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COUNTERFEIT AND CONTRABAND CIGARETTE SMUGGLING:

OPPORTUNITIES, ACTORS, AND GUARDIANSHIP

By

Sharon Anne Melzer

Submitted to the

F acuity of the School of Public Affairs

of American University

in Partial Fulfillment of

the Requirements for the Degree

of Doctor of Philosophy

In

Justice, Law and Society Chair:~~ Louise I. Shelley, PhD ~~~

Dean of the School of Public Affairs

Date 2010 American University Washington, D.C. 20016 AMERICAN U.WVERStrt LIBAARY ct 5Cf I UMI Number: 3417880

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Sharon Anne Melzer

2010

ALL RIGHTS RESERVED COUNTERFEIT AND CONTRABAND CIGARETTE SMUGGLING:

OPPORTUNITIES, ACTORS, AND GUARDIANSHIP

By

Sharon Anne Melzer

ABSTRACT

Contraband and counterfeit cigarette smuggling provides organized crime and

terrorist organizations with a sizable revenue stream that does not come with the risks and

punishments that are associated with other illicit commodities, such as drugs and weapons.

This global crime often involves participants in several countries and each market has its

own set of circumstances. Thus, the illicit cigarette market is very complex, occurs

simultaneously at different levels, and requires a multiple method approach for its study.

This dissertation uses qualitative and quantitative methods, structured by the

routine activities theoretical framework, to analyze the problem of cigarette smuggling. The

quantitative portion is a cross-sectional analysis conducted on data from 93 countries. In the

bivariate Tobit analyses, relationships between the dependent variable, illicit cigarette

consumption as a percentage of legitimate market, and several independent variables were

significant and suggests that a state's ability to govern in many sections of society affects

cigarette smuggling. In the multivariate Tobit analyses, the final sale price is significant without control variables. When the control variables are included, the models once again

suggest that being able to govern effectively and score low on the Failed State Index is related to a reduction in the percentage of the cigarette market that is illegal.

11 111

The qualitative, case study portion of the dissertation focuses on Turkey's documented problem with the smuggling of counterfeit and contraband cigarettes. The case study examines various aspects of Turkish society and data includes interviews with Turkish

National Police officers, government documents, and various open sources written in

English. It appears that taxation; regulations and laws; the fractioning of guardianship; the existence of a "deep state" and corruption; the roles that culture, history, and geography play; social acceptance of smuggling; governmental policies related to the "Kurdish problem;" and the underdevelopment of southeastern Turkey seem to affect the country's illicit cigarette market. There is evidence that the PK.I<.. is involved in cigarette smuggling; however, many of the smugglers operating in the southeast region participate in the trade because they have few legitimate opportunities to earn a living. EXECUTIVE SUMMARY

Contraband and counterfeit cigarette smuggling provides organized crime and terrorist organizations with a sizable revenue stream. Moreover, this revenue stream does not come with the risks and punishments that are associated with other illicit commodities, such as drugs, weapons, and human trafficking. Cigarette smuggling can be divided into three main categories: large-scale, bootlegging, and counterfeit. Although this is a global crime and often involves participants in several countries, each local and regional market has its own set of circumstances and the actors may have different motivations for their involvement.

Thus, the illicit cigarette market is very complex, occurs simultaneously at different levels, and requires a multiple method approach for its study. Accordingly, this dissertation uses qualitative and quantitative methods to analyze the problem of cigarette smuggling.

The routine activities approach, which is an opportunity theory and is very closely related to and directly influenced by rational choice and economic explanations of crime, provides the theoretical framework. This approach says that a crime may occur when a motivated offender, a suitable target, and the absence of a capable guardian are present.

Because cigarette smuggling is dependent on these three elements and is a primarily a financial crime, the routine activities approach is a suitable framework.

The quantitative portion is a cross-sectional analysis conducted on data from 93 countries. The illegal consumption as a percentage of the total market ranges from 0.1 % to

90% and has a mean of 15.80%. In the bivariate Tobit analyses, the relationship between the dependent variable, Illicit cigarette consumption as a percentage ef legitimate market, and the

lV v

independent variables, The final sale price ef a pack qflvfarlboro or equivalent international brand ef cigarettes, Tax price in $US, Atjjacent border with a lower tax, Cigarettes per capita, Government effectiveness, Criminalization-Delegitimization qfthe State, Uneven economic development along group lines,

GNI, World Bank's anafytical income categories, and the Failed state index, were significant.

Interestingly, the variables measuring taxation and price's relationship to the dependent variable were negative, meaning that as the price increases the predicted percentage of the market that is illegal decreases. This suggests that a state's ability to govern in many sections of society affects cigarette smuggling. In the multivariate Tobit analyses, the final sale price is significant without control variables. When the control variables are included, the models once again suggest that being able to govern effectively and score low on the "failed state" is related to a reduction in the percentage of the cigarette market that is illegal.

The qualitative, case study portion of the dissertation focuses on Turkey's documented problem with the smuggling of counterfeit and contraband cigarettes. Turkey's geographical location, higher taxation rates compared to their Middle Eastern neighbors, and having an array of actors ("mom and pops," organized crime, and the PKK) involved in the illicit trade makes the country suitable for a case study. The case study examines various aspects of Turkish society and data includes interviews with Turkish National Police officers, government documents, and various open sources written in English. It appears that taxation; regulations and laws; the fractioning of guardianship; the existence of a "deep state" and corruption; the roles that culture, history, and geography play; social acceptance of smuggling; governmental policies related to the "Kurdish problem;" and the underdevelopment of southeastern Turkey seem to affect the country's illicit cigarette market. There is evidence that the PK.I< is involved in cigarette smuggling; however, many of Vl

the smugglers operating in the southeast region participate in the trade because they have few legitimate opportunities to earn a living.

The current analysis suggests that although the final price paid for a pack of cigarettes, which can include taxation and variation in the final price, is heavily dependent on variations in taxation levels, and is an essential component, the size of a country's illegal market is the result of the interaction between motivated offenders, suitable targets and opportunities, and guardianship. The ability to govern effectively-or have a lower score on the Failed State Index-is the result of a government's ability to address all three of the essential elements. Currently, the international community is creating policies aimed at reducing the illicit market by reducing demand and supply at the country level and worldwide. These efforts bring awareness to the issue, help governments create appropriate policies, and can aid weaker countries' efforts to combat the problem. However, the discussions and policies should move away from taxation, include the growing problem of counterfeit cigarettes, and offer more solutions or supports for local or national law enforcement and those securing borders. In addition, governments and law enforcement agencies at all levels should enact policies, such as increased detection, punishments, and financial consequences that will deter individuals from entering the illegal market. ACKNOWLEDGMENTS

The following dissertation is the result of years of learning, researching, and living that were possible only because of the generosity of others. Without the support and assistance from many, I could not have written this improbable dissertation. I am truly blessed, and I offer them my heartfelt appreciation and gratitude. I realize that my success is dependent on the numerous individuals who invested and believed in me, past and present.

Therefore, I dedicate this dissertation to them.

A few organizations and individuals made this dissertation possible by providing access to data and/ or financial support. First, I would like to thank a kind economist who offered assistance with creating my quantitative dataset and met with me to discuss my dissertation. The quantitative analysis would not have been feasible if it were not for your kind generosity and assistance. Second, I would like to thank the Turkish National Police

(TNP) for their assistance throughout the project. I could not have completed this research if it were not for their openness and generosity. To the TNP officers who allowed me to interview them for hours on end, I am truly appreciative of the time and effort you have given me. I would also like to thank TADOC (Turkish International Academy against Drugs and Organized Crime) for their assistance and hospitality. Mahmut Cengiz, Kutluer

Karademir, and Selcuk Turan are three TNP officers who deserve individual acknowledgment. Mahmut arranged many of the interviews and accommodations, provided assistance and encouragement, shared his vast knowledge, extended various opportunities, and made the Turkish case study possible. On several occasions, Kutluer willingly translated

Vil V111

interviews and clarified concepts. Selcuk's hospitality, ability to translate for hours,

protection, friendship, and humor were invaluable. Third, I would like to thank the

Terrorism, Transnational Crime and Corruption Center (TraCCC) for the financial support

and opportunities it provided and its staff for their assistance. In particular, I would like to

thank TraCCC's director Louise Shelley and my editor Joyce Horn. Fourth, American

University and the School of Public Affairs (SPA) provided financial support in the form of

a University Doctoral Fellowship and various grants.

I could not have asked for a more perfect environment to complete my doctoral

work than the one created by SPA and the Department of Justice, Law and Society's faculty,

staff, and administration. Faculty members were always available to provide assistance or

guidance on various topics and issues that arose throughout my doctoral studies (especially

Brian Forst, Laura Langbein, Deirdre Golash, Richard Bennett, and Rita Simon). The staff

solved problems, navigated through the bureaucracy on my behalf, provided American

University paraphernalia as gifts for my interviewees, and assisted with a 1,000 other things.

Deirdre Golash and Meg Weekes deserve special recognition for their assistance, patience,

mentoring, and encouragement. These two women have contributed greatly to my personal

and academic development. Thank you.

I am forever indebted to my committee: Louise Shelley, Brian Forst, and Laura

Langbein. Often, I am in awe of their talents and humbled by the time and unwavering

support they have given me. Over the years, they have spent countless hours reviewing and

editing drafts as well as coaching me through the many challenges life and my dissertation

threw at me. During my most trying months, they never lost their faith in my dissertation or me. Dr. Shelley has provided invaluable insight, guidance, opportunities, resources, and lX

support. My understanding of terrorism and transnational organized crime has increased in

depth and breadth under her tutelage. She opened her Turkish home to me and included me

in various conferences and academic endeavors. Thanks to her Blackberry, within minutes,

she answered questions and calmed fears from remote corners of the world. Brian Forst and

Laura Langbein were constantly available to answer questions, review lengthy STATA logs,

and challenge me to exceed my limits. My knowledge of theory, statistics, sentencing, and

terrorism expanded under Dr. Forst's direction, and Dr. Langbein exposed me to

economics, public policy, and non-criminological perspectives of corruption, terrorism, and

illicit markets. The dedication and perspectives that each contributed substantially improved

the final product and made me a better scholar. To study under such extraordinary scholars

has been a privilege. Words cannot truly express how much I appreciate all of the hours of

their lives they have given to my dissertation and me. I can only hope to be the half the

mentor to my students as they were to me.

In addition to those mentioned above, I have been incredibly fortunate to have

several friends, colleagues, and family members provide the much needed assistance and

motivations during the process. I express gratitude to my fellow doctoral students, who are

some of the most talent and promising academics I have ever met, for their assistance, inspiration, knowledge, camaraderie, and the many fond memories. I wish I could list all of my family and friends who helped me along the way, but time and space do not allow.

Nevertheless, I would like to acknowledge Susan Melzer, Scott Melzer, Tara Shelley, Bilal

Wahab, Amy Brock, Jean Accius, Libby Clapp, Derek Swick, Kevin Wozniack, Keri Weber

Sikich, Nikki Souris, Christiaan de Waal, Stacey Zeno, and Anne Marye. The love,

friendship, strength, guidance, knowledge, and encouragement that you have given me x

meant more than you could ever know. You made a notoriously lonely, difficult, and trying experience, enjoyable and manageable. Without you, I could not have finished this dissertation and my Ph.D.

Finally, I wish to thank my parents, Robert and Mary Melzer. They, with my sister

Susan, cared for my beloved cocker spaniel while I was chasing my dream. My mother provided emotional support and a very large supply of coffee, spent countless hours listening to me, cared for me while I recovered from a research-related foot surgery, and reminded me of something my grandfather said, "Just because something is impossible, doesn't mean it can't be done." My father is the one who made all of this possible. More than providing the much-needed financial assistance, he made sure I could access money in a given country, established a secure VPN when I traveled, fixed computers, ran races with me, made various airport runs, solved problems, provided emotional support, and did dozens of other things that made working on my PhD easier and possible. This dream began when I was studying the Dutch criminal justice system in Leiden, the Netherlands. Thirteen years and five degrees later, it finally came true, in part, because his support never wavered. Thank you, Dad, for allowing me to chase my dreams and providing a safety net for the occasional stumble. CONTENTS

ABSTRACT ...... ii

EXECUTIVE SUMMARY ...... iv

ACI

LIST OF TABLES ...... xii

LIST OF FIGURES ...... xiii

CHAPTER 1 - Introduction ...... 1

2 - Literature Review ...... 28

3 - Quantitative Methods and Analysis ...... 76

4 - Case Study - Turkey ...... 134

5 - Conclusion ...... , ... 211

REFERENCES ...... 227

X1 LIST OF TABLES

Table 3.1 Factors Influencing Cigarette Smuggling (Variable Definitions) ...... 85

Table 3.2 Countries Included in the Analysis with Their Illicit Consumption in Million Sticks, Market Infiltration (Illicit Cigarette Consumption as a Percentage of Legitimate Market), Cigarettes per Capita, and GNI,2006 ...... 94

Table 3.3 Descriptive Statistics ...... 113

Table 3.4 Bivariate Correlations ...... 114

Table 3.5 Bivariate Tobits on Illicit Cigarette Consumption as a Percentage of Legitimate Market and Key Explanatory Variables ...... 118

Table 3.6 Multivariate Tobit on the Illicit Cigarette Consumption as a Percentage of Legitimate Market ...... 122

Table 3.7 Collinearity Diagnostics ...... 133

Table 4.1 Descriptive Statistics: Comparing Turkey to Cross-Sectional Multi Country Quantitative Dataset...... 137

Table 4.2: Descriptive Statistics for Key Variables: Turkey and Surrounding Countries ..... 138

XU LIST OF FIGURES

Figure 3.1 Felson and Clarke's Ten Principles of Opportunity and Crime...... 32

Figure 4.1 Cigarettes Per Capita...... 140

Figure 4.2 Illicit Consumption as a Percentage ...... 140

Figure 4.3 Total Price of a Pack of Marlboro or International Brand Equivalent in $US .... 141

Figure 4.5 Government Effectiveness ...... 142

Figure 4.6 Failed State Index ...... 144

Figure 4.6 Known Cigarette Smuggling Routes into Turkey ...... 187

Figure 4.7 RJR Movement of Cigarettes into Iraq (Pre-invasion, 1990-2001) ...... 189

Figure 4.8 Known Smuggling Route of Counterfeit Cigarettes from China to Turkey via Iraq...... 191

Figure 4.9 Cigarette Smuggling: Iraq and Syria to Konya, Turkey ...... 191

Figure 4.11 Organizational Chart Depicting Konya's Cigarette Smuggling Case ...... 207

X111 CHAPTER 1

INTRODUCTION

One spring day a few out-of-town friends and I were walking around DuPont

Circle, a well-to-do and historic neighborhood filled with restaurants, embassies, businesses,

and Washingtonians. My friends had smoked their last cigarettes and asked me where they

could buy cigarettes. Not knowing myself, I asked a restaurant worker, who was sitting on a

milk crate smoking a cigarette, where my friends could buy cigarettes. He pointed to a street vendor's cart and explained that we could buy cigarettes from the vendor, but they are illegal,

or we could go to CVS. He gave us the prices for both the illegal and legal cigarettes, and

then said we look like we would buy them from CVS and proceeded to give us directions to

the closest CVS. Of course, they purchased their cigarettes from CVS. I do not know if the

cigarettes sold by the street vendor were counterfeit or contraband, but the experience illustrates how complacent many are with selling and buying illegal cigarettes, even in the

United States and its capital city.

A smoker who purchased a contraband pack of cigarettes on the streets of New

York City or another city may not realize that a criminal organization is behind the pack of cigarettes he or she purchased. The profits from that illegal pack of cigarettes could finance drug trafficking, the purchase of illegal weapons, murder, and even terrorism. While the incident above seems harmless, the illicit cigarette trade can involve serious crimes and consequences.

1 2

A few years after my exchange with the restaurant worker, the United States

Attorney's Office for the Eastern District of Virginia issued a press release containing the details of a fourteen-month investigation into a cigarette smuggling ring that operated between Virginia and New York. In November 2009, authorities took 25 individuals into custody and charged them with a mixture of federal and state charges. At the time of their arrest, the defendants possessed $1.2 million in cash, 50,000 ecstasy pills, a firearm, and

100,000 counterfeit tax stamps. The charges stemmed from an investigation that ran from

July 2008 to October 2009. During this time, individuals traded $8 million in cash, 40 guns,

60 grams of cocaine base, and 32,000 ecstasy pills with undercover agents to acquire 77 million sticks (388,000 cartons) of contraband cigarettes. In addition, defendants allegedly sold or traded more than 275,000 counterfeit Virginia and New York cigarette tax stamps

(Carr, 2009). As of January 1, 2008, Virginia imposed a 30-cent tax per pack of cigarettes and

New York State and New York City each imposed 150-cent tax on each pack legally sold within their jurisdictions (Federation of Tax Administrators, 2008). Had the stamps been legitimate, their value would have ranged between $82,500 and $825,000. In addition to counterfeiting, cigarettes smuggling, and drug trafficking, two defendants contracted with undercover agents to hire a hit man to kill a man and his wife for $15,000. The defendants thought the man stole 15,000 cartons from a storage facility (Carr, 2009).

The above case is one of numerous cigarette smuggling cases where authorities were able to uncover crimes that are more serious, such as murder for hire and drug trafficking, while investigating a cigarette smuggling or diversion case. There are numerous examples where cigarette smuggling converges with serious crimes, transnational organized crime, and terrorist cells; often, the cigarette smuggling enabled authorities to discover these 3

serious crimes and document crime networks. In 2005, numerous local, state, and federal law enforcement agencies1 and the Royal Canadian Mounted Police conducted Operation Royal

Charm in New Jersey and Operation Smoking Dragon in California. Both cases concerned counterfeit cigarettes, counterfeit cash, ecstasy, methamphetamine, and weapon trafficking.

The Department of Justice used an anti-terrorism statute to indict two of the Californian defendants for their involvement in the trafficking of surface-to-air missiles that were capable of destroying an airplane in flight (Department of Justice, August 22, 2005,

November 9, 2005, April 19, 2006). In a Hezbollah-related case, an off-duty sheriff was moonlighting as a security officer for a tobacco store in North Carolina when he noticed a few Middle Eastern men buying hundreds of cartons of cigarettes with cash. Soon after, federal authorities carried out Operation Smokescreen and documented the activities and membership of a Hezbollah cell (Arena, 2006; Diaz & Newman, 2005; Fromme - Personal

Communication, 2006; Melzer, 2009; Shelley & Melzer, 2008). In South-Eastern Europe, in particular the former Yugoslavia, "the requisite routes, social networks and capital to move into human trafficking and smuggling" were developed by smugglers who were moving cigarettes, weapons, and drugs during the Balkan War (Surtees, 2008, p. 46). Examples of the convergences between cigarette smuggling and serious crimes are plentiful and illustrate the importance of this product in the illicit market.

According to a 2009 Department of Justice report, organized crime's involvement in cigarette smuggling, or tobacco diversion, has increased since 2000 and costs the United

States about $5 billion annually in lost tax revenues (U.S. Department of Justice - Office of

The federal agencies include Federal Bureau oflnvestigation (FBI), the U.S. Secret Service, the Bureau of Alcohol, Tobacco, Firearms and Explosives (.ATF), U.S. Immigration and Customs Enforcement (ICE), U.S. Customs and Border Protection, U.S. Postal Inspection Service, and the Department of Labor's Inspector General, 4

the Inspector General, 2009, p. 8). Yet, American law enforcement tends to allocate minimum resources to this crime. In 2009, The Bureau of Alcohol, Tobacco, Firearms and

Explosives (A TF) dedicated only 1 % of its case load, 68 field agents, and allocated only about 2%, or approximately $20 million, of its resources to alcohol and tobacco diversion

(U.S. Department of Justice - Office of the Inspector General, 2009, pp. iii, 35)2. However, in the first quarter of 2009, tobacco diversion seizures accounted for almost 60% of all seizures and had a value of $25,552,846. Over the past few years, the agency had two investigations that resulted in convictions for individuals involved in Hezbollah and cigarette smuggling as well as numerous cases involving organized crime groups of "Armenian,

Chinese, Middle Eastern, Russian, Taiwanese, Ukrainian, and Native American" descent

(U.S. Department of Justice - Office of the Inspector General, 2009, pp. 17, 15). Because the

A TF's diversion program operates with meager resources and has significant intelligence sharing issues, the guardianship they can provide is minimal at best. When considering the potential profits involved in cigarette smuggling and the low risk of detection and arrest, it is not surprising that cigarette smuggling is on the rise in the United States.

Extent of the Problem

Cigarette smuggling is not an American phenomenon. Cigarettes are a highly taxed commodity; therefore, they are also one of the world's most commonly smuggled goods (Fleenor, 2003). Accordingly, cigarette smuggling occurs in North and South America,

Asia, the Middle East, Europe, the former Soviet Union, and Africa. Euromonitor

International (2007), a private research company, estimates the illicit global market to be

2 This same report noted that the ATF did ask for additional funding, agents, and support staff for their alcohol and tobacco diversion program. However, the Office of Management and Budget did not include their request in the budget. 5

more than 8% of all cigarette sales (p. 2), and the World Health Organization (2007) places that estimate as high as 10.7% (p. 5). A recent estimate places the worldwide tax revenue losses caused by the illicit counterfeit and contraband cigarette market to be $U.S. 40 to 50 billion annually (World Health Organization Framework Convention on Tobacco Control,

2007, p. 6). In addition to the potential profit, the legality and accepted use of cigarettes, the ease of transporting the product, and the lax punishments for cigarette smuggling add to the allure of cigarette smuggling.

The consequences of this illegal trade are substantial and reach further than lost tax revenues; law enforcement and academics have linked the trade to social, medical, and financial harms. For example, counterfeit cigarettes increase medical harm because they contain increased levels of harmful chemicals and toxic metals such as arsenic, cadmium, lead, and thallium (Pappas, Polzin, Watson, & Ashley, 2007; Times Online, 2004). Both counterfeit and contraband cigarettes may increase harm because illegal cigarettes usually do not follow "requirements for health-warning labels in the local language, regulations on additives, and others" (Joossens, Chaloupka, Merriman, & Yurekli, 2000, p. 394). These requirements can vary by country andJossens, Chaloupka, Merriman, & Yurekli (2000) believe that without the appropriate warning labels consumption will increase because the consumer is not aware of the potential hazards of the product. Furthermore, many countries use funds generated through cigarette sales to reduce smoking and fund medical treatments associated with smoking. Because criminals divert the tax revenues to personal accounts and not the government, those programs do not benefit from the sale of the illegal cigarette pack. This could be considered an additional social cost of cigarette smuggling. An additional, and potentially more dangerous, cost could be the circumvention of the purpose 6

of the taxes. Governments tax cigarettes, in part, as a way to limit or discourage the use of cigarettes. The idea is that if prices are high, individuals will either not smoke at all or will smoke less. However, if the black market provides the cigarettes at a lower price it negates the effects of the taxation policy and increases the amount of cigarettes that individuals consume. Joossens, Merriman, Ross, & Raw (2009) estimate that if it was possible to eradicate the market in counterfeit and contraband cigarettes, cigarette prices would increase while consumption decreases. The decrease in consumption would save approximately

160,000 lives a year. Of the 160,000 lives saved annually, 32,000 would be from countries that the World Bank considers high income. Saved lives reduce the costs of cigarettes to human capital. Because more individuals would live longer, the human capital costs, aggregate production and consumption costs, associated with cigarette smokers' shorter lives would be reduced as well. When addressing the increased toxicity of counterfeit cigarettes and increased consumption because of the lower price, medical costs are further increased.

According to Cohen, "Social costs are costs that reduce the aggregate well-being of society" (Cohen, 2000, p. 272).3 Those costs can be anything related to the crime that reduces the overall happiness, health, and productivity of society. Of course, the medical and health costs discussed above are important social costs. There are also criminal justice costs, such as expense related to police investigating, documenting, and arresting rings, the courts

Cohen also argues that although social costs are important, cost-benefit analyses on crime control programs should be conducted on external costs and not social costs. According to Cohen, not all crimes are truly "transfers." He uses the example of stolen property. The value of the stolen goods may mean more to the victim than the value to the offender. If the victim purchased an item and the offender stole that item from the victim, the victim's loss would be greater than the offender's gain. If the offender sold the item, he or she would typically receive less money than the victim paid for it. Although the value of the specific property may be transferred from one person to another, the criminal act has caused the victim and others to do certain things that may divert resources away from the common good, and thus are a social cost. For example, the victim may purchase a security system and/ or change their routines. There are also costs associated with processing the stolen goods. Moreover, society will react and spend money to investigate the theft and prevent future ones. These funds could be used for other purposes, such as education, that could improve the overall happiness of society. 7

processing and trying the cases, and the probation department or correctional facilities costs in imposing the punishment. However, some social costs may not be apparent. There is a wide array of individuals involved in cigarette smuggling. Some are in the trade to support themselves and their families because legitimate means of adequate employment is somehow blocked. However, other individuals and groups are involved in the trade to raise money for terrorist activities, to pay for wars or governmental operating budgets, launder profits from drug sales and other illegal activities, or fund other organized crime activities. Moreover, the illicit trade transferred taxes and profits from the legal economy to the illicit economy. Thus, the money spent on law enforcement to detect and limit the amount of illegal cigarettes entering the market, the money spent on the criminal activities the illegal cigarettes fund, and the money spent on crime prevention could be viewed as a social cost. The loss of taxation revenue felt by governments cannot pay for medical and social service programs or the enforcement of cigarette laws.

An Introduction to the Illicit Trade

The illegal market contains counterfeit and contraband cigarettes. Counterfeit cigarettes are the "production of cigarettes in contravention of a country's laws, such as taxation laws and/ or licensing or monopoly related laws" (Euromonitor International,

2007b, p. 2). Criminals produce counterfeit cigarettes-usually substandard in quality and using unregulated ingredients-and then package them to imitate well-known and trademarked cigarette brands, such as Marlboro. 4 Contraband cigarettes are cigarettes

China is one of the largest known producers of counterfeit cigarettes, and estimates put the production around 400 billion counterfeit cigarettes annually. This is in spite of the Chinese government enacting specific and general laws prohibiting the manufacture and distribution of counterfeit goods and specifically counterfeit cigarettes (Shen, .Antonopoulos, & Von Lampe, 2010). For an in-depth analysis of how 8

produced by legitimate manufacturers according to corporate and government standards.

They are genuine Marlboro, Camel, Salem, etc. cigarettes. Because manufacturers do not sell directly to the end user, cigarettes pass through a system of wholesalers and distributors.

They become contraband when distributors or smugglers do not pay the appropriate taxes on the product, but pass it along the distribution chain until it reaches the end user without taxes paid to the government. "Cigarette diversion" is another name for this practice.

There are various ways smugglers can avoid paying all or part of the taxes; but I group them into two categories: large-scale smuggling organizations and bootleggers.

Bootleggers are smaller scale or mom-and-pop schemes. Typically, they buy a few cases of cigarettes in a jurisdiction with no tax (e.g., duty free Native American reservations) or a lower tax rate, sell them in a jurisdiction with a higher tax rate, and keep the difference. A possible opportunity that bootleggers might exploit is the tax differentials between Virginia and New Jersey. As of January 1, 2008, Virginia imposed an excise tax of 30 cents per pack and New Jersey imposed the nation's highest tax of 257.5 cents per pack (Federation of Tax

Administrators, 2008). With a margin that exceeds $2 per pack, it not a far stretch to imagine that a person would load up his or her van with a couple of hundred cartons of cigarettes in

Virginia and resell them in New Jersey. The ATP estimates that a car can transport about 10 cases of cigarettes, which yields $18,000 to $23,000 in profit, and a van can move about five times that amount (U.S. Department of Justice's Office of the Inspector General, 2009, p.

13). This type of activity becomes even more attractive when offenders consider the low likelihood of the criminal justice system detecting, prosecuting, and punishing them under the current laws. The Contraband Cigarette Trafficking Act-the federal act that prohibits

Chinese counterfeit cigarettes are manufactured and distributed, please see Shen, ,\ntonopoulos, & Von Lampe's (2010) The Dragon Breathes Smoke: Cigarette Counterfeiting in the People's Republic of China. 9

the shipment, transportation, receipt, purchase, possession, sale, and distribution of contraband cigarettes by anyone except exempt persons-does not apply until a person or group transports 50 or more cartons per month without appropriate state taxes paid (U.S.

Department of Justice's Office of the Inspector General, 2009). 5 This type of smuggling occurs throughout the United States. It also occurs throughout the world, especially in the

European Union and various countries that have "duty-free" options for their citizens who are returning from another country.

Large-scale smugglers follow the same concept, except that instead of moving a truckload of cigarettes, they are moving shipping containers or tractor-trailer loads of contraband cigarettes. These schemes seem to be more sophisticated, take advantage of free- trade zones, may involve legitimate manufacturers and distributors, and require the commission of other crimes, such as fraudulent documents and money laundering. Some large-scale smugglers steal cargo containers of cigarettes and sell them in the black market.

In other cases, the tobacco companies have played a role. Belize, Ecuador, Honduras,

Canada, Columbia, and 10 European countries accused R.J. Reynolds Tobacco and Philip

Morris of participating in large-scale smuggling operations (Beare, 2002; European

Community v. R.J. Reynolds et al. and Philip Morris et al., 2001). Not all schemes directly involve well-known tobacco manufacturers. In March 2005, seven California residents pled guilty for their involvement in cigarette trafficking, and authorities seized counterfeit tax

From 1978 until 2006, authorities could not apply the Contraband Cigarette Trafficking "\ct until a person or group transports 300 or more cartons (60,000 sticks or 3,000 packs) without appropriate state taxes paid. In 2006, as part of the reauthorization of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, the limit was dropped to 50 cartons (10,000 sticks or 500 packs). Members of Congress introduced versions of the Prevent All Cigarette Trcifftcking (PACT) Act in 2003, 2007, and 2009. The purpose of the act is to increase record keeping requirements for those who sell cigarettes through the mail, internet, or telephone. It also would make violating state tax laws a felony (U.S. Department of Justice's Office of the Inspector General, 2009). On April 1, 2010, President Barak Obama signed U.S. Senator Herb Kohl's version of the PACT Act. It will go into effect on July 1, 2010. 10

stamps, cigarettes, money, and vehicles. Defendants owned tobacco and transportation companies, purchased the cigarettes with cash at a Virginia warehouse, transported the cigarettes to California for sale, and did not pay taxes in either state (Virginia Department of

Alcoholic Beverage Control, 200S). After a 4-year investigation, the U.S. Department of

Justice and Virginian agencies uncovered the trafficking of 108,084,000 cigarettes between

Virginia and California, which was valued at more than $18 million and they avoided paying

$4.7 million in taxes (Brownlee, March 7200S).

The illicit cigarette market also deals with counterfeit or illegally manufactured cigarettes. Similar to fake handbags and pirated software, criminals produce counterfeit cigarettes-usually substandard in quality, with higher levels of carcinogenetic and toxic ingredients, and use unregulated ingredients-and package them to imitate well-known trademarked cigarette brands, such as Marlboro. There can be a vast difference in price between the legitimate cigarettes and counterfeits. According to Bob Fromme (Personal

Communication, 2006), a SS-foot shipping container of legitimate Marlboro cigarettes cost

$2.S million whereas the same amount of counterfeit cigarettes cost $2SO,OOO to $SOO,OOO.

There are differences in the regulation of the products as well. As stated above, counterfeits tend to be more toxic to individuals than legitimately manufactured cigarettes. Counterfeiters do not follow the same regulatory standards as legitimate manufacturers, and there is no regulatory agency monitoring the levels of tar and nicotine in counterfeit cigarettes. The paper, filter, and tobacco could contain chemicals that are not approved for human consumption. The counterfeiters do not properly warn people of the ill effects of cigarettes, do not report the ingredients to regulatory agencies, do not test or report tar and nicotine 11

levels, and many use ingredients that are toxic, prohibited, or are otherwise unfit for the legitimate manufacturing of cigarettes.

The level of counterfeit manufacturing sophistication varies, especially between different countries. Some operations are small-scale, where workers hand-roll each cigarette, assemble the packs, and glue them by hand. These "factories" are often in isolated or hidden locations. Other operations are large-scale factories that use the same machinery as legal factories and operate openly. Euromonitor (2007) and Philip Morris International (PMI)

(2003) cite the World Customs Organization's estimate that China produces 190 billion counterfeit cigarettes each year. Counterfeit factories operate in Iraq, Iran, Turkey, the

United Arab Emirates, Romania, Russia, countries within the tri-border region of South

America, and other countries.6 In their Counterfeit Recognition Guide, PMI refers to the counterfeiters as the world's fifth largest tobacco company, and PMI views the problem so seriously that they have designed their box to include a 1.6 mm text tear strip and especially designed paper that does not glow under ultraviolet lights. Those elements are very difficult for counterfeiters to copy, but make it easy for law enforcement and industry officials to determine if the product is legitimate or counterfeit.

The act of smuggling contraband cigarettes Oegally produced cigarettes, but illegal because taxes and duties are not paid to the appropriate governments) has been linked to the

Italian Mafia since the early or mid-twentieth century (Paoli, 2003). However, the lure of profits from this commonly smuggled and trafficked product has not only attracted

Paraguay, Brazil, and Argentina are the three countries involved in the tri-border region of South America. Specifically, the region involved three cities: Ciudad del Este, Paraguay; Foz do Iguacu, Brazil; and Puerto Iguazu, Argentina. This region has high levels of corruption, money laundering, sale of counterfeit goods, smuggling, and various organized crime and terrorist activities. Criminals launder billions of dollars each year and enjoy almost open borders between the three cities. The region is home to members of numerous transnational organized crime groups and terrorist organizations (Abbott, 2004; Hudson, 2003). When talking about this region's illegal activities, it is customary to refer to it as the tri-border region instead of the individual countries. 12

traditional organized crime groups; it attracts new entrants and does not stop at moving legitimately produced cigarettes. The U.S. government and international corporations have documented the manufacturing of counterfeit cigarettes in the tri-border region of South

America by terrorist organizations (Fromme -Personal Communication, 2006; Hudson,

2003; Interview 03.26.07.01, 2007; Sverdlick, 2005). Manufacturing of counterfeit cigarettes, and the subsequent trafficking, occurs in China as well (Fromme, 2006; Intellectual Property

Protection in China, 2007; Interview 06.15.07.01, 2007). According to a tobacco company representative, Chinese-produced counterfeit cigarettes enter the Turkish and Iraqi markets

(Interview 06.15.07.01, 2007). Moreover, the illicit cigarette trade occurring between Iraq and

Turkey has been linked to the Kurdistan Workers' Party (PI

R.J. Reynolds et al., 2002; Interview 06.15.07.01, 2007; Interview 06.15.07.02, 2007).

In contemporary times, organized crime groups and terrorist organizations are the beneficiaries of the illicit cigarette trade. Over the last few decades, organized crime groups have changed in response to the changing global environment. Newer transnational crime groups, especially those operating in conflict regions, are more likely than traditional groups to work with terrorist groups. And, terrorist organizations have turned to organized crime activities and colluded with organized crime groups to support themselves and their cause

(Shelley, 2005). The U.S. Government Accountability Office (GAO) ranks cigarette smuggling among the top fund-raising activities used by terrorists along with the illicit drug, weapon, and diamond trades. During the 1960s and 1970s, many members of the Italian mafia used cigarette trafficking as a means of support, especially during repressive campaigns against them (Paoli, 2003). Italian mafia groups are still involved in cigarette smuggling, especially cigarettes entering Europe via Montenegro. Italian and Swiss authorities have 13

indicted several mafia members for their involvement in the Italy-Montenegro cigarette

smuggling ring and related money laundering (Glenny, 2008; Schecter, 2009; Sisti, 2009).

Nevertheless, traditional mafia and organized crime groups no longer hold the monopoly on

trafficking of this otherwise legal product. In recent years, U,S, Federal Courts have heard

cases and complaints involving terrorist organizations, such as Hezbollah and the PK.I<,

traditional organized crime groups, and American corporations that have participated in

cigarette smuggling (European Community v. R.J. Reynolds et al., 2002; United States of

America v. Mohamad Youssef Hammoud, 2004b). Organizations throughout the world,

including Hezbollah, Hamas, Al Qaeda, Irish Republican Army (IRA), PKK, Basque

Homeland and Freedom (ETA), and Egyptian and Palestinian Islamic Jihad have been

identified as participants in this illicit trade (Billingslea, 2004; Coker, 2003).

Researchers, analysts, and government reports have mixed conclusions about

whether terrorists participate in traditional organized crime activities, such as counterfeiting,

trafficking, and smuggling. 7 A GAO (2003) report on alternative sources of terrorist

financing concluded that Al Qaeda was involved in cigarette smuggling and other types of

traditional organized crime. Moreover, Hezbollah, another terrorist organization that has a

global reach, has been linked to the manufacturing and distribution of illicit cigarettes as a

means of support (Diaz & Newman, 2005; Hudson, 2003; United States of America v.

Mohamad Youssef Hammoud, 2004a). The little, and sometimes contradictory, information we have on how terrorists raise or "earn" funds lends support to why the inquiry into their use of cigarette smuggling is important. It also reminds the researcher that terrorist

organizations are different, they do not all raise money in the same way, and individual cells

An in depth discussion of the crime-terror nexus and terrorist organizations using organized crime methods to raise funds is presented in Chapter 2. 14

can choose to raise money using different methods. Of course, cigarette smuggling is most likely not the only revenue source for these organizations. Terrorist organizations participate in the illicit narcotics industry, Moroccan hashish trade, music and computer program piracy, collecting "taxes" and fees on illegal activities occurring in the regions they control, diamond smuggling, credit card fraud, and old fashion extortion. Additionally, terrorist organizations still utilize funds from charities, kleptocratic regimes, and the personal wealth from key members or benefactors (Rollins, Wyler, & Rosen, 2010).

Consumers, governments, and manufacturers feel the harm caused by counterfeit and contraband cigarettes. Consumers may or may not know that they are consuming a cigarette that an illicit organization manufactured outside of government or industry regulations and that is potentially more harmful than a legitimate cigarette. This trade harms governments because they cannot collect the taxation that they would have collected had the sale and manufacturing of the product been legal. In turn, they cannot spend that money to fund smoking cession programs and other related social and medical programs that are intended to reduce the government's cost in treating individuals who use tobacco products.

Moreover, the funds transferred away from governments and toward criminals tend to fund illegal activities and support organized crime and terrorism, such as the alleged link between a Miami resident's cigarette smuggling activities and the IRA8 or the counterfeit cigarette

In August 2009, Roman Vidal, a 57-year-old married man from Florida, pled guilty to wire and mail fraud in connection with his cigarette smuggling activities. The plea was the result of an undercover operation conducted by several American and European law enforcement agencies into Vidal's cigarette smuggling activities. Vidal would acquire cigarettes from Panama and have them shipped to the United States. He then repacked the shipping containers with a combination of cigarettes and housing materials. He declared only the housing materials, which concealed the illegal cigarettes, and paid the duties on the housing materials. He sent the housing materials and the undeclared cigarettes to Europe. Authorities know of at least four shipments. They estimate that Vidal shipped more than 27 million cigarettes without paying the required $6.5 million in duties and taxes. Moreover, authorities found connections between some of Vidal's associates and the Real IRA. European authorities have suggested that the funds from cigarette smuggling supported the Real IRA's terrorist attacks and criminal actions-including the murder of two British soldiers in 2009. In February 15

smugglings rings that were the focus of Operation Smoking Dragon and Operation Royal

Charm. Thus, not only does the government lose the tax revenue, but they also have an

added expenditure of increased law enforcement activities related to cigarette smuggling and

the crimes that it funds. The illicit trade, especially the trade in counterfeit cigarettes, also

affects manufacturers and related industries. PMI (2003) has affirmed that counterfeit

cigarettes and related illegal activities has harmed their business as well as the business of

their competitors, governments, consumers, and societies worldwide. In 2003, PMI

estimated that the counterfeit market cost their business $200 million each year.

Few studies address cigarette smuggling, and when they do they tend to focus on

contraband cigarettes and tax differentials. These studies ignore counterfeiting and

associated criminal behaviors. Moreover, they present involvement of the criminal or

terrorist organizations in counterfeit and contraband cigarette smuggling as an afterthought

instead of a focused examination of cigarette smuggling. Finally, the studies rarely attempt to

uncover larger social variables or situations that may contribute to the growth or reduction

of this particular illegal market. This research project attempts to fill many of the gaps that

the prior literature has overlooked or could not fill.

2010, Alan Gold, a U.S. federal judged, sentenced Vidal to 24 months in prison, 3 years probation, and payment of $1.5 million in restitution. He was not charged with any terrorism-related crimes because they are difficult to prove. Scholars have also found a connection between cigarette smugglers and the IRA (Billingslea, 2004; Elfrink, 2009, 2010; European Anti-Fraud Office - OLAF, 2010; Manzanares, 2009; The United States Attorney's Office: Southern District of Florida, 2009; U.S. Immigration and Customs Enforcement, 2009, 2010; Willson, 2009). 16

An Introduction to the Research Project

This research project examines the illicit, transnational cigarette trade. I have used

the criminological framework of routine activities to structure the empirical investigation.

This theoretical framework states that crime occurs because of three elements: willing

offenders, suitable targets, and the absence of capable guardians. The routine activities

approach uses the term "suitable target" instead of "victim" because the word "victim"

tends to refer to a person. In the traditional application of the theory, a suitable target can be

an unlocked car or a home burglary where willing offenders steal televisions, cash,

computers, and other valuables while the homeowner is away. The targets are the high-value property. The victims are the owners of the property, and they are not directly included in

the key elements. In this application of the theoretical approach, the victim is not a person, but the state or the larger society. To a lesser extent, when addressing counterfeit cigarettes

one could consider the manufacturer and the unknowing consumer as "victims." The target is the potential illicit profits between the price smugglers pay for the cigarettes and the price

they sell them.

This approach is a situational or environmental theory. Although criminologists derived the theory from rational choice, the approach does not directly consider the individual choices made by specific offenders. Instead, the theory focuses on the situation that surrounds the offender or groups of offenders. Changes in the environment in which a person makes his or her decisions would likely change or somehow alter the calculations and outcome. For example, an individual considering stealing a car may make a different decision if he or she is in a junk yard of crushed cars, a secured lot filled with brand new cars and monitored by video cameras and guards, a mall parking lot with a few unlocked cars, or a 17

small town with a strong social network. Rational choice focuses on the individual and his or

her calculations, whereas routine activities theory focuses on the environment in which the

offender and many more offenders must make decisions. The purpose of focusing on the

environment is so guardians can manipulate the environment and reduce crime. Thus, this

theory is useful when creating crime prevention strategies and policies. 9 Specifically, I want

to highlight the opportunities, or expected gain, associated with illicit cigarette trade, how or

why those opportunities are present and their impact on participants. I hypothesize that all

three elements of routine activities theory are present in the illegal transnational cigarette

trade and that an adjustment in any one of those elements can increase or decrease

opportunities; thus, a change in one of these elements will have an impact on the illicit,

transnational cigarette trade. Although the illicit cigarette trade is global, this empirical inquiry into the topic will first use a quantitative dataset containing information on 66

countries and then focus on Turkey, a country that has a unique geographical location and a

documented problem of smuggling, for a more in-depth case study.

To have a better understanding of how criminals create the market and why it is not only sustaining, but growing, it is important to inquire why this product seems to be a viable target for criminals to exploit. Many observers expect that taxation is the main catalyst

for the trade. Therefore, I examine if taxation does affect the volume of contraband and counterfeit cigarette trade. Is taxation the primary catalyst? Are there societal-level factors that create incentives (i.e., tax differentials in nearby jurisdictions, high level of corruption, uneven development, and poor governance and social control) and/ or willing offenders (i.e.,

Please see Chapter 2, the literature review, for a lengthy discussion on the siffillarities and differences between the criminological approach of routine activities and the economic theory of rational choice. 18

blocked or limited legal employment opportunities, social unrest, and low standards of

living)?

Understanding or identifying some motivations for why individuals participate in

the trade is also important. A basic assumption could be that individuals are willing suppliers

in the smuggling of cigarettes because of the large profit margins created by taxation

differences and willing buyers who purchase the illegal cigarettes because of the cheaper

price. However, are other factors, such as unemployment and socio-economic status,

complementary to the effects of taxation on the offenders' incentives and willingness to

participate? Moreover, who are the willing offenders (both buyers and sellers) associated

with the routes and the trade (from manufacturing/acquisition to final distribution)?

Concerning law enforcement's connection to the illicit trade and their efforts to

combat (or permit) the trade, does law enforcement treat crimes and the criminals the same?

Do law enforcement agents consciously or subconsciously treat individuals they perceive to

be linked to small, mom-and-pop smuggling organizations differently than individuals

associated with terrorist organizations, such as the PKIZ?10 Law enforcement is one type of

10 The PKK is a left-wing separatist group that wants to establish a free and independent Kurdistan based on Marxist-Leninist ideals. In 1978, the First Congress of the PKK met in Ankara. During this meeting, the PKK was established and },bdullah Ocalan became its first and only leader. Many of the founding members of the PKI<: were also member of the youth organization Ankara Higher Education Association. In the beginning, the PKK had both Kurdish and Turkish members and was driven by Marxist ideology and not Kurdish nationalism. Ocalan, himself, was halfTurkoman and half Kurdish, and he spoke to his followers in Turkish-partly because he could not speak Kurmandji and Zaza, two dialects of the Kurdish language. His leadership style resembled that of Stalin and Mao and if someone threatened his authority or disagreed with them, they risked execution. Many of the original members are no longer with the PKK, mostly because of unnatural deaths. By 1982, the group had changed sufficiently to decide at their Second Congress in Syria that they would launch a violent campaign to establish an independent Kurdistan. In 1984, the PKK started its war against Turkey. Between 1984 and 2006, 30,000 to 35,000 people were killed in the conflict. Throughout the war, many of Turkey's neighboring countries, Greece, Cyprus, Libya, the Soviet Union, and Cuba, provided various forms of support to the PKK. In 1999, Turkish authorities arrested Ocalan in Greece's Kenyan Embassy. Since his arrest, the group has changed its tactics and focus slightly, but it is still active. As a response to September 11th and being listed as a terrorist organization by the United States and many European countries, the group changed its name to Kurdistan Freedom and Democracy Congress (KADEK) ir. 2002. A year later, they changed their name to (Kurdistan People's Congress (KONGRA-GEL) (Ozcan, 2006; Radu, 19

guardianship, but what other forms of guardianship are involved and how do they impact law enforcement's abilities to counteract this trade? Are there international treaties or organizations that are attempting to limit the illegal trade and impose standards on individual countries? Finally, how do domestic and international policies, laws, and law enforcement respond to this transnational crime?

I will use several different data sources to answer these questions. Several questions concerning the country-level relationships between possible factors, such as taxation and socio-economic factors, and the volume of cigarette smuggling can answered by analyzing quantitative data. 11 Scholars from various disciplines have addressed similar questions using state-level or country-level quantitative data in their analysis (see Jha &

Chaloupka, 2000; Maltz, 1976, 1981; Thursby & Thursby, 2000). However, questions concerning how law enforcement regards the severity of cigarette smuggling, how officers address cigarette smuggling, and whether officers perceive differences between traditional organized crime and terrorist organizations, must be answered through interviews with police officers, customs officials, and industry representatives and document review.

