time tracking contraband and suspects, cigarette smuggling can be a daunting proposition for investigators. The Charlotte case, where authorities say some suspects have ties to Lebanese terrorists, shows how sophisticated such operations can become - and how much work goes into busting them. Investigators got their first break in early 1995. An Iredell County sheriff's detective spotted individuals driving vehicles with out-of-state license plates making large cash purchases of cigarettes from JR Tobacco in Statesville. The vehicles were followed to the Virginia and Tennessee lines. The Iredell Sheriff's Office and ATF launched an investigation in 1996. The trail led them as far away as Michigan. On Jan. 24, 1997, ATF and Iredell deputies staked out the Statesville store, where they saw three out-of-state minivans being loaded with large quantities of cigarettes. Agents watched the vans travel west on Interstate 40. They alerted Kentucky authorities who seized 4,464 cartons of cigarettes. JR Tobacco officials declined comment on the case. Then on Nov. 6, 1997, a confidential government source interviewed by ATF in Detroit admitted transporting cigarettes to Michigan for Mohamad Hammoud, the suspected leader of the Charlotte smuggling operation, according to the affidavit. The source had been paid $500 for each trip. Another government source said it was common for one of the suspects to make $3,000 to $4,000 on each trip to Michigan. Authorities also seized large sums of cash. They once found $45,922 in a rented van after stopping one of the suspects for speeding. Another time, they confiscated more than $17,000. Sometimes, the suspects set up tobacco businesses as "fronts" to purchase large quantities of cigarettes, investigators said. Public health advocates say smuggling should be fought, but not by lowering cigarette taxes. They say higher taxes discourage teen smoking. They also say tobacco companies are complicit in the smuggling. In 1998, Winston-Salem-based Northern Brands International, then an affiliate of RJR Nabisco, pleaded guilty to ducking cigarette taxes and helping smuggle cigarettes into Canada. The company agreed to pay $15 million in fines and forfeitures. Also, a federal grand jury in Raleigh is investigating possible links between major cigarette makers and global smuggling, according to Newsweek magazine. R.J. Reynolds Tobacco Co. officials say their international tobacco operations have been sold, and their corporation has no role in smuggling. They also note that a $1 billion lawsuit the Canadian government filed last year against the company has been dismissed. Reynolds officials see the increase in smuggling as a natural result of high, uneven tax rates. "It's a law-enforcement issue," said company spokesman John Singleton. "The (authorities) have to see this as a serious problem and put the resources in place to be able to intercept illegal cigarettes."

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