Questions concerning the characteristics and motivations of known cigarette smugglers, the networks, and the methods also need to be answered through qualitative research. A few criminologists have used document review and qualitative methods to answer similar

2001; Roth & Sever, 2007; Sozen, 2006). However, most people and organizations still refer to the group as the PKK. To avoid confusion, in this dissertation I refer to the group as the PI<.K. Moreover, Turkey, the United States, UK, and the EU have designated the PKK as a terrorist organization. The group has been linked to terrorist attacks, killing of police and military personnel, assignations, stereotypical organized crimes, and using terrorist tactics to achieve their goals and recruit new members. It should be noted that individuals who wish for an independent Kurdistan may not always subscribe to the violent means or the particular ideology that the PKK uses to achieve their goals. There is a difference between groups and individuals who wish for self-governance through peaceful means and the terrorist organization known as the PKK 11 For exact variables and their sources, measurements, and definitions, please see Table 3.1 in Chapter 3. 20

questions about rings in Europe (see Antonopoulos, 2007, 2008; Glenny, 2008; McEwen &

Straus, 2009; van Dijck, 2007; van Duyne, 2003; von Lampe, 2003, 2005, 2006).

The review of the literature on the illicit cigarette market in Chapter 2 includes a myriad of studies from a variety of disciplines and perspectives that address black markets in the United States, Europe, South America, Asia, the Middle East, and the worldwide problem. The quantitative portion of the analysis includes all major world regions and has a closer focus on Europe and the Middle East (especially Turkey). However, the qualitative portion includes a case study of Turkey. Because this study primarily examines the criminal activities and the infiltration of illegal cigarettes in the cigarette market, the study will include both organized crime groups and terrorist organizations. Essentially, I focused on the crimes and the people involved instead of particular groups' activities and motivations.

To reiterate, this study focuses on the activity of contraband and counterfeit cigarette smuggling. The goal of my study is to: (1) identify factors that may increase or decrease the size of the illegal market and the reasons individuals participate in this illicit trade, and (2) examine law enforcement and other government responses to this specific transnational crime and the factors that limit their abilities to be capable guardians against this activity. The objective of my research on cigarette trafficking is twofold. First, this research is an empirical investigation into the factors associated with this increasing and international criminological activity. Second, it will identify factors and better inform policy makers and law enforcement agencies about the relationships that economic, social, political, and criminal justice policies have with the criminal opportunities. Understanding these relationships can lead to the reduction of opportunities and incentives available to illicit actors in both the counterfeit and contraband cigarette trade. Furthermore, policy makers 21

and law enforcement agencies can make better-informed decisions concerning tobacco control policies.

Significance of the Project: Contributions to Criminological Literature and Policy

Knowledge gained from this research has potential domestic and foreign policy implications and can provide a significant contribution to the literature. Many countries are still attempting to better understand the importance of restricting terrorist financing. They are also starting to realize the importance of detecting and addressing crime-terror nexuses.

A crime-terror nexus occurs when terrorist organizations raise funds through criminal means and/ or work with organized crime groups to raise money or gain supplies. 12 The policies written to guard against terrorist financing through criminal activities tend to focus on narcotics, blood diamonds, and other higher-profile commodities and behaviors. Preliminary research shows that trafficking in counterfeit and contraband goods, especially cigarettes, provides funds for terrorist groups, traditional organized crime groups, and a variety of other actors. As the international community cracks down on the exploitation of formal banking systems, informal money transfer systems, the diamond trade and trafficking in narcotics and humans, criminals-and terrorists who behave like ordinary criminals-will turn to other methods to earn and move money. Of course, the alternative methods could cause more harm or be harder to detect.

The trade in contraband and counterfeit cigarettes has aspects and peculiarities that differ from trafficking in stereotypical commodities, such as weapons, drugs, and humans. For example, countries generally consider cigarettes to be a legal product and pass

12 This is a simplistic definition of two types of crime-terror nexuses. Chapter 2 contains a lengthy discussion on crime-terror nexuses. 22

them through customs easier than a shipping container of marijuana or humans. Criminals and consumers can consume, sell, or store cigarettes in plain sight. In most jurisdictions, one cannot openly consume a marijuana joint on the street, and a merchant cannot display AK-

47s or rocket-propelled grenades in his or her shop, yet they can with cigarettes. Moreover, smuggling illegal cigarettes takes less skill and resources than transporting humans or nuclear activities. In the United Kingdom (UK), crime groups pay female teenagers to holiday in continental Europe if they agree to pack their suitcases full of cigarettes to bring into the UK

(Townsend & McVeigh, 2009). And, in the Czech Republic, customs officials have detected refrigerated trucks with their insulation removed and replaced with cigarettes (Interview

06.29.09.01, 2009). In both of those cases, the containers used to smuggle the cigarettes pass through entry ports in large numbers every day. Moreover, they do not give off the same smells or radiation levels that weapons, drugs, or humans would emit, so detection devises and trained dogs might not detect the illegal goods. In the UK scenario, it takes very little skill for a young woman to acquire and transport the illegal goods, especially because she visits other developed European countries. It would be much more difficult for her to purchase a nuclear device or a human slave and then bring either of them into the UK.

Therefore, previous methods of detecting smuggling and law enforcement's perceptions may not be the most appropriate way to counteract the growing problem of contraband and counterfeit smuggling.

This study will identify variables that are associated with the increase or decrease of cigarette smuggling. For example, the margin between the non-taxed price of the illegal cigarette pack and the final street price-where the price of a legal and taxed pack of cigarettes partially determines the price of the illegal pack-may have an impact on the 23

offender's incentives. Another possible example is the presence of anti-smuggling laws written specifically to counteract the illicit cigarette trade. The presence and effectiveness of guardianship may lead to the decrease of suitable targets or willing offenders. As Shelley and

Picarelli (2002) conclude in their study, Methods Not Motives, "the enormous discrepancies in regulation in a globalized world allow organized criminals and terrorists to exploit this lack of consistency to their advantage" (p. 315). Countries have discrepancies in taxation and manufacturing, as well as in detecting and enforcing laws, legal codes, and procedures, all of which increase criminal opportunities. Moreover, this research may provide empirical support concerning the structural variables associated with opportunity theory. Taxation and prohibition policies have consequences far beyond the anticipated medical or social outcomes. On the international level, this research will contribute empirical evidence to the debate as to whether taxation differentials and tax levels are the main reason for trafficking in otherwise legal goods.

Assuming that organized crime and terrorists groups are rational, trafficking in

"alternative commodities" may be the wiser choice. In comparison to heroin or cocaine, cigarettes are a cheaper product to produce and transport. Moreover, cigarettes enjoy a general acceptance and are usually a legal commodity. On the other hand, illegal drugs-like those derived from opium and coca-may appear to have significant profits; however, there are higher operating costs and more risk. Due to the nature of cigarette production and trade, the final street cost and mark-up percentage might be lower, but detection is also lower while possible number and size of end-user markets is higher for tobacco products than for heroin or cocaine. 24

It may not be apparent that law enforcement officers should spend their resources on this activity. Law enforcement has limited resources and must triage criminal activities. Aside from most cigarettes being a legal product, the difficulty in expressing the severity of cigarette smuggling to law enforcement agencies is compounded by the fact that analysts cannot definitively state or give an approximation of the total profits earned by terrorist groups and organized crime tha.t are earned through cigarette smuggling. However, it is logical that as anti-crime and counter-terrorism efforts crack down on illegal drugs and on funneling money from charities, corruption, and more avenues that are "traditional," these actors will move to newer, lower risk activities.

Alternatively, using the routine activities approach, the cigarette's legality, social acceptance, and the profit margin created by taxation create a suitable target. The lack of law enforcement and government attention to cigarette smuggling reduces the capability of guardianship; thus, the situation or environment in which an offender or group of offenders make their decisions is more friendly toward cigarette smuggling than to narcotics.

Finally, I designed this research to contribute to the criminological literature. So often, empirical inquiries concerning trafficking and/ or transnational crimes focus on products and services that are typically illegal. There is a vast body of literature concerning drug trafficking and an ever growing body of literature on human trafficking. However, few scholars have paid attention to organized crime and terrorist groups using "legal" products for their smuggling and moneymaking activities. Scholars have not heavily studied cigarette smuggling and the associated crime of counterfeiting. Moreover, the literature on cigarette smuggling and trafficking seems to focus on contraband cigarettes and attributes the trade to different taxation rates between countries. This study will add to the transnational and 25

organized crime literature, as well as literature concerning terrorist financing and the crime­ terror nexus, because it (1) examines an understudied transnational crime of cigarette trafficking, (2) includes the counterfeiting of cigarettes and the subsequent smuggling of that product, and (3) examines organized crime through a criminological framework that scholars do not usually apply to this genre.

A Prelude to the Research and Discussion

In the following pages, I present a selected review of the relevant literature, discuss my methodology, present and interpret the data, and finally draw conclusions from the data and answer the questions asked in this section. Chapter 2 contains the literature review of pertinent studies and reports. Although most of the literature is from the discipline of criminology and this is a criminal justice dissertation, I consulted literature pertaining to taxation, medical issues related to illegal cigarettes, international relations, public administration, and policy analysis. Within the review, I discuss prior studies conducted on

American and international cigarette smuggling, the crime-terror nexus, organized crime, and the literature surrounding routine activities theory, which includes the economic analysis of crlllle.

The main contributions to the criminological literature and academic discussion on transnational organized crime and cigarette smuggling are in Chapters 3 and 4. Chapter 3,

"Methodology and Quantitative Analysis," provides the multi-methods I used to examine cigarette smuggling. As explained in more detail later, this study utilized both qualitative and quantitative methods and the framework provided by routine activities approach.

Throughout the dissertation and in the appropriate sections, I explain how the routine 26

activities approach structured my analysis and describe the methods I employed to reach my conclusions. For the qualitative portion, I consulted documents, prior literature, various open sources, and conducted interviews in the United States and Turkey pertaining to cigarette smuggling in Turkey. For the quantitative section, I analyzed quantitative data from

93 countries. I present the quantitative results, which identify possible country-level predictors for the increase and decrease of the amount of illegal cigarettes consumed in a country. In Chapter 4, I present and discuss the qualitative methods I employed and the

Turkish case study. In the case study, I examine the historical and contemporary factors that may affect the illegal cigarette market. The Turkish case study gives more insight into who is involved in the illicit market, how, and why.

Finally, Chapter 5 draws together the results of the quantitative and qualitative analyses. That chapter also contains the answers to the questions asked in this chapter, and concludes with policy recommendations on how jurisdictions can reduce the infiltration of illegal cigarettes into their markets. I also recommend future research, such as examining the roles that conflict and embargos play in the illicit markets and the use of other "legal" products that may be or are currently exploited which could add to our understanding of transnational crime and smuggling. CHAPTER2

LITERATURE REVIEW

The crime of "cigarette smuggling" can be extremely complex, involve numerous crimes, and an array of actors. It can be as simplistic as one person who frequently travels between Virginia and New York City. While in Virginia, he buys several cartons from a few different retailers and then transports them back to New York City and sells them to friends, neighbors, and coworkers. If he moves more than 50 cartons a month, he has violated the

Contraband Cigarette Trafficking Act.13 Cigarette smuggling rings involve numerous border crossings; violation of the laws of several different jurisdictions; collusions with legitimate tobacco manufacturers, distributors, shipping companies, and other legitimate businesses; counterfeiting; mail and wire fraud; money laundering; and various different actors from many different types of organized crime groups, including terrorist organizations.

Accordingly, a scholar has many, many options on how he or she examines this crime and can draw from a variety of disciplines and literatures.

The literature review that follows discusses some of the wide body of literature that can be associated with cigarette smuggling. It draws from numerous disciplines that often look at only one piece of the puzzle. For example, the taxation literature tends to conclude that taxation and cigarette smuggling are correlated. Inherently, those studies assume that the profit will drive a person or a group to engage in cigarette smuggling. Because their focus is narrow, their analyses can suffer from omitted variables pertaining to enforcement and

13 In 2006, Congress amended the act to reduce the number of cartons one person can move before the act is applicable. Prior to the amendment, the limit was 300 cartons. ,e\t the time of this writing, the limit is 50 cartons. 28 29

potential offenders. For example, cigarette manufacturers have a history of knowingly supplying their product to illegal groups and participating in cigarette smuggling activities. In some regions, tobacco companies supplied the product to questionable, such as known organized crime groups, groups in hopes of expanding their markets into areas that were previously or currently "off-limits."

This literature review opens with a discussion of the theoretical framework used to structure the inquiry into this complex phenomenon. Then, it will systematically examine what we know and do not know about the role of taxation, cigarette smuggling, and the crime-terror nexus. Although this illegal market is worth billions, very few scholars have written on the topic, and those that do tend to focus on taxation and health issues.

Therefore, this review contains studies conducted by academics, governments, policy think tanks, and journalists.

Economic Explanations of Crime and Opportunity Theory

For decades, criminologists have used economic explanations and methodology to understand criminal behavior. The Dutch criminologist Willem Banger applied Marxist theory and methodology to the study of crime in the early 1900s. Since then, we can trace many of the economic-related criminological theories back to his original work. Braithwaite

(1985) used Banger's argument that capitalism caused miserable conditions for the working class; however, Braithwaite further argued that capitalism helped produce a criminal attitude.

Murphy (1973) also draws from Banger's work. In "Marxism and Retribution," an article debating whether punishment is just, he concluded that,

criminality has two primary sources: (1) need and deprivation on the part of the disadvantaged member of society, (2) motives of greed and selfishness that are 30

generated and reinforced in competitive capitalistic societies. Thus he argues that criminality is economically based either directly in the case of crimes from need or, indirectly in the case of crimes gowning out of motives or, psychological states that are encouraged and developed in capitalistic society (Murphy, 1973, p. 234).

Gary Becker (1968), a Nobel prize-winning economist, used an economic method that policy makers could use to determine the optimal strategy to combat crime and determine punishment. However, unlike work derived from Banger and Marx, Becker's work uses an economic methodology that does not have any assumptions about the motivation for an individual's behavior. Becker assumes that people are forward thinkers who will maximize their position in life while considering the unpleasant consequences.

Additionally, individuals operated within constrained environments created from the private and collective actions of others (Becker, 1993). In this perspective, criminals weigh the costs and benefits of their actions, and their final decision is an expression of their expected utility

(I

1 Cesare Beccaria (1983) and Jeremy Bentham (1994). The l8 h century works by these authors expressed the idea that criminal behavior is the outcome from the human impulse to maximize pleasure while minimizing pain.

An economic approach focuses on the choices of individuals, but this approach can also shed light onto crime control policies and the occurrence of crime at the aggregate level. Becker applied this approach to determine the optimal value spent on crime control policies. "The amount of crime is determined not only by the rationality and preferences of 31

would-be criminals but also by the economic and social environment created by public policies, including expenditures on police, punishments for different crimes, and opportunities for employment, schooling, and training programs" (Becker, 1993, p. 390).

Opportunity Theory and the Routine Activities Approach

Opportunity theory is another economic explanation of crime. Felson and Clarke

(1998) have concluded that there are ten sub-principles within opportunity theory (See

Figure 3.1 ). Although all of the sub-principles may be applicable to transnational crime in general and cigarette smuggling in particular, there are six sub-principles that are applicable to this current study. Felson and Clarke (1998) stated that crime opportunities are specific.

Cigarette smuggling has a particular set of opportunities and circumstances and those opportunities and circumstances are very different from illegal goods that are smuggled. For example, they enjoy a certain level of legality, and governments have created a financial opportunity by imposing a tax on the sale of the product. In contrast, the cultivation, processing, transportation, and sale of most opiate derived products, such as heroin, is illegal. Although these two products produce billions in revenues for organized crime and terrorist organizations, they do have a different set of specialized opportunities. The illegal markets and opportunities also vary depending on a specific set of conditions that are tied to a given time and space, which is another sub-principal of opportunity theory. Felson and

Clarke (1998) argue that one crime opportunity may lead to additional opportunities. This is particularly relevant in cigarette smuggling.14 Given the weak punishments associated with cigarette smuggling and the low risk of detection, cigarettes may be a more tempting target

14 See Shelley and Melzer (2008) or below for a discussion on the relationship between cigarette smuggling and an array of other crimes committed by terrorist organizations, organized crime, and corporations. 32

to criminals than narcotics, marijuana, weapons, humans, and other counterfeit products.

Finally, the last two relevant sub-principals are 1) reducing one's opportunity might not displace the crime and 2) the crimes can be reduced or prevented by reducing the opportunity. For example, if authorities are able to reduce cigarette smuggling in the United

I

1. Opportunities play a role in causing all crime 2. Crime opportunities are highly specific 3. Crime opportunities are concentrated in time and space 4. Crime opportunities depend on everyday movements 5. One crime produces opportunities for another 6. Some products offer more tempting crime opportunities 7. Social and technological changes produce new crime opportunities 8. Opportunities for crime can be reduced 9. Reducing opportunities does not usually displace crime 10. Focused opportunity reduction can produce wider declines in crime

Figure 3.1 Felson and Clarke's (1998) Ten Principles of Opportunity and Crime (Source: Felson and Clarke. 1998. p. 9).

A theory closely associated with opportunity theory, if not a synonym, is routine activities theory (RAT).15 As Forst (2009) states, "itis no coincidence that the theory is alternatively referred to as 'opportunity theory"' (p. 29). And, Jan van Dijk (2001), a Dutch criminologist who often looks at organized crime and international crime issues, calls this approach "crime opportunity theory." According van Dijk (2001), certain conditions have to be present and there needs to be sufficient opportunity for organized crime to occur.

Desperately poor countries may have less of a certain type of organized crime because there

15 Routine activities approach is another phrase for this term. 33

is less demand. "However, in moderately poor countries, pools of motivated offenders, who come from economically deprived groups, converge to exploit the criminal opportunities of the existing markets for illegal goods. If the laws, and the law enforcement and legal systems, are also corrupt and ineffective ... , this further facilitates the development of organized crime" (Finckenauer, 2007, p. 79). Finally, according to Felson and Clarke (1998), opportunity theory includes routine activity approach, rational choice, and crime pattern theory.

Opportunity theory and Cohen and Felson's (1979) routine activities approach are closely related. Opportunity theory has a few derivatives and is a key element in both environmental criminology and rational choice analyses (Fattah, 2004). One derivative is its use as a situational theory. Its emphasis is not on individual offenders, but rather the unit of analysis is the situation. The situations or environmental characteristics are used to explain if and when an individual will commit a crime (Fattah, 2004; Lynch, Forthcoming). Fattah

(2004) stated that opportunity theory could examine the means to commit a crime or identify suitable targets. If one of the basic elements is missing, crime is less likely to occur; thus, the approach can lead to crime prevention strategies.

The routine activities approach is a macro level explanation of crime that attempts to explain why individuals commit crimes. It is a macro theory that attempts to explain behaviors at the micro level by examining the relationships between key elements for certain crimes, such as delinquent acts committed by juveniles (see Osgood, Wilson, O'Malley,

Bachman, &Johnston, 1996) or burglary (see Cohen & Felson, 1979). In this theoretical paradigm, "each criminal event is an opportune cross-product of law, offender motivation, and target characteristics arrayed on an environmental backcloth at a particular point in 34

space-time" (Brantingham & Brantingham, 2004, p. 259). Kurbrin, Stucky, and Krohn (2009) discuss the difference between the rational choice approach that looks at the micro level and the routine activities approach that looks at the macro level. They conclude that, "routine activities theory does not examine why individuals are inclined to commit crimes, but takes that inclination as given and examines how the organization of activities in space helps people translate criminal inclinations into actions" (p. 24).

The theory tends to be crime specific in that the framework and analysis focus on type of crime (Clarke & Felson, 2004), whereas a theory such as Gottfredson and Hirschi's

(1990) General Theory of Crime attempts to explain all criminality in the broadest possible terms. For Gottfredson and Hirschi, low self-control can explain all types of criminality and is usually a micro level theory. However, the routine activities approach is limited by the specific of the analysis, such as geographical limits and specific opportunities. One should not assume, however, that the theory could address only one type of crime. It "recognizes that different crimes might inhabit the same ecological niche ... and might profitably be handled together" (Clarke & Felson, 2004, p. 8).

Although the routine activities approach is not typically used to explain transnational crimes, its flexibility and the fact that it recognizes that some crimes can share the same ecological niche make the theory useful for studying various types of transnational crime, including corruption, illicit financing, and trafficking of various commodities.

Although van Dijk (2001) recognizes that motivated offenders, suitable targets, and lack of a capable guardian may be helpful in explaining organized crime, the theory may be less applicable to organized crime than to traditional street crimes. Given the ease of mobility and technological advances, organized crime groups from abroad may move into an area 35

because of the criminal opportunities, low operation costs, or lack of guardianship. Thus, the nature of organized crime groups may reduce or diminish the importance of the three elements of routine activities converging at a specific time and place (van Dijk, 2001).

Scholars often discuss the routine activities approach, or opportunity theory, using three elements: a motivated offender, a suitable target, and the absence of a capable guardian. These three elements and their interactions would classify this theory as a causal theory because if one element changes it would have an effect on the others; thus, by structuring research in this framework, the variations, relationships, and interactions between the elements may provide some insight into the causes of crimes within a geographical area.

Yet, the theory does not put limitations on the size of that geographical area. Sung's (2002) macro level, cross-country analysis of structural variables that facilitate corruption opportunities is an example of opportunity theory using the routine activities framework.

Moreover, the study expands the application of the theory to unidentified, individual victims or abstract concepts, such as public confidence, and routine activities from changes in individual activities to changes in a state's institutional routines. Accordingly, changes in how state institutions react to or address markets may create opportunities for corruption.

Cohen and Felson's original study laid the foundation for not only the theory, but its implications for crime prevention. And, using opportunity-based theoretical approaches lends itself easily to a crime-reduction strategy based on reducing the original opportunity

(I

Under the routine activities approach, a crime may occur when the three key elements are present, but a crime's occurrence is not certain. All three elements have relationships with each other and if there is an omission or change in one of those elements

-such as an increase in guardianship or the target becomes unsuitable-the crime is unlikely or less likely to occur. Therefore, crime prevention policy concerning the illicit cigarette trade could focus on increasing the capability or presence of guardians, or decreasing the demand for cigarettes or their profitability, and/ or decreasing the willingness of the offenders through social changes. Moreover, the routine activities approach is applicable to other transnational organized crimes and organized crime. Organized crime is a profit driven product of a given time and space. It manifests itself according to the larger environment and changes according to the current opportunities and abilities of guardians.

Therefore, it is fitting to apply a situational and environmental crime theory to a phenomenon that is dependent on a given time, place, and circumstance.

One could also make the argument that the routine activities approach or opportunity theory is a derivative of rational choice and economic theories. In fact, Clarke and Felson (2004) have suggested that opportunity theory and the routine activities approach use an informal use of Becker's work and the economic theory of rational choice. All of these theories or approaches can be applied to cigarette smuggling. Individuals involved in large-scale and small-scale cigarette smuggling operations appear to be rational thinkers who are making carefully calculated decisions that will maximize their profits while minimizing their chances of apprehension and punishment. Thus, although pure rational choice may not always fit crime analyses perfectly, it appears that the theory, or elements of the theory, is appropriate for analysis on cigarette trafficking and perhaps organized crime in general. 37

Clarke and Cornish (2002) state that organized crimes16 are "rational crime par excellence" because of their numerous characteristics including being highly planned and usually driven by an economic agenda (Cornish & Clarke, 2002, p. 41). Thus, rational choice may be a suitable approach for crimes that are organized, including basic smuggling schemes or simplistic bootlegging operations.

Regardless of the terminology used, the theoretical framework, at its core, says that the likelihood of crime occurring involves the interaction between three key elements: a criminal or a group of criminals, a criminal opportunity, and a reduction in the rule of law.

For routine activities theory, the terminology of the three interacting elements is a motivated offender, a suitable target, and the absence of a capable guardian.17 This is similar to the economic terms of demand, supply, and price. In an economic equation, demand is the person who buys the contraband or counterfeit cigarette, the seller represents the "supply" aspect, price is still price, the guardianship or opportunity is affected by the shifting supply curve, and the price is the guardianship and its consequences.

Literature on Cigarette Smuggling

Economic Literature on Cigarette Smuggling

The United States' problem with cross-border cigarette smuggling is decades old.

The first state to impose an excise tax on cigarettes was Iowa in 1921. By the 1940s about half of the states had an excise tax, and the final state to impose an excise tax was North

16 In this piece, the authors are referring to crimes that are organized. Within the chapter, they discuss the difference between organized crimes and organized crime, with the former focusing on the criminal activities and the later focusing on the characteristics of the criminal or the type of group that the phrase "organized crime" typically envisions. 17 The word target is preferred over victim in the literature on routine activities approach . .A target can be a person or an object, whereas a victim can only be a person. 38

Carolina in 1969 (Licari & Meier, 1997; Warner, 1982). At first, taxes on cigarettes and alcohol were a revenue stream for the Federal government, accounting for 9% of the revenue collected in 1950 (Licari & Meier, 1997, p. 7). In the 1950s and 1960s, the tax also took on a regulatory nature when health concerns started to increase (Licari & Meier, 1997).

Taxes and cigarette smuggling increased until the 1970s and then declined throughout the late 1970s and into the 1980s (Thursby & Thursby, 2000; Warner, 1982). Throughout the

1990s, cigarette excise tax steadily increased and took off after 2001- possibly in response to economic slowdowns, the Internet bubble bursting, and the September 11th terrorist attacks (LaFaive, Fleenor, & Nesbit, 2008). The fluctuations in taxation levels could be attributed to changes in public opinion concerning smoking related health issues and the fear of smuggling and organized crime (Warner, 1982). In the current economic environment, states need to find alternative revenue streams to replace the reduction in income from property, employment, and sales taxes. Since the median voter is no longer a smoker, increases in cigarette taxes are one way that states can increase revenues with little objections from voters.

Given that cigarettes are one of the most commonly taxed goods worldwide, it is not surprising that other countries also have a history of cigarette smuggling. Each country has its own history with the problem. It is well document that Italian mafia groups participated in the trade since the early- or mid-twentieth century; cigarette smuggling was an important lifeline to keep the mafia and genetic families alive during the anti-mafia campaigns (Paoli, 2003). In South America, millions of illegal cigarettes have crossed the

Brazilian-Paraguayan border since the early 1990s (Ramos, 2009; Shafey, et al., 2002). For decades, Colombian drug cartels and the F ARC used cigarette smuggling as an integral part 39

of the Black Market Peso Exchange18 (European Community and the Republic of Colombia v. R.J. Reynolds et al. and Philip Morris et al., 2002; European Community v. R.J. Reynolds et al., 2002; Willson, 2009). According to documents from the tobacco industry, Middle

Eastern and African countries have experienced cigarette smuggling since the 1970s

(Nakkash & Lee, 2008; World Health Organization, 2003a). These are a few examples of the numerous cases and countries that have a history of cigarette smuggling. Each country has a somewhat similar history or factors for the illegal markets emerging. However, the markets do vary and have different factors and actors associated with the illegal cigarette trade. The variations and contributing factors have been the subject of inquiry for decades and from a variety of different perspectives.

Accordingly, the literature on cigarette smuggling is vast, but fragmented. There is a vast body of literature on the opportunity created by taxation and tax differentials. A significant portion of that literature comes from the economic and policy literatures, where scholars tend to analyze "state-level data and [regress] per capita cigarette sales on cigarette price, tax, demographics" (Chiou & Muehlegger, 2008, p. 5) or individual data collected on smokers to determine the likelihood of cigarette smuggling within the United States (Chiou

& Muehlegger, 2008; Lovenheim, 2008). Those who analyze smuggling between countries

18 The Black Market Peso Exchange (BMPE) is a complex, trade-based money-laundering scheme that started in the 1980s. Essentially, Colombian drug cartels exchanged illicit U.S. dollars for "clean" Colombian pesos via a peso broker. The peso broker, who need not be located in the United States or Colombia, buys U.S. dollars from the Colombians at a discounted price. Then, he wires pesos from his Colombian account to the cartel's Colombian bank accounts . .At the same time, the broker structures or layers the U.S. deposits to avoid detection from the authorities. The peso broker also has a list of Colombian importers who need to pay for goods from U.S. exporters in U.S. dollars. The peso broker pays the U,S, exporter in U.S. dollars and the U.S. exporter ships the goods to the Colombian importer. The Colombian importers pay the peso broker in pesos, which replenishes the Colombian account to pay the cartels. The importer avoids paying taxes on the goods because they used the B~IPE instead of Colombia's legitimate banking system, which keeps records and has a paper trail of the imported goods (Financial .Action Task Force on Money Laundering, 2006). There is documentation to indicate that various tobacco manufactures colluded with the cartels, La F ARC, and money launderers and knowingly participated in this scheme (European Community and the Republic of Colombia v. R.J. Reynolds et al. and Philip Morris et al., 2002; European Community v. R.J. Reynolds et al., 2002; Willson, 2009) 40

use similar methods, but rely on country-level data. Almost all studies conclude that taxation is a catalyst for cross-border smuggling.

The economic literature assumes that taxing cigarettes is a form of regulatory policy and that policy is "derived from simple economic theory. Since increases in taxes drive up the cost of cigarettes, the law of supply and demand suggests that demand will decrease and cigarette consumption will fall" (Licari & Meier, 1997, p. 7). Licari and Meier

(1997) also assume that an increase in taxes would give smokers three options: 1) to maintain the current consumption and pay more taxes, 2) reduce the consumption rate, or 3) seek an illegal source or cross-border shopping to avoid paying a higher tax on cigarettes

Public corruption is another factor often associated with trafficking. When citizens knowingly purchase illegal cigarettes and public officials facilitate or tolerate the black market, the black market will persist Goossens et al., 2000). Merriman et al. (2000) found corruption to be a significant factor in cigarette smuggling. Joossens, Chaloupka, Merriman, and Yurekli (2000) stated that factors such as the presence of organized crime, public acceptance, informal distribution networks, widespread street selling (cigarettes and other goods) and public corruption help facilitate large-scale smuggling organizations. Private corruption occurs when the manufacturers and legitimate businesses help facilitate the trade.

However, most of the literature tends to focus more on the role taxation plays in the illicit trade than the corruption aspect.

Some studies address only cigarette smuggling within the United States, while others address international smuggling. Only a few of the studies account for criminal justice related factors or adequately measure corruption. In addition, most of them estimate the illegal market by "determining the difference between tax-paid sale and estimated 41

consumption for each state" (Maltz, 1976) or the dependent variable is cigarette

consumption per capita. Those studies, however, may not be adequately capturing the illicit

market. First, they use official data that may or may not capture all of the illicit market,

especially counterfeit cigarettes or contraband cigarettes that have entered the country illegally and were sold on the black market. Second, estimating the propensity of an individual to cross the border to purchase his or her cigarettes only examines casual smuggling and does not explain large-scale smuggling operations. Third, the studies cannot

offer any information about smugglers' characteristics or the methods through which the illegal cigarettes enter the jurisdiction.

Recent studies concerning cigarette smuggling are rooted in studies conducted in the 1970s and 1980s. While examining the history of cigarette excise taxes, Warner (1982) determined that public concern with smoking-related health issues helped increase taxation

for years. Cigarette smuggling hit a crescendo in the mid 1970s and then started to decline.

Part of that decline was associated with a fear of bootlegging, organized crime's involvement in the trade, and related taxation and law enforcement laws. Ultimately, Warner (1982) concluded that, "once smuggling reached its equilibrium level in response to the underlying economic conditions, the deterioration of those conditions after 1972 should have led to decreased bootlegging, irrespective of changes in the level of law enforcement" (p. 488).

Warner does not dispute that the Federal Cigarette Contraband Act of 1978 (CCA) had an impact on cigarette smuggling, but concluded that an increase in bootlegging and transportation costs caused the decline of smuggling and not the law. However, he then warned that as states start to increase taxes and the economic conditions change, bootleg smuggling could increase again, especially with a decrease in funding for the A TF and 42

enforcement of the CCA. Years later, Thursby and Thursby (2000) found that the decline in cigarette smuggling could not be attributed to the CCA. Instead, they attributed the decline to a reduction in the differences between state cigarette taxes.

Around the same time as Warner was examining the connection between taxes, bootlegging, public opinion, and anti-smuggling laws, Michael Maltz (1976) was developing models to address organized crime's exploitation of the "gray market" in cigarettes and estimate the size of cigarette smuggling within the United States,19 The purpose of the model, and later versions, was to judge the effectiveness of crime control policy funded by the Law Enforcement Assistance Administration. He estimated the size of the gray market by measuring the difference between the estimated consumption of cigarettes for each state and the amount of taxes paid to the state. "Since the aggregated demand for cigarettes has been increasing along with the price of the cigarettes, [he] assumed that the elasticity is in sales, not consumption" and he attributed that difference to cigarette smuggling (Maltz,

1976, p. 1157).

Maltz's model accounted for the difference between casual smugglers and larger, organized crime operations involved in smuggling and accounted for distance and price differences between states. The model did not explain why cigarette smuggling occurs; it only estimated each state's loss or gain because of cigarette smuggling. Additionally, he stressed that one should include a variable to include the "effects of state enforcement activities on cigarette smuggling" (Maltz, 197 6, p. 1162). In a later model, he concluded that smuggling does impact cigarette sales (Maltz, 1981). Maltz also stressed again that one could

19 Maltz terms cigarettes as part of the "gray market" because the commodities "are neither illegal nor rationed (as in the black market) but are differentially taxed by the states" (Maltz, 1976, p. 1156) 43

use his model to estimate the size of the illegal cigarette market and taxation effect on states' revenues and smuggling.

Thursby and Thursby (2000), two economists who have examined cigarette smuggling within the United States, classified three types of smuggling: casual smuggling, tax-free sales on military installations and Native American reservations to individuals who do not fall under those categories, and commercial smuggling. Casual cigarette smuggling by consumers and sales on reservations and military bases are consumer oriented and sometimes grouped together as "casual" cigarette smuggling if it involves consumers purchasing cigarettes for their own use or in small quantities. Thursby and Thursby (2000) found "that commercial smuggling accounted for three to four percent of all cigarettes sold during the 1970s, a decade of high real excise tax rates (and differentials)" (p. 60).

A more recent study by the Mackinac Center for Public Policy places the commercial smuggling and consumer smuggling rates much higher for some individual states. For commercial smuggling, the Mackinac Center estimated that New Jersey,

Massachusetts, and Rhode Island had the highest commercial smuggling imports. From 1990 to 2006, those states had the highest commercial smuggling import rates, which ranged from

12.7% to 13.8% (LaFaive, et al., 2008, p. 14). As for casual cigarette smuggling, New York,

Washington, and Michigan had the highest importation rates. The Mackinac Center classified

6 to 10% of all cigarettes consumed in these states as "casual smuggled imports" (LaFaive, et al., 2008, p. 14). The states with the highest casual smuggling export rates were Delaware,

Virginia, and New Hampshire; their rates were 38.4%, 22.0%, and 21.4%, respectively

(LaFaive, et al., 2008, p. 14). When estimating rates for 2006, the rates increased dramatically.

In New Jersey, almost a third of all cigarettes consumed where imported by commercial 44

smugglers. New York had a casual smuggling import rate of 21.6% of all cigarettes consumed (LaFaive, et al., 2008, p. 15). However, the most shocking rate is Delaware's export smuggling rate. The Mackinac center estimated their export rate to be 91.5% of total cigarette consumption and attributed that rate to the high taxes in neighboring Maryland and

New Jersey (LaFaive, et al., 2008, p. 14). 20

A few researchers have examined the relationship between worldwide or international contraband cigarette smuggling and taxation (Chaloupka, Hu, Warner, Jacobs,

& Yurekli, 2000; Jacobs, Gale, Capehart, Zhang, & Jha, 2000; Jha, Paccaud, & Nguyen, 2000;

Joossens, et al., 2000; Merriman, Yurekli, & Chaloupka, 2000; Yumlrekli & Sayginsoy, 2010).

Taxation and the difference in taxation create price disparities, and the disparity creates incentives. The potential profits gained from exploiting these disparities are substantial and the tax losses are in the billions. In 2000, the United Kingdom estimated that one in five cigarettes is smuggled, and "it undermines law and order, and costs £2 1/2 billion in lost tax revenue" (HM Customs and Excise, 2000, p. 1). The worldwide tax loss is said to be $U.S.

40 to SO billion annually (World Health Organization Framework Convention on Tobacco

Control, 2007, p. 6). Merriman, Yurekli, & Chaloupka (2000) state, "price disparities create a large incentive for bootlegging" (p. 366). In a different study, Sweden, Canada, and South

Africa experienced an increase in smuggling activities when they increased cigarette taxes

Goossens, et al., 2000). In the United States, Thursby and Thursby (2000) found a positive relationship between an increase in federal excise tax and the portion of cigarettes smuggled.

20 The Mackinac Center's report operationalized cigarette consumption as "a state's estimated total cigarette consumption is equal to the observed legal sales minus the estimated smuggling, where the estimated smuggling is positive when smugglers export cigarettes from the state and negative when smugglers import cigarettes to the state. In the first case, the state's estimated total consumption of cigarettes is lower than the state's observed legal sales because cigarettes have been smuggled out of the state after purchase; in the second case, the state's estimated total consumption of cigarettes is higher than the state's observed legal sales because cigarettes have been smuggled into the state"(LaFaive, et al., 2008, p. 14). 45

Nevertheless, Joossens et al. (2000) conclude that the potential profit of the tax increase outweighed the increase in criminal activities. And, Merriman et al. (2000) ultimately conclude that since most smuggling occurs at the wholesale level (where taxes are not paid) and the estimated worldwide smuggling market is between 6-8.5% of all cigarettes consumed (p. 384), countries can and should increase taxes-thus increasing the retail price-without fearing an increase in the black market. Both studies were interested in the health consequences of cigarettes and did not include counterfeit cigarettes, the social costs associated with counteracting the criminal activity of cigarette trafficking and counterfeit cigarettes, or the foregone net benefit of the taxes that would have been collected had the products been legitimate.

After estimating the size of the market and its historical relationship to tax levels, scholars began to research variables and factors that might lead to increased cigarette smuggling. Saba, Beard, Ekelund, and Ressler (1995) examined cigarette data from 1960 to

1986 and concluded that price determines sales, and that some states had a problem with cross-border smuggling, but that problem varied by state and was usually small. Additionally, states with high levels of tourism had increased sales and North Carolina has very high sales, which could indicate large-scale smuggling operations. Chiou and Muehlegger (2008) examined data on individual smokers to conclude that although 96% of the smokers in their study purchased cigarettes within their home state, there were a few people who preferredto purchase their cigarettes in another state (p. 8). The study found that smokers were willing to travel 3 miles to save $1 per pack, heavy smokers were more likely to travel to a low-tax jurisdiction to buy their cigarettes, and that a state's cigarette sales is sensitive to other states' taxation levels (Chiou & Muehlegger, 2008). 46

Goel (2008) examined price incentives and non-price incentives in relationship to cigarette smuggling within the United States. He found that price was still the primary incentive for smuggling, cigarette demand is elastic, and controlling for border prices affects the price elasticity. This study did include variables accounting for corruption and policing.

State level corruption variables did not yield statistically significant results, and police protection variable was not statistically significant, but did have some reduction in cigarette consumption per capita. Goel could not determine why the police had this impact, but he suggested it was either enforcing anti-smoking laws or anti-smuggling efforts.

The research examining cigarette smuggling within the United States provides ample evidence that taxation and differences in taxation levels among jurisdictions provide an opportunity for individuals to exploit. The research also shows that the demand for cigarettes is elastic and proximity to states with lower taxation rates and police prevention levels can affect the level of illegal cigarettes within a state. The United States does not exist in a bubble nor does it have a monopoly on cigarette smuggling. Illegal cigarettes enter and leave the United States as well as almost any other country on the globe. Thus, there is literature that looks at the transnational cigarette smuggling.

Some economists and public policy institutes have examined the international cross-border cigarette smuggling that involves the United States and its borders. Both

Thursby and Thursby (2000), who looked only at commercial smuggling, and LaFaive et al.

(2008) could not locate data on commercial smuggling between the United States and

Mexico. As for casual smuggling, LaFaive et al. (2008) found cigarettes smuggled from

Mexico accounted for 8.7% and 18.3% of New Mexico, California, Arizona, and Texas total cigarette consumption (p. 15). 47

More research and data are available for the illegal trade over the U.S. and

Canadian border. Thursby and Thursby (2000) concluded that an increase in federal tax levels would impact the trade between the United States and Canada. Galbraith &

Kaiserman (1997) had a similar conclusion. From the economic literature, studies have focused specifically on this border because of Canada's taxes increases and decreases because of the illegal smuggling (Breton, Richard, Gagnon, Jacques, & Bergeron, 2006; Galbraith &

Kaiserman, 1997; Gruber, Sen, & Stabile, 2003). Through the 1980s and until 1991, Canada steadily increased its taxes on cigarettes. In 1994, Canada and some its provinces decreased their cigarette taxes because of high levels of smuggling. The illegal consumption rate for

Quebec was approximately 60% in 1993 and 1994. Canadian manufacturers increased exports to the United States and then re-imported them into Canada, usually through the

Akwesasne Mohawk Reservation (Breton, et al., 2006). Tobacco companies, such as RJR21 and its subsidiaries, were involved in the illegal trade (Beare, 2002). The economic literature concludes that smuggling undermines health policies related to cigarette consumption and the high level of smuggling makes it difficult to estimate reliable price elasticity values for

Canada (Breton, et al., 2006; Galbraith & Kaiserman, 1997; Gruber, et al., 2003).

Prior research on several countries does support the idea that an increase in taxation will lead to a decrease in demand for tobacco products. Chaloupka, Hu, Warner,

Jacobs, and Yurekli (2000) reviewed numerous economic studies and concluded that an increase in taxation in low- and middle-income countries would lead to a reduction in the demand for tobacco products, including cigarettes. As for high-income countries, the

21 RJR is the acronym commonly used to reference the tobacco industry's second largest tobacco company-R.J. Reynolds Tobacco Company. Its parent company is Reynolds America. Since its beginning, the company has undergone numerous name changes, mergers, and has had a multitude of subsidiary companies. In conversation, in literature, and in some legal proceedings, people tend to refer to the company as RJR. 48

literature they reviewed had a similar result. However, low- and middle-income countries' demand was more sensitive to price increases than the higher income countries. Studies conducted in the United States and the UK found similar results for individuals. Tobacco demands from people with higher socio-economic status were not as sensitive to changes in price as tobacco demand from individuals within lower and middle socio-economic strata.

The authors conclude that a 10% increase in price, caused mostly by taxation, will decrease smoking by 5% in high-income countries and decrease 8% in low-income and middle­ income countries (Chaloupka, et al., 2000, p. 267).

Criminological Literature on Cigarette Smuggling

The criminological literature tends to be stronger in providing insight into the actors and methods of smuggling as the criminological studies focus on those aspects of the illegal trade. The studies do not focus on price elasticity or regressing variables on cigarette consumption per capita. Instead, they tend to be case studies of a particular market, such as those in London or Berlin (McEwen & Straus, 2009; von Lampe, 2005, 2006). Other studies have focused on categories of actors involved in the illicit market, such as tobacco companies and terrorist organizations (see Beare, 2002; Shelley & Melzer, 2008; von Lampe,

2005, 2006).

In the criminological literature, scholars who have examined cigarette smuggling and/ or trafficking suggest that there are four main factors for the emergence of the black market and the trade: (1) the difference between duty-free and the legal retail prices; (2) the difference in retail prices (due to different levels of taxation) among jurisdictions; (3) the existence of corruption among border and customs officials, the long term involvement of 49

organized crime groups in the cigarette trade; and (4) the willingness of many cigarette companies until recently to collude in or to overlook the smuggling of their commodities

(Beare, 2002; Joossens & Raw, 2008; van Duyne, 2003; von Lampe, 2005, 2006) . Trafficking in contraband and counterfeit cigarettes can yield significant profits for criminals. It can also occur in areas where global, political, and societal factors created a criminal friendly environment. Those are the main factors as to why cigarette black markets emerge, which suggests that opportunity theory is an appropriate theoretical framework to examine cigarette trafficking.

I categorize the criminological literature pertaining to cigarette smuggling or trafficking into three main groups: (1) the impact taxation has on cigarette smuggling

(discussed above), (2) the methods used by smugglers and the smugglers' characteristics, (3) case studies of corporations, terrorist organizations, city markets, and organized crime's involvement. Most of the literature focuses on how criminals-including tobacco companies-and terrorists have used a licit product for illicit purposes (i.e., cigarette smuggling) (see Albanese, 2001; Antonopoulos, 2007; Basler, 2004; Beare, 2002; Billingslea,

2004; Coker, 2003;Joossens & Raw, 2000; Merriman, et al., 2000; van Duyne, 2003; von

Lampe, 2005; World Health Organization, 2003b). A few directly mentioned the use of counterfeit cigarettes, and others imply that their analysis includes counterfeit cigarettes

(Hudson, 2003; McEwen & Straus, 2009; Shen, et al.; Sverdlick, 2005; von Lampe, 2006).

A popular topic of interest concerning the illicit cigarette trade, or black market, is the trade's financial consequence on governmental budgets. Specifically, these studies tend to focus on the effects of tax differentials between states (U.S.) or countries. This group of so

literature tends to assume that taxation or differences in taxation can affect the criminal opportunities and the black market (see above).

Organized cigarette smuggling involves different structures or methods. Each scheme or smuggling ring has slight variations on how the group acquires, transports, and distributes the illicit cigarettes. Joossens et al. (2000) divided illegal circumvention, or cigarette smuggling, into two main forms: bootlegging and large-scale smuggling.

Bootleggers move cigarettes from a low tax jurisdiction and resell them in a higher tax jurisdiction. This type of activity is caused by tax differentials, operated by individuals and small gangs/ cells, cross borders (either state or country), and involves thousands of cigarettes. Large-scale smuggling involves complex schemes, criminal organizations, and tobacco companies. Smugglers move millions of cigarettes across borders, avoiding the payment of taxes. They use sophisticated distribution means and tend to deal in well-known international brands (Joossens, et al., 2000).

Case studies tend to examine the criminal activities of a particular group, market, or actor. Numerous examples exist of individuals, small groups, criminal organizations, and even tobacco companies, who acquire legally produced cigarettes in a low tax jurisdiction, transport the product to a high tax jurisdiction, and then illegally sell the cigarettes in the latter jurisdiction. An example of this scheme is the well-documented legal case involving a

Hezbollah22 cell led by Mohamad Youssef Hammound that operated in North Carolina from approximately 1996 to 2000. Cell members purchased cigarettes in North Carolina, sold them in Michigan, and kept the difference (Shelley & Melzer, 2008). Investigators estimated that the group smuggled almost $8 million worth of cigarettes, generating between $1.S

22 Hezbollah, which means "Party of God" in Arabic, has four main English spelling translations. They are Hizbollah, Hizbu'llah, Hizballah, and Hezbollah. In this dissertation, the preferred spelling is Hezbollah. 51

tnillion and $2.5 tnillion in profits (Arena, 2006; Bell, 2003; Broyles & Rubio, 2004).

Authorities believe the remittances made to Hezbollah in Lebanon total more than $100,000

(Republican Staff of the U.S. House Committee on Homeland Security, 2008, p. 6)

Cigarette smuggling case studies do not focus only on terrorist organizations and bootlegging schemes; there are a few studies that examine the tobacco companies' current and past involvement in the illicit cigarette trade. Beare (2002) examined R.J. Reynolds's involvement in smuggling cigarettes across the U.S.-Canadian border. Shelley and Melzer

(2008) examined the crime-terror nexus through two cases studies: R.J. Reynolds' deliberate sales of its products in Iraq, violating a UN embargo and U.S. law, and the Hezbollah cell that trafficked cigarettes within the United States. Others have examined the purposeful, yet illegal, expansion into Chinese, Middle Eastern, and former Soviet markets and into South

America by the tobacco industry (Collin, LeGresley, MacKenzie, Lawrence, & Lee, 2004;

Gilmore & McKee, 2004; Lee & Collin, 2006; Nakkash & Lee, 2008; Ramos, 2009; Shafey, et al., 2002; World Health Organization, 2003a)

Two well-known series of court cases that exemplify an American tobacco company's participation in the contraband cigarette markets are: (1) R.J. Reynolds and

Northern Brands International's scheme to smuggle cigarettes in and out of Canada through

Foreign Trade Zones and (2) a series of cases brought against American tobacco companies-and their foreign subsidiaries-by the European Community.23 The Canadian cases concerned complex corporate schemes to evade Canada's high tax by smuggling

23 The European Anti-Fraud Office (OLAF) and the European Union investigated and continue to investigate cases of cigarette smuggling, including the involvement of major tobacco companies. However, they did not file the suit. Instead, ten member countries known as the "European Community" filed the suit. The ten countries are Kingdom of Belgium, Republic of Finland, French Republic, Hellenic Republic (Greece), Federal Republic of Germany, Italian Republic, Grand Duchy of Luxembourg, Kingdom of the Netherlands, Portuguese Republic, and Kingdom of Spain. For more details, see European Community v. R.J. Reynolds et al., 2002." 52

cigarettes in and out of Canada through FTZ.24 The European Community cases allege the

tobacco companies evaded taxes as well as participating in illegal plans to increase market

share in developing markets through criminal means.25

With more than 350 million smokers, the Chinese market was the "ultimate prize"

for tobacco companies (Novotny, 2006, p. 968). By reviewing corporate documents turned

over by British American Tobacco (BAT) to the Guildford Depository, Lee and Collin

(2006) uncovered BAT's plan to illegal expand their business into China and maintain it's

illegal business dealings. Starting in the late 1970s, BAT tried to circumvent China's trade

barriers and high taxation rates. Shortly before the British Empire returned Hong Kong to

24 Canada filed a series of court cases against RJR and its subsidiaries. In 1998, Northern Brands, an affiliate of RJR Nabisco, pled guilty to helping criminals smuggle some 8 billion contraband cigarettes between the United States and Canada Goossens & Raw, 2000). There were 21 individuals indicted and several pied guilty to charges involving smuggling, wire fraud, aiding and abetting smuggling, conspiring to defraud the United States, currency violations, money laundering, and criminal RICO violations (Beare, 2002). In 1999, the Canadian government again filed suit under the RICO statute against R.J. Reynolds Tobacco Holding Inc. and several related corporations for conspiring to defraud the Canadian government since 1991. In 2000, the Government of Canada filed another suit against R.J. Reynolds in U.S. courts. Canada was seeking more than a $1 billion in damages; the judge dismissed the lawsuits due to jurisdictional issues (Beare, 2002). In April 2010, RJR and the Canadian government reached a settlement in this case. RJR agreed to pay the Canadian government C$325 million. In addition to this settlement, Japan Tobacco International OTI) and Northern Brands International Inc. pied guilty to specific counts and agreed to pay Canadian provincial and federal governments C$150 and C$75 million, respectively. As part of the JTI settlement, the Canadian government agreed to drop the pending criminal fraud charges againstJTI executives. The fines and settlement for the three companies combined is C$550 million, the largest settlement in Canadian history (Schneider, 2010; Tibbetts, 2010)

25 The European Community alleged that for more than ten years Philip J\1orris, R.J. Reynolds, and their domestic and international subsidiaries exploited established smuggling routes to flood the European market with their cigarettes and avoid paying taxes. To facilitate this illicit trade, they located traffickers, developed complex schemes to move their products, shipped large volumes of cigarettes into known smuggling channels through shell corporations with corresponding fraudulent documentation, and intentionally packaged cigarettes to disguise their true origin and destination. The investigation and court documents filed by the European Community claimed high-ranking corporate officials were aware of these activities and the cooperation with organized crime to increase their market shares in Europe and Iraq. According to the documents, RJR helped launder the proceeds of narcotics trafficking and other crimes by allowing the purchase of cigarettes, arranged for secret payments and established protocols for layering transactions, and sold their products to known organized crime groups and smugglers because they failed to perform due diligence on their clients. The documents alleged that throughout the 1990s and up to and including 2002, R.J. Reynolds and its conspirators illegally exported cigarettes to Iraq. During this time, expanding into the Iraqi market violated the UN embargo and U.S. law. Moreover, the PKK and Saddam Hussein's family and regime profited from the smuggling (European Community v. R.J. Reynolds et al., 2002; European Community v. R.J. Reynolds et al. and Philip Morris et al.,2002; Shelley & Melzer, 2008). 53

the Chinese government, BAT underwent a restructuring process and the illegal market was included in the restructuring plans. BAT was concerned with the damage counterfeit cigarettes caused to their profitability, monitored R.J. Reynolds's strategies in this market, and debated whether or not they should follow the "Phillip Morris" model of using an intermediary and pricing strategies. Lee and Collin (2006) state that BAT was trying to control the price of the illegal imports, found the illicit trade to be a significant revenue stream, and the company's strategy focused on the "supply, oversight, and control of illicit trade" (p. 1086). BAT also had strategies for illegally entering markets in Vietnam, Thailand,

Burma, and Cambodia (Collin, et al., 2004).

BAT also focused on the emerging market in the former Soviet Union and the

Middle East. Gilmore and McKee (2004) also reviewed documents from the Guildford depository, but focused on the former Soviet Union. They concluded that BAT was willing to engage in cigarette smuggling in the former Soviet Union and that they had been supplying the region illegal cigarettes since the mid-1980s.

Nakkash and Lee (2008) conducted further analysis on the documents housed at the Guildford Depository as well as the British American Tobacco Document Achieve and the Legacy Tobacco Documents Library. Their article shows that throughout the 1970s and

1980s, numerous tobacco companies, including Philip Morris, RJR, BAT, Liggett, and

Brown and Williamson, supplied extra shipments to companies in Cyprus and other countries with the purpose of smuggling them into Lebanon (Nakkash & Lee, 2008). They also uncovered that Lebanon was a major transit point for expanding into other Middle

Eastern markets during the 1980s. Trading companies and wholesalers moved more than half of the legal and illegal cigarettes that entered Lebanon into Israel, Syria, Jordan, Iraq, 54

and Turkey. The tobacco companies had knowledge of the smuggling (Nakkash & Lee,

2008).

South America and its counterfeit and contraband cigarette markets draw the attention of researchers from the American Cancer Society, the WHO, and representatives from various governments and academic institutions. Paraguay and the larger tri-border region is a counterfeiters' haven, and an epicenter for illegal activities, counterfeits, and the illicit trade in cigarettes, drugs, etc. and most of the newer cigarette factories are in this area

(Ramos, 2009; Sverdlick, 2005). "Illegal operators of dozens of nationalities congregate there

[Ciudad de Este, Paraguay] where authorities exercise of low or zero control and there are high levels of corruption and violence" (Ramos, 2009, p. 269). Moreover, there appears to be an acceptance of smuggling activities. Bootlegging and smuggling provide a means of survival (Ramos, 2009).

Over the last few decades, Brazil has had a significant problem with the illicit market and Paraguay is the largest supplier of illegal cigarettes in South America (Ramos,

2009; Shafey, et al., 2002). By the mid-1990s, Brazil was a major player in the legitimate international cigarette market. It was the fourth largest tobacco producer and a major exporter of tobacco leaf and cigarettes (Shafey, et al., 2002). Around the same time, Brazil's exports to neighboring Paraguay increased dramatically. In 1986, the cigarette consumption per capita in Paraguay was 678 and by 1994, the cigarette consumption rate was 10,929 per capita (Shafey, et al., 2002, p. 216). The presumed reason for this increase is smuggling, in part due the substantial difference in taxation. Some Brazilian manufactured cigarettes never left Brazil and others illegally re-entered the country through smuggling. Toward the end of SS

the 1990s, Brazil increased their export tax to 1 SO% for certain countries, such as Paraguay,

in hopes of decreasing the illegal market (Ramos, 2009; Shafey, et al., 2002).

Cigarette smuggling is still a booming business in South America. Authorities have

detected six main smuggling roots, with the Friendship Bridge between Paraguay and Brazil

being one of the more heavily traveled routes, and Ramos (2009) estimates that the various

roads between Paraguay and San Paulo, Brazil have some of "the highest incidences of

cigarette smuggling in the world" (p. 292). This multi-cultural region is home to numerous

organized crime and terrorist groups, many of which have been linked to counterfeit and

contraband cigarette smuggling (Hudson, 2003; Interview 03.26.07.01, 2007; Sverdlick,

2005). There are numerous types of smuggling operations in the region, ranging from minor

family smugglers to well organized and sophisticated gangs. In January 2008, authorities

sized an illegal shipment of 750,000 packs of cigarettes worth about $500,000. The size of

this illegal shipment suggests some smuggling rings have a large and sophisticated network

and corrupted officials (Ramos, 2009).

Numerous articles address the various characteristics of cigarette smuggling in

Europe (Antonopoulos, 2007, 2008; Hornsby & Hobbs, 2007; McEwen & Straus, 2009; van

Dijck, 2007; van Duyne, 2003; Vander Beken,Janssens, Verpoest, Balcaen, & Vander

Laenen, 2008; van Lampe, 2003, 2005, 2006). Antonopoulus (2008) examined the cigarette

market in Greece. He found that Greece was a destination, transit, and source country for illegal cigarettes. Counterfeit cigarette factories operated in the country, and individuals participated in smuggling contraband cigarettes in and out of the country. Smuggling networks ranged from small-scale bootlegging to large-scale, multi-national networks that stretched over several countries. He uncovered 13 different roles within cigarette smuggling, 56

including corrupt officials and street sellers, who were usually from marginalized populations.

In the Netherlands, researchers examined case files to gain insight into their illicit market. Van Duyne (2003) analyzed 52 criminal investigation files from the Netherlands. His study addressed cross-border trafficking routes, characteristics of individuals and groups involved, and details from a few cases. A few years later, van Dijck (2007) studied 43 cigarette smuggling cases occurring in the Netherlands from 1999 to 2006. Van Dijck's study looked at many of the same factors as van Duyne's and compared the findings of both studies. In both studies, offenders tended to be male and the mean age was approximately 40 years old. Van Dijck found that most offenders were not tied by family bonds, were

European, primarily Dutch, and participated in a variety of other types of criminal behavior, including drug trafficking and money laundering. Based on all of the nationalities in the files, van Dijck (2007) hypothesizes that "the Netherlands and Belgium can be considered as two main transit countries for cigarettes to pass on their route to England" (pp. 8-9). One difference between van Dijck's (2007) study and van Duyne's (2003) analysis is the inclusion of offenders from Middle Eastern or Central/East Europe; these nationalities were not present in the early study.

Von Lampe's (2003, 2005) work studies the cigarette black market in Berlin,

Germany. He concludes that a combination of cultural, legal, economic, political, and social factors created and maintains the black market. The street sellers are primarily of Vietnamese heritage (von Lampe, 2003, 2005) and the networks tend to be "low-density networks comprising small, simply structured enterprises and individual entrepreneurs" (von Lampe,

2003, p. 63). In another study, he compared and contrasted the market in the UK and 57

Germany. The trade in the UK appears to be a combination of minor bootleggers and large­ scale smuggling operations. Street selling is commonplace in Germany, but London appears to have only one open-air market area-Holloway Road (van Lampe, 2006).

In a more recent study of London's illegal cigarette market, McEwen and Straus

(2009) examine the counterfeit market. The street selling of illegal tobacco products is still uncommon, but when it does occur, it tends to involve counterfeit cigarettes and Kurdish sellers. Antonopoulos (2007) also writes of individuals involved in the illicit cigarette market at the lowest levels in UK or Greece. The individuals operate at the local level, have few conspirators, make little money, do not see violence as an essential component of their illegal trade, and are not stereotypical "organized crime" figures. Antonopoulos also states that his study is not representational of all people involved in the market.

Hornsby and Hobbs (2007) studied bootleggers' involvement in the UK's illegal cigarette market. They focused on a trafficker who adapted his strategies according to the market and law enforcement. At first, he would pay mules to spend a day in France to buy and smuggle cigarettes. As his business grew, he moved to buying cigarettes in Luxembourg and then moving them into the UK via France and the Chunnel. As law enforcement's strategies changed so did the traffickers and they now buy their contraband in bulk within the UK. Violence started to factor into the market when the government's response started to affect the trade as well as new players entering the market. These players were formally involved in the cocaine trade, but switched to cigarette trafficking.

Cigarette trafficking and smuggling are low-risk activities that can generate sizable profits; thus, it is an activity with a financial incentive, has little deterrence, and can occur if the opportunity presents itself. Environmental factors, such as political instability or social 58

disorganization, provide opportunities for the smuggling and continuation of large-scale operations. Beare's (2002) analysis of corporate cigarette smuggling, states "the cigarette smuggling industry illustrates the dynamic of a manufactured organized crime problem and the resistance of state agencies to challenge the role played by powerful 'suppliers' of the illicit commodity" (p, 226). She concluded that government policies created a black market, and political discourse between interest groups helped maintain a criminal friendly environment. These are just some of the factors that governments need to consider when enacting new tax laws and penalties for cigarette smuggling.

The literature on counterfeit and contraband cigarette smuggling is comparatively smaller than the literature on illicit drugs, human trafficking, or street crime. And, although there are numerous aspects of the trade that scholars have only begun to study, there are many holes in the literature that scholars need to fill with more case studies and analyses.

Scholars can study the illicit market, the actors, methods and routes, taxation, law enforcement efforts, and the impact of sanctions and punishments. Although the United

States and the international community may have had this problem for decades, academics and policy analysts are only now beginning to understand the complexity. Accordingly, this dissertation begins to address aspects of the cigarette smuggling literature that scholars have not yet examined. For example, there has not been an in-depth study of Turkey's problem in the English-speaking literature, and the quantitative analyses focused on taxation tend to leave out criminological variables. 59

Organized Crime, Terrorism, and the Crime-Terror Nexus

Terminology

The terms "organized crime" and "terrorist organization" are two terms that do not have agreed upon definitions or meanings. The phrase "crime-terror nexus" follows this pattern. However, although many would agree that organized crime and terrorist groups do exist, not everyone agrees that crime-terror nexuses exit. Therefore, in this last section of the literature review I cover those terms and the crime-terror nexus.

Neither scholars nor governments have agreed upon the definition of "organized crime" or even if the term refers to a group of individuals or complex criminal activities.

Definitions are often criticized and said to be inadequate or are controversial.Jeff Mclllwain captured the definitional dilemma nicely with, "Defining organized crime has always been a difficult task, akin to nailing Jello to a wall" (Mcillwain, 1997, p. 29). Instead of a definition, some scholars have opted for a list of characteristics. Characteristics can include different types of structure, rational profit through crime, use of force or threat of violence, corruption, monopoly over a particular market, restricted membership, non-ideological, specialization, exclusivity, illegal enterprises, and other characteristics (Finckenauer, 2007;

Hagan, 2006). However, law enforcement and governments need a codified definition. The definitions vary greatly, often depending on the agency's purpose of ideology. The Council of Europe's definition for organized crime encompasses most of the characteristics and is flexible enough to cover both the actors and the crimes. They define organized crime as:

the illegal activities carried out by structured groups of three or more persons existing for a prolonged period of time and having the aim of committing serious crimes through concerted action by using intimidation, violence, corruption or other 60

means in order to obtain, directly or indirectly, a financial or other material benefit (Council of Europe, 2002, p. 6).

Although the list of characteristics is prudent, because of the dissertation's emphasis on guardianship and the similarities between the Council of Europe's definition and Turkey's, this dissertation will loosely follow the Council of Europe's definition of organized crime.

Terrorism has similar definitional issues, is often hard to define, and the meaning of the term has changed over time (see Forst, 2009; Hoffman, 2006; Laqueur, 1999). There is no single and universally accepted definition of terrorism; individuals, agencies, and governments can all have different conceptions of terrorism and terrorist groups. Moreover, the public labels numerous activities and actors as "terrorism" and "terrorists" that may or may not fit a codified definition. As Hoffman (2006) states,

virtually any especially abhorrent act of violence perceived as directed against society -whether it involves the activities of antigovernment dissidents or governments themselves, organized-crime syndicates, common criminals, rioting mobs, people engaged in militant protest, individuals psychotics, or lone extortionists-is often labeled terrorism (Hoffman, 2006, p. 1).

Although there are numerous definitions, each with its own distinctions and characteristics, it is not necessary for this dissertation to dive into the definitional debate of terrorism. Instead, a general definition of terrorism will suffice. The most fitting yet general definition of terrorism comes from Forst's (2009) Terrorism, Crime, and Public Poliry. Forst

(2009) defines terrorism as "the premeditated and unlawful use or threatened use of violence against a noncombatant population or target having symbolic significance, with the aim of either inducing political change through intimidation and destabilization or destroying a 61

population identified as an enemy" (p. 5). From this definition, it would be logical that a terrorist organization would be a group of individuals who are working together to achieve these goals.

Because this dissertation focuses more on the criminal activity of cigarette smuggling than political ideology there will not be a lengthy discussion as to whether a group is a terrorist organization or not.26 For those classifications, I will default to the U.S.

Department of State's Lists of Foreign Terrorist Organizations (FTO). The U.S. Department of State classifies many organizations that have links to cigarette smuggling or scholars frequently analyzed in the crime-terror literature as FTOs, such as Hamas (Islamic Resistance

Movement), Hezbollah, al-Qaeda,27 F ARC (Revolutionary Armed Forces of Colombia),

PKI<, and Real IRA (RIRA) (for a complete list of FTO, see U.S. Department of State,

2010).

Literature on the Crime-Terror Nexus

A growing literature focuses on the links between crime and terrorism (Frank

Bovenkerk & Chakra, 2007; Dishman, 2001; Laqueur, 1999; Levi, 2008; Makarenko, 2004;

Rollins, et al., 201 O; Schmid, 1996; Shelley, 2002, 2005; Shelley & Melzer, 2008; Shelley, et al.,

2005; Sverdlick, 2005; Williams, 2008). Scholars and analysts refer to these links as the crime-

26 Governments and international governmental organizations have processes to designate some groups at terrorist organizations and the designation has certain legal consequences. These designations can be controversial and a government may designate a group as a terrorist organization to delegitimizing their opponents. For example, classifying Hezbollah as a terrorist organization is controversial; not all governments share the United States' view and classification of Hezbollah as a terrorist organization. Some governments, such as the United Kingdom, only designate part of the organization as a terrorist organization. Others recognize that Hezbollah holds seats in the Lebanese parliament, is a political party within Lebanon, and have not designated it as a terrorist group (Wiegand, 2009).

27 Similar to Hezbollah, there are numerous ways to translate al-Qaeda into English. Alternative spellings include al-Qaida and al-Qa'ida. 62

terror nexus.28 This is the convergence between organized crime and terrorist organizations.

Yet, not all scholars, analysts, and practitioners subscribe to the theory or believe in the possibility of a crime-terror nexus. The main argument against the crime-terror nexus is that the two types of organizations have fundamentally different missions and goals. As

Bovenkerk and Chakra (2007) state, "organised crime focuses on economic profit and acquiring as much of a share as possible in the market, particularly the illegal market, while terrorism is motivated by ideological aims and a desire for political change" (p. 29). In other words, organized crime is a profit driven illegal enterprise, and a terrorist group is an ideologically driven organization. Depending on the circumstances, it is acceptable and appropriate to study these criminal organizations as separate phenomena. However, one cannot ignore the numerous incidences where the two converge and sometimes a group may transform into the other.

It is not always easy to distinguish a terrorist organization from a transnational crime group. Political and economic changes over the last few decades have blurred the lines between organized crime and terrorism (Bovenkerk & Chakra, 2007). Traditional organized crime groups wanted to preserve the state to protect their criminal enterprises and finances.

They had a parasitic relationship with the state. However, in recent decades some transnational crime groups emerged from the turmoil of conflict and civil wars. The newer crime groups are more likely to create partnerships with terrorist organizations (Shelley,

2005).

The global changes also affected terrorist organizations. The decline of state­ sponsored terrorism has forced these organizations to criminal activities to fund their

28 The crime is referring to organized crime/transnational crime and not street crime. 63

political agencies (Dishman, 2001; Makarenko, 2004; Sanderson, 2004). It is logical that these two types of criminal organizations that operate in a clandestine underworld would form alliances or at the least mimic the other when needed.

The changes in both terrorism and transnational organized crime have made two separate phenomena become closer in nature, and their similarities regarding operations and organization are becoming more apparent (Makarenko, 2004). Corruption is a lifeline for both of these groups. And both groups participate in an array of sophisticated crimes such as drug trafficking, money laundering, counterfeiting, kidnapping, extortion, human trafficking, and smuggling (Bovenkerk & Chakra, 2007; Shelley & Picarelli, 2002). Moreover, both groups require money, weapons, false documents, and corruption (Williams, 2008).

Schmid (1996) identified several similarities and differences between terrorism and organized crime. First, both groups are comprised of rational actors. Second, both groups use violence or the threat of violence. Third, terrorist groups and organized crime groups use similar tactics to achieve their goals, including kidnappings, assassinations, extortion. Fourth, both groups tend to operate secretively and underground, and usually because one or more ruling regimes have criminalized their existence and activities (Schmid, 1996).

Although they share many characteristics, in their purist forms, they do have some substantial differences. A major and defining characteristic is that terrorist organizations are ideological and desire political or social change. Organized crime groups, especially older and more established groups prefer to maintain a status quo; a change in the political structure could put their criminal enterprises at risk. The two groups have different views of media and publicity. Traditionally, organized crime tends to downplay or deny their involvement, 64

whereas terrorist groups seek attention from the media, play to the mass audiences, and quickly admit or take credit for an attack (Schmid, 1996).

Violence is a tactic used by both groups and can be a defining characteristic.

Generally, terrorist organizations and organized crime use violence differently. Terrorists use violence in an indiscriminate fashion, tend to not have a close connection to the victims, and victims are often random and not related or only loosely related to the group's grievances.

They also tend to focus on symbolic structures, trains, companies, buildings, airports, apartment buildings, embassies, etc. for the national or international statement and/ or publicity. However, organized crime uses violence in a more purposeful and intimate fashion. For example, an organized crime group may attack individuals involved in an anti­ mafia campaign or a competing organized crime group. Instead of mass casualties and unrelated victims, the victims of organized crime violence might be journalists, judges, police, and politicians who have spoken out against the group or have somehow threatened the group (Schmid, 1996). In other words, "International organized crime groups use targeted violence to promote organizational goals, eliminate competitors, and remove political threats, while terrorist groups kill to eliminate political competitors" (Shelley &

Picarelli, 2002, p. 308).

The convergence of modern terrorist organizations and organized crime first appeared with narco-terrorism in the 1980s. The president of Peru used the term to describe the terrorist-methods drug cartels were using to undermine governmental and law enforcement efforts (Bovenkerk & Chakra, 2007; Laqueur, 1999; Williams, 2008). Pablo

Escobar's extreme use of violence and terrorist tactics made him the classic "narco-terrorist"

(Casteel, 2003). Currently, narco-terrorism is a term used to describe "an insurgent 65

organization's use of organized crime, and specifically the drug trade, to fund the politically motivated use of indiscriminate violence" (Williams, 2008, p. 132)

The irreconcilable differences between organized crime groups and terrorists that once existed grew less distinct as organized crime groups in Colombia became political and terrorist groups started to take over activities that were primarily organized crime activities

Terrorist groups' transition into the nexus arose from their need for money. One way to increase their coffers was through the drug trade. Terrorist organization such as La F ARC became heavily involved in the cultivation and production of cocaine. The drug market provides more than adequate funds for the terrorists' missions and organized crime groups became stronger once they aligned with a terrorist organization (Laqueur, 1999).

Narco-terrorists, who sometimes participate in cigarette smuggling especially during the height of the Black Market Peso Exchange, are not the only type of crime-terror nexus. Over the last decade or two, scholars have started to examine not only the similarities and differences, but exactly how these groups are coming together or mimicking each other.

According to Sanderson (2004), "terror groups transform into hybrid criminal/terror entities and partner with criminal syndicates." However, there is "debate as to whether these groups are 'converging' or 'transforming,' ... [and] the merging of transnational organized crime and international terrorism is nonetheless on the rise" (p. 49). Dishman (2001) examined the collaboration or transformation of several "mafia" and terrorist groups. Some criminal groups do collaborate with terrorist groups, while others refuse to work with any group that does not follow their ideology or hampers their intended goal.

Makarenko (2004) argues that these groups have similarities in regard to how they operate and are organized. Moreover, groups can slide back and forth on a continuum 66

between organized crime and terrorist group and there are four main categories markers: alliances, operational motivations, convergence, and the "Black Hole." The Black Hole is located in the middle of the continuum and occurs when "weak or failed states foster the convergence between transnational organised crime and terrorism, and ultimately create a safe haven for the continued operations of convergent groups" (Makarenko, 2004, p. 138).

Scholars have challenged Makarenko's model and black hole theory. Williams'

(2008) criticism of Makarenko's Black Hole theory is associated with Williams' point that the difference between an environment friendly for organized crime and terrorist organizations to operate and being able to take over the failed state. And, Clarke and Lee (2008) tested

Makarenko's model by conducting case studies on the Provisional Irish Republican Army

(PIRA) and D-Company and concluded that Makarenk's model and theory were obsolete because groups can have their start in the "Black Hole,'' quickly move back and forth between being a terrorist organization and an organized crime group, and conclude that the steps between the points have become closer. Regardless of the critiques, neither Williams nor Clarke and Lee argue against the possibility of a crime-terror nexus.

Instead of a continuum with a black hole theory, Dishman (2001) argues that groups can be placed on a linear diagram where at the one end would be an "authentic" group or a group that has to stay true to its original intention and at the other end would be groups who have been completely transformed into the other. There are some examples of terrorist groups and guerilla organizations using organized crime methods to raise funds for their causes; the groups or individual actors lose sight of the political agenda. Various organized crime and terrorist organizations would fall at different places on the line. An example of a transformed group would be the IRA. Originally, they engaged in organized 67

crime activities to make money for their political agenda. It appears that their political

agenda has taken a back seat to the profit-driven criminal activities of the IRA (Dishman,

2001).29

Dishman (2001) also discussed the possibility of organized crime and terrorist groups working together. In his discussion, he concluded that it is possible for organized

crime and terrorist organizations to have strategic alliances or one-time business dealings.

The profit-driven priorities of organized crime and the political agendas of terrorist groups would prohibit long-term agreements and arrangements between the two groups. Moreover,

the two categories of groups tend to use violence and other tools for difference reasons/ results. Regardless, the need for financial profits from organized crime activities will lead the terrorist groups to adopt these strategies.

There are many examples of terrorist organizations cooperating with organized

crime groups and/or engaging in organized crime activities during the past few decades. As mentioned above, one of the first known hybrids between organized crime and terrorism

occurred in South America as narco-terrorism represented the convergence between drug

cartels and terrorists (Laqueur, 1999; Schmid, 1996). The F ARC provides a classic example of a terrorist organization using organized crime, organized crime methods, and the illegal

29 In Dishman's article and analysis, he does not discuss the various splinter groups of the IRA; he refers to the group only as the IRA. Thus, it is unclear if he is discussing all of the splinter groups of the IRA or one or more of those groups. The IRA's history dates back to the early 19th century, and with the Original IRA or the Old IRA. Decades later the group split into the Official IRA (OIRA) and the Provisional IRA (PIRA), and then the PIRA splintered again when they began negations with the British Government. According to the Council on Foreign Relations (2008), there are three PIRA splinter group: Continuity Irish Republican Army (CIRA), Real IRA (RIRA), and Irish National Liberation Army (INLA). The CIRA began in 1994 as a "clandestine armed wing of Republican Sinn Fein" (Council on Foreign Relations & Fletcher, 2008) In 1997, Michael McKevitt and other hard-line PIRA members formed the Real IRA as a response to the PIRA and its political component, Sinn Fein, negations with the British government. The history of Sinn Fein, which is a legitimate left-wing political party in Northern Ireland, spans most of the twentieth century and is associated with the IRA. The U.S. State Department lists the CIRA and the RIRA on their FTO list and the United Kingdom lists various entities of the IRA and other "Proscribed Irish groups" on their list of terrorist groups (Council on Foreign Relations & Fletcher, 2008; The Office for Security and Counter-Terrorism, 2010; U.S. Department of State, 2010). 68

drug trade to bankroll their political agenda and war. In recent years, they have started to participate in cigarette smuggling and the "Black Market Peso Exchange" as a way to launder their drug money.

Other groups that various governments have designated as terrorist organizations, such as Basque Homeland and Freedom (ETA), PIG<::., Hezbollah, and IRA, also raise funds through participating in the illicit drug trade (Arena, 2006; Cilluffo, 2000; Horgan & Taylor,

1999; Makarenko, 2004; U.S. Government Accountability Office, 2003). The PKK is involved in the narcotics trade in a few ways. They "tax" traffickers who move the product through PK.1<:. controlled regions, and they are involved in the European drug trade (Casteel,

2003; Cilluffo, 2000). The extent of their involvement is such that "French law enforcement estimates that the PKK smuggles 80 percent of the heroin in Paris" (Cilluffo, 2000, p. 4). Many have documented Hamas and Hezbollah's involvement in the illicit drug trade occurring in the tri-border region of South America (Abbott, 2004; Arena, 2006; Ehrenfeld, 2003; U.S.

Government Accountability Office, 2003). Moreover, of course, there is the connection between the illicit narcotics trade and terrorist groups in Afghanistan; the Taliban and al­

Qaeda are involved in the cultivation, production, and distribution of heroin and other opiate related drugs (Afghanistan drugs and terronsm and U.S. security poliry, 2004; Dishman,

2001; International Narcotics Control Board, 2009; Sanderson, 2004). The Taliban has morphed into a hybrid of a terrorist organization and a drug cartel, and they trade narcotics for weapons with organized crime groups (Lormel, 2010)

Individuals linked to terrorist groups were involved in the manufacturing and distribution of methamphetamine within the United States. During Operation Mountain

Express, a DEA-led operation involving both U.S. and Canadian law enforcement, 69

authorities uncovered a nation-wide methamphetamine ring that diverted funds to support

Hezbollah, Hamas, and al-Qaeda, (Ehrenfeld, 2003; Sanderson, 2004). Authorities arrested

280-300 people and seized almost $16 million, more than 160 cars, 180 pounds of methamphetamines, and 28 tons of pseudoephedrine,30 and numerous labs and real estate properties (Casteel, 2003; Ehrenfeld, 2003, p. 12). According to a DEA Intelligence

Administrator, this operation uncovered several different groups tied to various Middle

Eastern countries that supplied pseudoephedrine to Mexican drug traffickers and "the nexus between drugs and terrorism is perilously evident" (Casteel, 2003, iJ 82).

Although Hezbollah receives state sponsorship, they also rely heavily on organized crime activities to support their political agenda.31 Members participate in a variety of criminal activities, including the aforementioned methamphetamines ring and cigarette smuggling cases. There are two well document examples of Hezbollah cells using contraband cigarette smuggling within the United States to raise millions for the organization and purchase dual use equipment (see Arena, 2006; de Kieffer, 2008; Sanderson, 2004; Shelley &

Melzer, 2008; Williams, 2008). Hezbollah is heavily involved in the counterfeiting of cigarettes in the tri-border region (Hudson, 2003; Interview 03.26.07.01, 2007; Sverdlick,

2005) and in the African diamond trade (Arena, 2006). According to Dennis Lormel, former head of the Terrorist Financing Operations Section of the FBI:

Hezbollah has established a worldwide infrastructure that raises significant amounts of funding through organized criminal activity and questionable business practices. In fact, in many respects, Hezbollah operates like a traditional organized crime family in terms of its criminal activity. Almost all terrorist groups operate based on ideology. Hezbollah

30 Pseudoephedrine, a common ingredient in decongest and allergy medications, is a pre<:ursor chemical for the manufacturing of methamphetamines. 31 Since the mid-1980s, Hezbollah has received about $100 million annually from Iran (Wiegand, 2009, p. 671). 70

operates with a sense of ideology but also \vith a sense of greed, like an organized crime family. (Lormel, 2007, p. 5).

Terrorist groups participate in other traditional forms of organized crime as a

means to generate financial support (Cilluffo, 2000; Dishman, 2001; Hamm, 2005;

Makarenko, 2004; Shelley, 2002; Sverdlick, 2005). A U.S. Government Accountability Office

(GAO) (2003) report found that terrorist organizations make substantial profits through

trafficking and illegal dealings in weapons, diamonds, cigarettes, precious metals, and illicit

drugs as well as charity related donations and schemes. Terrorist organizations not only make a profit from the illegal market in cigarettes, but also from counterfeiting tax stamps.

Various profit-driven organized crimes engaged by terrorists organizations include kidnapping, money laundering, extortion, racketeering, smuggling, human trafficking and smuggling, arms trafficking, prostitution, credit card fraud, mail and wire fraud, tax fraud, bankruptcy fraud, identification theft, counterfeiting, burglary and robbery, and piracy of videos, CDs, and software (Echikson, 2004; Hamm, 2005; Levi, 2008; Shelley & Melzer,

2008; Shelley & Picarelli, 2002; Williams, 2008). The proceeds from these activities can be significant. In the 1990s, the PIRA raised approximately $3.5 million annually in pirated videos alone (Williams, 2008, p. 137). They also engaged in tax fraud, armed robbery, kidnapping, and smuggling various commodities (Williams, 2008).

The tri-border area is a hotbed for alliances between terrorist organizations and organized crime. Many of the crimes listed immediately above occur in this area. For example, Asian organized crime groups worked with an Egyptian terrorist organization to counterfeit various software and goods and sold the terrorist group ammunitions (Williams,

2008). More recently, terrorist organizations have begun participating in trade-based money 71

laundering and diversion schemes to raise funds and launder their illicit money (see de

Kieffer, 2008).

One criminal activity with a long history of organized crime involvement and in which terrorist groups are becoming more involved is cigarette smuggling. Billingslea (2004), a senior intelligence analyst with the ATF, found links between cigarette smuggling and terrorist groups such as Hezbollah, Hamas, al-Qaeda, and the RIRA. Moreover, there are numerous examples of organized crime, corporations, and terrorist groups working together or terrorist groups participating in organized crime to smuggle illegal cigarettes.

The various examples of cigarette smuggling linked to terrorist groups span the theoretical stages of the crime-terror nexus and provide evidence of its existence. As discussed above, Hezbollah has been involved in cigarette smuggling within the United

States, South America, and throughout the world. The PI<:l( is another terrorist group involved in the illicit cigarette market (Cengiz, Melzer, & Turan, Forthcoming; Melzer, 2009;

Roth & Sever, 2007; Shelley & Melzer, 2008). In addition to the PI<:IZ's direct involvement in cigarette smuggling, Turkish police estimate that the PI<:l( imposes a 20% tax on all smuggled cigarettes passing through their territory (Anatolia News Agency, 2006, December

7).

The IRA and its various splinter groups rely heavily on cigarette smuggling as a means to raise significant funds. Over the years, they have raised millions of pounds from smuggling counterfeit and contraband cigarettes (Coker, 2003; Willson, 2009). There are numerous examples of authorities seizing IRA related shipments of counterfeit and contraband cigarettes worth millions of British pounds. The IRA groups either have direct involvement with the smuggling or collaborate with organized crime groups (BBC News, 72

2005; Black, Clarke, & Keogh, 2009; Brady, 2009; Cusack, 2009; Elfrink, 2009; Lister &

O'Neill, 2005; McDonald, 2009; McGuigan, 2009; Sharrock, 2001). IRA-linked smuggling rings span the globe, and involve American citizens. In 2009, authorities uncovered a smuggling ring involving Roman Vidal, an American businessman, and a European organized crime group that had links to the IRA. The American acquired millions of cigarettes in Panama, processed them illegally through Miami, and then fraudulently shipped them to Europe to evade taxation (Elfrink, 2009; European Anti-Fraud Office - OLAF,

2009, 2010; Manzanares, 2009).

As mentioned throughout this chapter, cigarette smuggling does not occur only outside of the United States. There is reason to believe that Middle Eastern terrorist groups are making significant profits in the United States, especially in and around New York

(Republican Staff of the U.S. House Committee on Homeland Security, 2008). Given the potential profit margin, this is a logical fundraising strategy. Both New York State and City impose a tax on cigarettes; thus, the tax on a pack of cigarettes sold in New York City is

$4.25, of which $2.75 goes to the state and the city receives $1.50 tax per pack (New York

City Department of Finance, 2010). Major interstate roads, such as 195, link New York State and City to lower tax states. Moreover, New York has several Native American Reservations, which do not collect tax on cigarettes. Given the high taxation rate and the ease of obtaining low-tax or no-tax cigarettes, terrorist organizations or individuals affiliated with such groups have taken advantage of this opportunity.

New York-based law enforcement officers have concluded that the large-scale cigarette smuggling rings "are dominated by tight-knit, nationally-based networks .... [who are] of Lebanese, Yemeni, Jordanian, and Palestinian decent" (Republican Staff of the U.S. 73

House Committee on Homeland Security, 2008, p. 4). These rings can make a few hundred thousand dollars a week; participants remit some of the profits to the Middle East, and the funds directly or indirectly finance terrorist groups such as Hamas, Hezbollah, and al-Qaeda

(Republican Staff of the U.S. House Committee on Homeland Security, 2008).

New York has had several cases of cigarette smuggling linked to various organized crime and terror groups. In 2006, there was a case involving several Jordanians who sold about 25,000 cartons of untaxed cigarettes a week in the New York City area. Additionally, the group evaded taxes, laundered money, and sold counterfeit cigarettes and counterfeit tax stamps. The group purchased most of the cigarettes at two Long Island Native American

Reservations; however, they also purchased counterfeit cigarettes manufactured abroad. The group sent an estimated $500,000 back to Amman, Jordan, by dropping off cash to Royal

Jordanian Airlines crew members who were staying at New York City hotels in between their flights Oohnson, September 1, 2005). Another case involved financing of the "Lackawanna

Six."32 In 2004, a jury found Aref Ahmed guilty of federal charges of conspiracy to commit money laundering and smuggling contraband cigarettes (Aschcroft, 2004; Republican Staff of the U.S. House Committee on Homeland Security, 2008). Moreover, Ahmed enabled the group to attend an al-Qaeda training camp in Afghanistan by giving five of the members

$14,000 (Federal Bureau of Investigation, 2006). He received a sentence of 37 months for cigarette smuggling (Fleenor, 2008).

The above discussion on the crime-terror nexus covered a variety of different theoretical perspectives and examples. Similar the problem of defining of terrorism and organized crime, there is no one accepted definition or conception of what constitutes a

32 The "Lackawanna Six," also known as the "Buffalo Six," are a group of six .American citizens of Yemeni heritage from Lackawanna, NY, a city near Buffalo. In the spring of 2001, the six men attended an al­ Qaeda training camp near Kandahar, Afghanistan. 74

"crime-terror" nexus. Some place it on a continuum in which groups slide back and forth.

Others view the nexus as organized crime groups and terrorist organizations coming together for a specific criminal opportunity or need. Some see it as an alliance between the two, and yet other scholars view the nexus as terrorist organizations using organized crime methods and activities to raise funds or complete a goal.

Dishman (2001) argues that we should not be concerned with the "cooperation among [transnational criminal organizations] and terrorists, but rather, the transformation of revolutionary aims where financial well being co-exists or overrides traditional political motivations" (p. 44). I do not agree with Dishman's argument. Instead, I think guardians should worry about both the collaboration of organized crime and terrorist groups adapting their fundraising strategies and other criminal needs to those used by transnational and domestic organized crime groups. Scholars and analysts should consider the crime-terror nexus in analyses of transnational crimes and terrorist activities, and in particular cigarette smuggling. However, the focus should be on the crimes and activities and not the classification of a group. This is similar to the warning that Cornish and Clarke (2002) stated in regards to focusing too much on the actors in organized crimes rather than the crimes that are organized. Moreover, as groups morph, change, or evolve into another type of criminal group, the original classification becomes less appropriate. For example, La F ARC, the IRA and its splinter group, and Hezbollah are not merely terrorist organizations. The organized crime and transnational crime elements of these groups are substantial and should not be overlooked or under played. Accordingly, the following chapters focus on the crime of cigarette smuggling and not the actors. Nevertheless, the actors are an important part of understanding the illicit market and the crime-terror nexus reveals itself in several places. 75

This chapter has reviewed the literature pertaining to economic and opportunity theories of crimes, cigarette taxation and smuggling, and the crime-terror nexus. In the following chapters, the structure provided by the routine activities approach and economic criminological theory will help to analyze the quantitative and qualitative data. The various studies in cigarette taxation and analysis have provided the different variables and methods I will use to analyze the quantitative data. The literature examining the particulars of cigarette smuggling, development, motivations, and characteristics of offenders provides guidance for variable selection and structure of analysis for both the quantitative and qualitative chapters.

Finally, the discussion on the crime-terror nexus allows for the importance of this convergence to emerge. CHAPTER3

QUANTITATIVE METHODOLOGY AND ANALYSES

The scholarly study of transnational crimes, especially clandestine transnational crimes, can be an ambitious endeavor. Studying crime within a city has its own peculiarities and difficulties. For example, rape and certain property, violent, and drug crimes are often unreported and are not included in crime statistics. Moreover, most organized crimes are not reported to the police or police do not indicate "organized crime" involvement or detect that the crime is linked to a larger, criminal organization. Studying criminological phenomena and organized crimes becomes even more complex when the level of analysis is raised to the country level, and border crossings, mixing of cultures, and differences in legal structures must be considered. Therefore, this chapter opens with a discussion of some of the idiosyncrasies and limitations associated with transnational crime data collection and analysis.

The discussion then moves to a quick overview of the multi-method approach utilized in the dissertation and the theoretical framework and hypotheses that guided the research. In this chapter, I discuss the quantitative methodology I utilized, the data, the variables, and the results of descriptive, bivariate Tobit models, and multivariate Tobit model analyses. I present a more in-depth discussion of the qualitative case study's methodology in Chapter 4.

76 77

Idiosyncrasies and Limitations Associated with Transnational Crime Data

International cigarette smuggling involves a myriad of different actors, methods, incentives, motivations, and policies that affect the illegal trade. Similar to other transnational crimes and organized crimes, researching this type of criminal behavior can be very difficult and requires researchers to be aware of limitations concerning generalizability, research methods, and data. Organized crime, including smuggling, is a product of a given time and a given environment. As environments change and vary from place to place, so do the particulars of cigarette smuggling and organized crime. Similar to the differences among organized crime groups from Russia, Italy, and South America, cigarette smuggling between

European Union countries has characteristics different from the smuggling that occurs during United Nations (UN) embargos. During an embargo or conflict, the availability of cigarettes changes because of trade prohibitions, disturbances in supply routes, and unstable environments. Cigarettes become a profitable and sought-after commodity. Angola, the

Former Yugoslav Republics (FYR), Iraq, the United Kingdom (UK), and Germany provide examples of how illegal cigarettes markets vary from situation to situation.

Angola, Iraq, and FYR are three conflict-related examples that illustrate different motivations and actors involved in cigarette smuggling. In Angola, Nordstrom (2007) encounters a young, orphaned boy who supports himself by selling illegal cigarette sticks on the street. A shop owner obtains the illegal cigarettes, Sony products, counterfeited "scotch," guns, diamonds, and other commodities through a corrupt and illegal distribution chain. He then gives the child a few sticks to sell each day. This trade is more personal and life sustaining than the situation in Saddam Hussein's Iraq. Here, corporations, with the assistance of corrupt government officials and terrorist groups, shipped extremely large 78

amounts of contraband cigarettes and corresponding marketing paraphernalia into the country through a complex distribution scheme. The corporation's motivation was to increase their market share and profits while knowingly disregarding a UN embargo and U.S. law (Shelley & Melzer, 2008). 33 In the Balkan region, the Yugoslav Republics needed to pay for their war, and embargos prevented them from using previous revenue streams. To help fund the Balkan wars, leaders turned to the black market. Given the UN embargos and the unstable environment, "the easiest way of underwriting the affairs of state was through mafia business: drugs, arms, oil, weapons, women and migrants" (Glenny, 2008, p. 33). In Serbia,

Slobodan Milosevic approved cigarette smuggling activities and Montenegro's government openly supported the passage of cigarettes through their country (European Stability

Initiative, 2007).34 In Serbia and Montenegro, oil and cigarettes were the most sought-after products; the value of either smuggled product could reach $1 million in a single day

(Hajdinjak, 2002).

33 American based tobacco companies were prohibited from conducting business in Iraq during this time. By participating in the various schemes to expand their markets in to Iraq, they were violating US law. 34 In the early 1990s, the EU was losing billions in tax revenues from cigarette smuggling linked to members of the Montenegro government and two Italian mafia groups. By the late 1990s, the Italians were looking to indict those involved. Because of the Balkans' delicate situation and the U.S. support of Montenegro, Bill Clinton met with l'vfilo Djukanovic, the long-time Montenegro leader, to discuss Djukanovic's cigarette smuggling operation and mafia connections (Glenny, 2008). According to court documents filed in the United States on behalf of the European Community, Montenegro's government and individual officials, including l'vfilo Djukanovic, received $30 for each case of cigarettes passing through Montenegro (European Community v. R.J. Reynolds et al., 2002). The Montenegrin leader estimated the annual revenues of the contraband cigarette trade to be $30 million (Glenny, 2008, p. 25). Djukanovic admitted to Italian reporters that his government did participate in cigarette smuggling during the war because of the UN sanctions, but he did not personally profit from the crime and the smuggling has stopped (Schecter, 2009). Italian and Swiss authorities have accused Djukanovic and others of cigarette smuggling, money laundering, and other criminal activities. A.uthorities claim that Djukanovic and other government officials knowingly allowed approximately 100,000 cases per month, mostly Marlboro and Marlboro lights, to enter their country for the sole purpose of being smuggled into Italy and other EU countries. Members of the ring have allegedly laundered $1 billion through Swiss banks, and Switzerland is pursuing their own legal actions against the ring. Nevertheless, Italy had to drop Djukanovic from their indictment because of diplomatic immunity (Schecter, 2009; Sisti, 2009). International tobacco companies were not immune from legal actions for their involvement. The European Community accused government officials and tobacco corporations of "capitaliz[ing] on an ongoing war and corrupt government officials as a means to expedite the sale of their products and to help disguise the illegal nature of their actions (European Community v. R.J. Reynolds et al., 2002, p. 72). 79

The situation in the UK and Germany is different from that in conflict regions. In the conflict regions and states under UN embargos, cigarettes, especially well known

Western brands, were a valued, but scarce or prohibited product. In most of Europe, cigarettes are not a prohibited item. Instead, the more stable and less corrupt governments have enacted social and health policies by highly taxing and regulating the product. In turn, this changes the methods and motivations of smugglers. The UK's tax on cigarettes is one of the highest in the world, making their cigarettes some of the most expensive cigarettes in

Europe. Not surprisingly, the country also has a significant problem with illegal cigarettes.

Although there are many ways to smuggle cigarettes into the UK, especially from continental

Europe, a current method is paying teenage females to "holiday" in Europe and smuggle the cigarettes back into the country. In return for a paid holiday and some spending money, the girls return to the UK with tens of thousands of cigarettes in their luggage (fownsend &

McVeigh, 2009). In Germany, the cigarette black markets tend to have a historical nature, dating back to when the Berlin Wall and the Iron Curtain were still standing, and are geographically concentrated. Van Lampe (2005) concluded that price discrepancies could account for the black market, but is not the only reason for the market. He uncovered a link between Polish suppliers, who would move the cheaper cigarettes into Germany because of the economic situation in Poland, and Berlin-based Vietnamese street sellers.35 Each of the above examples has different actors, motivations, and methods involved in their illegal cigarette markets.

35 For a more complete discussion on the intricacies of Berlin's cigarette black market and a comparison between the black markets in Germany and the United Kingdom see von Lampe's Explaining the Emer;gence of the Cigarette Black Market in Gennatry and The Cigarette Black Market in Gennatry and in the United Kingdom (von Lampe, 2005, 2006). 80

In addition to the differences in environments, characteristics, and motivations of offenders, country-level data have their limitations. Country-level data is subjected to many of the same criticisms that secondary data face. Social scientists and government researchers, especially those who study crime and issues related to crime, have begun to rely heavily on secondary data analysis, and over time this has become an accepted method of studying events and trends that are difficult to measure.36 Scholars who conduct cross-national crime studies have also used secondary data. However, the studies often focus on developed countries and are limited by the quality and availability of the data.37 Cross-national crime studies often analyze official data collected from the UN's Crime Surveys, Interpol, and the

World Health Organization (WH0)38 (Bennett & Lynch, 1990; Stamatel, 2006). In recent years, a fourth data source, the International Crime Victims Survey, is available to researchers and it collects victimization data from interviews with residents. This source may capture crimes not reported to the police. Researchers lost the ability to use Interpol data after 2005 because Interpol stopped making their data available to the public (Rubin, Culp,

Mameli, & Walker, 2008).

The above cross-country crime data sources are secondary data. The data collection costs and the onerous task of data collection forces researchers to use secondary

36 Riedel (2000) performed an informal survey on the use of primary and secondary data 1.11 articles published in two prominent criminological journals, Criminology and Justice Quarter!J, over a five-year period. Interestingly, he found that 56.2% of the articles (N = 131) published in Criminology used secondary data, which are more than the combined total percentages of articles that use primary source data (17.6%) and no data (19.2%). Justice Quarter!J's distribution (N = 141) for the use of secondary data, primary data, and no data are 29.8%, 39.7%, and 14.9%, respectively (Riedel, 2000, p. 2). 37 In this study, the World Bank would consider approximately 42% of the countries to be low income or lower middle income; thus, they are not developed countries. Under the World Bank's classification system, they would consider only one-third of the countries included in this analysis as "developed" or high income. According to Jooseen, Merriman, Ross, and Raw (2009), lower income countries bear more of the harmful effects of the illicit trade and tend to have higher percentages of their cigarette markets be illegal. Thus, it is essential to include developing or low and lower middle-income countries in a cross-sectional, worldwide analysis of cigarette smuggling. However, the crime-related data from those countries tend to be problematic. 38 The WHO collects data on homicides. The UN Survey and Interpol capture crimes reported to police. These three data sources do not have a function to measure non-reported crimes. 81

sources. However, there are limitations, such as not having the ability to add cases or variables, operationalize a variable differently, or verify the validity of the data collected.

Basically, secondary data analysts have "to rely on the interpretations and coding system of previous researchers without full knowledge of their thought processes, accepting any errors they unconsciously made or accepted from the original data supplied" (Spahr & Alison,

2004, p. 98). Moreover, if there is missing data, which are often from developing countries, the researcher cannot collect the data on his or her own. The limitations and data can also be problematic when one considers that each survey has different definitions and data collection methods-thus, it is not always possible to combine the datasets-and different countries have different definitions for various crimes. Missing cases and the inability to combine datasets may reduce the number of cases available for analysis and bring down the statistical power of a model. Nevertheless, researchers, policy analysts, law enforcement, and students can still gain knowledge from cross-country quantitative analyses of secondary data.

Research Design and Methodology

Since the qualitative case studies tend to focus only on a given country's or region's crime issues and quantitative cross-country analysis has its own inherent problems, it is prudent to utilize a multi-method approach involving both qualitative and quantitative research methods. Accordingly, this dissertation consists of both a quantitative, cross­ national dataset and a qualitative case study of one country. For reasons discussed elsewhere, the case study, which is primarily qualitative, examines cigarette smuggling in Turkey. I present it as a case study and its methodology in Chapter 4. The qualitative and broader 82

analysis focuses on cigarette smuggling throughout Europe and parts of the Middle East

(namely Iraq and Turkey); however all regions are represented in the quantitative analysis.

The quantitative analysis, which includes data for up to 93 countries, identifies factors that increase or decrease opportunities and incentives related to smuggling activities at the country level .39 The qualitative research includes the analysis of legal, corporate, and open source documents and interviews with police officers, customs officials, and government and industry officials. The interviews and document review focused on the size, scope, actors, motivations, and methods used in cigarette trafficking. Quantitative analyses tend to be more reliable but can be less valid, although the qualitative case studies tend to be more valid but can be unreliable, especially when the cases studied may not represent all possible cases. By using these two approaches, I am attempting to mitigate the weaknesses of each method.

Since the fall 0£ the Soviet Union and the explosion of communication and information technologies, the world has become interdependent, and legal and illegal cross- border trade occurs on a massive scale every day. Therefore, it has become more necessary and appropriate to study some crimes, such as smuggling, in the context of quantitative cross-country data analysis. This type of analysis can identify some possible causes of smuggling. I created the dataset from the UN, American Cancer Society, Transparency

39 The dataset contains data for 93 countries, if one considers Taiwan as an independent and sovereign country. The United Nations, World Health Organization, China, the United States, and most other countries consider Taiwan as a territory of China and do not maintain official diplomatic relationships with Taiwan. Many countries do maintain unofficial relationships and agreements, especially those regarding trade, with Taiwan. The data sources used in this dissertation have different classification for Taiwan (as well as the two special administrative regions: Macau and Hong Kong). Some data sources include Taiwan as part of China's data and note it, some include it and do not note the inclusion, and others list it as a separate country. Because of confusion with Taiwan's classification, many variables have missing values for Taiwan and Stata automatically drops this case. Thus, Taiwan and other countries with missing values for variables are included in the descriptive statistics and the bivariate correlations and Tobit analyses for which the variable has a value for a given country. 83

International, Euromonitor International, World Bank, and other data sources. When possible and appropriate, the variables' values are from 2006. However, because of the nature of the data sources and international data, data for 2006 was missing or not available for certain countries or data sources. In those cases, I used data from other years closest to

2006. For example, the UN's World Drug Report- Seizures 2008 contains data on a country's seizure of popular illicit drugs from 2001 to 2006. Algeria reported the amount of seized cocaine and heroin for 2005, but they did not report their cannabis herb seizures for 2005.

They did report the amount of cannabis herb seized in 2004; therefore, the value for

Algeria's cannabis herb is from 2004. Since most of the data is post-9 /11, and before the global recession began, within a few years of 2006, it is likely that the values would not have changed greatly and are acceptable values to use in this analysis. Please see Table 3.1, Factors

Iefluencing Cigarette Smuggling (Van'able Definitions), for descriptions and other information for the variables used in this dissertation.

Opportunity theory, more specifically the routine activities approach, has provided the criminological theoretical framework for the inquiry. One of my hypotheses is that, contrary to popular belief and trends in most of the literature, tax evasion may not be the most important incentive related to the trafficking of cigarettes-especially when focusing on the trafficking of counterfeit cigarettes. Taxation, tax differentials, and tax evasion affect the profitability of the crime, but it may not be the sole incentive. Instead, factors such as corruption, public tolerance, culture, informal distribution networks, widespread access to counterfeit goods (such as street selling), low enforcement rates and penalties, and the pre-existing presence of organized crime or terrorist groups may provide additional incentives. Taxation may create an incentive for individuals to participate in this 84

criminal activity; however, taxes do not explain cigarette smuggling that involves manufacturers who are expanding their markets and are not required to pay taxes to distribute their products.

The routine activities approach suggests that crimes may occur under the correct conditions, specifically when there is a suitable target, a willing offender, or the absence of a capable guardian. The absence of any one of these factors is sufficient for crime to occur.

It is logical to think that an individual or group might make different decisions regarding their involvement in cigarette smuggling if they were in Angola, Iraq, Turkey, Serbia­

Montenegro, Germany, or the UK. The level and type of guardianship, legitimate opportunity, and standard of living varies between those countries and over time. Therefore,

I have focused on the situation or environment in which cigarette smuggling occurs instead of the individual level choices. Thus, because tax rates vary both cross-sectionally and longitudinally, the role guardianship and the social factors play in creating willing offenders is a worthy empirical question and a suitable matter for inquiry. Table 3.1 Factors Influencing Cigarette Smuggling (Variable Definitions)

Variable Definition Measurement Source Additional Notes Illicit cigarette The percentage of the total consumption as a A numeric value that cigarette consumption market Eruomonitor International/ American percentage of represents the percentage Data is from 2006 that is illicit (contraband and Cancer Society's Tobacco Atlas 3rd Edition of the market that is illicit legitimate market counterfeit cigarettes)

The count of the illegal The number of The number of illegal cigarette cigarette sticks consumed illegal sticks in sticks (counterfeit or in million sticks. Eruomonitor International Data is from 2006 million sticks contraband) consumed in a Ranges from 25.3 to country in million sticks 76,092

Data from Euromonitor is from Cigarette The number of cigarettes each 2006. There are 17 consumption per individual would consume in a The consumption rate Eruomonitor International & American countries that the data capita county if everyone smoked and divided by the population Cancer Society and the Tobacco Atlas came from The smoked the same amount Tobacco Atlas - Third Edition and from 2007 The percentage of the retail The percentage of the Most data is from the Tax as a proportion price of a pack of cigarettes retail price of a pack of American Cancer Society and the Tobacco second Tobacco Atlas, of the cigarette price that is money paid to the cigarettes that is money Atlas with a few countries' government in the form of paid to the government in data from the Third taxes the form of taxes This was calculated by using the " Tax as a Most data is from the proportion of the cigarette price" and Tax Price in $US This is the price of the tax, per The tax price in US second Tobacco Atlas, "Price of Marlboro or equivalent brand in pack, in USD. dollars with a few countries' $US" variables from the American Cancer data from the Third Society and the Tobacco Atlas

00 \Jl Table 3.1 (Continued)

Variable Definition Measurement Source Additional Notes The fmal sale price of a pack of The total price of a pack of The total price of a pack Most data is from the Marlboro or Marlboro or equivalent of Marlboro or .American Cancer Society and the Tobacco second Tobacco Atlas, equivalent cigarettes in US dollars. This is equivalent brand Atlas with a few countries' the price the end user would international brand cigarettes in US dollars data from the Third of cigarettes pay at a legitimate retail outlet.

The pre-tax price of a pack of Marlboro This is the price of a pack of Most data is from the The price of a pack of This was calculated by subtracted the "tax or equivalent Marlboro or an equivalent second Tobacco Atlas, cigarettes, minus taxation, price" variable from the "Price of Marlboro international brand of cigarettes, with a few countries' international brand in US dollars or equivalent brand in $US" cigarettes in $US minus the taxation. data from the Third

This variable was created by mapping the "Tax as a portion .Adjacent border Country borders shares a border Creation of this variable used data from the No= 0 of the cigarette price" with higher tax with a country that assesses a .American Cancer Society and the Tobacco Yes= 1 data on a map and higher tax on their cigarettes. Atlas then coding for neighboring countries' taxation rates This variable was created by mapping the "Tax as a portion .Adjacent border Country borders shares a border Creation of this variable used data from the No= 0 of the cigarette price" with lower tax with a country that assesses a .American Cancer Society and the Tobacco Yes= 1 data on a map and higher tax on their cigarettes. Atlas then coding for neighboring countries' taxation rates

00 °' Table 3.1 (Continued)

Variable Definition Measurement Source Additional Notes With a few exceptions, the data The number of police personnel came from the ("personnel in public agencies country's most recent whose principal functions are appearance CTS and Police personnel per the prevention, detection and The log of the number of United Nations Survey of Crime Trends includes the data from 100,000 investigation of crime and the Police personnel per and Operations of Criminal Justice 2006, 2005, 2004, apprehension of alleged 100,000 Systems" (CTS) 2002, 2001. China's offenders." UN CTS) per values are from 1997 100,000 citizens CTS. France and Russia's values are from the European Source Book for 2003. With a few exceptions, the data came from the The number of crimes ("the country's most recent Total crimes number of penal code offences appearance CTS and or their equivalent ... but The log of the number of includes the data from reported to police excluding minor road traffic crimes reported to the United Nations Crime Survey 2006, 2005, 2004, per 100,000 offences and other petty police per 100,000 2002, 2001. China's offences" UN CTS) reported to values are from 1997 the police per 100,000 CTS. France and Russia's values are from the European Source Book for 2003. Measures the quality of public and civil services, how Government Numerical values that dependent those services are World Bank's Worldwide Governance effectiveness usually ranges between - Data is for 2006 from political and outside Indicators 2.5 to 2.5. pressures, and the quality and imElementation of 12olicy. - 00 --.] Table 3.1 (Continued)

Variable Definition Measurement Source Additional Notes Most of the data is from the 2006 report, with a few countries from 2005. Regional "'\ five point scale ranging Global corruption averages were used for Respondents'perception of from 1 to 5 barometer, police Transparency International countries not included corruption within the police. 1= not corrupt in survey. For Middle 5 = extremely corrupt Eastern countries not on the African contenitent, the global average was used Perceived or real inequalities A numerical scale ranging between groups that can result from 0 to 10, with zero Uneven economic in different infant mortality have very little, if any, development along rates, educational levels, poverty uneven economic Fund for Peace and Foreign Policy's Failed Data is from 2006 group lines rates, and access to employment development between State Index and education opportunities as groups and 10 having a well as certain economic and very large disparity social statuses between groups A numerical scale The level of corruption and ranging from 0 to 10, Criminalization infiltration of organized crime with zero have very little, into the ruling elite, resistance if any, criminalization in and/or of transparency and state affairs and 10 Fund for Peace and Foreign Policy's Failed delegitimization of Data is from 2006 accountability in government, having a significant State Index the state and the inability of the state to problem with collect taxes among other criminalization and things. delegitimization of the state ~

00 00 Table 3.1 (Continued)

Variable Definition Measurement Source Additional Notes The index is comprised of 12 A numerical scale ranging Fund for Peace and Foreign Policy's social, political, and economic from 16.8 to 112.3. The Failed State Index, (see Failed state index factors. Scores from the 12 higher the number the http:/ /www.fundforpeace.org/web/inde Data is from 2006 indicators are combined for the more at risk a state is to x.php?option=com_content&task=view total Indicator fail. &id=104&Itemid=324) Whether or not the country ratified the World Health Ratification of the Used the third Organization's Framework No= 0 American Cancer Society and the WHOFCTC editions of the Convention on Tobacco Yes= 1 Tobacco Atlas Tobacco Atlas Control (WHO FCTC) treaty by December 31, 2006. Total heroin and The amount Heroin and Most countries have The amount of opium United Nations' World Drug Report - cocaine seizures in Cocaine seized by authorities 2005 data, but some seized and reported in Seizures 2008 (Contains data for 2001- and reported to the United countries have the KG kilograms 2006) Nations in kilograms data closets to 2005. The amount of cannabis herb Most countries have Cannabis (herb) The amount of cannabis United Nations' World Drug Report- seized by authorities and 2005 data, but some seizures in KG (herb) seized and reported Seizures 2008 (Contains data for 2001- reported to the United Nations countries have the in kilograms 2006) in kilograms data closets to 2005. Population The amount of people living in The population of a World Development Indicators database, Data was for 2006 a country divided by 1,000 country divided by 1,000 World Bank, 14 September 2007 Central Intelligence Agency (United The percentage of the Literacy The percentage of the States) Data spans numerous population that can read and population who are literate https://www.cia.gov/library /publications years write and are over the age of 15 / the-world-factbook/ fields/2103.html

00 '° Table 3.1 (Continued)

Variable Definition Measurement Source Additional Notes Data was for 2006 For more information GNI The Gross National Income about the Atlas The GNI per capita World Bank (GNI) per capita, Atlas method Method, please see the World Bank's I information. Low income ($975 or less) = 1 Data was for 2006 The World Bank classifies World Bank's Lower middle income For more information countries' economies by low, analytical income ( $976 - $3,855) = 2 about the Atlas lower middle, upper middle, and World Bank Upper middle income Method, please see the categories high income countries based on ( $3,856 - $11,905) = 3 World Bank's a country's GNI High income information. ($11,906 or more) = 4

Information on the World Bank's Atlas Method can be found in their World Development Indicators 2009 publication and at this link: http://siteresources.worldbank.org/D,\TA.ST,\ TISTICS/Resources/ doc.pdf '°0 91

Hypotheses

Based on the literature review presented in Chapter 2, preliminary research, and the theoretical framework of routine activities, I present the following hypotheses. Please note that my research is not directly testing routine activities theory, but using it as a guide for the research and the analysis.

H 1: Taxation and tax differentials create opportunz!J for willing offenders to engage in cigarette smuggling. I suspect that the portion of the final price of a pack of cigarettes that is attributed to taxation will be positively correlated to the percentage of illegal cigarettes in a given country. Jurisdictions with higher taxation rates will be more appealing to smugglers because the government has set an artificially high price for the product, which creates a profit margin.

H 2: A jurisdiction with higher levels ef corruption, fewer law enforcement personnel, and weak anti­ smuggling and other rypes ef lawJ~ will have a higher percentage ef their market be illegal cigarettes than countries that have less corruption, better governance, and more law enforcement. Taxation alone may not be the determining factor for a country's level of illegal cigarettes. It is reasonable to suspect that a willing offender would gauge the size of the suitable target (margin between illegal acquisition price and the final sale price) against the likelihood of the "guardians" catching and punishing them. If the jurisdiction has corruption, especially within the criminal justice system, and/ or inefficient law enforcement abilities, cigarette smuggling may be an attractive target. Therefore, I suspect there will be a positive relationship between illicit cigarettes and corruption levels.

H 3: Cross-border cigarette smuggling reduces the capability efguardians (law enforcement and police/ laws). As the smugglers cross national boundaries, detection, investigation, and prosecution become more complex because the crime occurs in several jurisdictions that may not cooperate in prosecution. Moreover, the immense size of global shipping reduces the ability of guardians to detect and combat cigarette smuggling. Simultaneously, the borders increase the opportunity for the crime because of the differences of taxation between jurisdictions, which the smugglers exploit.

All three of the hypotheses can be addressed with the qualitative and quantitative portions of the dissertation. To provide exploratory research and general information concerning illicit trafficking in cigarettes, the dissertation followed the following research 92

design. The discussion of whether or not the quantitative and qualitative data supports them is included in Chapter 5, the conclusion chapter.

Quantitative Research Methods

Dependent Variable

The quantitative analysis design is cross sectional, with "country" as the unit of analysis. I selected countries based solely on the availability of the country's data for the dependent variable. The dependent variable is from two sources, Euromontior International and the American Cancer Society's Tobacco Atlas, Third Edition. Neither the American

Cancer Society, which used data from Euromonitor International and ERC Group, nor the

Euromonitor International mdicate how they decided to include or exclude a country in their data or how the variable was calculated. Table 3.2, Countries Included in the Ana!Jsis 1vith Their

Illicit Consumption in Million Sticks, Market Infiltration (Illicit Cigarette Consumption as a Percentage ef

Legitimate Market), Cigarettes per Capita, and GNI,2006 provides a complete list of the 93 countries included in my analysis. This table also illustrates which countries' data rnme from

Euromonitor International and the Tobacco Atlas. The countries that have a value for the illicit consumption in million sticks is from Euromonitor International; this data source had both measures of the illegal market. The countries that do not have this value are from the

American Cancer Society's Tobacco Atlas.

There are two possible dependent variables: (1) the number ef illegal sticks in million sticks and (2) Illicit cigarette consumption as a percentage ef legitimate market. The dependent variables include both contraband and counterfeit estimates for 2006.41 Table 3.2 lists the number of

+I 11us variable contains both counterfeit and contraband cigarettes. It is not possible to extract the number of counterfeit cigarettes from this figure. 93

illegal sticks in million sticks for 66 countries and the values for the percentage of the market that is illegal for 93 countries.42 Although there are two possible dependent variables, this analysis used the percentage of illegal cigarettes in the total cigarette market. By using this variable, I am capturing a more complete picture of the problem and can increase the number of cases in the analysis. Moreover, when comparing the same countries in a model using each form of the variable, the percentage form of the variable had the better model fit.

That said, I present information from both forms of the dependent variable in Table 3.2.

To reiterate, Euromonitor International collected the data for 66 of the countries included in the dependent variable and a few of the independent variables.43 Euromonitor

International does not provide specific research methodology for their data related to tobacco and cigarette reports, but it does provide a generic research methodology. The researchers use open-source, government, manufacturer, and trade agency data and reports, conduct store checks (researchers visit numerous retail outlets in countries to collect data), carry out interviews and surveys of trade and market players, analyze companies and markets, and finally standardize the data so the end users can compare it across countries

(Euromonitor International, 2009).

42 Euromonitor International had values for both forms of the variable. The American Cancer Society's Tobacco Atlas had only the percentage of the market that is illegal. Therefore, I have values only for the count variable form of the variable for the 66 countries that came from Euromonitor International. 43 Euromonitor International had data, such as the cigarette consumption per capita, for more than the 66 countries for which they had data on the illicit market. 94

Table 3.2 Countries Included in the Analysis with Their Illicit Consumption in Million Sticks, Market Infiltration (Illicit Cigarette Consumption as a Percentage of Legitimate Market), Cigarettes per Capita, and GNI,2006 Country Illicit Illicit Cigarettes GNI Consumption Consumption (%) Per Capita North America Canada 3,688.8 10.0 1,133.3 3,6170.0 Mexico 2,057.2 4.4 436.2 7,870.0 USA 19,465.3 5.1 1,271.5 44,970.0

South & Latin America ..c\.rgentina 7,153.6 18.0 1,043.5 5,150.0 Bolivia 46.3 241.8 1100 Brazil 29,947.0 30.0 543.8 4,730.0 Chile 415.3 3.0 840.4 6,980.0 Colombia 2,098.0 10.0 456.7 2,740.0 Costa Rica 8.5 353.8 4980 Ecuador 12 234 2840 El Salvador 10 275 2540 Guatemala 12 117.1 2640 Nicaragua 10 386 1000 Panama 10 291 4890 Peru 23 79.5 2920 Venezuela 2,229.9 17.6 470.2 6,070.0

Europe Armenia 15.6 2083 1930 Austria 2,700.0 19.9 1,666. 7 39,590.0 .Azerbaijan 6076.1 16.7 590.9 1,850.0 Belarus 18730.0 8.5 1,750.8 3,380.0 Belgium 721.5 5.5 1,255.5 38,600.0 Bosnia-Herzegovina 16136.1 48.92 1,953.8 2,980.0 Bulgaria 2,497.7 12.0 2,734.6 3,990.0 Croatia 8986.0 15.58 1,707.8 9,330.0 Czech Republic 5,000.0 21.3 2,285.5 12,680.0 Denmark 932.3 10.6 1,621.6 51,700.0 Estonia 26.7 1735.8 11410 Finland 910.0 17.6 985.9 40,650.0 France 6,086.4 12.0 913.6 36,550.0 Georgia 9720.3 1.6 1,912.4 1,560.0 Germany 15,555.3 16.5 1,141.1 36,620.0 Greece 12,447.0 37.0 3,153.4 21,690.0 Hungary 1,426.6 11.0 1,287.3 10,950.0 Ireland 504.1 8.9 1,389.9 45,580.0 Italy 93.0 0.1 1,621.2 32,020.0 Latvia 20 2076.2 8100 Lithuania 25.5 1175.3 7870 Macedonia 4403.0 40.65 1,256.4 3,060.0 Malta 4 1287 13610 Netherlands 2,372.0 17.4 829.2 42,670.0 Norway 176.4 7.5 508.0 66,530.0 95

Table 3.2 (Continued) Country Illicit Illicit Cigarettes GNI Consumption Consumption(%) Per Capita Europe Continued Poland 11,735.3 16.2 1,899.3 8,190.0 Portugal 532.4 2.9 1,716.7 18,100.0 Romania 4,761.0 16.7 1,317.7 4,850.0 Russia 76,092.0 20.0 2,665.2 5,780.0 Serbia-Montenegro 38045.8 0.28 3,610.0 3,910.0 Slovakia 70.0 1.7 746.8 9,870.0 Slovenia 3992.7 1.2 1,970.2 18,890.0 Spain 850.0 0.9 2,059.0 27,570.0 Sweden 130.4 2.1 687.6 43,580.0 Switzerland 583.7 4.5 1,744.7 57,230.0 Ukraine 1,700.0 1.5 2,474.7 1,950.0 United Kingdom 18,672.0 36.6 850.4 40,180.0

Asia- Asia Pacific Australia 987.6 4.5 1,081.7 35,990.0 Burma/Myanmar 90 209 China 65,127.1 3.2 1,490.4 2,010.0 Hong Kong, China 1,110.7 39.1 399.2 28,460.0 India 20,901.3 21.5 88.0 820.0 Indonesia 13,063.8 8.5 676.0 1,420.0 Japan 4,635.4 1.7 2,130.5 38,410.0 Kazakhstan 29597.9 1.0 1,910.8 3,790.0 Laos 35 544 500 Malaysia 3,435.3 20.0 645.6 5,490.0 New Zealand 25.3 25.3 579.5 27,250.0 Pakistan 88096.4 16.4 451.5 770.0 Philippines 18,519.8 19.4 1,111.8 1,420.0 Singapore 493.5 19.8 554.6 29,320.0 South Korea 460.7 0.5 1,807.3 17,690.0 Sri Lanka 1 205 1300 Taiwan 4,646.0 11.2 1,810.2 Thailand 747.8 1.9 635.4 2,990.0 Uzbekistan 20198.9 18.9 605.2 610.0 Vietnam 10,988.8 13.6 960.4 690.0

A dependent variable, especially one trying to measure illegality, is a difficult variable to measure and does have some estimation within it. Merriman, Yurekli, and

Chaloupka (2000) observed, "smuggling is inherently difficult to study with econometric methodology. Because of its illegal nature the dependent variable, cigarette smuggling, generally has to be inferred rather than be directly observed." (p. 369). Nevertheless, this research requires the use of these inferred dependent variables and is in line with other 96

criminological research, such as research on drug trafficking. Underreported or

undercounted crimes are very common in criminological research.

Independent Variables

The independent and control variables include opportunity factors (taxation, legal

sale price, adjacent border's taxation rates, and cigarette consumption per capita),

guardianship (governance index, police personnel per 100,000; perception of police

corruption, ratification of the WHO Framework Convention on Tobacco Control (FCTC),

and drug seizures), criminal environment (crime rates, uneven economic development, and

criminalization of the state), and population, gross national income (GNI), and literacy

rates. Independent variables are from a variety of public and private sources, such as the

United Nations, Euromonitor International, Transparency International, United States

Central Intelligence Agency, Eurostat (the official statistical office of the European Union),

the World Bank, Fund for Peace, and the American Cancer Society. With the exception of

data from Euromonitor International, these data are available free of charge and via the

internet. Table 3.1 contains descriptions of the variables and information on their sources,

measurement, and caveats.

The pre-tax price of a pack of Marlboro or equivalent international brand cigarettes, 44 the tax

price, the final sale price of a pack of Marlboro or equivalent international brand of cigarettes, cigarettes per

capita, and aqjacent border with lower tax and aqjacent border with a higher tax, measure opportunity

(or suitable targets) as they provide financial incentives.45 United Nations' police personnel per

100,000, Transparency International's global corruption barometer---police, ratatification of the

44 The real price of a pack of Marlboro or equivalent international brand is the pre-tax price. 45 Models do not include both the final price and the real price variables. 97

WHO FCTC, The World Bank's government effectiveness and amount of drug seized measure guardianship. The Fund for Peace's uneven development and criminalization of the state indexes, grand total of crimes reported to police per 100,000, and population are loose proxies for determining how many potential or willing offenders there may be in a country. Literacy is a control variable.

Opportunity Factors (Suitable Target)

The routine activities approach and other economic-based criminological theories include an element of economic incentive, or opportunity. In respect to cigarette smuggling, governments, through various policies, have created an opportunity for illicit profit by increasing taxation on cigarettes at various rates. For example, in the UK a pack of

Marlboro cigarettes is $10.72 whereas the same pack of cigarettes would cost $5.48 in the

Netherlands or $3.44 in the Czech Republic (American Cancer Society & World Lung

Foundation, 2009). The price differentials, caused mostly by taxation, may create an incentive for criminals to engage in smuggling cigarettes from the EU and elsewhere into the UK. The UK's estimated illegal cigarette consumption is approximately 36% of all cigarettes consumed. The Netherlands' and the Czech Republic's illegal cigarette consumption are 14.4% and 21.3%, respectively (see Table 3.2).

The taxes assessed on a pack of cigarettes determine the consumer's final price for a legitimate pack of cigarettes. Taxes also determine the highest price the illegal marketers can hope to charge. Because taxes vary between countries, the act of assessing a tax, with some countries having a higher tax on the product than other countries, creates a margin and smugglers exploit that margin. A taxation variable could also capture the 98

potential opportunity or incentive for individuals to become involved in cigarette smuggling or to consume illegal cigarettes. The target for illicit cigarette consumption, which is the dependent variable, is the margin between the purchase price and the sale price. The margin increases when the smuggler or organization obtains cigarettes by theft, purchases contraband cigarettes in a low tax or no tax jurisdiction and transports them into a high tax jurisdiction, or obtains counterfeit cigarettes.

A commonly stated hypothesis in the economic and criminological literature and argued by the tobacco companies is that rate of cigarette taxation and smuggling are positively causally related. In other words, as a country (or state) increases the cigarette tax or the portion of the final price that is represented by taxation, the incentive for cigarette smuggling will also increase.

To test this claim, I include the real price of the taxation in the model. The variable measures, in $U.S. for 2006, and the portion of the final retail price of cigarettes that can be attributed to taxation; it ranges from 0.55% (I<:azakhstan) to 91.5% (Estonia) of the final price the consumer pays for a pack of cigarettes. This variable was obtained from the American Cancer Society's Tobacco Atlas (2nd Ed) and the American Cancer Society and World Lung Foundation's Tobacco Atlas (3'd Ed). Data for the second edition was compiled for the American Cancer Society in 2005, but did not indicate which year the taxation rate was last recorded. Data for the third edition spanned multiple years and were from numerous sources (American Cancer Society & World Lung Foundation, 2009;

Mackay, Eriksen, & Shafey, 2006).

I created two additional enviornmental variables from the taxation as a proportion of the cigarette price variable, aqjacent border with higher tax and aqjacent border with lower tax. These 99

variables will test whether countries with higher and lower taxation rates create

opportunities and incentives for cigarettes to be smuggled. These additional variables were

created by placing the values for the taxation as a proportion ef the cigarette price variable for all

available countries on a map. Then, I looked to see if a given country in my sample shares a

46 border with a country that has a higher or lower rate of cigarette tax • Approximately, 66%

of the countries share a border with a country that has a higher taxation rate, and

approximately 83% of the countries share a border with a lower tax state. Almost 18%

percent of the countries share a border with a country for which the Tobacco Atlas does

not have a taxation rate. This does not mean that 18% of the countries included in the data

have a missing value for taxation rate. It means that 18% of the 93 countries included in the

analysis share a border with a country for which the American Cancer Society did not

collect the taxation data.

Another variable measuring opportunity is the final sale price ef a pack ef Marlboro or

equivalent international brand ef cigarettes. Although the literature focuses on taxation rates, the

consumer focuses on the final price he or she will pay. Econmists used to believe that

cigarettes were not "normal goods" because of their addictive qualities. That is, if the user is

addicted to the product an increase in price would not decrease consumption. However,

more recent economic analysis has indicated that cigarette consumption is price senstive: an

increase in taxes should result in a decrease in demand for cigarettes (Ciecierski &

Chaloupka, ND). An increase in taxation may result in not only a decrease in overall

demand, but also an increase in the a sub-section of users that would be willing to purchase

their cigarettes on the black market instead of paying the higher tax. Thus, it is possible that

46 These variables are dummy variables, with "O" meaning no and "1" meaning yes. 100

the illicit cigarette trade increases health costs and reduces human capital associated with

increased consumption of cigarettes.

In addition, this variable illustrates the potential price for which the smuggler can

sell the counterfeit or contraband cigarette. The final price for a pack of cigarettes may be a

contributing factor as to whether smugglers and smuggling operations would consider

smuggling cigarettes into a country or choose to target a country with a higher retail price

over another country with a lower price. For example, smugglers who import cigarettes into

the EU through the Port of Rotterdam may choose to move cigarettes into the UK instead

of keeping them in the Netherlands because of the large price dispartity and the lure of

greater profit. Additionally, bootleggers or "mom-and-pop" smugglers who smuggle

cigarettes choose to sell them in the UK because they are tempted by the potential profit

caused by the high retail price. Thus, I hypothesize that the final price per pack cigarettes

will be significant in the model and have a positive relationship with the number of illicit

cigarettes in the market.

Because the profit in cigarette smuggling is tied to the pre-tax cigarette price, I

calculated the price that a pack of contraband cigarettes would cost before taxes. The

variable name is the The pre-tax price of a pack ofMarlboro or equivalent international brand cigarettes

in $. This price would not be for counterfeit cigarettes. The data is not available for the

price of a pack of counterfeit cigarettes at the manfucture or wholesale level. I also

calculated Tax price in $U.S., which is the dollar amount of the tax imbedded in the final

price of a pack of Marlboro or equivalent brand of cigarettes.47 I created this variable to

attempt to measure the profit margin in $U.S.

47 See Table 3.1 for more details about these variables and their creation. 101

The final opportunity variable is cigarettes per capita. This variable comes from the

same source as the dependent variable, Euromonitor International. The variable captures

how many cigarettes each person would consume if one divides the country's total cigarette

consumption by its population. It is logical to assume that more cigarettes consumed in a

country would lead to a greater market for cigarettes, illegal or legal. In addition, larger

consumption rates could indicate that a society with higher consumption rates views

smoking more acceptable than a place with a very low rate.

Guardianship

Another key component to the routine activities theoretical framework is

guardianship, especially the absence of a capable guardian. Because guardianship presents

itself in many different forms, the model attempts to capture it by using different variables.

The variables I selected to measure guardianship are Transparency International's global

corruption barometer, police , ratification ef the WHO FCTC, the United Nations' police personnel per

100,000, and the United Nation's data on heroin and cocaine (heroin and cocaine seizures in kiJ

and cannabis seizures (cannabis herb seizures in kiJ.

Police are an obvious form of guardianship and social control. This analysis

includes two different variables related to police. The first is the United Nations' police personnel per 100,000 and the second is Transparency International's global corruption barometer, police. The UN Survey of Crime Trends and Operations of Criminal Justice Systems is the

source for the first variable, police personnel per 100,000. Every two years the UN administers

a survey to a sample of countries on the principal components of their criminal justice

systems (police, courts, and corrections). Currently, there are 10 waves of data available and 102

the countries selected vary from wave to wave. Selected countries are asked to forward a questionnaire to the appropriate personnel for completion and then return it to the UN for analysis (United Nations, 2009a).

Although there are numerous variables included in the survey's data, the one I am interested in to reflect guardianship is the rate of police officers, police personnel per 100,000.

According to the UN's questionnaire, the definition of police personnel as "personnel in public agencies whose principal functions are the prevention, detection, and investigation of crime and the apprehension of alleged offenders" (United Nations, 2009b, p. 6). The questionnaire specifically stated that countries should exclude support (clerical) personnel.

The number of police officers could affect the level of criminality reported and capture the overall amount of potential guardianship. However, the variable cannot determine the effectiveness of those officers, the level of corruption associated with policing, or if they are truly an effective guardian against criminal activity. Moreover, this variable may or may not contain information on customs officers, who may be the most likely guardian to limit illegal cigarettes from entering the country.

Not all police are effective guardians. Some countries' police forces are understaffed and poorly trained. Others have police forces that have a significant problem with corruption. Therefore, one cannot rely only on the number of police personel per

100,000 or the mere presence of a police officer as a means of effective guardianship. To account for this, I have included Transparency International's (TI) global corruption barometer, police. This variable is included in the Tl's larger report, global corruption barometer. The information for Tl's measure was collected as part of Gallup International's Voice of the

People Survey. The survey and its corresponding report are intended to provide insight into 103

whether and how everyday citizens feel they are impacted by corruption, the forms of corruption, and its extent. (Transparency International, 2006, p. 4). The part of the survey I am interested in is the indicator that measures the citizens' perception of police. For the

2006 data, TI hired Gallup International to survey 59,661 individuals from 62 different countries between July and September 2006 (Transparency International, 2006, p. 4). For the 2007 data, TI used Gallup International to interview 63,199 people in 60 countries

(Transparency International, 2007, p. 2).

For the specific variable included in this analysis, global corruption barometer, police, respondents were asked "to what extent do you perceive the following sectors in this country/ territory to be affected by corruption" (Transparency International, 2006, p. 21 ).

"Police" was one of the 14 different sectors and institutions given to respondents. For each, they could give a numerical value between 1 and 5, with 1 representing "not at all corrupt" and 5 meaning "extremely corrupt." Values ranged from 1.8 to 4.7 (Transparency

International, 2006, pp. 21-22). Given that routine activities theory states that crime may occur if there is an absence of a capable guardian, and police are usually thought of as a form of guardianship, I hypothesize that the more corrupt the public sees their police force, the less capable they are, which will result in higher rates of illegal cigarette consumption.

The number of police and respondents' perception of corruption within the police force may not capture information on how porous the country's borders are, the competency of border and customs officials, and amount of illegal products smuggled into a country. To account for this, two additional variables, heroin and cocaine seizures in kg and cannabis (herb) seizures in kg, are included in the analysis. The UN's World Drug Report -

Seizures 2008 contains data for drug seizures from 2001 to 2006 by country. I have 104

included both the heroin and cocaine variable and cannabis variable because of the different characteristics, market factors, and different networks and smuggling methods associated with hard (cocaine and heroin) and soft drugs (cannabis). I have lagged both variables, thus most of the figures are from 2005. I lagged the variables because the prior seizures would affect the calculations conducted by the smugglers. If seizures were high, the borders may be well protected and the smugglers would know from experience that it is difficult to smuggle goods into a country.

To capture a country's general policy toward cigarettes, tobacco control, and anti­ smuggling policies, ratijication of the W1-IO FCTC is included in the analysis. The treaty addresses, among other things, demand reduction strategies, taxation, harm, and the illegal cigarette market (World Health Organization, 2003b). By ratifying the treaty, countries agree to enact policies that will be in accordance with the agreement and the ultimate goal of reducing tobacco consumption. The American Cancer Society, in their World Tobacco

Atlas, collected data on whether a country ratified this treaty. If the country ratified the treaty, they indicated the date it was ratified (Mackay, et al., 2006). For the purpose of this analysis, the information was recorded as a dichotomous variable, with "O" indicating that the country did not ratify the treaty and "1" indicating that the country had ratified the treaty by December 31, 2006. Many countries ratified and/ or signed the treaty before 2006.

Finally, the last variable measuring guardianship is the World Bank's Worldwide

Governance Indicator of Government effectiveness. According to the World Bank, this variable

"measures the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and 105

implementation, and the credibility of the government's commitment to such policies"

(I<:aufmann, Kraay, & Mastruzzi, 2009).48

Potential Willing Offenders

There are four variables operating as proxies for how many willing or potential

offenders are in a country; they are grand total ef crimes reported to police per 100,000, population,

and Fund for Peace and Foreign Policy's uneven economic development along group lines and

cnminalization and/ or delegitimization ef the state. The dependent variable measures the

consumption of illegal cigarettes, and not the number of individuals who are involved in the

manufacture, transportation, and sale of illegal cigarettes. Therefore, any person who

consumes the product may or may not know they are consuming an illegal cigarette.

Individuals who are not yet smokers or do not consider themselves a "smoker,'' but on

occasion consume cigarettes would be included in the population variable. The country's

population is the largest and most comprehensive pool of potential "offenders."

The grand total ef crimes reported to police per 100,000 variable comes from the same

source as the Police personnel per 100,000 variable, the UN Survey of Crime Trends and

Operations of Criminal Justice Systems. According to the questionnaire, the UN defined

grand total ef crimes reported to police per 100,000 as "may be understood to mean the number of

penal code offences or their equivalent (i.e. various special law offences), but excluding

minor road traffic offences and other petty offences, brought to the attention of the police

or other law enforcement agencies and recorded by one of those agencies" (United Nations,

2009b, p. 7). There is a caveat to this definition: each country defines what is and what is

48 Within the literature, there is a discussion on whether these indicators measure the concept they indicate. I have included a small discussion on this topic below. 106

not a crime or penal code offense. There are some behaviors that are criminalized in one country, but not another. Moreover, the reported number may be a function or at least correlated with the citizens' view and comfort level of the police. Citizens who view their police as corrupt, inept, or are afraid of the police would not be as likely to report crimes as citizens who have a good rapport and respect for their police. Nevertheless, for approximating the general criminal environment, this variable is suitable.

The final variables measuring potential offenders are from Fund for Peace and

Foreign Policy's Failed State Index, which is composed of social, economic, and political indicators. Their CAST software generates the individual indicators, which are part of their larger index. The Fund for Peace created the CAST software, which uses Boolean logic or key phrases to conduct a content analysis so that they can analyze "tens of thousands of articles and reports to determine the relationship of the content to the indicators and to the core institutions" (The Fund for Peace, 2009, ~ 2). The analysis uses approximately 90,000

"publicly available print, radio, television and Internet sources from all over the world, including international and local media reports, essays, interviews, polling and survey data, government documents, independent studies from think tanks, NGOs and universities, and even corporate financial filings" that were released from May to December of the previous year (Foreign Policy & The Fund for Peace, 2009, ~ 4). For each of the twelve indicators, up to 177 countries are given a score that ranges from zero (0) to ten (10), with 0 being the most stable and 10 being the most unstable. The numerical values for all 12 indicators are then added for the country's final failed state score. The highest possible score a country can receive is 120 (Foreign Policy & The Fund for Peace, 2009). In 2006, Sudan had the highest score of 112.3. As a reference, Iraq received 109, Serbia and Montenegro had 83.8, 107

Turkey had 74.4, the Czech Republic had 41.8, the U.S. had 34.5, the UK had 34.2, and the

Netherlands had 28.1 (The Fund for Peace & Foreign Policy, 2006).

Of the twelve indicators, the variables I am most interested in and felt were most appropriate for this analysis are uneven economic development along group lines and criminalization and/ or delegitimization ef the state. The uneven economic development variable is an economic indicator and does not directly measure corruption and political instability. Instead, this particular indicator measures "group-based inequality, or perceived inequality, in education, jobs, and economic status; Group-based impoverishment as measured by poverty levels, infant mortality rates, education levels; [and] Rise of communal nationalism based on real or perceived group inequalities" (The Fund for Peace & Foreign Policy, 2009b). The inclusion of this variable comes from prior research regarding the cigarette black market and field research that indicated that a subset of the population is involved in the market. Moreover, that sub-population is disadvantaged and may suffer from real or perceived blocked opportunities that might allow them to prosper legally (Interview 06.29.09.01, 2009, see

Chapter 4; von Lampe, 2005, 2006). The criminalization and/ or delegitimization of the state indicator measures the level of corruption and infiltration of organized crime into the ruling elite, resistance of transparency and accountability in government, and the inability of the state to collect taxes, among other things (The Fund for Peace & Foreign Policy,

2009a). This variable better captures the severity of organized crime in a given country.

Control Variables

The first control variable is the World Bank's Gross National Income per capita

(GNI). A related measure is the Gross National Product (GNP). The GNI is a nation's 108

income, including the income of its residents regardless of where they earned the income.

The World Bank differentiates this indicator from the GDP by stating, "GNI is derived as

GDP plus net income from abroad. Thus, while GDP measures the production within the countries boundary, no matter who produces it, GNI measures the value of the incomes of the resident people, no matter where it is earned" (World Bank, 2009a). The GNI is the variable that the World Bank uses to classify a country's economy as low, middle, or high mcome.

The other control variable is literary. Education may influence perception of corruption, willingness to consume cigarettes, and being able to or willing to pay higher prices for cigarettes. Literacy is acting as a proxy for education since a suitable education variable was not available. Most countries considered a person "literate" if they could read and write by the age of 15.

Interaction and Corruption Variables

Organized crime cannot survive without corruption. Often smuggling requires bribing an official or another form of corruption. Albanese (2007) states, "the problem of transnational crime is worsened when corrupt government agencies use their power to exploit their citizens further" (p. 230). Several countries included in the quantitative analysis have high levels of corruption, or corruption has compromised certain sectors of government. Thus, corruption is an important factor when determining the effectiveness of guardians, and there is an obvious omission in this analysis: a measure of general corruption. 109

There are numerous corruption indexes available to researchers, such as Tl's

Corruption Perception Index (CPI), Fund for Peace and Foreign Policy's Failed State

Index, and the World Bank's Worldwide Governance Indicators project includes a measure for how well a country controls corruption. However, I omitted these common indexes from most of the models because of how they are compiled and what they may or may not be measuring. Measuring a banker's perception of corruption or the level of organized crime infiltration into a central government may not capture the specific type of corruption needed for smuggling. Corruption in cigarette smuggling is more likely to occur within the lower level of the governmental bureaucracy, such as border and custom officials or street level police. Therefore, the best available measure of corruption for this analysis is Tl's global corruption barometer, police .

Also, Langbein and Knack (2010) found that although the six separate World

Bank's Worldwide Governance Indicators are reportedly measuring six different concepts, they found "that they appear to be measuring the same broad concept," (p. 350). Moreover, many of those variables are highly correlated with the World Bank's indicators and the Tl's police barometer variable. Although corruption is essential to organized crimes' existence and it facilitates smuggling activities, not all corruption is the same, and each of the indexes is measuring a different type of corruption. For example, the CPI measures perceived corruption by "making use of surveys of business people and assessments by country analysts" (Lambsdorff, 2006, p. 2) and includes many sources that are economic based or are from the banking industry.

The notable exception is the Failed State Index. The index does not solely measure corruption, but does include indicators that attempt to measure corruption indirectly. Two 110

of the index's indicators, criminalization and/ or delegitimization of the state and Uneven economic development along group lines, are used in this research. The first indicator measures the level of corruption and infiltration of organized crime into the ruling elite, resistance of transparency and accountability in government, and the inability of the state to collect taxes, among other things (fhe Fund for Peace & Foreign Policy, 2009a). The second measures the perceived or real inequalities between groups. To test the governance indicator and explore counterintuitive findings, I replaced the Government Effectiveness with the Failed State

Index and removed the two failed state indicators in the final two models presented below

(see Table 3.6).

All data has its limitations, such as availability and definitional issues. Definitional issues can be problematic. When analyzing transnational data, especially transnational crime data, the data is susceptible to a variety of different definitions. In fact, the UN provides the following disclaimer with their crime survey data: "the statistics cannot take into account the differences that exist between the legal definitions of offences in various countries, of the different methods of tallying, etc. Consequently, the figures used in these statistics must be interpreted with great caution" (United Nations Office on Drugs and Crime, 2008).

Even with these limitations, this dissertation still makes a valuable contribution to the literature on cigarette smuggling. The quantitative analyses also provide guidance for more in-depth case studies of a particular region or country. 111

Statistical Methods and Quantitative Analyses

Using the variables discussed above and the statistical program, Stata, I generated descriptive statistics, correlations, and estimated numerous bivariate and multivariate Tobit models to analyze the data. I present descriptive statistics in Table 3.3. For the 66 countries included in the analysis that are only from Euromonitor International, the number of illegal cigarettes in million sticks consumed in a given country ranges from 25.3 to 76,092. When examining illegal consumption as a percentage of the total market for all 93 countries, the value ranges from 0.1 % to 90% and has a mean of 15.80%.49 Thus, there is substantial variation in the dependent variable. Other interesting statistics from Table 3.3 concerns adjacent borders and ratification of the WHO FCTC treaty. Approximately 83% of the countries included in the analysis share a border with a country that imposes a lower tax on cigarettes, and 66% share a border with a country that has a higher portion of the price per pack of cigarettes attributed to taxes. Out of the 93 countries included in the analysis 77% of the countries ratified the WHO's FCTC treaty by December 31, 2006.

I have presented the bivariate correlations, which measure the relationship between two variables, in Table 3.4. The strongest correlation occurred between the variables measuring GNI and Criminalization-Delegitimization ef the State. The correlation coefficient between these two variables is -0.799. One would expect to find a negative correlation between these two variables. It is logical that a country that has a high GNI would be less susceptible to organized crime and delegitimization; to produce a high GNI the country needs to function well. The second strongest correlation occurred between the

49 Myanmar (Burma) has an estimated illegal cigarette market of90%. The county with the second highest percentage is Iran . .As noted in more detail in Chapter 4, Iran has an estimated illicit market percentage of 78. Euromonitor International speculated that this high number was an anomaly caused by a supply shortage. 112

Tax Pn.ce and Government effectiveness. The correlation coefficient between these variables is positive and is 0.799. One would expect to find this positive correlation. One of the measures within Government effectiveness is a government's ability to impose and collect taxes.

Thus, it makes sense that the higher the tax price, the more effective the government is and vice versa. Likewise, the relationship between Tax pn·ce and The pre-tax price of a pack of

Marlboro or equivalent international brand cigarettes in $U.S. was somewhat strong, with a positive correlation coefficient of 0. 7 58. GNI and The pre-tax price of a pack of Marlboro or equivalent international brand cigarettes in $U.S. also had a positive correlation coefficient and somewhat strong relationship (0.767).

I estimated several binominal and multivariate Tobit models for the final section of the quantitative analysis. Tobit models are the most appropriate statistical tool to use in this analysis to identify statistically significant relationships between the variables. The main justification for Tobit over Ordinary Least Squares (OLS) is that Tobit is the customary model for a censored dependent variable, and the dependent variable used in this analysis cannot be negative. The fact that a country cannot have a negative consumption rate naturally censors the data. Langbein's (1986) study of money and access discusses why a

Tobit model would be appropriate for data with a dependent variable that cannot be less than zero; use of an OLS or similar multiple regression method would yield biased estimates.50 She states, "As a linear probability function, multiple regression is very likely to result in negative expected values of the dependent variable, even though such an outcome is

so I estimated OLS models for the Tobit models presented in Table 3.6 Multivanate Tobit on the Illicit Cigarette Consumption as a Percentage of Legitimate Market. There is very little difference between the two ways of estimating the models. None of the OLS models increased or decreased the number of specific variables that were found to be statistically significant. Additionally, there was very little change in the coefficients. I also estimated OLS models with robust standard errors. Some models with robust standard errors indicated that illegal drug seizers became significant. See Table 3.6 for specific models and more details. 113

Table 3.3 Descriptive Statistics

Variable N Mean Std. Dev. Min. Max. Dependent Variable

Illicit cigarette consumption in 66 7,141.15 13,495.74 25.30 76,092.00 million sticks Illicit cigarette consumption as a 93 15.804 15.02 0.1 90 percentage of legitimate market Explanatory Variables

Final sale price of a pack of Marlboro or equivalent international brand 92 2.981 2.370 0.31 11.478 cigarettes in $US Tax as a proportion of the cigarette 88 0.609 0.174 0.1 0.936 pnce Pre-tax price of a pack of Marlboro or equivalent international brand 87 0.992 0.643 0.078 3.022 cigarettes in $US Tax Price in $US 87 2.038 1.918 0.15 8.735 .Adjacent border with a higher tax 87 0.655 0.478 0 .Adjacent border with a lower tax 87 0.828 0.38 0 1 Cigarettes per capita 93 1085.241 754.182 71 3610 Global corruption barometer, police 93 3.639 0.71 1.8 4.7 Government Effectiveness 93 0.343 1.042 -1.845 2.319 Ratification ofWHOFCTC 93 .774 .420 0 1 Cannabis (herb) seizures 2005 86 49700000 227000000 69 1781063572 Heroine & Cocaine Seizures 2005 90 8649374 30300000 12 215000000 Police per 100,000 70 324.749 305.191 5.89 2393.8 Grand total of crimes reported per 82 2842.44 3161.213 2.32 13493.44 100,000 Population 91 60390.02 181058.7 405 1311798 Criminaliza tion-delegitimiza ti on of 89 5.516 2.751 10 the State Uneven economic development along 89 6.424 1.992 2 9.2 group lines Failed state index 89 62.762 25.858 16.8 112.3 Literacy 93 89.494 13.4189 48.7 100 GNI 90 13488.78 16156.06 500 66530 World Bank's analytical income 90 2.8 1.03 4 cate ories Table 3.4 Bivariate Correlations

e__,~ e .,, E E Jl 0 8 .s 0 ~ l: N g ~ 0 ~j -~ ' 0 "".;>ll ~ ~ 8, 0 0 _g ~ ~ -~ ~ ~~ ~:;;: "0 -" t 0 :2 0. ;: . ~ ~ § -~ -~ a .9 ] 0 9. 0 ~ ~ ~ u "' t ll -~ 0 • " ~ l 0 E g .g «I 1" t 0. 8 ~ o - 0 0 0. E .g 0. Ii 0. -~ ~ JO JO § .s ~ u s § 0. - c. -~ 1 > u ji 0. ~ ~ -E 0 ~~ _if!' i .s ~ -~ ;...:::: ...... ~ ~ H 0 0 ~ ~ -~ eJC) j -~ ::0 .,, zC) ;:::: 0 ~ «'. «'. 1 C) 't ~ !:: l: ~ 0. u p'; u ~ ~ 3

Illicit ronsumption (~lo of the~arketl_. ______Real pria: of Marlboro or international brand -0.2196 -0.2403 0.7575 1 0.1278 -0.1032 -0.1791 1 bonier/ lower tax 0.2341 -0.3669 -0.1509 0.2913 -0.0168 -0.0771 0.(ll 17 0.1159 -0.1077 GCB, pohcr 0.1545 -0.1040 -0.0718 0.0992 0.2058 -0.2003 Govemment effectiveness -0.3703 0.6648 0.7961 -0.2297 -0.4532 0.1497 -0.0945 R;~i&;~~~-of\~'l-fr5', Fcrc -0.1112 -0.0367 0.1548 -0.2228 -0.1118 -0.0169 -0.0939 0.2371 Cannabis seizures 2005 -0.1426 0.0886 -0.0777 -0.0557 -0.0814 -0.1335 0.1317 0.0110 -0.1044 Heroin & rocaine seizures 2005 -0.1309 0.1149 -0.1386 0.0749 -0.1283 -0.1351 -0.0845 -0.0139 -0.3033 0.4074 1 Pohcr per 100,000 0.0452 -0.0506 -0.0826 0.0789 0.0701 0.2695 -0.2830 -0.1132 0.0664 -0.0817 -0.0086 • ~.,, •w ~· -~~;.:R~: ~:~9?. -0.0560 0.0171 0.0708 0.0618 0.0642 0.0666 -0.6055 0.0296 0.0961 -0.0959 0.0280 0.2178 Population 0.0696 -0.0392 -0.1320 0.1538 -0.0211 -0.1750 0.1555 -0.0967 -0.0393 0.2238 0.1081 -0.0790 -0.0949 Criminalization- delcgitimization of the state 0.4025 -0.5777 -0.7228 0.1971 0.3533 -0.1715 0.1619 -0.8906 -0.2188 -0.0026 0.0565 0.0953 -0.0166 0.0193 Unc\·cn cmn 0.3 736 -0.5244 -0. 7059 0.2723 0.4155 -0.2866 0.1642 -0.8192 -0.1602 0.1760 0.1784 0.0124 -0.0574 0.2469 0.8180 -0.1575 0.1986 0.3035 -0.2413 -0.1898 0.5168 -0.2406 0.5294 0.1484 -0.0216 0.0679 0.0482 0.0662 -0.3251 -0.5516 -0.5005 G'-il -0.3062 0.7667 0.8275 -0.1189 -0.3499 0.1465 -0.0657 0.8473 0.1557 0.0455 0.0545 -0.1213 -0.0106 -0.0934 -0.7987 -0.7761 0.4512

...... ,...... 115

impossible for the behavior studied. Tobit analysis applies a maximum likelihood estimation procedure to a statistical model that conforms to theoretical expectation, and is thus preferable to the more familiar multiple linear regression model" (Langbein, 1986, p. 1057).

Likewise, Albonetti (1997) used Tobit regression in her analysis of federal sentencing guidelines because sentences imposed on an offender cannot be negative; therefore, the data is naturally censored at zero. Similar to Langbein (1986), a reason for her preference of Tobit

over OLS was that Tobit models generate "unbiased and efficient estimates in the presence ofleft-censored data" (Albonetti, 1997, p. 799). 51

I present the results of the Tobit models in Tables 3.5 and 3.6. The coefficients of a Tobit model can be interpreted similar to the coefficients estimated by an OLS model

(Long, 1997). The measure of fit for a Tobit model is the LR Chi2 Oikelihood-ratio chi- squared), which measures the difference between the full model and a model with the constant (Y) only. The bivariate Tobit analyses are in Table 3.5 Bivariate Tobits of Illicit Cigarette

Consumption as a Percentage of Legitimate Market on Kry Explanatory Van.ables, and the table includes the results of explanatory variables of interests and models that yielded statistically s1gm. .fi cant resu1 ts. ~

The bivariate model (Model 1A) estimating the relationship between the dependent variable of Illicit cigarette consumption as a percentage of legitimate market and the

51 Several studies analyzing sentence length and other naturally censored crime data use Tobit models instead of OLS (Albonetti, 1997; Britt, 2009; Bushway,Johnson, & Slocum, 2007; Bushway & Piehl, 2001; M.A. Cohen, 1992; Melzer, 2007; D. W. Osgood, Finken, & McMorris, 2002; Schanzenbach & Yaeger, 2006). For a discussion on the benefits and limitations of Tobit over OLS and other regression models in criminology see Britt's (2009) Modeling the Distribution of Sentence Length Decisions Under a Guidelines System: An Application of Quantile Regression Models or Osgood, Finken, & McMorris's (2002) Analyzing Multiple-Item Measures of Crime and Deviance II: Tobit Regression Analysis of Transformed Scores. sz I estimated bivariate Tobit models for all of the explanatory variables. Nine of the models yielded statistically significant results. With the exception of the two models containing the Tax as a proportion of the cigarette price and the pre-tax price of a pack of Marlboro cigarettes in $U.S. variables, I did not include models that were not statistically significant in Table 3.5. 116

independent variable The pre-tax price ef a pack ef Marlboro or equivalent international brand cigarettes

in $U.S. indicated a significant relationship between the two variables. According to Model

1A, for every $1 increase in the price of a pack of premium cigarettes (J\'farlboros or an

equivalent international brand) the percentage of the market that is illicit decreases by 1.44%

(p= 0.027). The relationship between the dependent variable and the Tax price yielded similar

finding. Model 1D shows that for every $1 increase in taxation, the percentage of the market

that is illicit decreases by 1.83% (p= 0.028). Since these are bivariate models, there can be

numerous factors, such as GNI and government effectiveness, that could explain the

relationship. Moreover, the other price variables (the real price and the tax price) were not

statistically significant and as other variables are added to the model, the statistically

significant findings disappear (see Table 3.6).

Models 1 E through 1J illustrate the statistically significant, bivariate relationships between the dependent variable and the Aqjacent border with a lower tax, Cigarettes per capita,

Government effectiveness, Criminalization-delegitimization ef the state, Uneven economic development along group lines, GNI, and the World Bank's ana!Jtical income categories. 53 As expected, if a country

shares a border with a country that imposes a lower tax (measured as a proportion of the

cigarette price) on cigarettes, then the percentage of the market that is illegal will increase by

8.12% (p= 0.034) (see Model 1E). Likewise, as the scores increase on the Criminalization-

delegitimization ef the state and Uneven economic development along group lines indicators and the failed state index, the percentage of the cigarette market that is illicit also increases (see Models 1H

53 The World Bank groups countries by their GNI into income categories. There are four categories: low income ($975 or less), lower middle income ($976-$3,855), upper middle income ($3,856-$11,905) and high income ($11,906 or more). Essentially, the World Bank transformed the continuous variable of GNI into a categorical variable. I used both versions of the variable in the bivariate analyses because it might be easier for some to conceptualize the categories over the dollar amounts. In the multivariate models displayed in Table 3.6, I used the more common form of the GNI. I did run the same models with the categorical variable and 2 there was no change in the model's coefficients statistical significance or Pseudo R . 117

and 1J). In addition, the higher the GNI, or the Ana!Jtical income category, the more the

percentage of the market that is illicit decreases (see Models 1J and 1K). However, the

relationship for Cigarettesper capita and Government effectiveness seems to be counterintuitive.

According to Model 1F, higher cigarette consumption is associated with a decrease in the

percentage of the market that is illegal. Moreover, Model 1 G indicates an adverse

relationship between the effectives of the government and the percentage of the cigarette

market that is illicit.s4

I present the multivariate Tobit analyses in Tables 3.6, Multivariate Tobit on the Illicit

Cigarette Consumption as a Percentage ifLegitimate Market.ss Since analysts, scholars, and everyday

citizens cite the final price of cigarettes and taxation as contributing factors for the illegal

market, I estimated simple models testing this assumption. I used both the original variables

from the American Cancer Society and the variables I calculated from their data. Model 2A

uses the final sale price ef a pack ef Marlboro or equivalent international brand ef cigarettes and Tax as a proportion ef the cigarette price. Model 2C uses the calculated variables of The pre-tax price ef a pack

ef Marlboro or equivalent international brand cigarettes in $U.S. and Tax price in $U.S. Interestingly,

54 I ran bivariate Tobit regressions on three other World Bank Governance Indicators and The Fund for Peace's Failed States Index. Two of the three World Bank Indicators yielded results similar to the Government effectiveness indicator and one yielded a non-statistically significant relationship. The Rule of .Law indicator yielded a coefficient of -4.800 with a standard error of 1.415 (p= 0.001, Pseudo R2 = 0.0143, N=92) and the Control of Corruption yielded a similar coefficient of -4.598704 with a standard error of 1.390736 (p=0.001, Pseudo R2 = 0.0135, N=93). The indicator for Political Stability was not statistically significant (N=93). As an alternative to the World Bank's measures, I tried the Failed State Index, which yielded the expected result of a positive coefficient of .1887531 with a standard error of .058218 (p= 0.002, Pseudo R2 = 0.0135, N=89). I should note that the Failed State Index contains two of the variables that are used in the multivariate analysis, Criminalization­ de!egitimization of the state and Uneven economic development along group lines.

55 To check for collinearity, I conducted a Variance Inflation Factors (VIF) analysis after the OLS form of the 2H Model. Traditionally, variables with a VIF value over 10 indicate a problem with multicollinearity. The only variable with a value over 10 was Government effectiveness; its value was 10.28. I also conducted a VIF after the OLS form of Model 2K and none of the variables had a VIF over 10. To be prudent I conducted a Collin command in Stata for the variables in both Model 2H and 2K. The collin command computes several collinearity diagnostics. I present the values for the VIF and the R-Squared of the collinearity diagnostics in Table 3.7. 118

Table 3.5 Bivariate Tobits on Illicit Cigarette Consumption as a Percentage of Legitimate Market and Key ExElanatory Variables 56 Illicit cigarette consumption as a 1A 1B E_ercenta.f!l o[_letftimate market 1C 1D 1E 1F 1G Final sale price of a pack of Marlboro or equivalent -1.444** international brand cigarettes in (.644) $US Tax as a proportion of the -13.543 cigarette price (9.087) Pre-tax price of a pack of Marlboro or equivalent -4.122 international brand cigarettes in (2.476) $US -1.829** Tax price in $US (.82) Adjacent border with a lower 8.125** tax (3.762) -.004* Cigarettes per capita (.002) -5.061 *** Government effectiveness (1.400)

Number 92 88 87 87 87 93 93 Chi-Square 4.90 2.19 2.73 4.84 4.54 3.17 12.23 Log Likelihood Statistic -376.919 -361.922 -357.627 -356.569 -348.280 -381.845 -377.317 Pseudo R2 0.0065 0.0030 0.0038 0.0067 0.0065 0.0041 0.0159 Notes: *p<.10, **p<.05, ***p=<.01

56 See Table 3.1 for variable definitions and descriptions. 119

Table 3.5 Bivariate Tobits on Illicit Cigarette Consumption as a Percentage of Legitimate Market and Key ExElanatory Variables IJ/icit cigarette consumption as a percentage of 1H 11 1K le itimate market 1J 1L Criminalization-Delegitimization of the 1.72** State (.55) Uneven economic development along 2.142 ** group lines (.766) -.0002* GNI (.00001) World Bank's analytical income -2.617* categories (1.290) .189*** Failed state index (.058)

Number 89 89 90 90 89 Chi-Square 9.30 7.50 3.50 4.02 9.94 Log Likelihood Statistic -362.251 -363.154 -355.547 -355.285 -361.935 Pseudo R2 0.0127 0.0102 0.0049 0.0056 0.0135 Notes: *p<.10, **p<.05, ***p=<.01

Model 2A indicates that for every $1 increase in the final sale price of a pack of Marlboro or

equivalent international brand of cigarettes (includes tax) the illicit cigarette market decreases

57 58 by 1.27%. A similar decrease occurred in Models 2B and Model 2C • Those models included variables measuring accesses to lower and higher priced cigarettes as well as

cigarette consumption. The difference in the two models is the taxation variable, Tax as a proportion of the cigarette price. Model 2B includes the taxation variable and Model 2C does not. I removed the variable in Model 2C to see if there was an effect because including the variable essentially doubles the tax since the final sale price of a pack of Marlboro or equivalent international

brand ef cigarettes variable includes the tax. When I removed the taxation variable, sharing a

57 In the standard OLS version of this model, the final sale price of a pack of Marlboro or equivalent international brand of cigarettes variable remains significant and the coefficient and stand error are similar to the Tobit results. However, in the OLS model with robust standard errors, this variable is no longer significant and the Adjacent border with a lower tax variable becomes significant (P = 5.239, SE= 2.944, p= 0.079). 58 In the OLS model, Arfjacent border with a lower tax is no longer significant. However, the OLS model with robust standard errors is similar to the Tobit model. Both the Final sale price of a pack of Marlboro or equivalent international brand of cigarettes and Acijacent border with a lower tax variables are statistically significant. 120

border with a country that imposes a lower tax resulted in an increase in the illegal market.

By sharing at least one border with a lower tax country, the percentage of the cigarette market that is illegal increases by approximately 6.5% (p=.090) (see Model 2C).

Models 2E to 2K, presented in Table 3.6 Multivariate Tobit on the Illicit Cigarette

Consumption as a Percentage efLegitimate Market, illustrate the effect that variables measuring opportunity, guardianship, and potential willing offenders as well as control variables have on the dependent variable, Illicit cigarette consumption as a percentage ef legitimate market, while holding the other variables constant at their mean. Model 2C includes opportunity variables.

In this model, I incorporated the cost of the cigarettes by using the variable final sale price ef a pack ef Marlboro or equivalent international brand ef cigarettes. The final sale price and sharing a border with a state that imposes a lower tax were found to be statistically significant. The sign for the final sale price ef a pack ef Marlboro or equivalent international brand of cigarette variable was negative, which indicates that as the cost of cigarettes increases the percentage of the market that is illegal decreases. When considering that higher priced cigarettes are found in countries with higher individual income averages, are more stable, and can impose and collect taxes, it is not surprising to see this counterintuitive relationship. However, when the tax price and the pre-tax price of the cigarettes are separated, the price of the cigarettes is no longer significant and the opportunity variables are not significant (See Model 2E).

Model 2F59 adds variables measuring guardianship to the model where the pre-tax price of the cigarettes and tax price are separated and the only statistically significant variable

59 There was no change in the significance of variables in the OLS. The OLS model with robust standard errors model indicated that the Cannabis (herb) seiZ!lres 2005 variable becomes significant. Tobit, OLS, and OLS models with standard errors using the final sale price ef a pack ef Marlboro or equivalent international brand ef cigarettes variable instead of The pre-tax price ef a pack ef Marlboro or equivalent international brand cigarettes in $US and Tax price in $US were estimated. Only OLS model with robust standard errors indicated a significant variable, which is Cannabis (herb) seizures 2005. 121

is Government effectiveness. 60 As noted earlier, the result indicates a negative relationship. As

Government effectiveness increases, the percentage of the market that is illegal decreases by

approximately 5.2%.61

Models 2G62 and 2H add to the previous models and control for variables that

measure guardianship as well as general control variables Qiteracy and GNI). Although the

goodness of fit measure reaches its strongest values at 0.038 and 0.043 for Models 2G and

2H, respectively, none of the variables is statistically significant. Because the Failed State Index

showed significance in the bivariate model and as a substitute for Government effectiveness, I

estimated two additional models that controlled for guardianship and the control variables

and included the Failed State Index. I present the results of these models in Table 3.6's Models

2] and 2K. When accounting for guardianship, opportunity, and willing offenders, Model 2J

indicates that as a country's Failed State Index score increases, the percentage of the cigarette

market that is illegal increases by 0.18%. When accounting for those factors as well as GNI

60 I estimated the models with the full price of the cigarettes and the tax price and the pre-tax price of the cigarettes separated. See Table 3.6 for more details and specific results.

61 Similar to the bivariate analyses, I substituted three other World Bank Governance Indicators and The Fund for Peace's Failed States Index for Government effectiveness. The three World Bank Governance Indicators were Control of corruption, Rule of law, and Political stability. The Control of corruption variable (.fJ= -4.819, SE= 2.431, p=0.053, Pseudo R2= 0.0276, N=61) and the Rule of law variable (P= -4.904, SE= 2.329,p= 0.040, Pseudo R2= 0.0286, N= 60) yielded similar results as the Government effectiveness indicator. Similar to the bivariate analysis, the Political Stability did not yield statistically significant results. None of the World Bank Indicators changed the significance of the other variables in the model. As expected, and similar to the bivariate analyses, the Failed State Index variable yielded a statistically significant result. As the Failed State Index values increases (meaning the state is more of a failure), the percentage of the market that is illegal also increases by approximately 0.18% (SE= .0833,p= 0.037, Pseudo R2 = 0.0320, N=60). Again, I should note that the Failed State Index has 12 different indicators measuring social, economic, and political factors. Two of the indicators, Criminalization­ delegitimization of the state and Uneven economic development along group lines are used in Models 2G and 2H.

62 There was no change in the significance of variables in the OLS and OLS with robust standard error models. Tobit, OLS, and OLS models with standard errors using theftnal sale price of a pack of Marlboro or equivalent international brand of cigarettes variable instead of The pre-tax price ofa pack of Marlboro or equivalent international brand cigarettes in $US and Tax price in $US were estimated. Only OLS model with robust standard errors indicated a significant variable, which is Cannabis (herb) seizures 2005. 122

Table 3.6 Multivariate Tobit on the Illicit Cigarette Consumption as a Percentage of Legitimate Market63 Illicit cigarette consumption as a percentage of legitimate 2A 2B 2C 2D 2E market Final sale price of a pack of Marlboro or -1.272* -1.414** -1.090* equivalent international brand cigarettes in (.733) (.674) (.588) $US -4.962 8.808 Tax as a proportion of the cigarette price (10.125) (10.495) Pre-tax price of a pack of Marlboro or -.437 -3.562 equivalent international brand cigarettes in $US (3.503) (3.625) -1.724 -.448 Tax price in $US (1.174) (1.170) .802 .493 .582 Adjacent border with a higher tax (3.160) (3.02) (3.134) 5.239 6.532* 5.211 Adjacent border with a lower tax (4.137) (3.809) (4.301) -.002 -.002 -.002 Cigarettes per capita (.002) (.002) (.002) Global corruption barometer, police

Government effectiveness

Ratification ofWHOFCTC

Cannabis (herb) seizures 2005

Heroine & cocaine seizures 2005

Police per 100,000

Number 87 84 86 87 84 Chi-Square 5.01 9.89 9.64 4.86 9.64 Log Likelihood Statistic -356.484 -332.942 -341.738 -356.562 -333.062 Pseudo R2 0.0070 0.0146 0.0139 0.0068 0.014 Notes: *p<.10, ** p<.05

63 See Table 3.1 for variable definitions and descriptions. 123

Table 3.6 Multivariate Tobit on the Illicit Cigarette Consumption as a Percentage of Legitimate Market (Continued) Illicit cigarette consumption as a percentage of 2F legitimate market 2G 2H Pre-tax price of a pack of Marlboro or .325 .7421 -.133 equivalent international brand cigarettes in (3.100) (3.102) (3.331) $US .779 .598 .674 Tax price in $US (1.308) (1.387) (1.463) .857 -.805 -.012 Adjacent border with a higher tax (2.631) (2.695) (2.864) -.615 .249 -1.186 Adjacent border with a lower tax (4.263) (4.605) (4.633) .001 .002 -.0003 Cigarettes per capita (.002) (.002) (.002) 1.856 1.581 1.735 Global corruption barometer, police (1.890) (2.449) (2.417) -5.190** .117 -1.054 Government effectiveness (2.531) (3.647) (3.672) -.9620 -1. 901 -2.771 Ratification of WHO FCTC (3.414) (3.364) (3.448) -4.02e-09 -6.19e-09 -6.32e-09 Cannabis (herb) seizures 2005 (4.98e-09) (5.0le-09) (4.96e-09) -1.91e-08 -3.58e-08 -5.57e-08 Heroine & cocaine seizures 2005 (3.98e-08) (3.89e-08) (4.12e-08) .001 .001 .002 Police per 100,000 (.004) (.004) (.004) .00004 .00008 Grand total of crimes reported per 100,000 (.0005) (.0005) 3.97e-06 7.92e-06 Population (8.73e-06) (9.14e-06) .914 1.395 Criminalization-delegitimization of the state (1.144) (1.170) 1.815 1.904 Uneven economic development (1.393) (1.490) .196 Literacy (.151) .0001 GNI (.0002) Failed state Index

Number 61 60 60 Chi-Square 12.81 16.98 19.19 Log Likelihood Statistic -221.294 -215.282 -214.177 Pseudo R2 0.028 0.038 0.043 Notes: *p<.10, ** p<.05 124

Table 3.6 Multivariate Tobit on the Illicit Cigarette Consumption as a Percentage of Legitimate Market (Continued) Illicit cigarette consumption as a percentage ef 2F legitimate market 2G 2H Pre-tax price of a pack of Marlboro or .325 .7421 -.133 equivalent international brand cigarettes in (3.100) (3.102) (3.331) $US .779 .598 .674 Tax price in $US (1.308) (1.387) (1.463) .857 -.805 -.012 Adjacent border with a higher tax (2.631) (2.695) (2.864) -.615 .249 -1.186 Adjacent border with a lower tax (4.263) (4.605) (4.633) .001 .002 -.0003 Cigarettes per capita (.002) (.002) (.002) 1.856 1.581 1.735 Global corruption barometer, police (1.890) (2.449) (2.417) -5.190** .117 -1.054 Government effectiveness (2.531) (3.647) (3.672) -.9620 -1.901 -2.771 Ratification of WHO FCTC (3.414) (3.364) (3.448) -4.02e-09 -6.19e-09 -6.32e-09 Cannabis (herb) seizures 2005 (4.98e-09) (5.0le-09) (4.96e-09) -1.91e-08 -3.58e-08 -5.57e-08 Heroine & cocaine seizures 2005 (3.98e-08) (3.89e-08) (4.12e-08) .001 .001 .002 Police per 100,000 (.004) (.004) (.004) .00004 .00008 Grand total of crimes reported per 100,000 (.0005) (.0005) 3.97e-06 7.92e-06 Population (8.73e-06) (9.14e-06) .914 1.395 Criminalization-delegitimization of the state (1.144) (1.170) 1.815 1.904 Uneven economic development (1.393) (1.490) .196 Literacy (.151) .0001 GNI (.0002) Failed state Index

Number 61 60 60 Chi-Square 12.81 16.98 19.19 Log Likelihood Statistic -221.294 -215.282 -214.177 Pseudo R2 0.028 0.038 0.043 Notes: *p<.10, ** p<.05 125

Table 3.6 Multivariate Tobit on the Illicit Cigarette Consumption as a Percentage of Legitimate Market (Continued) Illicit cigarette consumption as a percentage of legitimate 2J 2K market Pre-tax price of a pack of Marlboro or equivalent 1.423 L27 international brand cigarettes in $US (3.138) (3.275) .126 .400 Tax price in $US (1.253) (1.374) -.416 .653 .Adjacent border with a higher tax (2.713) (2.813) 2.038 .763 .Adjacent border with a lower tax (4.035) (4.096) .001 -.0006 Cigarettes per capita ( .002) (.0023) 1.431 1.628 Global corruption barometer, police (2.346) (2.326) -.952 -1.525 Ratification of WHO FCTC (3.312) (3.344) -5.17e-09 -5.24e-09 Cannabis (herb) seizures 2005 (4.98e-09) (4.90e-09) -2.79e-08 -4.45e-08 Heroine & cocaine seizures 2005 (3.85e-08) (4.07e-08) .0008 .0015 Police per 100,000 (.0039) (.0040) -8.69e-06 8.59e-07 Grand total of crimes reported per 100,000 (.0004727) (.000465) 4.99e-06 8.55e-06 Population (8.31e-06) (8.53e-06) .217 Literacy (.151) .00001 GNI (.00018) .179** .253** Failed state Index (.083) (.103)

Number 60 60 Chi-Square 14.68 16.72 Log Likelihood Statistic -216.432 -215.412 Pseudo R2 0.0328 0.0374 Notes: *p<.10, ** p<.05 126

and literacy, the percentage of the market that is illegal increases 0.25% for every 1-point increase on the Failed State Index's score.

The quantitative analyses yielded interesting and unexpected results. The most notable are the results related to taxation and price of cigarettes. As discussed in Chapter 2, numerous studies have found a relationship between these variables and smuggling. When controlling for the variables mentioned above, it appears that taxation is not important. The variable included in this analysis may not accurately capture cigarette taxation. Governments can levy several different types of taxes and duties on cigarettes, which makes calculating cigarette taxation very complex.

Some governments may impose different taxes for domestic brands and international brands. Turkey is one such country. Turkey imposes a flat tax of 1.55 YTL

(Turkish Lira) on every pack of domestically produced cigarettes. For international brands, such as Marlboro, the tax was 58% (Interview 07.02.08.01, 2008).64 However, the American

Cancer Society's (ACS) data has the value listed at .58%, which is only the special consumption tax and does not include the Value Added Tax (VAT) or accurately measure taxation for domestic brands.

The United States provides another example of why the taxation variable's findings may be misleading. In addition to federal taxes, states, counties, and cities can impose a tax on cigarettes and Native American reservations, because of their sovereign nation status, may decide not to impose any taxes on cigarettes sold on their reservation or

64 Turkey's cigarette taxation rate is even more complicated than a flat tax for domestic cigarettes and a percentage for foreign cigarettes. Foreign cigarettes have a legal sale price of 5.5 YTL. That price includes 3.19YTL for a special consumption tax (.58%), a value added tax of 0.99YTL, and the cost of the pack of cigarettes from the factory or distributor, which is 1.32 YTL. Domestic brands have a legal sale price of 2.SYTL, which includes 1.SYTL for the special consumption tax, 0.45YTL for the value added tax, and O.SOYTL for the cost of the cigarette (Interview 07.02.08.01, 2008). 127

to tax at a low rate. In 2006, the state level taxation ranged from Missouri's 17 cents per pack to Rhode Islands' $2.46 tax per pack (Federation of Tax Administrators, 2006). Yet, the value included in the ACS for the United States' cigarette tax was approximately 0.37%.

Although ACS's attempt to calculate the taxation rates is one of the best cigarette taxation variables available, it has error and noise.

The variables measuring guardianship, especially Government iffettiveness, may still not be measuring the correct type of guardianship or opportunity associated with governance and taxation that affects cigarette smuggling. As discussed above, many of the

World Bank's indicators are highly correlated and this variable was associated with a high

VIP value of 10.28. However, the l'ailed State Index contains different indicators than the

World Bank variables and it did not have a high VIP value (its value was 5.05). The Failed

State Index is broad and may better capture the complete environment in which cigarette smuggling occurs. This may explain why the Failed State Index was significant when individual indicators or other variables were not.

Another variable that was unexpectedly not significant in the Tobit model was uneven economic development along group lines. There are somewhat strong correlations between this variable and Tax price (-0.706), the Pre-tax price of a pack of Marlboro or equivalent international brand cigarettes in $U.S. (-0.524), Government effectiveness (-0.819), Criminalization-delegitimization of the state (0.818), GNI (-0.776), and Literary (-0.501) (see Table 3.4). The bivariate Tobit model

(Table 3.5, Model 1I) estimated a p value for this variable at 0.006 and a coefficient of

2.142442; thus, as the uneven economic development increases the percentage of the market that is illegal also increases. However, the significance decreases when I introduced other variables into the models. With a small number of cases (N=60) in the sample under Models 128

2H and 2I and only 93 countries in the whole analysis,65 this finding could turn out to be significant if the number of cases increased and the sample was more representative.

Moreover, previous studies and the views of law enforcement officers who I have interviewed seem to support the relationship between uneven economic development within certain groups (i.e., the Kurdish populations living in the Middle East and Europe or a minority population living in European cities). Additionally, blocked opportunities related to that uneven development seem to be a factor in why certain groups participate in smuggling and consuming illicit cigarettes (Antonopoulos, 2007; Interview 05.03.10.01, 2010; Interview

06.29.09.01, 2009; Interview 07.02.08.01, 2008; Interview 07.04.08.01, 2008; Interview

07.05.08.02, 2008; McEwen & Straus, 2009; von Lampe, 2005, 2006). Thus, although the variable uneven economic development along group lines may not have been significant in this analysis' Tobit models; it still warrants consideration in case studies and further research on this topic.

Conclusion

In this chapter, I discussed the methodology used for this quantitative analysis and how the routine activities theoretical framework could be utilized in an empirical inquiry into the transnational crime of cigarette smuggling. The routine activities approach states that a crime could occur if three main elements are present. These elements are a willing offender, the absence of a capable guardian, and opportunity. If any one of these elements is missing, a crime will not occur. Ideally, criminological research that uses this approach would

65 According to the United Nations, there are 192 member countries (United Nations, 2009c). Therefore, the correlations and descriptive statistics are generated on just under half of all possible countries/ cases. However, the sample used under the Tobit model represents about a third of all countries/ cases. 129

yield results that can better inform crime-reduction strategies. The models contained in this chapter tested a group of variables measuring each of those elements. Although Models 2G and 2H did not yield any statistically significant results, the approach is still valid. The analysis shows that cigarette smuggling is not a crime based purely on taxation. To prevent or limit this crime, crime reduction strategies need to be as complex as the factors that create the crime. Moreover, the crime reduction strategy cannot be a one-size-fits-all strategy because there are numerous variations to the crime.

The dependent variable, Illicit cigarette consumption as a percentage of legitimate market, measures the percentage of the market that is illicit. It can tell us only the approximate size of the illegal market. It does not tell us anything about the methods used by smugglers, the size of the smuggling operation, or the type of illegal cigarettes. Those factors should be included in crime-reduction strategies. For example, Turkey's illicit market includes counterfeit cigarettes from Turkey, Iraq, and China and contraband cigarettes coming in from duty free stores in Syria and other neighboring countries as well as large-scale smuggling schemes that take advantage of Free Trade Zones' (FTZ)66 regulations. Although the models did not yield several statistically significant factors, they do shed light onto the complexity of the problem and the limitations of the international data. Moreover, the dependent variable of the quantitative analysis measures the percentage of the market that is illegal; thus, it can still be useful in learning more about the black market in cigarettes. In its

66 Often, .American writers will use the terms "Foreign Trade Zone" and "Free Trade Zone" interchangeably. Internationally, these zones are known as "Free Trade Zones." For example, publications by the Turkish government in English refer to the zones as Free Trade Zones and consider them "foreign land abroad." However, the United States government, especially U.S. Customs and Border Protection, uses the term Foreign-Trade Zones and recognizes that the zones are the U.S. equivalent of the internationally known concept of Free Trade Zones. Because most of the dissertation concerns non-U.S. territories, I have used the international term of Free Trade Zone. 130

basic descriptive form, the dependent variable identifies countries with substantial illicit markets and potentially indentifies countries suitable for future case studies.

True to common assumption, the price of a pack of cigarettes does seem to affect the percentage of the market that is illegal. Without control variables and with only the opportunity control variables, the final sale price of a pack of Marlboro or equivalent international brand is always negative and significant. However, when the price of the tax and the pre-tax are separated into two variables, this finding ceases to exist. In addition, when all of the control variables are added it appears that governance, specifically the failure of government as illustrated by the Failed State Index, is key variable related to the illicit market.

As I hypothesized, guardianship does play a role in illicit cigarette consumption.

However, the role was not in the form that I had originally argued or imagined. Some of the multivariate Tobit analyses indicated that good and effective governance could affect cigarette smuggling. For example, Model 2F showed a statistically significant relationship between the dependent variable and the variable Government effectiveness, while holding the opportunity variables and other guardianship variables constant at their means. This relationship disappears when I added in variables serving as proxies for willing offenders and other control variables. Suspecting that this might be a model specification error or an issue with construct validity within the indicator, I ran models with the general Fail State Index variable. It appears that as the overall functioning of the state - particularly in economic, social, and political indicators-is related to the illicit market. The more stable the state is, the lower the percentage of cigarette smuggling the state is expected to experience.

Unfortunately, the Failed State Index includes indicators that could measure both opportunity 131

factors and guardianship. This might indicate that the statistically significant result is because of the interactions between the different elements. Essentially, the Failed State Index might be acting as an interaction variable. Nevertheless, the index is more fitting under the guardianship category than the other two. Thus, creating better guardianship policies and maintaining stability may be one way to reduce this particular crime. Moreover, crime prevention strategies should involve numerous types of guardianship and attempt to account for the variety in methods and actors involved in cigarette smuggling.

The quantitative analysis did not yield any insight as to why an individual would be involved in cigarette smuggling. Because of the nature of the dependent variable, it could offer insight only into the amount of the market that is illegal. Thus, there could be individuals who are unknowingly purchasing illicit cigarettes or who do not play a role in the acquisition, transportation, and distribution stages of the illicit cigarette market. The control variables of GNI and literacy could lead one to hypothesize that the more prosperous the country is and the more individuals there are who are literate, the more financial resources should be at their disposal to pay for more expensive and legal cigarettes. However, to understand possible social factors that could create individual willing offenders, it may be more practical to examine countries via the case study method. Moreover, the findings and discussions above related to uneven economic development warrant more investigation.

Studying the peculiarities of each country's market, such as those described in this chapter's opening, may lead to a richer understanding of the growing problem of cigarette smuggling.

The next chapter presents the qualitative portion of my inquiry into cigarette smuggling. Many of the variables used in the quantitative analysis and the theoretical framework of routine activities theory provided the structure and guided the empirical 132

inquiry into Turkey's problem with cigarette smuggling. I examine the roles that guardianship and willing offenders play in the illegal cigarette market in more detail. The final chapter presents a synthesis of the qualitative and quantitative findings as well as crime reduction recommendations. 133

Table 3.7 Collinearity Diagnostics

Variables Included in Variables Included in Model 21 Model 2K R- R- VIF VIF Squared Squared Illicit cigarette consumption as a percentage of 1.38 0.2737 1.32 0.2432 legitimate market Tax price in $US 7.13 0.8597 6.02 0.834 The pre-tax price of a pack of Marlboro or 4.3 0.7672 4 0.7497 equivalent international brand cigarettes in $US

Adjacent border with a higher tax 1.58 0.3657 1.46 0.3155

Adjacent border with a lower tax 2.43 0.5879 1.82 0.4504

Cigarettes per capita 2.14 0.5319 2.06 0.5156

Global corruption barometer, police 2.29 0.5639 2.04 0.5093

Ratification ofWHOFCTC 1.56 0.3602 1.4 0.2861 Cannabis (herb) seizures 2005 1.46 0.3137 1.36 0.2626

Heroine & cocaine seizures 2005 1.88 0.4673 1.74 0.426

Police per 100,000 1.32 0.2415 1.28 0.2213

Grand total of crimes reported per 100,000 1.86 0.4636 1.75 0.4297

Population 1.52 0.342 1.28 0.2165

Criminalization-delegitimization of the state 7.91 0.8736

Uneven economic development 6.83 0.8536

Literacy 3.07 0.6738 2.95 0.6616 GNI 8.02 0.8753 6.84 0.8538 Government effectiveness 10.3 0.9029 Failed State Index 5.55 0.8199 Mean VIF 3.72 2.68 CHAPTER4

CASE STUDY - TURKEY

In previous chapters, I discussed the routine activities approach and economic explanations of crime and cigarette smuggling in general, as well the analysis of international quantitative data that suggests that cigarette consumption per capita, cigarette prices, police per 100,000, and a country's ratitifcaiton of a WHO treaty impact illicit cigarette consumption. Chapter 3 provided insight into the problem on an international level, it is now time to narrow the focus to cigarette smuggling in one country: Turkey. By focusing on cigarette smuggling in one region we can begin to answer the "why" and "how" questions concerning the smuggling in contraband and counterfeit cigarettes. Given the Pl

I cannot generalize the findings from a case study on cigarette smuggling in Turkey to other countries, the case study approach and this case study provide insight into some of the motivations, situations, and trends that can be addressed in future case studies.

67 To reiterate, the PKK, also known as the Kurdistan Workers Party, is a left-wing separatist group that originally wanted to establish a free and independent Kurdistan based on Marxist-Leninist ideals. Turkey, the United Staates, UK, and the EU have designated the PKl<. as a terrorist organization, in part because tens of thousands have died in the war between the PKK and the Turkish government (The Dirty War). The organization participates in a variety of organized crime and terrorist activities. In addition to killing Turkish police officers and orchestrating terrorist attacks, they are a significant player in the international heroin trade. The PKK's involvement in the European heroin market is such that they are Paris's major supplier (Cilluffo, 2000). The PKK has also been linked to cigarette smuggling within Turkey and throughout Europe (Cengiz, et al., Forthcoming; Roth & Sever, 2007). For more information on the PKK, see See Ozcan's (2006) Turkey's Kurds: A theoretical analyses ef the PKK and Abdullah Ocalan, Radu's (2001) The rise and fall ef the PKK, and Roth & Sever's (2007) The Kurdish Workers Parry (PKK) as criminal .ryndicate: Funding terrorism through organized crime, a case stucfy. 134 135

Turkey has a documented problem with the smuggling of counterfeit and contraband cigarettes. In 2006, roughly 12.4% of all cigarettes consumed in Turkey were illicit (Euromonitor International, 2008c, p. 10). However, illicit consumption rates are not consistent throughout the country. Turkey's eastern and southeastern regions have a counterfeit consumption rate of approximately 40% (Euromonitor International, 2008a, p.

8 69 2)6 • This area is near the Iraqi and Syrian borders and the Mersin Free Trade Zone, where counterfeit cigarettes enter Turkey. Moreover, this area suffered from years of uneven economic development and policies that attempted to eradicate the Kurdish culture.

Cigarette trafficking in Turkey is partially because of the numerous historical trading routes, its geographical location between Europe and the Middle East, its higher taxation rates compared to their Middle Eastern neighbors, and a population of people with limited or blocked legitimate opportunities. For those reasons as well as having an array of types of cigarette smugglers ("mom and pops," organized crime, and the PKl<.) and methods, Turkey is a sensible case study. Accordingly, this chapter will examine aspects of

Turkish society, such as basic social and economic demographics and the structure of the

Turkish National Police, as well as the function of Customs and the Gendarmerie (i.e. guardians), the "Deep State," the "Kurdish problem," the PI<:.I<:.'s involvement in cigarette trafficking, categories of willing offenders, and opportunities and incentives that are country specific, and then analyze the illicit cigarette trade occurring within Turkey. The analysis

68 This area of Turkey, the ancestral lands of the Kurds, has suffered from decades of oppression, underdevelopment, and poor educational and medical systems. Moreover, Turkey forced some Kurds to move to other parts of the country, and Turkish law prevented Kurds from speaking their mother tongue, naming their children traditional Kurdish names, or wearing traditional Kurdish costumes.

69 A Free Trade Zone (FTZ) is an area where merchandise can be stored, assembled, manufactured, or processed without having to pay duties on the product unless the product is for domestic consumption. Domestically produced merchandise that enters the zone for export will have the duties previous paid returned. Depending on the country, the FTZ may offer other tax breaks that facilitate trade. Turkey has 20 free trade zones. 136

begins with an examination of descriptive statistics. Then, I review the qualitative case study methodology and present the case study.

Descriptive Statistics

In the preceding chapter, I presented descriptive statistics for the cross-country analysis. Turkey is included in the cross-sectional, multi-country analysis. However, that analysis does not provide insight into the situation in Turkey or its neighboring countries; thus, a comparison of Turkey to the cross-sectional analysis is presented in Table 4.1 and a comparison of Turkey with its neighboring countries is presented in Table 4.2. Euromonitor international estimates the percentage of the Turkish cigarette market that is illegal is 12.4%.

This estimate is slightly higher than the mean for the cross-sectional analysis. The price for a local brand of cigarettes in American dollars was 43 cents lower in Turkey than the mean.

Two other interesting comparisons are Turkey's scores on "Government Effectiveness" and

"Uneven economic Development along Group Lines." Turkey's government was seen as less effective than the cross-sectional analysis mean, and there appear to be greater occurrences of uneven economic development along group lines, which may be explained by the underdevelopment of Kurdish regions in the eastern and southeastern regions of Turkey.

Crime-related descriptive statistics include global corruption barometer and police; grand total of crimes reported per 100,000; police per 100,000; heroin seizures in kilograms; and cannabis (herb) seizures in kilograms. From the descriptive statistics, it appears that Turkey has slightly more police per 100,000 and the public perception of police corruption is slightly 137

Table 4.1 Descriptive Statistics: Comparing Turkey to Cross-Sectional Multi Country Quantitative Dataset

Turkey Cross-Country Analysis in Quantitative Analysis

Variable Mean N Mean Std. Dev. Min. Max.

Dependent Variable Illicit cigarette consumption in million 15,380.1 66 7,141.15 13,495.74 25.30 76,092.00 sticks Illicit cigarette consumption as a 12.4 93 15.81 15.02 0.1 90 percentage of legitimate market Explanatory Variables Price of Marlboro or international 3.54 92 2.98 2.37 0.31 11.48 brand Tax as a proportion of the cigarette .58 88 0.61 0.17 0.1 0.94 pnce Real Price of a pack of Marlboro 1.49 87 0.99 0.64 0.08 3.02 Cigarettes in USD Tax Price in $US 2.05 87 2.04 1.92 0.15 8.73 Adjacent border with a higher tax Yes 87 0.66 0.48 0 Adjacent border with a lower tax Yes 87 0.83 0.38 0 Cigarettes per capita 1473.9 93 1085.24 754.18 71 3610 Global corruption barometer, police 4.1 93 3.64 0.71 1.8 4.7 Government Effectiveness .19 93 0.34 1.04 -1.84 2.32 Ratification of WHO FCTC Yes 93 .77 .42 0 Cannabis (herb) seizures 2005 9648169 86 49700000 227000000 69 1781063572 Heroine & Cocaine Seizures 2005 8235806 90 8649374 30300000 12 215000000 Police per 100,000 602.38 70 324.75 305.19 5.89 2393.8 Grand total of crimes reported per 2722.82 82 2842.44 3161.213 2.32 13493.44 100,000 Population 72935 91 60390.02 181058.7 405 1311798 Criminalization-delegitimization of the 6.1 89 5.52 2.75 10 State Uneven economic development along 8.6 89 6.42 1.99 2 9.2 group lines Failed state index 74.4 89 62.76 25.86 16.8 112.3 Literacy 87.4 93 89.49 13.42 48.7 100 GNI 5400 90 13488.78 16156.06 500 66530 World Bank's analytical income 3 90 2.8 1.03 1 4 cate ories Table 4.2: Descriptive Statistics for Key Variables: Turkey and Surrounding Countries Global Illicit Price of Ratification Uneven Failed Police Country Cigarettes Government Corruption Consump- GNib Marlboro of WHO Economic State per Per Capita Effectivenessf Barometer, tion(%) $USd1 FCTCct Developmente lndexe 100,000h policeg Turkey 1,473.9 a 12.4• 5,400 3.54 Yes 8.7 .19 74.4 4 452.67 Iran 451.2 a 78.9•2 3,000 1.82 Yes 7.2 -.71 84 3.6 .045 Iraq 734c 34.Sc 1.5 No 8.7 -1.85 109 Syria 1,698c 16.Qc 1,570 1.56 Yes 8.9 -0.94 88.6 Georgia 1,912.4 a 1.6•3 1,560 1.5 No 7 -.22 82.2 4.2 314.12 Armenia 2083 c 1S.6c 1,930 1.92 Yes 6 -0.25 71.5 Greece 3,153.4 a 37.0• 21,690 3.77 No 5 .61 41.1 3.3 375.23 Bulgaria 2,734.6 a 12.0• 3,990 2.54 Yes 6.2 .OS 62.1 4 Source: a= Euromonitor International, b =World Bank, c =Tobacco Atlas - Third Edition, d =Tobacco Atlas - Second Edition, e = Fund for Peace's Failed State Index, 2006, f '- World Bank, g =Transparency International, h= United Nations

For this chapter, the final price paid is a sufficient and more appropriate variable for comparing Turkey to other countries. Turkey has a sii,>nificant problem with bootlegging from Syria and Iraq. Turkey also has a significant problem with counterfeit cigarettes. My dataset and the "real price" variable cannot provide any insight into the manufacturing, transportation, and/ or distribution costs of counterfeit cigarettes. Additionally, the Turkish government imposes different tax rates for domestic cigarettes and premium international brands. Given these considerations, the final price paid by the consumer is the more appropriate form of a price variable when comparing the countries.

Iran's illegal cigarette related statistics seem to be high although the cigarette consumption per capita is low. Both Euromonitor International (2007a) and Joossens, Merriman, Ross, and Raw (2009) state that Iran's government-owned cigarette monopoly could not produce enough cigarettes to meet the demand and that Iran had high taxes on imported cigarettes. Consequently, counterfeit and contraband cigarettes filled a sizable part of the demand. However, the two sources differ on the percentage of the market that is illegal for Iran and Turkey. The variances in figures concerning Turkey's and Iran's illegal markets illustrate the difficulty in calculating the size of an illegal market. However, both documents discuss the change in policy for Iran, which may have reduced the size of the illegal market in Iran.

Georgia's percentage of the illicit market for 2006 seems unrealistically low. Euromonitor International's estimates for 2001 to 2005's illicit market ranges from 34.5% to 42% (see American Cancer Society & World Lung Foundation, 2009; Euromonitor International, 2008b) . .A. report on the various smuggling and illegal acnvities within Georgia cited a 2003 estimate of an untaxed and illegal market of 75%. The report also stated that contraband cigarettes were smuggled in from Turkey and Russia and counterfeit "Marlboro" cigarettes were made in Georgia and smuggled to Turkey (Kukhianidze, Kupatadze, & Gotsiridze, 2004, p. 39). Euromonitor International (2008b) addresses this decrease by stating, "until 2006 the share of illicit trade was very high, reaching more than half of the volume of legal sales. However, in 2006 the government undertook a number of decisive steps to order customs control in this arena, practically blocking channels of illegal production. At the end of 7.006 and beginning of 2007, the volume of illegal trade fell to less than 5%. It is natural that as a result legal sales increased dramatically" (p. ~ 17). -00 139

higher than the mean of all the countries included in the cross-sectional analysis and fewer

reported crimes per 100,000. Turkey's reported heroin and cannabis seizures were also below

the mean for all countries included in the analysis presented in Chapter 3.

Table 4.2 compares Turkey to its neighboring countries. The table illustrates a

range of government effectiveness, consumption rates, cigarette prices, and that three of its

neighboring countries (Iraq, Greece, and Georgia) did not ratify the WHO Treaty by 2006.

Figures 4.1 through 4.5 illustrate the comparisons between Turkey, neighboring countries,

the United States, and the mean of the countries included in the cross-sectional quantitative

analysis in Chapter 3. As Figure 4.1 shows, Turkey's cigarette consumption per capita is

slightly higher than the mean of all countries included in the quantitative analysis and the

United States' mean, but less than most of the surrounding countries. As indicated in Table

4.1, the percentage of the market that is illegal is slightly higher than the mean for all

countries included in the analysis. These numbers indicate that with regard to smoking rates

and illegal market percentages, Turkey appears to be an "average" country. Figure 4.2 illustrates the variation between the region's countries in terms of estimated percentage of

the market that is illegal. Figure 4.3 illustrates price of a pack of Marlboro or international brand equivalent in $US for the region. Turkey's cigarettes are slightly less expensive here

than in the dataset analyzed in chapter 3, but they are more expensive than all but one of

their neighboring countries. A local pack of cigarettes in Greece was 58 cents more

expensive than a pack of a local brand in Turkey. 140

3500 3,153 3000

2500

2000

1500 1000

500

0

Figure 4.1 Cigarettes Per Capita, *Mean of the 93 countries included in the Cross-Sectional Country Analysis

78.9 80

70 60 so

40 30 20 10

0

Figure 4.2 Illicit Consumption as a Percentag, *Mean of the 93 countries included in the Cross-Sectional Country Analysis 141

$5.00

$4.00 $3.54

$3.00

$2.00

$1.00

$0.00

Figure 4.3 Total Price of a Pack of Marlboro or International Brand Equivalent in $US, *Mean of the 92 countries included in the Cross-Sectional Country Analysis

Cigarette smuggling and illegal markets do not exist in a vacuum or only concern sale price and the amount of cigarettes consumed in a country. Two variables, Uneven

Economic Development along Group Lines and Government Effectiveness, could explain some of the illegal cigarette market within Turkey. Figures 4.4 and 4.5, respectively, illustrate the comparison of Turkey to surrounding countries and these two variables. A country's ability to govern effectively, secure its borders, and reduce smuggling could relate to uneven economic development along group lines and create a group of individuals who have blocked or limited access to resources, education, and legitimate jobs. Moreover, the disparity may decrease the disadvantaged population's ability or willingness to view the ruling party or country and its laws as legitimate. As Figure 4.4 illustrates, this region has higher levels of disparity than the mean for the dataset used in Chapter 3 and the United States.

Given this region's history and the higher than average scores, this variable warranted 142

further inquiry during the qualitative case study, which I discuss at length throughout the

remainder of this chapter.

As discussed in Chapter 3, Government effectiveness is a World Bank Indicator that

measures the quality of public and civil services, how independent those services are from political and outside pressures, and the quality and implementation of policy. The indicator

ranges from -2.5 to +2.5 and a higher positive score indicates government that is more

effective. Turkey's calculated value for this variable was 0.17 (see Table 4.2 and Figure 4.5).

This value is below the mean, the United States', and Greece's value. Nevertheless, Turkey's indicator is positive and higher than most of its neighboring countries. The low rankings for

the Middle Eastern countries would be of particular concern for Turkey (see Figure 4.5).

2.5

2

1.5

1

0.5

0

-0.5

-1.5

-2

-2.5

Figure 4.5 Government Effectiveness, *Mean of the 93 countries included in the Cross-Sectional Country Analysis

The final descriptive statistic comparison involves the Fund for Peace and

Foreign Policy's Failed State Index. Table 4.2 and Figure 4.6 present the comparison of the 143

2006 scores for Turkey, its neighboring countries, the United States, and the mean for the 93 countries contained in the cross-sectional analysis described in Chapter 3. The Failed State

Index is composed of 12 social, economic, and political indictors that measure a state's vulnerability.73 Scores from the 12 indicators are added together to reach the total score, or what the literature and media refer to as the Failed State Index value and the ranking of the country on the list published by Foreign Policy and the Fund for Peace. The index's possible values range from 0 to 120, with the higher values being associated with a higher risk of a state failing. In 2006, the index's creators considered countries with scores over 90 as critical and countries with scores ranging between 60 and 89.9 as in danger of failing. 74 Models presented in Chapter 3 found this index to be a statistically significant indicator for cigarette smuggling. As Figure 4.6 illustrates, Turkey and many of its neighbors scored in danger of ailing, and Iraq is a failed state.

73 The Fund for Peace and Foreign Policy consider state failure as the "loss of physical control of its territory or a monopoly on the legitimate use of force .... the erosion of legitimate authority to make collective decisions, an inability to provide reasonable public services, and the inability to interact with other states as a full member of the international community. The 12 indicators [include] ... elements such as extensive corruption and criminal behavior, inability to collect taxes or otherwise draw on citizen support, large-scale involuntary dislocation of the population, sharp economic decline, group-based inequality, institutionalized persecution or discrimination, severe demographic pressures, brain drain, and environmental decay" (Foreign Policy & The Fund for Peace, 2009). 74 In 2008, Turkey's failed state score was 75.4 and its 2009 score was 78.2. For more information, see the Fund for Peace's Failed State Indexes available at http:/ /www.fundforpeace.org/web/index.php?option=com_ content&task=view&id=391&Itemid=549 144

120 109

100

80

60

40

20

0

Figure 4.6 Failed State Index, *Mean of the 93 countries included in the Cross­ Sectional Country Analysis

The statistics, tables, and figures present Turkey through a comparative lens and highlight some of the country's unique characteristics as well as its comparability to other countries. The figures show the contrasts and comparisons in the variables values as well as how the "European" neighbors compare to the "Middle Eastern" neighbors. For the most part, the country is not an "outlier." However, statistics and numerical values have limited insights into an illicit market and can tell only part of the story. The remaining part of this chapter contains more qualitative data and presents a case study of cigarette smuggling in

Turkey.

Qualitative Research Methodology and Design

The qualitative portion of the research is in accordance with traditional methodologies used in transnational crime and organized crime research and literature. I conducted interviews with 20 individuals who were from American, Turkish, and European 145

law enforcement and executives from a major international tobacco company.75 The interviews yielded information pertaining to smugglers' methods and motives, government policies, and government and corporate strategies intended to reduce opportunities and increase detection, as well as information on transnational crimes and networks. I selected these individuals because of their availability, willingness to participate, and their knowledge of and expertise concerning cigarette smuggling.

As many researchers and scholars know, organized crime and transnational organized crime are particularly difficult subjects to research-mostly because of the clandestine nature of the crimes and loose-knit, social networks involved. Research in this sub-discipline tends to be qualitative, relies heavily on interviews, reviewing documents, and newspaper stories, and requires the interpretation of first-hand accounts and experiences.

This type of research can provide valuable information and allow for different levels of analysis as well as answering specific questions. However, it is limited in that it cannot be generalized to all organized crime or all cigarette smuggling.

Organized crime is a by-product of a given society during a given time and situation. Thus, the creation and continuation of the Sicilian Mafia will be different from that of the Colombian Cartels or the PK.I<:. Moreover, cigarette smuggling within the United

States differs from smuggling occurring over the Iraq and Turkish borders. Nevertheless, information gained can shed light onto the problem of cigarette smuggling, especially where one can draw similarities based on taxation policies, levels of corruption, levels of conflict,

75 Most of the interviews occurred in Turkey during the summers of 2007 and 2008. Other interviews occurred in the United States and Europe in 2006, 2009, and 2010. When possible, I conducted the interviews in English. When a translator was needed, the translator was from the agency of the interviewee (e.g., when interviewing a member of the Turkish police who was not fluent in English or felt more comfortable speaking in Turkish, a Turkish National Police officer who was fluent in English translated during the interview). 146

and the creation of borders (e.g., cigarette smuggling between states in the United States and countries within the European Union or smuggling associated with UN Embargos, such as

Iraq and Serbia-Montenegro). This information is beneficial to the organized crime literature, law enforcement, and the private sector of the global economy.

With the exception of a few drug-seizure related studies, few organized crime­ related studies involve quantitative analyses with reliable data that would capture the intended phenomena, mostly because reliable and valid data is hard to collect. When trying to collect data on individuals' opinions or behaviors, many criminologists and social scientists utilize survey research. Survey research, conducted under the positivist tradition, tends to prefer probability samples drawn randomly from an established sampling frame. By taking a random sample of individuals from a sampling frame, researchers can test hypotheses and generalize their findings to the broader population because their sample, theoretically, is a random and representative sample of society. However, "probability sampling can be impossible or inappropriate in many research situations" (Babbie, 2001, p.

178). Organized crime studies often fall in this latter category, because subjects can be unknown, unidentified, or hard to locate. This is particularly true for human trafficking studies. Data on human trafficking is poor for many reasons. This may be, in part, because of the clandestine nature of the activity, the high percentage of unreported cases because victims are afraid or unable to go to authorities, intimidation from participants, and the low priority the activity is given by some law enforcement agencies (Laczko, 2007, p. 40). Similar conclusions can be drawn for cigarette smugglers.

Because of those and other factors, there is no list containing all (or at least a high percentage) of criminals, victims, or even police officers investigating organized crime. By 147

nature, organized crime is a clandestine activity, and people involved tend not to identify

their associations. Many organized crime studies utilize nonprobability-sampling techniques.

In the specific case of cigarette smuggling, very few law enforcement officers are

knowledgeable or specialize in this particular crime. Therefore, taking a sample of all police

officers has the potential to yield little usable information. However, by using nonprobability

sampling the results can only be suggestive and have questionable generalizability. Because

of the reasons stated above, I utilized a nonprobability sampling technique for the qualitative

portion of this dissertation. Interviews were a purposive sample of individuals who were

selected via snowball sampling. Interviewees were selected because of their explicit

knowledge of cigarette smuggling and were made available to me via networking and

contacts.

Because of the international nature of cigarette trafficking, I conducted interviews

in the United States, Turkey, and the Czech Republic. Each of these countries has a special

relationship with cigarette trafficking. The United States has dealt with cigarette smuggling

since states and cities first started assessing a tax on cigarettes. Michigan, California, and

New Jersey have been destination states for illegal cigarettes for decades (LaFaive, et al.,

2008). In the 1990s, Canada began suing Reynolds Tobacco Company (RJR) and an affiliate

for its role in cigarette smuggling between the United States and Canada (Beare, 2002;

Joossens, N.D.). Because of Turkey's location, the Silk Road traversed the country, and

Turkey still has smuggling routes that bring illegal goods to and from the East, Middle East,

and the West. Finally, the Czech Republic has a significant problem with counterfeit

cigarette production (Interview 06.29.09.01, 2009). Numerous countries have a historical and

significant problem with the production, transportation, and sale of counterfeit and/ or 148

contraband cigarettes, and scope of the project was limited by funding, time, and availability of interviewees.

The interviews were semi-structured, and addressed many of the variables discussed below and questions asked in Chapter 1. Additionally, I asked questions about public tolerance and the difficulty with detecting and combating this crime, and answering the "why" and "how" questions concerning contraband and counterfeit cigarettes smuggling.

Most interviews lasted an hour; however, some interviews lasted 6-8 hours and occurred over a two-day period.

Most of the interviews were with law enforcement officers in the course of their official duties. Because they were not elected officials and their job has an undercover element, the interviewees' identities need to be protected. In some cases, police officers who introduced me to the interviewees did not give me the names of the officers I interviewed.

In other cases, they gave me a first name and they asked me not to record any indentifying information. Thus, I referred to the interview by a code I created using the word "Interview" with the date and number of the interview for that date.

Given the problematic nature of organized crime research, many scholars tend to use a case study approach to investigate organized crime. According to Yin (2003), "A case study is an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident" (p.13). The case study method allows for the contextual conditions of the phenomena to be included in the analysis. Because organized crime is part of the social fabric of a society, it seems appropriate to utilize the case study approach to answer a few of the questions, in particular the why and how questions, of this dissertation. 149

There are limitations to the case study method. According to Yin (2003) there are four tests to judge the quality of a case study's design or the design of any empirical study.

Those four elements are construct validity, internal validity, external validity, and reliability.

Concerning construct validity, I attempted to use multiple sources of data and used commonly accepted definitions in the literature for the major concepts, such as smuggling.

Although I do not conclude a concrete causal relationship between two events (e.g., increased taxation will lead to an increase in cigarette smuggling) from the case study, the reader draw their own inferences. Additionally, the theoretical model utilized, routine activities theory, implies causal relationship between variables or events. The case study section of this dissertation is intended to be more descriptive and exploratory than concretely causal. Regardless, there are inherent threats to internal validity. External validity refers to "whether a study's findings are generalizable beyond the immediate case study"

(Yin, 2003, p. 37). The case study's findings, alone, could not be generalized to all African,

Asian, European, or North and South American countries. However, the theoretical framework and certain elements could be generalized or applied to similar situations.

Although I cannot generalize the results to other countries, scholars can replicate the framework and key elements discovered (such as the roll that conflict and culture play) in future studies.

Reliability is the fourth test or element that helps judge the quality of a case study's design. In the case study method, reliability refers to the ability of another researcher repeating a case study on the same case and following the same data collection method, to arrive at similar conclusions and have similar results (Yin, 2003). Because this case study utilized published reports, it is likely that information gleamed from those reports would 150

draw similar conclusions. Information gained from the interviews with law enforcement and industry officials could change slightly.

The routine activities approach and the belief that a crime can occur when there 1s a willing offender, a suitable target, and the absence of a capable guardian influenced the questions I asked. If another researcher framed his or her questions using a different approach, then it is possible that he or she would receive different answers. Moreover, I am an American female who asked questions in English about Turkey's cigarette problem, and respondents were usually Turkish males. There may be some difference if the researcher was a Turkish male who conducted the interviews in Turkish. The language, gender, and citizenship could have affected the answers and most certainly the wording of those answers.

However, the core information should be the same as the information gleaned from the interviews, which often supported published reports.

Researchers, including myself, should repeat the method used in this case study of

Turkey in other countries. Because of the particularities of each country, some characteristics of smuggling may and should change. For example, smugglers use donkeys as vehicles to smuggle cigarettes into Turkey. Smugglers who move cigarettes into the UK could not use this method because the UK is an island, and the cultural use of donkeys may not be present at other border crossings, such as the U.S.-Canadian border. The actors and their ethnic or group affiliation may change as well. However, research conducted in Europe about smugglers involved in the illicit trade have found a number of Turkish and Turkish /Kurdish individuals who were often marginalized in the society (see Antonopoulos, 2007; McEwen

& Straus, 2009; van Dijck, 2007). 151

Background on Turkey

Turkey's Demographics

In 2006, Turkey had a population of 71.1 million, of which 50% were male (United

Nations Economic Commission for Europe, 2009) and 20% were Kurdish (Central

Intelligence Agency, 2009). Because of PK.I< associated fighting and Turkish military

operations, about 1 to 1.2 million people were considered "Internally Displaced Persons" in

2007 (Central Intelligence Agency, 2009). The unemployment rate for 2006 was 8.4% and

the consumer price index's growth rate was 10.5 (United Nations Economic Commission

for Europe, 2009). Turkey's per capita gross domestic product (GDP) was $6,511 for 2007

and the literacy rate was 89% (United Nations Statistics Division, 2009). In comparison, the

United States' 2006 unemployment rate was 4.6, its consumer price index's growth rate was

3.2 (United Nations Economic Commission for Europe, 2009), and the 2007 per capita

GDP was $45,047 (United Nations Statistics Division, 2009).

Turkey's Geography and Trading History

Turkey is approximately 7,836,000 square kilometers (World Bank, 2009b), slightly bigger than Texas. "It is a geographical fact that Turkey is a natural bridge between Asia,

Europe and the Middle East, with borders to 8 countries and thousands of kilometers of coastline" (TIPS (Turkish Institute for Police Studies) & Turkish National Police, 2007, p.

17). Turkey borders Bulgaria, Greece, Iran, Iraq, Syria, Bulgaria, Georgia, and Armerua as well as the Mediterranean, Aegean, and Black Seas. The location and many sea and land borders make the country a crossroad between the Middle East and Europe. 152

For centuries, this region has served as a trading corridor. Turkey's well­

established trading routes have moved various goods, drugs, cigarettes, weapons, gold, and

humans into or through the country via air, land, and sea. Archeological evidence has shown

the existence of Assyrian traders, who were from Mesopotamia, in Cappadocia from 2nd

Century B.C. (Curtin, 1984). For centuries, the famous Silk Road, a traveling route that

brought goods from Asia and China to Europe, ran through Turkey. In 1861, the Ottoman

Empire entered into a trade agreement with several other countries that increased customs

duties. As a result, smuggling became widespread (Republic of Turkey - Prime Ministry

Undersecretariat of Customs, 2008b, ~ 17). From 1993 to 2002, the Database on Nuclear

Smuggling, Theft, and Orphan Radiation Sources recorded 23 incidents involving Turkish

trafficking of nuclear and other radioactive materials. Weapons-related trafficking routes

"over land" to Turkey include one route that comes through Northern Iraq (Middle East)

and another that enters via Romania and Bulgaria (Europe), and the Black Sea provides a

water-based route to Russian and Ukraine (Zaitaseva, 2002).

The illicit trade through Turkey is associated with heroin trafficking. In recent

years, Turkey has become a major transit route for moving Afghan opium products to

Europe. There are two main "Balkan" routes, one of which passes through Turkey. "The

northern Balkan route, passing through Turkey, Bulgaria, Romania, Hungary and then

Austria, was used more frequently in 2007, as evidenced by the more than 2.5 tons of heroin

seized on that route" (International Narcotics Control Board, 2009, p. 100). Additionally,

Turkey has become not only a transit country for trafficking in persons trying to enter

Europe, but also a destination country. Individuals from Middle Eastern countries (Iraq,

Syria, Iran, Afghanistan, and Palestinian territories), African countries (Somalia, Nigeria, 153

Kenya, and Morocco), Eastern European countries (Russian, Moldova, Belarus, and

Ukraine), Sri-Lanka, India, and a few other countries enter Turkey as trafficking victims. If they are en route to Western Europe, it is common for traffickers to leave Turkey via sea through the Greek Islands near Istanbul or by land and through countries such as Kosovo and Albania on their way to Italy Qanssens & Arsovska, 2008). Turkish nationals are involved in human trafficking throughout Europe. In Germany and in The Netherlands, a large percentage of traffickers were of Turkish origin even though there were relatively few

or no Turkish trafficking victims (Sarrica, 2009).

The Modern Turkish State

From the remnants of the Ottoman Empire, Mustafa Kemal Atatiirk founded the modern Turkish republic in 1923. During World War I, European powers negotiated the partition of the empire's territory. There were several agreements and treaties between the

French, British, Greek, Russian, and other European delegates before they and the Ottoman delegates signed the Treaty of Sevres on April 10, 1920. At its height, the empire included

Anatolia, the Balkans including Bulgaria and most of Romania, and nearly the entire Arab world. After the Treaty of Sevres, the Ottoman Empire consisted of only a portion of

Anatolia. This, along with the military occupation of Istanbul and the interior, did not sit well with many Turks. The new government forming in Ankara refused to accept the

Treaty's terms. Two wars broke out-the Turkish-Greek War and the Turkish War for

Independence-and Atatiirk began his rise to power.

After the hostilities settled in 1922, Great Britain, France, Italy, Greece, and other interested parties invited representatives from both Turkish governments, the Ottomans in 154

Istanbul and Atatiirk's government in Ankara, to renegotiate the terms that ended World

War I. The Grand Vizier76 of the Ottoman Empire suggested sending a joint delegation.

That suggestion angered the government in Ankara and caused them to abolish the

sultanate. Therefore, only representatives from the government in Ankara attended. After long and difficult negotiations, the boundaries of Turkey and other points were resolved with the signing of the Peace Treaty of Lausanne on July 24, 1923 (Zurcher, 2005).

With the Ottoman Empire completely dissolved and a new peace treaty signed,

Atatiirk took on the daunting task of building a new nation. The new Turkish state did inherit a few structures from the Ottoman Empire, such as the gendarmerie, organization of the police, and certain taxation laws. However, Atatiirk deliberately rejected the Ottoman

Empire and its religion-based rule by establishing the Republican People's Party, known by its Turkish acronym CHP, and its principles, which are statism, nationalism, republicanism, populism, revolutionism, and secularism (Cooper, 2002). Atatiirk created a government that was a liberal republic and a secular state, but "ruled in an authoritarian manner" (Mango,

2004, p. 25). Turkey's laws, theoretically, treated every Turkish citizen equal under the law.

In reality, there were disparities concerning access to education and power, as well as varying levels of wealth (Mango, 2004). Moreover, the wars crippled the new state's economy.

Atatiirk and his government had to bring Turkey into the industrialized world. To do so, they created industries under state-sponsorship.77 In addition to the government-owned industries, a group of private entrepreneurs who were associated with Atatiirk and his party

76 The Grand Vizier was a position in the Ottoman Empire. Essentially, the person who occupied this office was "second in command" directly below the Sultan, who was the only person that could remove him from power. The Grand Vizier held the Imperial Seal, oversaw all other viziers (ministers), and attended to matters of the state.

77 For example, in 1932 the Turkish government brought the tobacco industry under its control and it remained under its control until Tekel, the Turkish tobacco monopoly, was sold to British American Tobacco for $1.72 billion in 2008 (British American Tobacco, 2009; TTA (Tiiriin, ND). 155

built factories and invested in various sectors of the Turkish economy. Private companies also operated as subcontractors to the government-owned agencies and industries (Mango,

2004). Turkey's economy became intertwined with Atatiirk's visions for a Turkish state. The

social elements of Atati.irk's plan dictated where industries would be created instead of

market and natural forces, such as marketplaces, transportation routes, and natural resources

(Cooper, 2002). This framework caused the eastern and southeastern sections of Turkey to

have uneven and underdevelopment. The purposeful lack of development and opportunity in this region was a catalyst for hostilities toward the Turkish government.

An important aspect of this new government was to create a new "Turkish" state, which also included a new Turkish identity, written and spoken language, nationality, and

even history. Atati.irk wanted to bring the mostly Asian population into a new, Western-like,

and civilized country (Foss, 2005; Mango, 2004; Taspinar, 2007). One way to accomplish this was to create a new national identity and remove Islam from governmental functions.

Everyone living within the defined borders was a Turk, a title previously reserved only for peasants, and would speak and write in Turkish. Atatiirk's Turkey, unlike the multicultural

Ottoman Empire, did not believe in or recognize ethnic minorities and forced assimilation.

"All citizens, including Kurds, were now to be considered Turks" (faspinar, 2007, p. 127). A

nationalist slogan was "Citizen, speak Turkish,'' which meant citizens were not allowed to

speak Kurdish, Arabic, or another language (Mango, 2004, p. 26). By changing to a Latin alphabet, prohibiting the Arabic language, and purging many ethnic-identifying words (e.g.,

Arab, Persian, and Kurd) in the new language, Atati.irk cut off many from their own

Ottoman history and Islam (Ahmad, 2008). The forced, single national identity and the removal of the Arabic language, Islam, and ethnicity caused numerous uprisings by ethnic 156

minorities and an Islamic backlash. These disturbances were suppressed militarily (Taspinar,

2007). 78

Atatiirk was also concerned with the Western perception that "Turks were part of

the yellow race, that they had no capacity for civilization," were brutal conquerors, and the

"Sick [Men] of Europe" (Foss, 2005, pp. 10-11). Therefore, Atatiirk commissioned and

personally edited a multi-volume book on the history of Turkey, titled History. This project

"documented" Turkish existence in Anatolia since Antiquity, concluded that, "All

civilizations came from the Turks or were profoundly influenced by them," and claimed that

all Indians, Chinese, and even the Buddha were Turks. Additionally, the book claimed that

Turks had first settled and set up society in Egypt (Foss, 2005, p. 11). Although historians

have challenged and discredited much of Atatiirk's History, the project's purpose was to

instill pride in the new Turkish citizens by giving them and Turkey a long, honorable, and

successful history.

Atatiirk died in 1938; yet, his legacy and vision for a functioning, vibrant, secular.

democracy for a Turkish state still thrives today. Shortly after Atatiirk's death, his successor,

ismet inonii, made Atatiirk the country's "Eternal Leader," warned Atatiirk's old friends and

opponents that criticism of him would not be tolerated, and attempted to preserve all of

Atatiirk's and the country's successes (I'Jango, 2004). Atatiirk's hold in Turkish society is still

strong, and a picture of him hangs in most, if not all, public offices and appears in official

78 An example of an Islamic backlash squelched by military intervention occurred in a town near Izmir in the 1930s. Dervish Mehmed Efendi and his followers protested the removal of Islamic law and Caliphate; they demanded that the government reinstate both. The Commander of the much-hated gendarmerie viewed the protest as a rebellion and sent a unit to squash it. However, Mehmed seized the lead officer, beheaded him, and then paraded his head around on a flagpole. Dervish Mehmed belonged to the Sufi Order, which was banned in 1926 because of its involvement in an uprising in Anatolia. Atatiirk outlawed the Order as a means to quell its influences on the Turkish people. Islam, along with other factors, was slowing down Turkey's assimilation into Atatiirk's ideology. Instead of trying to ban Islam, the government decided to nationalize (and control) it by establishing the Office of Religion Affairs and translating the Koran into Turkish. A Call to Prayer was established (Ahmad, 1988, 1993). 157

publications. inoni.i's prohibition on criticizing Atati.irk has continued and is evident by the

U.S. Department of State's warning, "It is illegal to show disrespect to the name or image of

Mustafa Kemal Atati.irk, founder of the modern Turkish Republic, or to insult the Turkish government, flag, or security forces" (U.S. Department of State, 2009, iJ 33).

The Turkish military views itself as the protectorate of Atati.irk's vision. Ironically, the military coups intended to preserve Atati.irk's vision actually hindered the country's chances of entering the European Union. By entering the European Union, Atati.irk's ultimate goal of being accepted by Europe as a civilized society would be met (Taspinar,

2007). Nevertheless, the military is involved in the country's internal affairs. As "long as the

Turkish army perceives itself as the guardian of the republic and its Kemalist legacy," there is a possibility of a military coup, especially when political parties attempt to make changes in

Turkey's political, social, and economic structures (F. Ahmad, 1993, p. 213). The military has overthrown-by either force or threat-several democratically elected Turkish governments, sometimes banning political parties and trade unions, and imprisoning ousted leaders

(Cooper, 2002; Mango, 2004; Zurcher, 2005). According to Ahmed (1993) "there seems to be a neat pattern of intervention every ten years, with the soldiers reluctantly soiling their hands in order to clean up the mess made by corrupt and incompetent politicians"(p. 1).

Rumors of a state within a state and conspiracy theories riddle Turkish and

Ottoman history. Turkish citizens thought the state within a state, or "deep state," was an illegal secret committee of military personnel. The deep state is thought to be a mixture of

"shadowy networks" that work with state institutions "to do the state's 'dirty work,' such as targeting terrorist sympathizers with extra-judicial killings; but they have also been known to collude with organized crime and to undermine Turkish democracy" (Cornell, 2009, p. v). 158

According to "deep state" theory, the military, which views itself as the protectorate of

Atariirk's vision for Turkey, ran the country and confined the democratically elected

government to the parameters they established. The above-mentioned coups contributed to

this idea. The 1996 Susurluk Affair (see below) caused the public to demand an investigation

and is proof of the deep state existence (Bovenkerk & Yesilgoz, 2004; Jenkins, 2009; Dnver,

2009). Connections between the military, coups, and the deep state began to surface shortly

after the postmodern coup d'etat of 1997. Farmer Turkish President, Suleyman Demirel,

stated the Turkish military was the "deep state." Years later, General Kenan Evren, who was

involved in the 1980s coup, mentioned the link between the military and the "deep state"79

(l<:avakci, 2009). The recent Ergenekon case has uncovered years worth of illegal activities by

various members of the Turkish military and elite Genkins, 2009). It has also renewed

discussions about Turkey's deep state and its history.

According to Jenkins (2009), the modern Turkish Deep State, initiated by NATO

and financially backed by the United States, was a proactive resistance movement in case

80 81 Turkey was invaded by the Soviet Union or a Warsaw Pact country. ' In the early 1950s,

79 After the General's admission, the district attorney asked that a case be brought against the General. Instead of bringing charges against the General, Turkey's High Council of Judges and Prosecutors fired and disbarred the district attorney. The district attorney, Sacit Kayasu, took his case to the European Court of Human Rights. The Court ruled in favor of Kayasu. Turkey paid the financial compensation ordered by the court, but did not reinstate Kayasu as a lawyer or district attorney (Kavakci, 2009).

80 There has been some version of an illegal and secretive governmental unit that collaborates with the underworld since 1792. During Sultan Selim Ill's reign, he founded a high level, but illegal, committee that would help make important decisions. Approximately a century later, another Sultan expanded the committee's role as a secret security force that operated outside the Ottoman police and military. This unofficial and illegal committee was so secretive that the Grand Vizier was unaware of its dealings (Bovenkerk & Yesilgoz, 2004). In 1908, the Committee of Union and Progress (CUP) was established and briefly ran the country (lJnver, 2009). Jenkins (2009) states that the Ottomans were overthrown, in part, by a group of military men who created the iTC in 1913. Originally, the purpose of this organization was to harass non-Muslim businessmen to the point that they would leave, thus making room for Muslim businesses. During WWI, this group realized that the Ottoman Empire was going to fall and the iTC began establishing networks and stockpiling ammunitions throughout Anatolia as well as establishing another secret organization that made it possible to smuggle military officers out of Allied-occupied Istanbul. Once in .Anatolia, they joined the War of Independence led by 159

Turkey's Supreme Council for National Defense (Milli Savunma Yuksek Kurulu) created the

Ozel Harp Dairesi (Special Warfare Unit or OHD) under the name of Seferberlik Tetkik

Kurulu (J'v1obilization Inspection Board or STK) and under the auspices of the Turkish

General Staff. However, the government led the public to believe that the STK was part of

the Turkish Ministry of National Defense and that its purpose was civil defense. However,

the purpose of the OHD was to train "selected members of the Turkish officer corps ... in

intelligence-gathering, tradecraft, sabotage, assassination, propaganda and other covert

activities designed to destabilize a hostile regime" so they had the "skills and capabilities to

be able to seed resistance to a hostile regime amongst the rest of the population" CJ enkins,

2009, p. 15). Those selected to participate in the secretive resistance movement were

organized in secret networks and cells instead. During the 1980s, the secret networks were

related to gendarmerie intelligence and gang-like security forces that operated with immunity

and targeted individuals who resisted military rule. After communism and the Soviet Union

were no longer threats, the OHD changed its name to Ozel Kuvvetler Komutanhg1 (Special

Forces Command) and the purpose shifted to counter-insurgency (Jenkins, 2009).

Atariirk. The secret networks made it possible for Atariirk to win the war and establish modern-day Turkey Oenkins, 2009). After establishing the Republic, Atariirk kept the networks and placed the secret committee under the direction of select high-level military personnel. Moreover, Atatiirk was the commander-in-chief of this unit. Atariirk also established his own intelligence agency, Milli Amele Hizmeti, which had ties to the military (Bovenkerk & Yesilgoz, 2004). Given the history of these societies, the OHD, and their incarnations, Jenkins (2009) concludes the individuals, usually military personnel, who were selected for these organizations "tended to regard themselves as joining not a sinister conspiracy, but a noble patriotic tradition" (p. 17).

81 Several countries, such as United Kingdom, France, The Netherlands, Sweden, Norway, Finland, Denmark, Germany, Austria, Switzerland, Spain, Greece, Portugal, Italy, and Central European countries, established NATO-related "stay behind" forces. Most countries' stay-behind forces existed "and perform[ed] their duties to the extent allowed by the democratic tradition and the importance of state accountability in those countries" (Onver, 2009, p. 16). However, "networks tend to persist and remain within the state apparatus depending on the extent of that country's militarist-nationalist tradition and the appeal of the far­ right ideologies within the public narrative ... [and] because of those particular countries' historical narratives which portray their armed forces as the sole guarantor against a perceived 'meta-other'" (Dnver, 2009, p. 16). 160

Although rumors of a "deep state" date back to Atatiirk and Ottoman rule, Turkish citizens felt that "proof" of a deep state emerged in 1996 during the Susurluk Affair, which started when a fatal car accident occurred near the western town of Susurluk, Turkey. A

Mercedes Bens was speeding toward Istanbul when a truck pulled out of a gas station and into the car's path. As the identity of the cat's occupants became known, the Turkish media and citizenry began to question why a Member of Parliament and the ''Village Guard," a former police chief of Istanbul, a wanted criminal, and a former beauty queen (the criminal's girlfriend) would all travel in the same vehicle. In addition, they questioned why the car contained various types of guns and a few silencers. Shortly after the accident the affair overtook Turkish media and society and eventually the Turkish government investigated the accident as well as the connections between the individuals involved (Bovenkerk & Y esilgoz,

2004; Jenkins, 2009).

The presence of Abdullah C::ath, a well-known and internationally wanted criminal, and his girlfriend made the accident a scandal. C::ath was involved with an ultra-right political party (the Grey Wolves) that fought against the PKI< and was a key player in the 1980 coup.

Interpol wanted C::ath for dealing heroin and escaping from a Swiss prison six years earlier.

Moreover, the Turkish government wanted C::ath since 1978 for committing several murders, some of which were students (Bovenkerk & Yesilgoz, 2004). Yet, this wanted man and his girlfriend were riding in a car with a former police chief and Member of Parliament, Sedat

Bucak, who was the only survivor. To add to the scandalous nature of the situation, C::ath had six different sets of identities issued by the Turkish government, including identities issued by the Interior Minister 0enkins, 2008b). 161

The Turkish media and many citizens became fixated on the incident, and they

demanded an official investigation. The allegations that the Interior Minister was involved in

forming criminal groups for the purpose of extrajudicial executions and protected those

groups from prosecution caused him to resign Qenkins, 2009). Eventually, the Turkish

National Assembly established an investigative committee and released a report. Although

the report did not generate any serious arrests nor did it clearly state why the four passengers were in the same car, it "offered considerable evidence of close ties between state

authorities and criminal gangs, including the use of the Grey Wolves to carry out illegal

activities" (Park, 2008, p. 54). The long-term impact of the accident and report is that the

affair is "generally known in Turkey as proof of the existence of cooperation ties linking the

state and the underworld" (Bovenkerk & Y esilgoz, 2004, p. 588) and it is "widely regarded as

'evidence' of the existence of the 'deep state"' (Park, 2008, p. 54).

The Ergenekon case has once again conjured up suspicions that Turkey's has a

"deep state,'' or an illicit department operating in contravention to the elected government.

Reportedly, Ergenekon is a network of individuals whose purpose 1s to weaken and undermine the elected government by creating chaos within society and eventually take over the government through a coup d'etat. The Ergenekon conspirators-high-ranking military

officials, academics, journalists, lawyers, and businesspersons-used the PK.l( and other

terrorist organizations to create chaos. Members of Turkey's police force, prosecutors, AK

Party (the Justice and Development Party or the APK) members and members of the intelligentsia have labeled Ergenekon as a terrorist organization Qenkins, 2009; Unver, 2009).

Essentially, prosecutors alleged that the group used political violence and established a terrorist organization as a means to cause chaos, provoke a military coup, and gain the 162

support of the people for seizing power and restoring a secular and nationalist state influenced by Kemalist Ideology.82

The ultranationalist group's name and connections to the aforementioned secret organizations created by Atatiirk, Kemalists, and NATO, may provide some insight into

Ergenekon's formation and its agenda. One popular theory about the group's name,

Ergenekon, is that it is a reference to a valley in the Altay Mountains and a story from

Turkish methodology. 83 According to Turkish methodology, Ergenekon is where a she-wolf saved Turkish clans by leading them out of a labyrinth and to a field where they could procreate.84 Thus, Ergenekon is the birthplace of the Turkish race CTenkins, 2009; Park, 2008;

Unver, 2009). Aside from the name, the history of the groups association to the recognized

"stay behind" groups, and the clandestine deep state provide more insight to their possible agenda. Naming the secret organization after the mythical origin of the Turkish race could be reference to an ultranationalist agenda of cleansing the state of those who may threaten the existence of Atatiirk's secular state (Park, 2008; Unver, 2009).

Unver (2009) argues that Ergenekon and Turkey's deep state is the result of three historical processes. First, for more than 100 years, the military was directly or indirectly involved in Turkish politics and views itself as the guardian of the Turkish state. Second, the

82 Atatiirk's, the founder of Turkey and the Republic's first president, birth name is Mustafa Kemal. In 1934, the National Parliament enacted the surname law and gave Mustafa Kemal the surname of Atatiirk, which means "Father of the Turks." European ideals heavily influenced and guided Ataturk and his CHP party's creation of the Republic. After Atatiirk's death and as a criticism to Atatiirk's successors, his supporters began calling themselves Kemalists and the ideology behind the Republics foundation as "Kemalism" or "Kemalist Ideology." The ideology's fundamental principles are referred to as the six arrows and inch.ided statism (in economic policy), nationalism, republicanism, populism, revolutionism (reformism), and secularism (laicite) (Cooper, 2002; Turn;:ay, ND). For more information on Kemalism and Atatiirk's interpretation of the six principles, see Turn;:ay's entry on Kemalism in The O>:ford Encyclopedia of the Islamic World.

83 An alternative explanation is that the group is named for retired military officer Necabettin Ergenekon. The officer has denied this claim and has spoken out against the group C(.Jnver, 20C9).

84 The wolfs name was Asena and methodology characterizes her as being a grey wolf, which is the name of another organization. 163

established foundations of networks, especially the Ottoman Tefkilat-z Mahsusa, led by top

military officials, operated without any accountability. Third, the NATO established "stay

behind" forces. The close association with the historical "deep state" and the history behind

its name gives the group's agenda more credence and illustrates the possible severity and

significance of the group.

The Ergenekon case is linked to a string of assassinations, murders, and other

terrorist activities dating back to 2002 and the 2006 arrest of the Atabeyler Gang.85 However,

the June 2007 police raid of an Istanbul home that uncovered a stash of weapons appears to

be the catalyst for the Ergenekon case and the public's awareness of the clandestine group.86

However, the case's history is much longer.87 In 2001, police officers from Istanbul's

Organized Crime Unit interviewed Tuncay Giiney, a former journalist with a criminal

history, in connection with counterfeiting car registrations. The interrogation lasted six days

and included a raid of Giiney's home. During this raid, police uncovered guns, forged

documents, and documents pertaining to Ergenekon. Documents contained the names of

alleged leaders of Ergenekon: Turkish military officers, prominent Jewish businessmen,

Turkish underworld leaders (both living and assassinated), and "what appeared to be a reference to the involvement of Iraqi Kurdish leaders Jalal Talabani, Massoud Barzani, the

85 The Atabeyler Gang is a nickname given to nine individuals arrested in May 2006. Many of those individuals have links to the military.

86 Trabzon's gendarmerie headquarters received an anonymous phone call. The caller informed the gendarmerie that a home in Istanbul had a stash of C4 and grenades. The gendarmerie notified the TNP in Istanbul and the police raided the home.

87 During the Susurluk Affair, a conspiracy theorist claimed that a retired military general was "a member of a covert organization called Ergenekon which had actively cooperated with rightist militants in the factional fighting of the 1970s." Moreover, the theorist claims that the American CIA allegedly established Ergenekon after the 1960 Turkish military coup and that Ergenekon is "an enormous network that included not only military officers but members of the TNP, the judiciary, academia and right-wing pohticai organizations" Genkins, 2009, p. 44). 164

PKK, France, the Netherlands, JiTEM [Gendarmerie Intelligence and Counterterrorism] and Iran in narcotics trafficking" Genkins, 2009, p. 53). Giiney's documents and statements and the 2007 discovery of weapons in an Istanbul home were a basis for the first indictment, which was 2,455 pages long and listed 86 individuals Genkins, 2009; Open Source Center,

2010, p. 8).

After the 2007 raid, prosecutors and police began indicting and arresting numerous individuals throughout Turkey. Police arrested more than eighty ultranationalists for inciting people to rebel against the Turkish government, involvement in a terrorist organization, obtaining national security documents and personal data, and encouraging military personnel to disobey orders (Open Source Center, 2010; Park, 2008). The group has also been suspected of various disappearances, drug and weapons trafficking, and high profile murders such as that of the journalist Hrant Dink (Park, 2008). A few individuals involved in the

Erenekon case were also involved in the Susurluk incident Genkins, 2008b; Park, 2008).

While the "deep state's" target in the Susurluk Affair was the PKI<, it appears their current target is the anti-secularist AKP Genkins, 2008b).

Because several of the individuals arrested were either active or retired military personnel and the connection to the NATO created networks, the case appears to have very strong ties to the military; however, a high-ranking general dismissed the allegations that the military is involved in the Ergenekon group (Rainsford, 2008). Additionally, some opponents of the AK Party view the case as a "politically motivated ploy to intimidate and silence opposition to the government" Genkins, 2009, p. 63). In part, opponents hold this view because the AK Party was defending itself in a series of cases throughout the

Ergenekon affair. For example, in the same month as the first Ergenekon indictment, 165

Turkey's Constitutional Court found the AK Party guilty of undermining secularism, and the

Court was one vote shy of closing the AK Party. A few months later, the AK Party defended itself against corruption charges (Jenkins, 2009; Unver, 2009).

Turkey's history with the deep state and the contemporary Ergenekon case deeply affects how citizens view the government. The NATO backed resistance network, the

'Susurluk' affair, corruption scandals involving government officials and high level business executives, and the Ergenekon case give citizens reason to believe that their government is or has colluded with organized crime and terrorist groups.88 Those incidences have also given credence to the idea that a group whose purpose is to overthrow a democratically elected government does exist. Accordingly, the mindset of society, the prevalence of conspiracy theories, and the prior links to the underworld undermines the country's ability to be effective guardians.

The Kurdish Problem

Before the end of World War I and the fall of the Ottoman Empire, the soon-to- be victorious allied powers began carving up the empire. The original treaty, the 1920 Peace

Treaty of Sevres, created Iraq, Syria, Kuwait, and included a provision that would allow

Kurdistan to receive autonomy from the Ottoman Empire and within a year appeal to the

League of Nations for independence. However, Mustafa Kemal (Atatiirk) and his supporters overthrew the monarchy during the Turkish War for Independence. In 1923, interested parties signed a new treaty, the Treaty of Lausanne. Despite Atati.irk's promises of local

88 During court proceedings, prosecutors introduced evidence that linked Sedat Edip Bucak and Abdullah Cada with Sakip Sabanci, an extremely successful Turkish businessman (Raufer, 2009-2010). Xavier Raufer (2009), a former French Intelligence officer, lists numerous individuals who are from the underworld and/ or business world of Turkey and have been convicted of various organized crimes, includmg corruption, conspiracy, and murder. 166

Kurdish autonomy during the war, the treaty did not mention Armenia or Kurdistan.

Turkey, Iran, and Iraq agreed they would not allow or recognize an independent Kurdish

state (Zurcher, 2005). Thus, the treaty allowed Turkey the legitimate right to not only deny

the Kurds their share of victory, "but also the very existence of Kurds as an ethic entity" 89

(Ozcan, 2006, p. 78).

Atatiirk and the Grand National Assembly enacted the 1924 constitution, which

established the Republic of Turkey. The constitution equated the words "citizen" and

"citizenship" with "Turkishness," and treated all inhabitants of the Republic as Turkish, regardless of their race, religion, or ethnicity (Ozcan, 2006). Realistically, not everyone living within the Republic was Turkish; a Kurd was a Kurd, not a Turk Kurds have their own language, customs, and other characteristics that distinguish them from their Turkish and

Arab neighbors. Nevertheless, if a Kurd wanted to hold office or be treated as a full citizen of Turkey, he or she had to give up his or her ethnicity. Essentially, the constitution resulted in the social creation of different classes and the resentment and dissatisfaction of Kurds living in Turkey (Ozcan, 2006).

Since creation of the Republic of Turkey, the Turkish government has been harsh to Kurds living in their ancestral lands located in Turkey. For decades, the Turkish government refused to recognize Kurds as a minority group (i.e., "no Kurds in Turkey, just

Turks") and referred to them as "Mountain Turks" (The Washington Post Company, 1999;

Ziircher, 2005). Turkish dictionaries and encyclopedias were rewritten to exclude Kurdish words and references. The few references that remained reiterated the idea that Kurds were a kind of Turks who simply changed their language and lived in Turkey, Iran, and Iraq

89 It is important to note that Kurdish is an ethnicity. Individuals who identify themselves or are identified by the Turkish National Police as being "Kurdish" could hold citizenship and reside in Turkey, Iraq, Iran, Syria, or another country. 167

(Ozcan, 2006). Additionally, Turkey outlawed Kurdish music, changed Kurdish town and city names to Turkish names, forced the migration of Kurds into cities or to western Turkey, and forbade them to wear traditional Kurdish costumes in cities (Ozcan, 2006; The

Washington Post Company, 1999; Ziircher, 2005). Many considered these policies oppressive. The broader justification for them was the conscious effort to create a national identity; everyone was a Turk and this desire for a national identify overrode minority rights.

Eventually, these policies caused the formation of "social pathologies" that led the 1982

Constitution to include the prohibition against any "mother tongues" except Turkish; all institutions and schools must teach Turkish, and speaking Kurdish became legally prohibited. One reaction to this oppression was the established of the PK.K (Ozcan, 2006).

Because of Turkey's bid for accession into the European Union, conditions in the region have improved since the 1920s. However, there is still uneven economic and social development, and clashes occur between the Turkish military and the PK.I<:..

Guardianship

There are numerous types of guardianship within Turkey, includmg police, customs, gendarmerie, and regulatory bodies and actions. The primary agency charged with social control within the major cities and towns is the Turkish National Police, and the gendarmerie Q"andarma) monitors rural Turkey. Hakeri (2008), a member of the law faculty at Selcuk University, includes the Coast Guard, which is under the Ministry of Defense, as one of the country's three main security forces. Additionally, Mutlu (2000), a sociologist from another Turkish university also lists the Coast Guard as the third branch of guardianship in Turkey. However, given this specific inquiry into cigarette smuggling, I feel 168

that the Turkish National Police, the Gendarmerie, and the Customs Department are the

primary guardians to contain cigarette smuggling and to enforce anti-smuggling policies and

programs. Regardless of a specific inquiry or crime, the High Security Commission, chaired

by the Minister of the Interior, oversees the crime "guardians" of Turkey. This commission

meets several times a year and includes representatives from the TNP, the Gendarmerie,

Coast Guard, Customs, and other relevant organizations and political leaders (Mutlu, 2000).

Modern and professionalized Turkish policing, including the Gendarmerie and

Coast Guard, began during the Ottoman Empire. The Ottoman Empire's social control

occurred in two parts-religion and civil-military. Prior to the 1830s, "policing," or

controlling society through the civil-military wing of the Empire, was the duty of the

Janissaries, the largest part of the Ottoman army. The Janissary was as "an elite, highly

educated infantry corps, drawn from the tributary Christian children of newly acquired

Balkan territories"(Aksan, 1998, p. 26). The Janissaries' leadership held high positions within

the Ottoman Empire, and the Janissaries guarded the palace, acted as bodyguards for the

Sultan, and maintained order and protected property throughout the empire (Swanson,

1972).

Murad I created the Janissary unit in the 14'h Century. The Sultan believed that

the Christian children from the Balkans-who were enslaved, removed from their parents'

care, transported to Istanbul, and then converted to Islam-would be loyal only to the

Sultan because they had no bonds outside of the palace or to Ottoman society. The children

attended special military schools, were removed from civil society, received certain judicial

benefits, and were not subjected to taxation. Eventually, the Sultan opened the Janissaries

corps to Turkish children and no longer depended on the conscription of slaves. Over time, 169

the Janissaries formed partnerships with various guilds, turned into a part-time militia, terrorized the population, and had the capability of instigating coups and overthrowing sultans. By the 1800s, they became an expensive, but worthless defense force (Aksan, 1998;

Zurcher, 2005). According to Aksan (1998), their collapse was because of "typical elite military resistance to innovation, partly because of the dissolution of their discipline and solidarity and their gradual merging with rural and urban society" (p. 26).

During the 1830s the Janissaries were disbanded and a new army formed, but without any duties or obligations to maintain domestic social control. The government filled this void in 1845 by creating a civilian police force. The government translated France's police regulations into Ottoman Turkish, and then implemented those regulations into the existing military framework. Over the next three years, the government phased out the military's association with the civilian police force and placed it under the newly established

Police Marshalship in 1848. Similar to the current police force, their jurisdiction was limited to cities. During the second half of the nineteenth century, the Gendarmerie policed rural

Turkey. During the Ottoman Empire, as well as under today's Turkish government, the gendarmerie was associated with the military.

After the fall of the Ottoman Empire, modern Turkey inherited these social control structures and modified them slightly. For example, the new government changed the name of the police agency to "General Directorate of Security" and restructured the

Gendarmerie to be under the control of both the Ministry of the Interior and the Ministry of

Defense (Mutlu, 2000). These changes are still in effect today as well as the jurisdictions for the "policing" agencies. The Interior Ministry includes the TNP, which provides services to approximately 70% of Turkey's population and throughout the 81 providences. The 170

Gendarmerie, which is more closely associated with the military, carries out services to the remaining 30% who live in rural and less densely populated areas (furkish Institute for

Police Studies & Turkish National Police, 2007, p. 7). The Customs Department monitors

"goods and means of transport entering into and exiting from the Customs Territory of the

Republic of Turkey" as well as travelers (Republic of Turkey - Prime Ministry

Undersecretariat of Customs, 2009, p. 6).

Turkish National Police

Unlike policing in America, the TNP is a centralized police force that has

jurisdiction throughout the country. There are approximately 188,000 police officers, of which about 15,000 are ranked. Approximately 5,000 of those officers work at Police

Headquarters in Ankara. Of the remaining 173,000 officers (or street cops), about 60,000 are

assigned to three cities: Istanbul, Ankara, and Izmir (furkish Institute for Police Studies &

Turkish National Police, 2007, p. 6). There are roughly 10,000 female police officers

(furkish Statistical Institute (fURI<:STA 1), 2009). Depending on the needs of the TNP,

they can transfer a "street cop" in Istanbul to Ankara or Van. Moreover, the TNP reassigns

their ranked officers, which constitute about 8% of their police force, to various cities to fit

the needs of the organization, to insure appropriate staffing through the country, and for

training purposes.

Within the TNP, there are five departments and 30 sub-departments. A Deputy

Director General heads each department and is directly under the General Director of the

TNP. One of the 30 sub-departments is the Department of Anti-Smuggling and Organized

Crime, the KOM (furkish Institute for Police Studies & Turkish National Police, 2007). 171

This department contains about 5,000 officers and specializes in counteracting organized

crime and trafficking in a variety of commodities such as narcotics and other drugs, humans,

cigarettes, alcohol, weapons, and nuclear materials (Turkish National Police: Department of

Anti-Smuggling and Organized Crime, 2008, p. Forward). Those officers work within

Turkey as well as collaborate with officers from INTERPOL, Europol, UN Office on Drugs

and Crime (UNODC), and various other countries.

The TNP has attempted to work with law enforcement agencies from

neighboring countries on cigarette smuggling cases. For example, there is a lot of

cooperation between the TNP and Europol (Interview 07.02.08.01, 2008). The taxation on

cigarettes tends to be higher in Europe than in Turkey, and Turkey's Middle Eastern

neighbors have lower taxation rates; therefore, smuggled cigarettes seem to enter Turkey

from the east and at a FTZ and travel westward into Europe. Accordingly, there is

cooperation between Europol and Turkey. However, cooperation between Turkey and

police in Iraq, Iran, and Syria is more difficult (Interview 07.05.08.02, 2008).

Smuggling is a primary concern for the TNP and KOM. While all ranked officers

receive some type of training on smuggling at the police academy, there are officers who

further specialize. Officers who are most likely to lead investigations concerning cigarette

smuggling appear to be from the Financial Crimes Unit, which is under KOM.

The Financial Crimes Unit has branches throughout the country and is based in

Ankara. This unit "deals with not only financial sources of the above mentioned offences,

but specifically with serious fraud and large cases of corruption/ corruption related crimes,

such as forgery for bank credit, tricky bankruptcy and violation of the Law No. 1918 on

Interdiction and Pursuit of Smuggling" (European Commission & Turkish National Police, 172

2003, p. 3). Moreover, because cigarette smuggling violates taxation laws, costs the government millions in lost tax revenues, and is financially motivated, it is appropriate that

this unit also deals with cigarette and alcohol smuggling,90

The Financial Crimes Unit considers cigarette smuggling a serious crime and a priority. For example, depending on the size and type of smuggling organization, police

officers from Istanbul's Financial Crimes Unit can spend 3-7 months preparing a cigarette

smuggling case. This is a considerable amount of time and resources for one case. This unit

also works with the Tobacco and Alcohol Market Regulatory Agency (TAPDK..)91, the governmental agency in charge of assessing and collecting taxes on cigarettes and alcohol

(see below for more information on TAPDK). Between the Financial Crimes Unit and

TAPDK they were able to document the financial loss associated with cigarette and alcohol

smuggling. Eventually, that resulted in an amendment to Article 220 of the Turkish Criminal

Code (organized crime), which allowed the police to consider cigarette smuggling an

organized crime. Before the change, the government could only fine individuals, but now

cigarette smugglers face the possibility of arrest, fines, and imprisonment (Interview

07.17.08.01, 2008).

Another important department under KOM is the Turkish Academy Against

Drugs and Organized Crime (TADOC). In 2000, the TNP and UNODC formed TADOC to train officers from Turkey (TNP officers as well as officers from the Customs

Department, Gendarmerie, and Coast Guard) and 48 other countries (Turkish Institute for

Police Studies & Turkish National Police, 2007). Courses focus on police tactics and

90 Other units within the TNP and KOM can handle cigarette smuggling as well. The Financial Crimes Unit is the primary unit for this crime and generates the statistics. Information pertaining to all cigarette cases is sent to headquarters in Ankara. 91 Often, Turkish acronyms that appear in English publications use the English translations of the words contained in the acronym. 173

techniques, drug production and trafficking, anti-money laundering, intelligence analysis, crisis management, terrorist financing, human smuggling and trafficking, and drug reduction strategies. Participants can take courses at the TADOC center in Ankara or as a computer­ based training. TADOC staff members work closely with the Turkish Police Academy, which is located on the same campus as TADOC, and are encouraged to publish scholarly works. Cigarette smuggling is briefly touched upon in some of the courses (Interview

07.15.08.01, 2008).

Other Potential Guardians: Customs. TAPDK. Gendarmerie. and the Village Guard

Turkey has several other potential guardians who enforce various laws and attempt to maintain social control. Aside from the TNP, the other two primary Turkish guardians against smuggling are customs and the Gendarmerie. Both of these agencies conduct investigations and can arrest individuals. As an effort to combat smuggling, Turkey moved Customs from the Ministry of Finance to the Prime Ministry in 1993 (Republic of

Turkey - Prime Ministry Undersecretariat of Customs, 2008b). In addition to Customs,

TAPDK assists with financial and intelligence aspects of anti-cigarette smuggling strategies.

The Gendarmerie is a branch of the Turkish Armed Forces. The Village Guards, a temporary security measure established more than 20 years ago to fight the PKK, is closely associated with the Gendarmerie.

In some fashion or another, Turks have collected customs duties and taxes since before the Ottoman Empire. From the nomadic lifestyle of Turks through the Ottoman

Empire and just after the War of Turkish Independence, Turkey's Customs had many forms.

For example, in the 1950s, Turkey abolished the General Commandership of Customs 174

Enforcement and divided its duties between the Ministry of the Interior and the Ministry of

Customs and Monopoly. The Ministry of the Interior guarded borders and were responsible for the detection, investigation, and prevention of smuggling activities. The Ministry of

Customs and Monopoly was responsible for enforcing customs laws in air and sea ports, land-based customs gates, and certain territories along the Marmara Sea, the Dardanelles, and the Black Sea. In 1983. Turkey abolished the Ministry of Customs and Monopoly and formed the Ministry of Finance and Customs, which lasted until 1993. Turkey separated the

Ministry of Finance from Customs and placed Customs under the Prime Ministry. Currently,

"customs" is organized as an Undersecretariat of Customs under the Prime Ministry, and the

Prime Minister's power reaches into the department's administration if he/ she chooses.

Regardless of its name and the Ministry Turkey places "Customs" under, its main purpose is to determine and collect custom duties and taxes. The Customs department sets taxation and exemption rates for items entering Turkey, such as cigarettes. For example,

Turkish Customs allows each traveler staying at least three day to bring in or take out 200 cigarettes, a kilogram of coffee, and a kilogram of chocolate for their own personal use without having to pay tax on the items (Republic of Turkey - Prime Ministry

Undersecretariat of Customs, 2008a). Additionally, Customs, in its current form, does have some authority regarding smuggling cases. According to the Law-decree for Organization and Functions of Customs Undersecretariat No.485 of 02.07.1993, Customs duties concerning smuggling are:

to prevent, inspect and investigate the smuggling in the customs gates and "laissez­ passer" gates on territorial borders and customs seaports and airports and free trade zones and various warehouses and inland customs territories, [and] to prevent and prosecute and investigate the smuggling, if necessary, in collaboration with the other related organizations in other locations (Republic of Turkey - Prime Ministry Undersecretariat of Customs, 2008b, ~ 46). 175

Finally, Turkey uses laws, regulatory agencies, agreements, and treaties to counteract crimes such as cigarette smuggling. For example, in 2005, representatives from

Turkey's Customs, Ministry of Finance, and TAPDK signed an agreement with major cigarette manufactures, such as TEKEL, British American Tobacco (BAT), Imperial

Tobacco, JTI, and Philip Morris. The purpose of the agreement was to fight against counterfeit and contraband cigarettes (Euromonitor International, 2008a).

TAPDK

TAPDK, or the Tobacco, Tobacco Products and Alcoholic Beverages Market Regulatory

Authoriry, was established in 2002 under Tobacco Law No 4733: "Law on Establishment of

Tobacco, Tobacco Products and Alcoholic Beverages Market Regulatory Authority." The regulation and taxation of alcoholic beverages also fall under TAPDK. The purpose of the law and its changes was to increase competition and prepare TEKEL for privatization. The law reconfigured TEKEL, which was the state owned tobacco monopoly, established

TAPDK and gave it the authority to regulate the production, marking, and trade of tobacco products within Turkey and to enforce Law 4733. For companies to participate in the export or trade of tobacco products, they must first obtain a Tobacco Trade Authorization

Certificate from TAPDK (Republic of Turkey - Secretariat General for EU Affairs, 2006a,

2006b).

Since TAPDK monitors the trade and applies the banderols to alcohol and tobacco products for which the duty has been paid, they too are concerned with cigarette 176

smuggling,92 TAPDK employees monitor the domestic and international counterfeit and contraband cigarette trade (Interview 07.02.08.02, 2008). Beyond working with the TNP, it has increased the complexity of its banderols to deter counterfeiting and other illegal practices. The stamp's design and security features change often, almost on a yearly basis.

Many of the security features are similar to those used in currency, such as inks visible by

UV lights and holograms. Additionally, the tax stamp contains a wealth of encoded information about the specific pack of cigarettes; such as where the cigarette was produced, the manufacturer, what brand, what kind (light, 100s, regulars, etc), the master case's barcode. Each type of cigarette has its own stamp. A domestic, cheaper cigarette would have a different stamp than a Marlboro Red, which would have a different stamp that a Marlboro

Light. TADPK and other guardians can read the stamps using a special hand-held machine, which looks similar to a hand-held scanner device that one would find in a grocery or department store. The scanners allow officers to read the information and determine if the pack is a legitimate pack of cigarettes with the appropriate duties paid (Interview 07.02.08.01,

2008). However, in 2008 Euromonitor International found that "unfortunately, the rate of counterfeit and contraband cigarettes rose enormously since 2002" (Euromonitor

International, 2008c, p. 4).

Gendarmerie Oandarma)

As stated above, the Gendarmerie's primary jurisdiction is rural Turkey and it is closely associated with the Turkish military. The TNP operates within municipal boundaries

(cities and towns); the Gendarmerie's primary jurisdiction comprises about 92% of Turkey,

92 A banderol is a large tax stamp that is affixed to the cigarette pack in a way that it musr be ripped upon opening The Ministry of Finance collects the tax. 177

but in criminal investigations, its jurisdiction can be nationwide (Hakeri, 2008, p. 363).

Within rural Turkey, or outside the police duty zone, "the gendarmerie takes care of law

enforcement, conducts criminal investigations, [and] controls traffic" (Mutlu, 2000, p. 384).

The Gendarmerie has an array of responsibilities in addition to those mentioned by Mutlu,

which are divided into four main categories: administrative, judicial, military, and "other

duties." Establishing and maintaining social control, policing duties, transporting suspected

criminals, anti-smuggling operations, and acting as external guards for prisons fall under

administrative or judicial duties (General Command of the Gendarmerie, 2009). Given that

most of Turkey's borders lie outside the police duty zone and that the military has primary

control over border security, the Gendarmerie is responsible for securing and monitoring

those regions as well as implementing anti-smuggling efforts (Global Security.org, 2005; U.S.

Department of State, 2008). In 2005, Turkey enacted the "National Security Policy

Document" which increases the Turkish Armed Forces', including the Gendarmerie, role in

internal security (Central Intelligence Agency, 2009). Concerning human trafficking, they

published educational guides for their officers as well as the public in hopes of stopping this

form of smuggling (U.S. Department of State, 2008).

The Gendarmerie's paramilitary force is considered part of their armed services,

and a bulk of their personnel are gained through military conscription (General Command of

the Gendarmerie, 2009; Global Security.org, 2005). Gendarmerie officers are former military

cadets who receive additional training. However, most of the duties and responsibilities of

the Gendarmerie fall on the conscripts, who are poorly trained (Global Security.org, 2005).

The Gendarmerie has been linked to numerous human rights violations, especially against

Kurds living in southeastern Turkey and individuals with suspected ties to the PK.I<. (Global 178

Security.org, 2005; Gorvett, 2008; U.S. Department of State's Bureau of Democracy, 2008).

Some of the human rights violations have been linked to activities with the village guard, a civil defense force primarily in the southeast, and additional violations stem allegedly from the Gendarmerie protecting Village Guards from prosecution (U.S. Department of State,

2008). The reported violations have become so well-known that the Gendarmerie has set up the Gendarmerie Human Rights Violations' Investigation and Evaluation Center to

"investigate and evaluate complaints and applications about the allegations of human rights violations taking place in the Gendarmerie area of responsibility or while carrying out the duties related to Gendarmerie" (General Command of the Gendarmerie, 2009, pp. Aim,

Para 3).

The Village Guards are closely associated with the Gendarmerie and the military .

In addition to other anti-PKK/Kurdish policies, the Village Guard system was established in

1985 as a civilian militia that would assist the military with their struggle against the PKJ(

(Kilic, 1998). The Law of Temporary Village Guards, originally enacted in 1924, is a throwback from the uncertainty of the region under Atariirk's newly formed republic. In

1985, the Turkish government amended the to allow for the current guard. The amendment also made guard members civil servants and paid them as such (Balta, 2004). Soon after its inception, the Village Guard became involved in tribal-based conflicts that were centuries old: corruption, human rights violations, terror, and revenge-based killings (Kilic, 1998). The guard also provided immunity for past and future crimes by its members. For example, t\vo guard members were wanted for murder. Even though they were on the government's payroll and spent most of their time in the local police station for their guard duty, they could not be found for 16 years (Balta, 2004). 179

Twenty years later, Turkey still debates the merits and contributions of the Village

Guard, which was supposed to be a temporary measure. Currently, there are about 58,000 individuals enlisted in the Village Guard (Kardas, 2009, ~ 3). Similar to the Gendarmerie, the

Village Guards have been criticized for their involvement in criminal activities and human rights violations, such as kidnapping, rape, razing homes and villages, and forced migration.

"According to Interior Ministry records, village guards were the target of over 5,200 criminal investigations and as a result 853 guards were arrested for various crimes" (I<:ardas, 2009, ~

3). Additionally, the Village Guards have a long history of allowing cross-border smuggling or even being well-known smugglers themselves. Their position in the Village Guard granted them immunity from prosecution for smuggling and other crimes (Balta, 2004).

Corruption and Other Issues that Weaken Capable Guardianship

Regardless of the kind of guardianship, corruption and reports of the Turkish government's close association with terrorist groups and criminals has weakened its ability to be an effective guardian against smuggling and other organized crimes. Turkish citizens believe in a "deep state" and that corruption within the Turkish government is substantial and commonplace. The contemporary manifestation of the deep state is the Ergenekon case, and many viewed the Susurluk scandal as proof that is collusion between high-ranking officials, terrorist groups, and organized crime. The AK Party "closure cases," the subsequent allegations of corruption in the AK Party that occurred around the same time as 180

the cases,93 and the deep state could be viewed as proof that varies entities of government, both the civilian and military entities, have a corruption problem.

Since the 1970s, there have been constant rumors and denial of a criminal "deep state," which greatly affects the government's corruption-level perceptions. As discussed in detail above, Turkey's use of a secretive and military related group has existed throughout the Republic's formation and history and their purpose has changed over time. Atariirk used his agencies to ensure the creation and sustainment of his republic (Bovenkerk & Y esilgoz,

2004). During the Cold War these secret, paramilitary groups' purpose was to fight the spread of communism. Remarkably, in some form or another, Atatiirk's secret committee agency and its descendents existed for more than 50 years without the civilian government having any knowledge of it. High-level civilian leaders learned of the organization when the

Army Chief of Staff requested additional funds for the unit in the 1970s (Bovenkerk &

Yesilgoz, 2004). Supposedly, the organization, the OHD, was funded by the United States until the early 1970s Genkins, 2009). The civilian leadership ordered the unit ternunated, but the military did not comply. Later, the civilian government stated that Turkey needed such an organization as part of its defense (Bovenkerk& Y esilgoz, 2004). In the 1980s and 1990s, the groups were used to fight the "Dirty War" against Kurdish rebels and to counteract the

Armenian Secret Army for the Liberation of Armenia (Rainsford, 2008).

An additional suspected link between the State and the underworld concerns

Turkish/Kurdish Hizbollah,94 These secret connections appear to be linked to the

93 There are numerous allegations of corruption involving the AK Party and the number increased a few years after they took power. For example, high-level officials who worked for the mayor of Adana wete linked to the "Godfather" of Adana (Raufer, 2009-2010).

94 This organization has no apparent links to Lebanese Hezbollah. Some individuals refer to this group as Turkish Hizbollah and others refer to it as Kurdish Hizbollah. Turkish and Kurdish Hizbollah is the 181

government's desire to fight the PI

Turkish Hizbollah in 2000, "many elements of the general public had come to regard

Hizbollah as a quasi-official terrorist or counterterrorist organization" because Turkish

authorities did not interfere with the group's murderous success against the PI

2007, p. 127). According to Sozen (2006), there is some evidence that the Turkish Hizbollah

fought the PI

Corruption has been problematic for Turkey and it weakens capable guardianship.

The country's European Union bid forced the country to address some of its corruption issues. When examining quality of life issues in Turkey, Rose and C)zcan (2007) examined

Turkey's corruption issues and its accession into the EU. Among other factors, they

concluded, "the country's rule of law has been weakened by corruption and derogations from human rights ... existing shortcomings in governance raise questions about the administrative capacity of the Turkish state" (p. 57).

The Turkish media has reported stories of various officials demanding bribes or participating in various forms of corruption. For example, in 2006, the Turkish newspaper

Hiirriyet (Turkish Dai!J News) reported that prosecutors videotaped 5,592 bribes at the

Kapikule Customs Gate.95 Customs officials would extort between 10 and 250 Euros from smugglers, including cigarette smugglers, and then distribute the bribes between officials same organization. Huseyin Velioglu founded the Turkish Hizbollah in 1979. At first Velioglu and his organization wanted to turn Turkey into an Islamic state through the democratic process. However, after the 1980 military coup, he realized that would not be possible. Members of this group visited Iran to receive training in weapons and other skills from the Iranian intelligence services. Although Turkish Hizbollah es have strong ties to the Kurds, Kurdistan, and their struggles, the organization is not limited to Kurds. The Turkish Hizbollah has fought against the PKK as well. Their membership tends to be from Southeastern Turkey, poorly educated and isolated from mainstream society, especially in economic and social terms (Jenkins, 2008a; Ozeren & Cinoglu, 2006; Sozen, 2006; Uslu, 2007).

95 Kap1kule Customs Gate is the second busiest border gate in the world. This gate is where g0ods and people cross between Bulgaria and Turkey. 182

(Hiirriyet, 2006 -a, 2006 -c). Of the 58 officials originally charged, 23 of them received at least seven years in prison and some of the remaining officials received lesser sentences for

"for corruption, accepting bribes and allowing the smuggling of alcohol and cigarettes"

(Hiirriyet, 2006 -a,~ 3, 2006 -c). A few months later the Gendarmerie detained 35 individuals, at least 13 of whom were Customs Officials, for their alleged role j n oil

smuggling between Iraq and Turkey at the Habur Customs Gate (Hiirriyet, 2006 -a, 2006 -b).

The examples above may have contributed to Turkey's score on the Transparency

International's (TI) Corruption Perception Index (CPI). For 2006, TI scored Turkey as a 3.8 on the CPI with zero being highly corrupt and ten being highly clean. Countries with similar perceived corruption scores as Turkey's are Colombia, El Salvador, Bulgaria, Jamaica,

Poland, and Lebanon. In 2008, TI reported that respondents' perception of corruption decreased. Turkey's 2008 score was 4.6 (Transparency International, 2009). TI, within in their Global Corruption Barometer, also measures how ordinary people perceived corruption associated with policing, the military, and tax authorities. For 2007, Turkey's scores indicated moderate to high level of perceived corruption (1 indicating not all corrupt and 5 indicating extremely corrupt) within its political parties (3.7), legislature (3.6), military

(3.4), judiciary (3.8), police (4.0), and tax authority (4.1) (Transparency International, 2007, p.

22).

Cao and Burton (2006) wanted to examine the public opinion and confidence level concerning policing in Turkey, and then compare their findings to the opinions of policing in surrounding countries. At first glance, it may seem contradictory that Cao and

Burton's (2006) analysis of the European and World Values Surveys indicated that the 183

Turkish public had comparatively high ratings concerning the confidence of police,96 yet they still concluded that corruption is a problem. In their study, 70.7% of Turkish respondents indicated, "that they had a great deal or quite a lot of confidence in their police" (Cao &

Burton, 2006, pp. 456-457). If Turkey was a member of the European Union, the score would place Turkey in the top third and it would be similar to Luxembourg, Germany, and

Great Britain. However, the survey is measuring the institution and not the level of trust the citizenry has in their police force. Cao and Burton concluded:

The Turkish public may have a high confidence in the police's ability in dealing with crime, but their high level of confidence cannot be construed to mean that citizens believe that the police are honest or trustworthy. In general, police corruption in Turkey remains a salient public issue (Cao & Burton, 2006, p. 460)

Studies and reports have shown specific cases of corruption within the guardianship. In a study of 306 Turkish police chiefs, Mutlu (2000) found that problems within the police force stem from nepotism and favoritism. For external pressures, 91 % reported that pressure from politicians, media, human rights organizations, and the Mafia resulted in "negative effects on police work" (Mutlu, 2000, p. 388). Additionally, the well- known Susurluk affair spurred an investigation that led to uncovering a collusion between organized crime and the state (Bovenkerk& Y esilgoz, 2004). Investigations, studies, personal experiences, and reports of corruption or participation in organized crime, such as those mentioned in the U.S. Department of State's Country Reports on Human Rights Practices for Turkey (see U.S. Department of State, 2008), weakens the state's ability to provide

96 It is not clear whether the survey purposely included or excluded the Gendarmerie and Village Guard, or how narrow of a definition of "police" respondents were given. Because of the large geographical jurisdiction of the Gendarmerie and the influence of the Village Guard has on local villages, it is probable that some respondents did not differentiate between the 1NP and military-related agencies that essentially operate as "police" or social control agents. 184

effective guardianship and have their citizenry perceive them as an effective and legitimate guardian.

Turkey's ability to provide effective guardianship, one of the three elements associated with crime prevention under the routine activities theoretical framework, against smuggling is complex. It appears that the civilian and military branches are competing against, if not undermining, each other. The police can operate throughout the country's municipalities. Their highly trained and specialized Department of Anti-Smuggling and

Organized Crime as well as their training center, TADOC, illustrate the importance of anti­ smuggling efforts by the Turkish government. These two departments attempt to build bridges between the Turkish police and other countries' police forces to better detect and reduce smuggling activities in Turkey. Turkey has 5,000 police officers under KOM's divisions, but all police are asked to report any smuggling activities they encounter. The TNP considers combating cigarette smuggling a priority, devotes specialized resources to combat the crime, and have launched several raids and investigations into the crime (see below for more information).

However, ill-trained military and paramilitary groups who patrol the border regions plus the country's level of corruption may hamper or diminish the effectiveness of guardianship. The country's problems with suspected "deep state" crimes committed by the guardians to be the "Kurdish Problem," public perception of corruption, and conflicts with the Gendarmerie and the Village Guards may reduce the public's view of guardians as legitimate. This too may restrict the guardians' abilities to combat smuggling. 185

Cigarettes {Suitable Target) & Cigarette Smuggling

Counterfeit and contraband cigarettes are trafficked into and out of Turkey and its neighboring countries such as Iran, Iraq, Syria, and the European Union. Turkey has well- established trading routes, laws that prohibit importation of foreign cigarettes, and a high percentage of smokers. It also has a very high rate of smoking. Euromonitor found that

"Turkey recorded the highest cigarette volumes in 2005" for all countries (Euromonitor

International, 2007d, p. 48). In 2006, there were 28.3 million smokers, or 53.6% of adults in

Turkey (Euromonitor International, 2008c, p. 1). As a comparison, only 17.2% of the U.S. adult population were smokers in 2006 (Euromonitor International, 2007c, p. 2). Although

Turkey has a high rate of smoking and cigarettes tend to be inexpensive compared to their

European neighbors' retail price, Turkey's "GNP per capita is almost one sixth of that of the

EU's and the majority of the smokers in Turkey are very price sensitive" (Euromonitor

International, 2008a, p. 5). The legal remedy for this quandary is to launch economy brands and the illegal remedy is to sell counterfeit and contraband cigarettes. Given the historic trading routes, the political and social environment, the demand for cigarettes, and the financial situation, it is not surprising that willing participants (criminals) are exploiting the situation, resulting in a sizable market in illegal cigarettes.

As of July 1, 2008, the minimum sales price for a pack of imported cigarettes, such as Marlboro, was YTLS.5. 97 Of that price, 4.18 lira goes directly to the Turkish government as taxes (2008). Considering that Turkey experienced YTL21.8 billion in cigarette sales for 2006 (Euromonitor International, 2008a, p. 1), avoiding Turkey's high cigarette taxation rates can be profitable for smugglers. Euromonitor International estimated

97 YTL = New Turkish Lira. 1YTL is equivalent to $0.60; thus, a pack of Marlboro cigarettes is about $3.25. 186

Turkey's illicit cigarette market to be approximately 12.4% in 2006 (Euromonitor

International, 2008c, p. 10). Given the lower taxation rates in and historical trading routes through Iran, Iraq, and Syria, it is not surprising that the greatest share of illegal cigarettes seized by the Turkish National Police are in the eastern part of the country. In 2007, out of the 2,307 cases of cigarettes police seized in the entire country, 709 of the seizures occurred in the southeastern cities of Hatay, Adana, and Mersin alone -thus, nearly a third of the seizures come from an area with approximately 7% percent of Turkey's population (Turkish

National Police: Department of Anti-Smuggling and Organized Crime, 2008, p. 72).

Cigarette Smuggling in Turkey

Cigarette smuggling is linked to multinational tobacco manufactures, organized crime groups, family-linked smuggling groups, and the PKK. In 2002, the EC alleged that

RJR worked with the PK.I< to warehouse and smuggle contraband cigarettes into Iraq via

Turkey. This activity lasted throughout the 1990s and up to the fall of Saddam Hussein's reign (European Community v. R.J. Reynolds et al., 2002; European Community v. R.J.

Reynolds et al. and Philip Morris et al., 2002). Prior to the war, Turkish police raided a PKK­ suspected home in eastern Turkey. Instead of finding a treasure-trove of weapons, police discovered a printing press used to counterfeit cigarette tax stamps (Roth & Sever, 2007).

Since the start of the Iraq War, Turkey has seen a dramatic increase in counterfeit cigarettes entering Turkey through Iraq (Euromonitor International, 2008a). However, Iraq is not the only source of illicit cigarettes. In 2006, the Turkish police seized more than 2.5 million boxes of cigarettes from Iran in the eastern city of Van (Anatolia News Agency, December

7, 2006). Additionally, criminals use established trading routes to bring illegal cigarettes into 187

Turkey from China and Bulgaria (Euromonitor International, 2008a). China and Iraq seem

to be two major source countries for counterfeit cigarette that enter Turkey.

To smuggle cigarettes into Turkey, smugglers use a variety of routes and methods,

such as ships, busses, trucks, cars, and donkeys (Interview 06.15.07.02, 2007; Interview

07.17.08.01, 2008). Figure 4.6 illustrates a few of the known trafficking routes. According to

Turkish National Police officers, there are three main ways that contraband and counterfeit

cigarettes enter Turkey: corruption of customs officials (corrupt officials provide fraudulent

bills and shipping invoices), illegal crossing of the borders, and duty free schemes (Interview

07.02.08.01, 2008).

Figure 4.6 Known Cigarette Smuggling Routes into Turkey

Different actors use different methods and routes. For example, ethnic Kurds may obtain counterfeit cigarettes-produced in Iraq, China, or another country-and 188

illegally move them into Turkey through family ties and using cheap cars and, in some cases, donkeys (Interview 05.03.10.01, 2010; Interview 06.15.07.02, 2007; Interview 07.04.08.01,

2008; Interview 07.05.08.02, 2008). Another example is criminals who use loopholes in taxation and duty free laws. Organized criminals98 who have connections with the tourism industry arrange for each tourist arriving in Turkey via bus to purchase three cartons of duty- free cigarettes. If there are fifty people on a bus, the bus driver will claim that each person purchased three cartons of cigarettes for his or her personal consumption. Usually, the passengers are unaware of their purchases. The criminals bring all 150 duty-free cartons into

Turkey and sell them on the black (Interview 06.15.07.02, 2007; Interview 07.02.08.01,

2008).

Cigarette smuggling between Iraq and Turkey is interesting because the direction of smuggling activities seems to have changed. Prior to the 2003 invasion, smuggling cigarettes into Iraq was a booming business. RJR, and later JTI, devised a scheme to increase their international market share by selling cigarettes in Iraq, despite the UN embargo and

U.S. law that prohibit such sales. To accomplish their goal they devised a complex smuggling scheme, colluded with Saddam's regime, and paid the PKK a fee for every container that moved across the Kurdish region of Turkey and into Iraq (European Community v. R.J.

Reynolds et al., 2002; European Community v. R.J. Reynolds et al. and Philip Morris et al.,

2002; Shelley & Melzer, 2008; World Health Organization, 2003a).

To smuggle cigarettes into Iraq, RJR and JTI produced billions of cigarettes at

RJS's Puerto Rico factory, shipped them to Valencia, Spain, marked as Winston Brand

Cigarettes, and then reloaded the cigarettes onto ships bound for Cyprus. In Cyprus, the

98 In Turkey, the police consider a crime an "organized crime" when it involves more than two people. They do not reserve this term only for "stereotypical" mafias and organized crime syndicates. 189

containers were unloaded, the markings changed, and the cigarettes were reloaded on ships, complete with false documentation that indicated the cigarettes were going to Russia.

However, the company shipped the cigarettes to Lebanon, and then moved them to Turkey for storage in huge warehouses. Eventually, the cigarettes entered Northern Iraq from

Turkey through the Habur border crossing (see Figure 4.7). Once in Iraq, cigarettes arrived at two PK.IC-controlled towns in Iraq, Dohuk and Zokho, and then were disseminated throughout the country. Uday Hussein, Saddam Hussein's son, oversaw and personally profited from the lucrative illicit business (European Community v. R.J. Reynolds et al.,

2002; European Community v. R.J. Reynolds et al. and Philip Morris et al., 2002; World

Health Organization, 2003a).

PuenoR:ico Eurc1pean EC co Cyprus c,,,.n.. FKdllC•d m Community Cyprus mzpz.oUd ~~JR/J1p.u1 7c,b1!"~ :tll'! K•lci.d•d ~ped t: VLlen= 1l.1.tb:t;: :lun,.,.d under ll:"m>t·:n Btllld •rnto lil!Ji:• SF= & e::ill•r i:.c R.ek1ded ·:"ill c,,.,.n.,. pert• forC:;:pra. i;-~m.mu fa'ttl

Lebanon c,,..n•• !.ll::pped tc Leb..,,,:n .>Jl>i me.~ t:· !'mkey

I:raq Tw:k.ey 1 Entezed Inq t1u::~h &bur b ;:1de1 ~:N:: ~~ t : 5t:i::ub~t

Figure 4.7 RJR Movement of Cigarettes into Iraq (Pre-invasion, 1990-2001)

After the invasion, the direction of smuggling changed and Turkey started to notice an influx of both contraband and counterfeit cigarettes coming from Iraq. Turkish police 190

and tax officials have found that traffickers are exploiting Mersin's status as a FTZ to

smuggle contraband cigarettes. Since Iraq does not have a port on the Mediterranean Sea,

international agreements allow manufacturers and trading companies to ship products to

Iraq via Mersin's FTZ. Legally, products that are shipped via this method cannot remain in

Turkey (2008). At this point, some of the cigarettes illegally remain in Turkey because

traffickers disseminate them throughout the country without paying the appropriate taxes

(2008). Other cigarette containers are shipped to Iraq, with a few containers re-entering

Turkey as contraband (Interview 07.02.08.01, 2008; Interview 07.02.08.02, 2008; Interview

07.05.08.02, 2008).

According to Euromonitor International (2008), "after the Iraq war started, the

amount of counterfeit cigarettes that entered Turkey from Iraq, mainly through the Habur

border crossing, increased enormously" (2008a, p. 2). Iraq's connection to counterfeit

cigarettes in Turkey is twofold. First, criminals produce counterfeit cigarettes in various

other countries, such as China, and then they move the cigarettes into Turkey via Iraq.

Similar to contraband cigarettes, traffickers exploit Iraq's unstable environment and large

number of individuals willing to smuggle goods through Iraq and into neighboring countries.

Figures 4.8 and 4.9 illustrate trading routes confirmed by an industry official and Turkish

police (Interview 06.15.07.01, 2007; Interview 07.02.08.01, 2008). Second, a counterfeit industry has developed in Iraq. Criminal groups and the PKJ<: can produce counterfeit

cigarettes easily and in the open (Euromonitor International, 2008a; Interview 07.05.08.02,

2008). 191

m)Uu=, Sh:rpp'°d to· Inq ------

'1l1!!1!Wiim!iiiii!Bli!!!!ijH I

ljffidW!!lml!lll!llll!!l1!l!,!i,1!. '-----11'-----" -~' '"' Bo•'" it J.iu=\ P·o·n & FI .. Tn,i• Z·:n•

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Figure 4.8 Known Smuggling Route of Counterfeit Cigarettes from China to Turkey via Iraq

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ANATOLIA .Kay~.,,ri

Figure 4.9 Cigarette Smuggling: Iraq and Syria to Konya, Turkey

The illicit cigarette trade from Iraq and neighboring countries has affected the

Turkish city of Konya.99 Around 2006, Kanya's Department of Anti-smuggling and

99 Konya is a city and providence located in central Anatolia. The city is approximately four hours, by bus, south of Ankara. This region's history is centuries old and entrenched in religion. Konya was the capital of the Seljuk Turk's empire. Konya is the birthplace for the Mevlana order and the Whirling Dervishes. 192

Organized Crime launched an investigation into the street sales of illegal cigarettes. They were able to link cigarette packs sold in Konya to Kurdish smugglers in Syria and Iraq.

Kurdish smugglers used two main routes (see Figure 4.10). The first route was between Syria and Konya. Smugglers used small, fast vehicles to transport cigarettes from Syria to Turkey via Hatay, Mersin (Ic;:el), and finally to Konya. The second route was from Iraq. Cigarettes from Iraq are driven to Adana and then to Konya. The investigation also determined that individual street sellers cleared, on average, about $200-$250 a day in profit; wholesalers and street sellers knew each other; smugglers preferred small, fast vehicles because of the long distances and their ability to hold between 10,000 and 20,000 packs in each load; smugglers preferred smaller loads because of their reduced risk of detection and confiscation; and smugglers were Kurdish with shared politics as well as being PKK sympathizers and/ or supporters. The Turkish media has reported that police have found a connection between a member of a prominent Kurdish family and his participation in cigarette smuggling Genkins,

2007). During my interviews, a few police officers stated that the TNP have found connections between this family and illegal cigarettes smuggled from Bulgaria into Iraq

(Interview 07.04.08.01, 2008; Interview 07.05.08.02, 2008).

The investigation also discovered important insights into the social aspects of cigarette trafficking. Although the Konya traffickers share similar politics and supported the

PKK, the purpose of the trade was not necessarily to fund political goals or terrorism, but for personal financial gain. This is not to say that their activities did not ultimately fund terrorism, only that their primary goal was personal, financial gain. This is similar to the individuals who sell illegal cigarettes in DuPont Circle. In addition, the investigation revealed

city in Turkey and the Prophet Mohammad's beard is in the Mevlana Museum along with the remains of the many descendents of Mevlana. 193

that cigarette smugglers do not view themselves or label themselves as criminals or terrorists.

For various reasons, many of the cigarette smugglers, their families, and their communities do not view these individuals as traffickers. Instead, the trade is merely viewed as transactions between family members who do not recognize the artificially created political borders or Turkey's right to impose taxes (Interview 07.04.08.01, 2008; Interview

07.05.08.02, 2008).

Cigarette smuggling originating in Iraq and Syria reaches far beyond Konya. As stated earlier, cigarettes do enter the country through Bulgaria. However, the eastern border is more problematic. In addition to the routes mentioned above, counterfeit cigarettes entering Turkey through its Middle Eastern neighbors follow two additional routes.100 The first route involves counterfeit cigarettes coming from China. The counterfeits are offloaded from ships in Lebanon and moved overland into Syria. From Syria, smugglers move them in small, fast cars into Hatay, Turkey. While in Turkey, the cigarettes move through a variety of cities, including Mersin and Adana, on the way to Istanbul. The second route involves counterfeit cigarettes made in Iraq. Factories in northern Iraq produce the counterfeit cigarettes and smugglers moved them into Syria. From Syria, Kurdish smugglers move the cigarettes into Turkey via Hatay, Mersin, Adana, and Istanbul (Interview 05.03.10.01, 2010).

Contraband cigarettes enter Turkey through Syria as well. The amount of cigarettes that enter the Turkish providence of Hatay from Syria surpasses the amount that residents of Hatay could consume. Kurdish smugglers purchase cigarettes at duty-free stores, often in prepackaged five carton boxes. Smugglers either drive the cigarettes across the

100 There are numerous routes by which illegal cigarettes enter Turkey. In addition tc the routes described in this paper, cigarettes produced in Iraq enter Turkey directly as well as first passing through Syria. Also, counterfeit cigarettes coming from China can also pass through the United Arab Emirates or Iran on their way to Turkey (Cengiz, et al., Forthcoming). 194

border or use donkeys that cross into Turkey via the Amanos Mountains. Smugglers use hundreds of donkeys to move oil, cigarettes, and other commodities. Each donkey can carry

25 to 30 cartons of cigarettes. When the cigarettes enter Hatay providence, smugglers store them in homes and barns until smugglers can distribute them throughout Turkey. Most of the storage areas are outside of the TNP's jurisdictions and are in the jurisdiction of the

Gendarmerie. Nevertheless, the TNP are able to seize about 500-1,000 cartons a day. One of the ways they are able to seize the cigarettes is through traffic stops, especially on the roads leading to Istanbul. However, smugglers attempt to avoid the police efforts by sending cars ahead of the vehicle with the cigarettes. If they encounter a stop, they use mobile phones to warn the drivers with the illegal cigarettes.

Smugglers involved in the schemes described directly above, tend to share common characteristics of those from the Konya case. The individuals involved in the routes that pass through the Hatay providence tend to be poor, have limited legitimate means of earning an income, and are of Kurdish decedent. Sometimes they are involved in larger networks and distribution schemes that involve drivers, wholesalers, and street sellers.

Sometimes the same individual is involved in all of the steps and roles. The profitability depends on the size of the smuggling scheme. Some smugglers can live off the money and others use cigarette smuggling as a way to supplement other income. Regardless, the smugglers prefer old cars and minivans to move the cigarettes. The price differences between acquiring the cigarettes in Syria, especially duty free and counterfeit cigarettes, and the resale Turkey provide the incentive for the smugglers. Moreover, the low punishments for cigarette smuggling do not deter the illegal activities. Finally, cigarette smugglers tend not 195

to be involved in the trafficking of narcotics, other illegal drugs, or humans (Interview

05.03.10.01, 2010).

Cigarette smuggling occurs all over Turkey, not only in the southeastern region.

Police estimate that there are at least 120 brands of cigarettes smuggled into Turkey

(Interview 07.02.08.01, 2008). The cigarettes can enter through any of the country's seaports and borders, including shipments originating from non-Middle Eastern countries. As discussed above, cigarette smuggling is a big business at the Kap1kule Customs Gate, which links Turkey to Bulgaria. And Istanbul is a major entry point for illicit cigarettes (Interview

07.17.08.01, 2008). Police have also uncovered schemes where smugglers used larger shipping vessels to bring cigarettes into Turkey. One of these ships can have 942 to 960 boxes of cigarettes, with the average value of one container at $2 million (Interview

07.02.08.01, 2008). In addition to the tourist-bus scheme described above, individual tourists from Bulgaria, Greece, and Romania visit Turkey for short stays and bring with them cigarettes from the duty-free shops and then resell them (Interview 07.17.08.01, 2008).

Antalya, a vacation destingation on the Mediterrian Sea, has not had a significant case of cigarette smuggling in years. According to a police officer, the number of tourists who bring in duty-free cigarettes provides a sufficient supply of illegal cigarettes that larger smuggling rings avoid the market (Interview 07.09.08.01, 2008). Finally, Ankara and Istanbul, the country's largest cities, are two major destitinations for counterfeit and contraband cigarettes

(Interview 07.02.08.01, 2008).

Cigarette smuggling between the Turkish and Iraqi borders is problematic and authorities and analysts have linked the PK.I<: to this revenue-generating crime. Several authors, reports, police officers, and industry officials have linked the illicit cigarette trade to 196

the PKI< (Anatolia News Agency, 2006, December 7; Basler, 2004; Coker, 2003; European

Community v. R.J. Reynolds et al. and Philip Morris et al., 2002; Melzer, 2009; Roth & Sever,

2007; Shelley & Melzer, 2008). The PKK connection to the illicit cigarette market is direct and indirect. As discussed above, the PKK has been directly involved in smuggling cigarettes in Iraq and Turkey. Another example of their direct involvement involves counterfeit tax stamps. In 2000, authorities conducted a raid at a PKK safe house and expected to find weapons and the like. Instead, they found a printing press used to produce counterfeit cigarette tax stamps (Roth & Sever, 2007). The PKK "taxes" traffickers who move products through PKK-controlled regions (Casteel, 2003; Cilluffo, 2000; Raufer, 2009-2010). The

PKK taxes cigarette smugglers and the tax is one way that they are indirectly involved, but directly profit from the illegal cigarettes entering from Iraq and Iran. For example, the PKK charges cigarette smugglers $3 per horse or donkey that passes through their territory

(Cengiz, 2010). Moreover, Turkish police estimate that the PKK imposes a 20% tax on all smuggled cigarettes passing through their territory (Anatolia News Agency, December 7,

2006).

The connection between cigarette smuggling and the PKK is particularly apparent around the Habur border gate and the borders Turkey shares with Iran and Iraq (Interview

05.03.10.01, 2010). However, authorities and researchers have discovered links between the

PKK and illegal cigarettes smuggled and sold through Europe. Connections between the illegal cigarette market and the PKK have been located in the United Kingdom, Belgium, the

Netherlands, France, Germany, and Switzerland.101 The PKK is mostly involved with street sellers and distribution; nonetheless, they have played an important role in obtaining

101 These countries have Turkish and Turkish-Kurdish immigrant communities, and some of them have sizeable immigrant populations from Turkey. 197

cigarettes from South America as well as China and Iraq and formed a partnership with a variety of criminal groups throughout Europe (Cengiz, et al., Forthcoming).

The PKK. has used the profits earned from cigarette smuggling and other illicit smuggling activities to fund their political goals and terrorist attacks. Clashes between the

PKI<: and entities of the Turkish government have resulted in thousands of deaths.

Moreover, the conflicts have created environments that are unstable and friendly to criminals and criminal behaviors. Smuggling of all sorts, including cigarettes, has made significant profits for individuals and the PKK. Aside from financial incentives, curbing the trade is particularly hard for the Turkish National Police because, on the Iraqi side, there is a lack of authority and cooperation, and no focal point for police to coordinate with or exchange information.

Motivated Offenders

There can be several different classifications of motivated offenders in the illicit cigarette trade. Two classifications could be the consumer and the smuggler. One could make an argument that the end consumer of illicit cigarettes should be considered a motivated offender. If no one or very few people consumed cigarettes, the illicit trade would diminish or even disappear. However, if the smuggler did not bring the counterfeit and contraband cigarettes through the distribution chain, the consumer would not be able to buy illegal cigarettes. An interesting theoretical issue that arises when considering in which theoretical category a researcher places the motivated offender. Criminologists who subscribe to the opportunity theory and economists could place the offender in different categories. As discussed in Chapter 2, economists view the routine activities approach or 198

opportunity theory in the same way they would look at supply and demand markets.

Criminologists might classify a "willing offender" in one category-regardless of whether he or she is a supplier or consumer of the illegal cigarettes. Criminologists do not always classify the willing offender as "supply" or "demand;" they simply classify him or her as an offender.

Economists, on the other hand, find "the supply and demand" framework as fundamental to understanding market phenomena, regardless of whether it is a legal or illegal market.

Consumers

According to the American Cancer Society's Tobacco Atlas, approximately 30% of all adults and 41.6% of all medical professionals in Turkey consume cigarettes (Mackay, et al., 2006, p. 104). Euromonitor International (2008b) estimates that counterfeit and contraband cigarettes accounted for 12.4% of the Turkish cigarette market in 2006 (p. 10).

The report does not break down the illicit market by the type of consumer. According to one police officer, there are three kinds of buyers. The first one is the unknowing buyer; he or she does not know that the cigarettes they purchased are counterfeit or contraband. The second type of buyer knows the cigarettes are either counterfeit or contraband, but purchases them anyway because of the cheaper prices. In addition, the third type of buyer willingly purchases a contraband cigarette because he or she cannot legally purchase their preferred brand in Turkey. For example, Cuban cigars and cigarettes are illegal in Turkey

(Interview 07.17.08.01, 2008).

The cheaper price argument can be further applied to smokers under the age of

18. In a study conducted on the correlates of cigarette smoking among Iraqi Kurdish youths,

Siziya, Muula, and Rudatsikira (2007) found that in Iraqi Kurdistan, and in general, there is a 199

positive correlation between the amount of pocket money a youth has and the likelihood of being a smoker. They speculated that smuggled cigarettes, because of their cheaper price and availability in certain types of markets, may be more attractive to youths who smoke (Siziya, et al., 2007). Since many smokers begin the habit in childhood, perhaps adolescent smokers who purchase illicit cigarettes may continue their habit and preferred market as an adult.

From 2001 to 2006, the percentage of the Turkish market that was illegal grew from its lowest point in 2001, which was 6.7% (Euromonitor International, 2008c, p. 10).

During this same period, legal sales remained somewhat constant. However, the total consumption (which includes legal and illegal cigarettes) increased from its 2001 low of

114,659 (in million sticks) to its 2006 high of 124,316 (in million sticks) (Euromonitor

International, 2008c, p. 10). The demand for legal cigarettes did not increase at the same rate as the demand for illicit cigarettes, which nearly doubled during this time. Therefore, one could argue that since the demand for illicit cigarettes grew at a faster rate, then consumer demand and the consumer's preference for illicit cigarettes would make the illicit consumer a motivated offender. Of course, others could consider consumers motivated offenders.

Criminal Actors

Although the knowing or unknowing consumer does play an important role 111 the existence and size of the illicit market, focusing on the smuggler and other illegal actors may provide a better understanding of the illicit trade. However, one cannot ignore the demand aspect of the illicit trade when examining the actors. The end consumer certainly accounts for the demand; however, the smugglers, traffickers, illicit manufactures, and other criminals involved in the trade make the illicit the product available to the consumer. Therefore, the 200

remainder of this case study will focus on those motivated offenders. Motivated offenders who participate in the supply chain of counterfeit and contraband in Turkey can be legal manufacturers, terrorist organizations, families (genetic) or tribes, non-kinship bootleggers, and organized crime groups.

The first category of supply-chain motivated offenders is the legitimate manufacturers, who tend to be involved in large-scale smuggling schemes. One of the main goals of the WHO Framework Convention on Tobacco Control is to reduce the amount of contraband cigarettes supplied by legitimate manufacturers. In part, this is in response to tobacco companies shipping excessive amounts of their products to countries while knowing that the excess would enter the illegal market. As discussed in Chapter 2, above, and in a few reports and studies, legitimate, multinational tobacco manufacturers have been linked to the illicit cigarette trade in Turkey and the Middle East (see Coker, 2003; Nakkash & Lee, 2008;

Shelley & Melzer, 2008; World Health Organization, 2003a, 2004).

For many years, it appears that cigarette companies, included R.J. Reynolds, Japan

Tobacco, Philip Morris, British American Tobacco, and their subsidiaries, knowingly and willfully participated in the illicit trade to increase their market shares in the Middle East

(Nakkash & Lee, 2008; World Health Organization, 2003a, 2004). In the 1970s and 1980s,

British American Tobacco smuggled their cigarettes into Middle Eastern markets, including

Turkey, Syria, and Lebanon (Nakkash & Lee, 2008). In 1994, according to the World Health

Organization, R.J. Reynolds discussed smuggling in their plan to increase market shares in

Iran, where the tobacco company already had about 50% of the illicit market (World Health

Organization, 2004, p. 4). And finally, there is the case of R.J. Reynolds and Philip Morris knowingly smuggling cigarettes through Turkey and into Iraq during the U.S. and UN 201

Embargos (Basler, 2004; Beelman, 2002; Coker, 2003; European Community v. R.].

Reynolds et al., 2002; European Community v. R.]. Reynolds et al. and Philip Morris et al.,

2002; Shelley & Melzer, 2008). Given size of the shipments and the complexity of creating false documents, cigarette companies and distributors have also been known to use Free

Trade Zones, such as Mersin, to move their products into illegal markets. It appears that legitimate corporations engaged in criminal behaviors and their products were smuggled in

Turkey. The motivation for this seems to be economic and their desire to increase market shares and profits.

The second category of motivated offenders is terrorist organizations. Terrorist organizations can be bootleggers or involved in large-scale smuggling schemes. As discussed in Chapter 1, the type of smuggling schemes can be divided into two very broad categories: bootleggers and large-scale smugglers. The bootlegger purchases a few cartons or cases in a lower tax jurisdiction and then resells the cigarettes in a higher tax jurisdiction while keeping the profits. Large-scale smugglers tend to deal in very large shipments and are or have a close link to legitimate wholesalers and manufacturers. There are examples of terrorist organizations or their members participating in both kinds of smuggling.

Roth and Sever (2007) state that Turkey has several terrorist organizations operating within its borders. Those organizations can be divided into four subcategories:

"left-wing, right-wing, separatist moments, and Al-Qaeda connected international terrorism"

(Ozeren & Cinoglu, 2006, p. 155). Of those, the PK.I<., a left-wing separatist group that wants to establish a free and independent Kurdistan based on Marxist-Leninist ideals, and

Turkish Hizbollah, which is a right-wing group that wants to turn Turkey into an Islamic state that is centered in Kurdistan, have been linked to cigarette smuggling as well as other 202

stereotypical organized crimes. It is not to say that the other groups do not participate in smuggling and other organized crimes; the connection between organized crimes and the groups have not examined. These groups sometimes participate directly in the smuggling, but more often they profit from controlling the area and imposing a "tax" on smugglers

(Interview 07.02.08.01, 2008). Basically, smuggling cigarettes is a revenue source.

The PJ(J(_ is the terrorist organization most closely associated with Turkey, organized crime, and illicit smuggling. Although they have members throughout Turkey, the

Middle East, Europe, and elsewhere, the group's stronghold is in Southeast Turkey and

Northern Iraq. Kurdish tribes and PJ(J(_ members/supporters are also found in Syria and

Iran. This creates significant geographical advantages for the group. One is the historic trading routes. The PI

2008). According to Roth and Sever (2007) the "PKK. has resorted to a cornucopia of organized criminal activities, including drug trafficking and arms smuggling, robbery and extortion, smuggling of illegal workers, smuggling of other goods, and money laundering"

(Roth & Sever, 2007, p. 906). 203

A primary reason for their involvement in stereotypical organized crimes is money. Roth and Sever (2007) speculated that the fall of the Soviet Union caused a funding shorting for the PK... K., so they turned to criminal activities, which caused the group to morph into a transnational crime group. During the 1990s, the PK.I<. was earning approximately $86 million a year from their criminal activities through Turkey, the Middle

East, and Europe (Radu, 2001, p. 55). More recently, the PKK has been linked to the profitable crime of cigarette smuggling (Basler, 2004; Coker, 2003; Colledge, 2008; European

Community v. R.J. Reynolds et al. and Philip Morris et al., 2002; Roth & Sever, 2007; Shelley

& Melzer, 2008). According to a Turkish police chief who has extensive knowledge about cigarette smuggling in Turkey, a substantial number of the cigarette smugglers in his region and eastward are either PKK or PKK sympathizers (Interview 07.04 .. 08.01, 2008; Interview

07.05.08.02, 2008).

The second terrorist organization that has been linked to cigarette smuggling is

Turkish Hizbollah. During an extensive investigation into cigarette smuggling in Konya, police determined that one of the three main groups operating in the illicit cigarette market was Turkish Hizbollah. The Turkish Hizbollah-linked smuggling ring was weakened by the police investigation. The government was able to confiscate the money and arrested many of the players (Interview 07.04.08.01, 2008). Scholars and policy analysts have published very little, if any, information on the link between Turkish Hizbollah and organized crime, especially cigarette smuggling. Given the characteristics of the organization and the environment in which they operated, it seems plausible that the Konya case was not an isolated incident and more research on this question needs to be conducted. 204

As shown in the Konya case above and discovered through field research, there appears to be a high prevalence of smugglers who are of Kurdish ethnicity (2007; 2008;

2008). This brings us to our third category of motivated offenders, low-level smugglers from tribal groups. As stated earlier, after WWII, Western powers divided the Kurdish region among several countries. The newly created boundaries did not account for the social characteristics of the Kurdish tribes. Therefore, political boundaries divided families and tribes, which they may or may not respect or view as legitimate. Smugglers may view transactions of seemingly legal goods as personal business between family members and the government has no right to interview or demand a tax.

It appears that relationships based on kinship and economic factors greatly affect smuggling activities and the willingness of an individual to be a motivated offender. One

Turkish/Kurdish smuggler plainly stated that "Smuggling is done for money" (50 year old smuggler living in Van, as cited in Icduygu & Toktas, 2002, p. 39). He began his career at age

11 and learned from his father. He will smuggle whatever someone asks him to smuggle, except drugs. According to the Turkish police, cigarette smugglers do it for the money, for their own personal incomes (Interview 07.02.08.01, 2008; Interview 07.05.08.01, 2008). As determined in the Konya study, street sellers can make about $200-$250 a day in profit.

Some justify their actions by the lack of economic opportunities in the regions (Interview

07.02.08.01, 2008). Again, an important aspect of this trade is that smugglers may not label themselves as criminals. In two separate interviews conducted in two separate cities, Turkish police officers stated that cigarette smugglers do not label themselves as criminals and often do not consider their activities as crimes (Interview 07.02.08.01, 2008; Interview 07.05.08.01,

2008). Those individuals and families tend to be different from the drug smugglers as well. 205

The cigarette smugglers know not to smuggle drugs because that is a crime (Interview

07.05.08.01, 2008).

Additionally, there seems to be a tradition of smuggling and trading in Turkey, especially in southeastern Turkey. Some of the Village Guards were from well-known smuggling tribes (Balta, 2004). Although Ic;duygu and Toktas' (2002) work focused on human smuggling and trafficking in the region, it provides insight into the acceptability of smuggling. Below is a transcription from one of their interviews with a 37-year-old Turkish

Kurdish male from Van and his views of smuggling.

In this region, smuggling is part of our economy. If it weren't for animal husbandry and smuggling, the people in this region would not have survived for centuries. Smuggling is a way of life here and is not something negative. Being a doctor or an engineer is no different from being a smuggler. My father and my grandfather were in the smuggling business as well. They were smuggling every kind of good from Iran to Turkey.

Smuggling is the basis of the region's economy. Everything you can imagine travels over the border. You just have to ask for it ... In a system like this, it makes no difference if we are carrying spare car parts, diesel fuel, or people. The fundamental rule of capitalism operates here; it is a matter of supply and demand. On the thousand-year-old Silk Road, whatever item needed is smuggled. At that time, the borders that we have now did not exist. Travelling that route was not considered as smuggling. There were only different taxes at different stops. But now on paper they say this is Iraq, this is Iran, this is Turkey and it is illegal to cross without notification ... My relatives on the other side of the border are larger in number than the ones on this side of the border. I live in Turkey but more than half of Khvoy, Iran is my kin. This kind of a relationship is an advantage for all sorts of smuggling, including the smuggling of people. It works like an insurance system. (Icduygu & Toktas, 2002, p. 37)

The man's comments and views seem to support the comments from the Turkish police officers that participants do not view themselves as criminals nor do they view their actions as crimes. For the third category of smugglers, it appears that the motivated offenders are 206

accepted members of society and their actions are viewed as regular behaviors, if not justified by the economic and social conditions created by the Turkish government.

The fourth category of motivated offender includes the traditional bootleggers, such as "mom and pop" smugglers. This type of smuggling schemes, the number of accomplices and the volume tend to be smaller-scale. In many ways, these offenders are operating in similar fashions as the third category. However, kinship relationships and tribal customs are not as apparent. On the lower end of sophistication and quantity would be the

"tourists" who cross Turkey's borders in their cars so they may purchase cigarettes in a cheaper country or more like in a duty-free environment. Turkish citizens can bring in three duty-free cartons of cigarettes, even if they purchase those cigarettes in a duty-free shop within Turkey (Interview 07.02.08.01, 2008). When the individual returns, they sell the cigarettes on the street, to friends and family, or at their business. Some of the cigarette smugglers in the Konya example stated above could be considered bootleggers. A slightly more sophisticated bootlegger might involve a travel agency. A person on the tour bus can bring in 3 cartons of cigarettes. If the number of tourists is 50-60, one bus can legally bring in a substantial amount of cigarettes. This type of scheme usually involves two or more people. In Turkey, that would be considered organized crime. Other jurisdictions may consider it smaller-scale bootlegging.

The fifth and final category of supply-chain motivated offenders is organized crime. Similar to the motivated offenders that are part of a terrorist organization, organized crime can be involved in small-scale bootlegging and large-scale smuggling. Aside from the legal definition of two or more individuals involved in committing the crime and the broad category of smuggling as an organized crime, the interviewees did not focus too much on 207

stereotypical "mafia-like" smugglers and organizations. Instead, smugglers tended to be from one ethnic origin based more on kinship networks with loose and flatter structures.102 In the

Kanya case, they document an organized crime structure that was primarily made up of ethnic Kurds and had only three levels of authority. As Figure 4.10 illustrates, the organization consisted of a leader, approximately five deputies, and approximately ten drivers and sellers.

Figure 4.11 Organizational Chart Depicting Konya's Cigarette Smuggling Case

Police in Istanbul stated there were three big groups in the city that did cigarette trafficking, but they range in size and were not a "mafia." The officer estimated that the maximum size of a cigarette smuggling network would be 150 individuals, but most are around 30 to 40 people. Some of the groups were small and specialized in wholesaling or street selling. A larger group might be involved with a broader spectrum, but usually the sellers are biological family members. In fact, one of the main groups is a family. In addition,

1o2 Police officers in Ankara, Istanbul, and Konya stated that most (between 80 and 90%) of the smugglers were Kurdish or from heavily populated Kurdish areas of Turkey (i.e. the southeast). They also stated that these individuals were poor and had limited legal opportunities. It was very hard to determine if the prevalence of Kurdish smugglers was because of cultural, family, geographical, social, and economic factors that may entice those individuals toward illicit opportunities or a result of a long-standing prejudice against Kurds in which authorities would monitor Kurdish individuals more heavily than individuals of other ethnicities. This would be similar to America's view of organized crime throughout most of the twentieth century and illustrated by the Alien Conspiracy theory. For decades, American law enforcement believed that Italian and Sicilian mafia was the only form of organized crime. Consequently, they did not monitor or consider criminals and groups who were not Italian as organized crime. 208

the characteristics of the smugglers change within the different crime groups and at different points along the distribution chain. The average age for individuals involved is between 20-

30 years old. Individuals at the top of the scheme, who make the most money, tend to be around 45 years or older. However, the street sellers in Istanbul are usually between 15- and

18-years-old because juveniles cannot be arrested for this crime (Interview 07.17.08.01,

2008).

The idea that cigarette smuggling in Turkey is not run by the "Mafia," but instead smaller and looser organized crime groups, family members, or groups of people who would fit the legal definition of organized crime may be consistent with other literature concerning organized crime in Turkey. In examining transnational markets, Bruinsma and Bernasco

(2004) stated:

research has shown that the traditional image of organised crime as an activity that is dominated by centrally controlled organisation, with a clear hierarchy and strict division of tasks is apparently out-dated. Organised crime appears to be better portrayed as a collection of offenders and criminal groups that enter into collaboration with each other in varying combinations. (p. 79)

The idea of a collection of groups is supported by Ic;duygu & Toktas' (2002) study of human smuggling in Turkey, and Bovenkerk and Ye~ilgoz's (2004) chapter on the

Turkish mafira. Ic;duygu & Toktas did not find large-scale mafia-type organizations with a

"Godfather" controlling the international organizaiton or the activities within Turkey, but instead smaller networks and groups of people who were taking advangate of an opportunitiy. Smuggling was done through "a loosely cast network, consisting of hundreds of independent smaller units which cooperate along the way" (p. 46). And in a general assessment of organized crime and smuggling, Bovenkerk and Y e~ilgoz also concluded that there was no great mafia structure in smuggling. Instead, a more accurate description of 209

smuggling groups would be "cooperating cells, which often consist of family members who can totally trust each other" (p. 597).

Antonopoulos' (2007) research on cigarette smuggling in Greece found similar results. He concluded that lower-level smugglers are from different backgrounds, look more like the next-door neighbor, and are action-oriented individuals who took advantage of an economic opportunity. The case study revealed that there are many different types of motivated offenders operating within one country, and not all individuals are involved in a terrorist organization. There are differences in the type of organization and smuggling schemes. Moreover, the range of criminal actors runs from the poor and uneducated to the tourist to the skilled terrorist to the businessmen from multinational corporations. In addition to the smugglers are the corrupt guardians who allow the smuggling to occur.

However, it appears that all of these individuals and groups have a common motivation­ money. The motivated offenders are motivated by the potential financial gain from participating in smuggling. The fact that guardianship has been ineffective for many reasons makes the activity more appealing.

Concluding Thoughts

Similar to other types of organized crime, cigarette smuggling is done by large­ scale smuggling rings that utilize FTZ, corrupt officials, and sheer volume to move their illegal products as well as smaller-scale bootleggers. The research has painted a picture that lower-level, common bootleggers tend to have limited legal opportunities, be from the southeastern region of Turkey, have some connections to ethnic Kurds, do not view themselves as criminals nor do they view cigarette smuggling as a crime, and participate in 210

the crime for personal economic gain. These individuals use personal vehicles, buses, and donkeys to illegally import and export cigarettes. It also appears that the formation of

Turkey, the intentional uneven development in the east, and institutional policies intended to force assimilation have created an environment in which citizens do not view the Turkish government as legitimate, nor are they willing to pay taxes and respect certain laws.

Moreover, the general perception of a "deep state" and officials being corrupt affects the guardians' ability to deter smuggling activities, especially a seemingly legal and widely accepted product such as cigarettes. That is not to say that the guardians are completely incapable. However, the competing interests of the guardians, the size of the country, and the demand for a cheaper cigarette may be overpowering the guardians.

This chapter has attempted to answer questions concerning the "who," "how," and "why" of cigarette smuggling in Turkey. The next chapter will further analyze the problem of cigarette smuggling and present a synthesis of the qualitative and quantitative fo1dings and a few areas where guardianship is weak. CHAPTERS

CONCLUSION

In the four previous chapters, I have laid out the severity and extent of cigarette smuggling as well as the literature review, methodology, and analysis I conducted. The literature review included research pertaining to economic explanations of crime, opportunity theory, the routine activities approach, the crime-terror nexus, and research from a variety of disciplines that address cigarette smuggling. The quantitative analysis, conducted on 93 countries, identified possible factors that could increase or decrease the illicit market. In addition, the in-depth case study of Turkey's illicit market and response provides the reader with special insights into the complex problem of cigarette smuggling and those who participate in the illegal market.

Cigarette smuggling, although it seems innocent and few have sympathy for the tobacco companies whose products are being counterfeited or stolen, has great social, economic, and medical costs. Bootleggers and large-scale organizations have managed to direct billions of dollars away from legitimate market and governmental coffers to their own bank accounts. The various different actors have diverted the funds for their own purpose.

Some bootleggers have used money gained from the illegal trade as a means of daily subsistence. Others have used the profits for sinister reasons, such as funding social unrest, corruption, or terrorist activities. Throughout the globe, law enforcement agencies have been able to document connections between cigarette smuggling and terrorist groups or activities

(Anatolia News Agency, December 7, 2006; Elfrink, 2009; Shelley & Melzer, 2008; Willson,

211 212

2009). In Turkey, police have linked the illicit trade to the Kurdistan Workers Party (PKK.) and Turkish Hezbollah (see Chapter 4).

Various actors use different methods, routes, and suppliers. Thus, one should not assume that all cigarette smuggling follows the same pattern and has the same type of actors.

Large-scale organizations, more traditional organized crime groups, and smaller family-linked smuggling chains use different schemes to illegally import and sell cigarettes. Nevertheless, it does appear that the potential and easy profits created by the difference between the illegal purchase price and the state-regulated selling price, usually because of taxation, is a driving force for most of the actors. Because governments have assessed a tax on cigarettes and those taxes vary from jurisdiction to jurisdiction, they have created an incentive and set the upper limit for potential profits. If it were not for the size of the profit margin between the price of a manufactured cigarette (contraband or counterfeit) and the final sales price, there would be little or no incentive for an illicit market. Moreover, the prices between jurisdictions give smugglers the ability to purchase goods in a cheaper jurisdiction and move it to a jurisdiction with a higher retail price. Therefore, it is both the assessment of any tax and the differences in taxation levels between jurisdictions that create the incentive for most of the actors.

The issue of taxation can be complex. When examining the problem of cigarette smuggling, one cannot be fixated on the connection to taxation and jump to the conclusion that a reduction in taxation would eliminate this illicit trade. Even if governments lowered taxes to the point that it was no longer profitable for smugglers, there would still be emerging markets, embargos, counterfeit cigarettes, and consumers who cannot purchase cigarettes legally (i.e., children). Moreover, cigarette taxes do raise significant profits for 213

states and the taxation is a form of health policy. Although Joossens, Merriman, Ross, and

Raw (2009) ignore counterfeit cigarettes and the complexity of the illicit market, they estimate that eliminating the global trade would increase tax revenues by $31 billion and eventually save 160,000 lives a year worldwide (p. 1). Thus, the potential financial profits from taxes and deterrent effect assumed by the high final sale price are too attractive for governments to forsake the tax on cigarettes for eliminating the illegal trade.

"Economic theory predicts that tax avoidance will vary with the absolute level of taxes, tax disparities, and the cost of avoidance, such as distance to lower tax sources. High taxes and tax disparities increase the incentive for organized smuggling, tax evasion at the point of sale, and cross-border shopping in neighboring lower-tax areas" (Merriman, 2010, p.

62). However, the quantitative analysis yielded interesting and somewhat unexpected results concerning taxation. None of the multivariable regression models indicated that taxation was a significant indicator (see Chapter 3, specifically see Table 3. 6). In the United States, it is common for individuals who live in one state to buy cigarettes in another. Chiou and

Muehlegger (2008) estimated that 4% of smokers purchase their cigarettes in another state and they were willing to travel 3 miles to save $1 per pack (p. 8). The Mackinac Center estimated Delaware's export rate to be 91.5% and attributed that rate to the high taxes in neighboring Maryland and New Jersey (LaFaive, et al., 2008, p. 14). In addition, Merriman

(2010) studied discarded cigarette wrappers in Chicago, Illinois and found that 75% of those wrappers did not have Chicago's tax stamp. Of those wrappers that did not have a Chicago tax stamp, 29% had an Indiana tax stamp (p. 69).

Instead of taxation being the catalyst for the illicit trade, the final cost of cigarettes might be a more fitting and realistic indicator. Before adding control variables, the final price 214

of a pack of Marlboro or a similar international brand cigarette was significant. It is logical to assume that the bootlegger or consumer is more concerned about the final retail price and not the portion of the price that is attributable to taxation. The case study found that individuals purchased duty free, counterfeit, and contraband cigarettes in neighboring countries with lower or no taxes imposed and smuggled them into Turkey. In addition, as discussed in Chapters 2 and 3, the UK has a significant problem with individuals going on

"holiday" and returning with suitcases full of illicit cigarettes that they purchased in continental Europe at a cheaper price (Hornsby & Hobbs, 2007; Townsend & McVeigh,

2009). Although the price might increase because of the taxation, the consumer does separate the tax price from the final price when purchasing a pack of cigarettes. Also, cigarette taxes are an attractive means for governments to raise income and support social and healthy polices because the cost of government and the policy is hidden within the purchase price of the cigarettes. This is also known as "fiscal illusion" (see Mueller, 2003). It is natural for individuals to seek out the cheapest price for cigarettes. They do not see or fully rationalize the benefit or cost of the tax. Therefore, the tax rate and the differences in taxation between jurisdictions might not be an indicator for cigarette smuggling.

When adding all of the control variables, the variable that remained significant was measuring the degree to which a country is a "failed state." The relationship was positive and indicates that the higher degree to which a state is a "failed state" the more cigarette smuggling they are likely to experience. Of course, there are many other factors related to this complex crime and there are numerous examples of functional governments that have high levels of taxation and cigarette smuggling, such as the United Kingdom. However, this 215

finding seems to suggest that cigarette smuggling might not be solely a taxation issue or a

crime issue, but an issue of governance.

There are numerous studies that seem to suggest that taxation is a factor in

cigarette smuggling (Breton, et al., 2006; Chaloupka, et al., 2000; Galbraith & Kaiserman,

1997; Gruber, et al., 2003; HM Customs and Excise, 2000; Jacobs, et al., 2000; Jha, et al.,

2000; J oossens, et al., 2000; LaFaive, et al., 2008; Merriman, et al., 2000; Thursby & Thursby,

2000; van Dijck, 2007; Yumlrekli & Sayginsoy, 2010). Nevertheless, although taxation-or

perhaps the final price, as argued above-might be an important contributing factor for the

illicit market it is not the only factor. Although the quantitative analysis did not yield

significant indicators related to variables other than price and effective governance, the qualitative case study did provide some insight into these factors. There are numerous

factors that contribute to the illegal trade in Turkey, such as regulations, the difference in

final price of the cigarettes and availability of counterfeit cigarettes, fractioning of guardianship, the "deep state" and corruption, the role of culture and history, and the

"Kurdish Problem." Governments, corporations, and policy analysts should consider these factors when they are attempting to change the less friendly environment for cigarette smuggling.

Like similar commodities, demand for the product is essential to the market. Thus, effective demand-reduction strategies, such as those encouraged by the World Health

Organization's Framework Convention on Tobacco Control (WHO FCTC), would most likely reduce the overall market and filter down to the illegal market. However, demand reduction strategies have their limits and have not yet eradicated this illegal trade. Therefore, 216

governments should consider other factors and strategies and implement those strategies while also working on reducing demand.

Turkey and countries with similar problems can improve the environments that are creating smugglers or "willing offenders." Again, although the different categories of actors have different motivations for participating in cigarette smuggling, it appears that a significant number of cigarette smugglers are from the southeastern and eastern region of

Turkey. This region is adjacent to lower tax jurisdictions, but more important it is underdeveloped. Turkey's underdevelopment of this region caused social and economic inequalities as well as a lack of appropriate medical and educational facilities and career opportunities for a sizable population. Moreover, the anti-Kurdish laws and the creation of

Turkey's borders in the early twentieth century diminish some Turkish citizens of Kurdish origin to view Turkey as a just and legitimatize government. Some view the current and historical situation as a human rights issue and a threat to democratization (Kilic, 1998).

The investigation in Konya revealed that many of the smugglers from that region participate in the trade for their own financial gain. However, those individuals are not becoming rich from the illegal trade. Instead, they are making just enough money to provide for themselves and their families. Therefore, it would be prudent for the Turkish government to improve educational and career opportunities for individuals from this region and of this ethnic group. When individuals are no longer victims of blocked opportunities and view their government as legitimate, they may reduce their need and justification for smuggling goods such as cigarettes. Currently, the region's poor economic outlook, limited access to legitimate means of earning an income, the cultural acceptance of smuggling, the low punishments for cigarette smuggling, and the plentiful supply of duty free, contraband, 217

and counterfeit cigarettes from Syria and Iraq help cigarette smuggling become an attractive activity.

It is plausible to link the underdevelopment of this region to terrorism, especially activities associated with the PKI<:.. Feridun and Sezgin (2008) examined the possible connections between GDP, underdevelopment in southeastern Turkey, and terrorist activities. They concluded that agricultural and governmental services are important components for explaining terrorist activities. Accordingly, they suggest that the Turkish government increase its support of these two components when reviewing its policies toward southeastern Turkey. Because of the known links between terrorism and cigarette smuggling103 and the links between underdevelopment and cigarette smuggling, governments that are combating terrorism should start to look for connections between the terrorist and cigarette smuggling-especially in areas that are underdeveloped or somehow segregated from the main society.

Under development in southeastern Turkey cannot account for all of the individuals involved in the illicit cigarette market or the existence of the total market. It appears that the Turkish government does have an underlying problem with real and perceived corruption. Turkey's government and ruling parties need to legitimize their rules and reduce corruption. The "deep state" theory, Susurluk affair, and the Ergenekon affair have lessened the ability of the state to be viewed as a legitimate and non-corrupt entity (see

Gorvett, 2005, 2008; Jenkins, 2008b; Park, 2008; Rainsford, 2008). Likewise, all of the guardians (police, customs, military, gendarmerie, and government offices and organizations) need to reduce corruption within their own agencies. Moreover, they need to improve

103 See Chapter 2 for a discussion on the crime-terror nexus and cigarette smuggling. 218

communications between all guardians. This is particularly true of the relationship between the gendarmerie and the police. Eventually, this will improve border security and reduce the need, motivation, and ability to smuggle many commodities, including cigarettes.

In Turkey, cigarette smuggling can yield significant profits for organized crime; smaller, family-based smuggling operations; terrorist organizations; and even legitimate companies. The assessment of taxation as well as the differing levels of taxation seems to create an incentive for cigarette smuggling. The cultural, political, economic, and social environments contribute to the rationalization and ability to smuggle cigarettes. Turkey also has a variety of different actors who utilize different methods and motivations for their criminal activity. Therefore, Turkey and similar countries need to examine not only the administration and level of taxation, but also the broader cultural, economic, and social aspects within their borders. Lawmakers and law officials should gear their policies toward increasing economic opportunities, increasing the legitimacy of the government, and reducing the public's perception of corruption within the government and guardianship.

Cigarette smuggling is a worldwide problem and involves many types of actors with various motives and modus operandi. Hence, it is important that governments, corporations, and multinational organizations create different strategies for bootleggers and large-scale smuggling operations. The international community should implement numerous strategies to help reduce cigarette smuggling.

To combat smuggling and cross-border crime, we need to adopt additional strategies beyond law enforcement and interdiction. First, the international community, as well as domestic law enforcement and legislatures, needs to be conscious of the criminogenic 219

asymmetries that the developed world creates.104 In the case of cigarette consumption and smuggling, lower income countries are more at risk for illicit markets than higher income countries Goossens, et al., 2009). As the developed world enacts policies to reduce demand for tobacco products, the multinational tobacco companies expand their market to developing countries. In developing countries, information concerning the harmful effects of cigarettes is less widely distributed, medical care is less available, the governments have a decreased ability to combat the illicit trade and the marketing of legal cigarettes, and cigarettes tend to cost less.

Second, before a government decides to increase taxes or enact a new taxation policy that would change the balance between neighboring sovereignties, states should fully consider all consequences of their actions within their own borders and those that may occur in neighboring sovereignties. If a government chooses to create a financial incentive by increasing a tax differential, they should counter that incentive with disincentives such as stronger penalties and increasing the likelihood of detecting and prosecuting smugglers.

Current cost-benefit and social cost studies do not fully account for the harm caused by the illicit trade. Often, these studies reduce the trade to mom-and-pop bootleggers, focus on the financial losses, or consider the diverted funds in relation to the believed health and social benefits gained from high taxation. They do not fully account for the crime, terrorism, and increased costs of guardianship related to cigarette smuggling. With the increase in the number of sophisticated criminal and terrorist organizations participation in this trade, policy analysts can no longer view the guardianship-related costs as an insignificant expense.

Therefore, a portion of cigarette taxes should be directed toward fighting the illicit trade,

104 For a discussion on criminogenic asymmetries see Nikos Passas' (1999) Globalization, criminogenic asymmetries and economic crime. 220

such as increasing budgets to law enforcement agencies for this specific purpose and funding

educational campaigns.

Third, policy makers and law enforcement should attempt to change their social

environment. Officials should implement programs that will better inform government employees and police officers of the true medical and social dangers of these illicit products.

Aside from changing the culture within law enforcement and government, changing the public's acceptance and attitudes toward certain crimes is imperative. Law enforcement and the public should understand why and how legal and counterfeit products are smuggled and who profits. Public awareness campaigns are one way to achieve this.

However, governments cannot change the environment alone. Private businesses, many of which have products that criminals have exploited and illegally trafficked, can provide assistance and insight. Those companies have their own interest in eradicating illicit trade. Cigarette manufacturers, such as Philip Morris International (PMI), have established anti-counterfeiting divisions within their corporations. These divisions investigate counterfeit products, work with governments to stop the contraband and counterfeit cigarette trade, and act as a resource that educates the public and gives them a place to report illicit cigarettes

(Philip Morris International, 2010). Similar to PMI, British American Tobacco (BAT) cooperates with governments and enacted corporate changes in hopes of reducing the illicit trade in cigarettes. In addition to "know your customer" policies, BAT has an Anti Illicit

Trade Intelligence Unit and destroys their old manufacturing machines (British American

Tobacco, 2010b). 221

A key strategy of the WHO Framework Convention on Tobacco Control's105

efforts to reduce the illicit trade is "track and trace." Essentially, they are attempting to

increase the security of the distribution chain and limit the amount of contraband cigarettes

entering the illicit trade. This strategy requires manufacturers and distributors to enact procedures that will allow the companies and law enforcement to identify and follow

cigarettes through the distribution chain. If a shipment or a few cartons of cigarettes end up in the illegal trade, authorities can quickly identify where the contraband cigarette was

diverted from the legal trade to the illicit market. PMI, BAT and other major manufacturers

use bar-coded labels that have details concerning when and where the cigarettes were

manufactured embedded in the bar code (British American Tobacco, 2010a; Philip Morris

International, 2010). BAT defines and explains their track-and-trace protocol as:

Track and Trace works by unique computer generated codes (barcodes) being printed onto labels that are applied to cartons (normally containing 200 cigarettes) as they pass along a manufacturing line. These are scanned as they are packed into mastercases (normally containing 10,000 cigarettes) which are also marked with unique codes and scanned-thereby linking the cartons to the mastercase into which they are packed. The process continues as mastercases are re-scanned as they are packed into pallets (normally containing 500,000 cigarettes). Final scanning of the pallet, also marked with a unique code, links the mastercases to the pallet into which they are packed. (British American Tobacco, 2010a, p. 14)

Cigarette manufacturers are also labeling cigarettes and the various containers with the intended destination country (e.g. the Philip Morris USA tear strip that says "PM USA").

tos The WHO Framework Convention on Tobacco Control is a treaty designed to reduce tobacco consumption. The treaty hopes to reduce both the demand for and supply of tobacco products. On the demand side, some measures include price and tax measures to reduce the demand for tobacco products; reduce second-hand smoke; regulate contents of tobacco products, packaging and labeling, advertising, promotion, and sponsorship; and increase education, communication, training, and public awareness. The supply side focuses on reducing the illicit trade, limiting sales to minors, and attempting to find economically viable alternatives for individuals who rely on the tobacco industry for their livelihood (World Health Organization, 2003b). The treaty entered into force on February 27, 2005, and 168 countries have signed it. 222

In a study examining the illicit markets in Italy, Spain, and the United Kingdom, it appears that controlling the supply chain from the legitimate manufacturers did decrease the amount of contraband cigarettes entering the illegal market (Joossens & Raw, 2008). This method would also decrease the likelihood of manufacturers shipping more cigarettes to a country than can be consumed because governments can easily identify the origin of the diverted cigarettes.

Track-and-trace has reduced the amount of contraband cigarettes entering the illicit market. However, the WHO FCTC protocol does not have jurisdiction over counterfeit manufacturers and does not effectively address their presence in the illicit trade.

With the reduction of contraband cigarettes flooding the illegal market, criminals and terrorists will naturally move toward counterfeit cigarettes. Counterfeiters produce the cigarettes at a lower cost and do not file the documentation that governments now require legitimate manufacturers and wholesalers to complete. Therefore, the counterfeits can be easier to obtain as well. Counterfeits, in general, are a growing revenue stream for criminal organizations and terrorist groups. There is evidence that counterfeit cigarettes are filling the void of the contraband cigarettes. In 2002 and 2003, more than 90% of the seized cigarettes

PMI was asked to analyze were counterfeit. Moreover, in 2003, "the amount of genuine products seized in illicit trade channels thus represents an infinitesimal 0.00007% of [PMI's] cigarette production worldwide" (Philip Morris International, 2010).

As discussed in previous chapters, criminals produce counterfeit cigarettes in several countries, including the tri-border region of South America, Iraq, and China. Scholars and law enforcement have been able to link cigarettes produced in the tri-border region and

Iraq to terrorist organizations (see Chapter 4; Hudson, 2003; Sverdlick, 2005). China is a 223

significant source of all counterfeit goods for the United States and Europe. "More than four-fifths of counterfeit products seized in the US came from China and more than half of goods seized at EU borders in 2004 were counterfeit products from China" (Chaudhry &

Zimmerman, 2009, p. 124). Concerning cigarettes, some estimate that China produces between 190 to 400 billion counterfeit cigarettes annually (Philip Morris International, 201 O;

Shen, et al., 2010, p. 239). The Chinese counterfeit market is so prolific that it is entrenched in the society and economy (Shen, et al., 2010). Given the conditions within the source countries, it will be hard for legitimate manufacturers and other governments to eradicate this part of the illicit market. Nevertheless, governments need to incorporate counterfeit cigarettes into their anti-smuggling policies.

Decades ago, cigarette smuggling was associated with organized crime, such as

Italian Mafia groups. However, over the last two decades, additional transnational and organized crime groups, corporations, and terrorist organizations have exploited this criminal opportunity. Moreover, they have expanded the black market to include the production and distribution of counterfeit cigarettes. To counteract cigarette smuggling countries need to consider the unintended consequences of their taxation and crime-fighting policies. Additionally, states should increase law enforcement and public awamess, give specialized training to law enforcement and customs officials, and increase financial support for the detection and confiscation of contraband and counterfeit cigarettes. To achieve some of these recommendations, governments can develop partnerships with corporations and industries whose products are exploited by criminals as well as expanding international cooperation between governments to create more effective crime-fighting policies for legal products that generate significant illegal profits. 224

The social costs of this criminal activity are much larger than the price of a pack of cigarettes. They include increased tobacco consumption and loss of life, and the proceeds from contraband and counterfeit cigarettes are funding criminal activities instead of providing legitimate and taxable jobs and tax-funded social and medical programs, and are further eroding border security and increasing corruption. With more information and a stronger emphasis on cigarette smuggling, policies and laws should be enacted that would reduce illegal opportunities. In addition, researchers working in this area need to include crime-related statistics and costs when calculating the profits and effects of cigarette taxation.

In closing, there are three types of cigarette smuggling: large-scale, bootlegging, and counterfeit. Each type has its own peculiarities, yet can have overlapping characteristics. The challenge to law enforcement and governments is to enact and enforce policies that are broad enough to capture most of the type of smugglers involved in each of these variations of the illicit trade; yet, those policies need to be narrow enough to be applicable and effective. The large-scale smuggling that occurred during the Balkan Wars, during the UN

Embargo in Iraq, and between the U.S. and Canadian borders in the last century involved very different actors than the bootlegging that occurs between Iraq, Syria, and Turkey.

The legal suits filed by Canada, Colombia, numerous European countries, and various other sovereignties were successful in reducing the tobacco companies' role in the contraband markets. The suits brought awareness to the illicit market, the potential illegal profits for criminals and terrorists, and the staggering tax losses for governments. Moreover, the litigation, in part, encouraged tobacco companies to shift from an active participant in the illegal markets to a valuable anti-cigarette smuggling partner. Nevertheless, governments 225

and international organizations need to enact strategies that focus on counterfeit and

contraband markets. Policies such as track-and-trace reduce the contraband supply, but open more opportunities for counterfeiters to enter the illegal market.

International efforts, especially those related to the WHO FCTC, have focused on

supply and demand reduction of illicit tobacco products. They have not focused on deterring individual smugglers. Punishments for cigarette smuggling tend to be low. In Turkey, police

felt that the low punishments were a deciding factor when individuals were considering which products to smuggle and whether to become involved in cigarette smuggling

(Interview 05.03.10.01, 2010). To better combat cigarette smuggling, governments should

consider this as an economic crime with serious consequences. When determining the

appropriate level of punishment, governments should consider the relationship between the

opportunity created by the overall price of cigarettes, the potential harm funded by the profits, and the overall social costs related. Governments also need to increase the level of

effective guardianship and expand cooperation and information sharing with other countries.

As discussed in Chapters 3 and 4, all of the components of the routine activities approach-a willing offender, the absence of a capable guardian, and a suitable target-are present in the global cigarette market. The increased guardianship of legitimate

manufacturers has reduced the supply of contraband cigarettes entering the market. Yet, the guardians were not able to control or remove counterfeit manufactures, nor are their recommendations an effective tool to counteract bootleggers who purchase cigarettes at duty-free stores or other legitimate outlets in a lower-price jurisdiction. Moreover, smugglers use a variety of methods to conceal illegal cigarettes as they cross borders. Therefore, guardianship needs to acknowledge and address the peculiarities involved in the three types 226

of cigarette smuggling: large scale, bootlegging, and counterfeit. A "one-size fits all" policy will not be effective as each of the actors involved has different methods and means for their involvement. Guardians-or governments-should also consider the opportunities created by the differences in prices caused by taxation. They also need to consider the overall ability of the government to function appropriately for as many of its residents as possible. The overall ability a government's ability to function appropriately appears to be the key factor to reducing the number of willing offenders and increasing the ability of guardianship. REFERENCES

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